Mid Tier Index 2004 - Taking the Chances for Economic Upswing
ResearchCreditreform, IfM Bonn, KfW Bankengruppe, RWI and ZEW published their annual report on economic and structure issues of small and medium-sized enterprises. It shows that SMEs have more optimism for the new year.
After a four-year period of economic faltering and a modest improvement in the final quarter of 2003, the German SMEs expect their situation to further brighten up in 2004. This is the result of the current MittelstandsMonitor ("Mid Tier Index") under the title "Taking the Chances for Upswing". It was presented today in Frankfurt by KfW Group in collaboration with the research institutes IfM Bonn, RWI and ZEW, and the information service provider Creditreform. The report on economic and structural issues regularly addresses the SME business climate as well as start-up and liquidation activities. Other key topics are the employment contribution of SMEs as well as technology transfer from science.
The MittelstandsMonitor combines exclusive, complementing data sets by Creditreform, IfM Bonn, KfW Bankengruppe, RWI and ZEW Mannheim into an extensive, empirical data base. The common publications' aim is to ensure a fact-based discussion on the small and medium-sized business sector. A small circle of experts collates new insights and afterwards presents the neatly arranged findings to public and politics.
The main results of the MittelstandsMonitor 2004 can be summed up as follows:
The economic situation of small and medium-sized businesses
In the year 2003, small and medium-sized enterprises were again strained by a low domestic demand. Regarding the full year of 2003, the weak economic situation of SMEs had been enduring for 4 years in a row. Sponsored by the global upswing after the end of the Iraq war and the cease of the SARS epidemic, SMEs nevertheless have gone through a moderate recovery at the end of the year. This development is carried by a slightly improved economic situation in the course of 2003, but mainly by modestly optimistic expectations for 2004.
31 per cent of SMEs are willing to invest, in contrast to 25 per cent in the previous year. However, the long-time average of 48 per cent is again out of reach. The involved institutes forecast the economic situation of SMEs to further brighten up in the wake of the overall economy. But the recovery will be slow and no big improvements in terms of employment are expected any time soon. Investments will also grow only on a moderate level.
Business fluctuation - a source of economic dynamics
The decline of start-ups, which had been going on since 1999, almost reached a deadlock in 2002. Leading indicators in 2003 even suggest entrepreneurial activity to be back on an uphill trend. Nevertheless, the downward trend is mainly caused by the positive development of trade. In contrast, start-ups in the most technology-intensive sectors continue to face the strongest decrease. The revival of start-up activity might at least partially be caused by the enormous increase of start-ups out of unemployment (transitional allowance, "ICH-AG" (You Inc.)).
Since 1999, there is an ongoing decrease of market resignations by Eastern German companies. This is mainly explained by reduced start-up dynamics that have been going on since the second half of the 90s. If fewer start-ups are founded, fewer start-ups fail. In Western Germany, a rise of liquidations is noticed for the first time since 1999. But they are not as strongly increasing as insolvencies, which are the kind of liquidation that get the lion's share of public attention. Insolvencies have again increased last year and are on a historical high. This might be mainly caused by the new insolvency act which makes insolvency proceedings easier for natural persons. However, the recently introduced Insolvency Plan is barely used. It is a policy tool created by the government to improve restoration options for bankrupt companies.
The Employment Contribution of Small and Medium-Sized Enterprises
Almost 80 per cent of all German employees who are liable to social security contributions work for an SME. Their weight as employers has grown over the last years. In Western Germany, the share of SME-employed workers has risen from 72 per cent to 77 per cent between the years 1991 and 1992. In Eastern Germany, the number has even climbed from below 60 per cent up to 86 per cent. But the analysis on plant-level is insufficient to capture the employment share of SMEs since big corporations often consist of multiple businesses.
Based on the analysis of additional data, the institutions participating in the MittelstandMonitor assume the actual employment share of SMEs to account for 60 to 74 per cent. 70 per cent of new jobs are provided by fresh start-ups and small businesses with less than 50 staff members, whereas they are responsible for only 60 per cent of job cuts. In recent years, only small businesses and newly formed start-ups have created more jobs (liable to social security contributions) than they have cut.
Technology Transfer between Academia/Research Institutions and SMEs
It is often criticized that it is particularly hard or even impossible for SMEs to access the knowledge of universities or public research institutions. As part of the MittelstandsMonitor, this position was empirically reviewed by surveying 582 professors and institution heads with cooperation experience.
The result was that academia and research institutions are basically very willing to cooperate with SMEs, and these actually do play a role in the transfer of knowledge and technology. But academia and institutions have different motivations to cooperate: by working with big corporations, universities hope to enhance their reputation and their finances. Cooperating with SMEs is attractive because with them, interesting research projects can be realised in a relatively short time.
However, only few SMEs participate in knowledge transfer with universities and research institutions so far – despite scientists and businesses who actually have worked together judge the cooperation rather favourably, especially when working with smaller businesses. If this deficit can be lowered, previously idle potential for innovation and growth can be developed.