What Becomes of the Entrepreneurial Spirit? The New AGF Report Informs About the Development of Young High-tech Companies in Germany and the United Kingdom

Why does Europe fail to produce and advance new companies of world standing such as Amazon, Google and Ebay? An international research team of the Centre for European Economic Research (ZEW) in Mannheim and the University of Exeter addressed this question on behalf of the Anglo-German Foundation.

In their first long-term study (1991-2003), the researchers observed the development of 600 technology-intensive start-ups in Germany and the United Kingdom. The results suggest that a typical German company has more success than a comparable British one. In the first ten years since its founding, the German Median company grew by a factor of eleven compared to the eightfold growth in Great Britain.

A major objective of the study was to identify the factors that favour or impair the growth of a company and thus its corporate success. The results offer several determinants for the growth of a technology-intensive start-up in Germany or the United Kingdom, which are suited to compare German and British enterprises with US companies and allow to reveal misjudgements here in these parts. In small high-tech companies for example, the acquisition and maintenance of management skills are of major importance for the survival and growth. As revealed in the economic analysis, companies with above-average human capital and technical competences grow faster. Furthermore, the United Kingdom shows that the more people are involved in the foundation the higher the company’s probability of survival.

Contrary to this, international business activities prove to be the result of a better business performance and not the reason for quick growth. A growth analysis of the interviewed companies over time suggests that companies that grew quickly in the early stages of development rarely succeed in keeping up their performances. It is thus not possible to predict which companies may continue on a sustainable, steep growth path by analysing early growth structures. Therefore, a significant result of the study is the fact that future successful companies cannot be identified in the course of their first years. This bears an important political implication regarding the support and consultancy of smaller companies.

The European dilemma described in the Lisbon Strategy is that the economies of EU member states produce no significant number of so-called “gazelles”, extremely fast-growing companies far ahead of any competition. The actual value of the interviewed companies lies in the overall effects they have on the economy of the respective country. In Germany and the United Kingdom, the largest economic benefit has been generated through the cumulative contribution of thousands of companies with rather moderate growth rates. Political guidelines have to take account of this somewhat harsh reality.

Contact

Annette Birkholz (Anglo-German Foundation/Deutsch-Britische Stiftung), Phone: +49 (0)30/2063-4985, E-mail: ab@agf.org.uk                      

Dr. Georg Licht (ZEW), Telefon: 0621/123 5177, E-mail: licht@zew.de

Dr Gordon Murray (School of Business and Economics, University of Exeter), Phone: +44 (0)1392/264501-263458, E-mail: gmurray@ex.ac.uk

Authors of the study

Marc Cowling, Institute for Employment Studies, University of Sussex (and visiting professor, University of Exeter), UK; Helmut Fryges, Centre for European Economic Research, Germany; Georg Licht, Centre for European Economic Research, Germany; Gordon Murray, School of Business and Economics, University of Exeter, UK.