Type
Theme
Insight

International sectoral R&D trends after the global financial crisis: What can we learn for current policy?

In this Insight paper we review international evidence drawn from OECD databases which provide comparable time-series on sectoral R&D trends for the period 2008-2016. Our central focus is how R&D trends in UK sectors in the UK differed from those in other countries in the aftermath of the great financial crisis.
Total business R&D spending in the UK fell marginally from 2008-10 before recovering consistently to reach a level 23 per cent higher than that in the recession by 2016. R&D spending in services recovered significantly more quickly than that in manufacturing sectors, some of which have never regained the volume of R&D investment which they had in the recession.
In manufacturing, the poorer performing sectors have tended to be more traditional foundation industries. In services, poor performing sectors have tended to be those which grew rapidly in the pre-recession period – information and communication and financial services.

Authors
Associated Themes
  • COVID-19
  • Innovation
Insight

R&D and innovation after Covid-19: What can we expect? A review of trends after the financial crisis

Data from successive UK Innovation Surveys suggests that the proportion of innovation active firms fell 58 per cent during the last recession (2008-10) with parallel falls in product/service innovation (26.6 per cent), process innovation (22.6 per cent). The percentage of firms engaging in less financially demanding wider innovation – e.g. in marketing or strategy – increased by 14 per cent to the recession period.
Recovery speeds varied.The pre-recession proportion of innovation active firms was never fully regained and the proportion of firms doing product/service innovation and process innovation took more than six years to recover pre-recession levels. The percentage of firms doing wider innovation grew throughout the post-recession period.

Authors
Associated Themes
  • COVID-19
  • Innovation
Insight

Online Peer-to-Peer lending to finance business growth: Evidence from Funding Circle

Evidence on the business segment of Peer-to-Peer (P2P) lending is still scarce due to the relative novelty of the phenomenon born in 2010. In this paper, we use data from the Funding Circle (FC) loan book over the period 2010-2017 to emphasise the growing importance of this type of alternative finance as a source of funding for growth of small businesses. Loans for growth purposes represent the most significant part of the FC loan portfolio, the largest marketplace platform for business loans in the UK, before working capital loans and asset finance. Therefore, there is evidence that small businesses turn to online platforms to fund their growth.

Associated Themes
  • Finance
Insight

Covid-19 and self-employment in the UK

In this short paper, we provide a preliminary assessment of the likely impact of the Covid-19 crisis on the self-employed, and in particular, using the most recently available UK Quarterly Labour Force Survey data, we provide an analysis of which groups and where the self-employed are most at risk of significant income loss and therefore household distress.
Because of time-lags in the publication of official labour force and business statistical data, it is still too early for us to assess with any degree of precision the impact of the crisis on the self-employment. Nevertheless, the sudden closure of businesses and tight social distancing restrictions on the movement of people in the attempt to slow down the spread of Covid-19 is having unprecedented effects on employment and businesses activity. Employment and self-employment in non-food personal and domestic services is directly affected since customers are required to stay at home except for essential shopping for food and medical supplies, and where possible work from home, and so no longer permitted to use these services.
The Institute for Fiscal Studies identifies sectors that are directly affected by the lockdown: non-food, non-pharmaceutical retail; passenger transport; accommodation and food; travel; childcare; arts and leisure; personal care and domestic services (Joyce and Hu, 2020). The sector-specific employment risk coincides with specific job and worker characteristics with young people and women being predicted to be hit hardest by the lockdown. Age and gender effects are further associated with low income jobs and part-time workers. Hence, the employment effect of Covid-19 is associated with a stark level of social inequality.
However, predictions about which workers are hardest hit by the crisis (Joyce and Hu, 2020; Kitsos, 2020), included only those in paid employment.
We provide here a corresponding analysis for the self-employed.

Associated Themes
  • COVID-19
  • Entrepreneurship
Insight

Business Dynamism and COVID-19 – an early assessment

How will Covid-19 affect business dynamism in the UK? Although, this question is yet to be answered, this paper aims to provide an early assessment by comparing company incorporations and dissolutions in the first quarter of 2020 with the same period in 2019 using the latest available data from the FAME dataset. We observe a drop in incorporations and an increase in dissolutions. The analysis shows that there has been a 70% increase in the number of company dissolutions in March 2020 compared to March 2019. In absolute terms, London had the biggest increase with over 6,400 more dissolutions. In relative terms, this sharp increase was particularly striking in the West Midlands and Wales both of which experienced more than a 100% increase in dissolutions. The sectors particularly influenced by this trend are Wholesale & Retail, Professional Services, Transportation & Storage, Information & Communication and Construction. One important point is that the increase in company dissolutions is driven by young firms which appear as the most vulnerable when facing uncertainty and the current unprecedented challenges.
The UK Government has unveiled a substantive package of support for UK firms, but at the time of writing many firms are struggling to access this assistance and there are some obvious gaps in the range of initiatives announced. If those shortcomings are not remedied quickly, it is foreseeable that we will continue to see a long, slow decline in the number of private-sector firms that support millions of jobs across the economy. In that context, rather than seeing a V-shaped downturn and rebound as some economists such as the OBR have predicted, we could instead see an L-shape recession dragged down by a net loss of companies over a long period.

Associated Themes
  • Business Growth
  • COVID-19
  • Productivity and performance
Insight

The business effects of pandemics – a rapid literature review

This review considers the existing evidence on the business effects of pandemics, with a particular focus on the impact on small and medium enterprises (SMEs). Evidence from previous pandemics is reviewed, and in addition, we provide an overview of early assessments of the emerging evidence on the business impacts of the COVID-19 pandemic on Chinese firms and other related businesses.

Evidence on the 1918 influenza pandemic in the US suggests higher mortality in urban areas and higher working-age mortality – a very different pattern to COVID-19. Shutdowns did cause significant losses for many businesses, especially those in the service and entertainment industries that suffered double-digit losses in revenue. Other businesses that specialised in health-care products experienced gains in revenue. The 1918 pandemic caused labour shortages in the US as well as longer-term productivity benefits. These were not repeated in other countries. Scenario-based studies for the US and UK have also examined potential pandemic effects and may provide a more robust indication of potential medium-term effects from COVID-19.

Early evidence from the COVID-19 pandemic in China emphasises the severity of the short-term effects on SMEs. In February 2020, 30 per cent reported that, due to a cash shortage, they would be able to sustain their business for no more than three months; 30 percent reported that they would be able to sustain their business for six to twelve months. Furthermore, 30 per cent of firms have seen their income fall by more than 50 per cent, with almost a third reporting a 20 to 50 per cent reduction. Three months after the COVID-19 outbreak in China, many small businesses are not working at full capacity. Many employees continue to work from home, and business owners attempt to fix broken supply chains and look for new domestic and overseas contracts. Estimates suggest that each ten-day period of lost work in the Chinese economy reduces quarterly GDP growth by 0.39 to 0.46 percent.

Associated Themes
  • COVID-19
  • Productivity and performance
Insight

Determinants of demand and participation in cultural events

The research on the determinants of demand and participation in cultural events is still rather sparse and fragmented today. Whereas there is already an established empirical evidence with respect to the standard determinants such as admission price, education and income, more research is required to explore the impact of other important factors affecting visits at cultural events. This applies, among others, to socio-economic and socio-demographic characteristics of the visitors, both subjective (perceived) and objective quality of the cultural event, habit and rational addiction, and time-allocation decisions of individuals.

Authors
Associated Themes
  • Business Growth
Insight

Does the City of Culture (COC) create long-term benefits? Comparing the performance of Derry-Londonderry to other short-listed cities. ERC Insight Paper

Evidence on the long-term effects of Cities of Culture (COC) is limited. Here, we compare the pre- and post-COC performance of the UK COC for 2013 Derry-Londonderry (D-L) with that of the other shortlisted cities. There is some evidence that despite weaker growth performance prior to the COC the post-COC GDP growth of D-L has been significantly stronger. This post-COC growth effect is particularly evident in Distribution, transport, accommodation and food and construction. The COC also led to a step-change in visitor numbers to D-L, a positive effect which persisted through to 2016 at least. Job creation through inward investment was also stronger in D-L in the post-COC period. We cannot establish any direct causal connection between COC 2013 and these trends but suggest that the evidence does at least suggest a prima facie case for the positive longer-term benefits of COCs

Associated Themes
  • Productivity and performance
Insight

Job Creation and Destruction in the UK 1998-2018

Using an established international analytical framework for job creation and destruction we observe that just over a quarter of all jobs in the private sector were either destroyed or created over a typical 12 month period – a remarkable level of turbulence in the UK labour market which provides a more granular analysis of the recent so-called ‘employment miracle’. Despite the rise in employment since the Great Recession there has been a slight fall in the measure of business dynamism which is a cause for concern given its importance to the overall level of productivity in the economy.

Associated Themes
  • Business Growth
Insight

Exploring the links between design investment, innovation and productivity

The case studies and design survey undertaken for the “Design Economy 2018” have suggested the different mechanisms through which design and designers can contribute to firms’ innovation and performance. Here, we use data from the UK Innovation Survey to undertake a causal analysis of the links between design, innovation of different types and productivity. Our analysis draws on data from around 15,000 UK companies which responded to two consecutive waves of the UK Innovation Survey.
The starting point for our analysis is the UK Innovation Survey indicator of whether or not each firm ‘engages in … design activities, including strategic, for the development or implementation of new or improved goods, services and processes’. Are firms which are engaging with design more likely to be innovating? More specifically, we explore whether firms which are engaging with design are more likely to be engaging in product or service innovation, process innovation and organisational innovation. The second stage of our analysis explores the extent to which each of the three types of innovation results in improvements in firms’ productivity.

Authors
Associated Themes
  • Innovation
  • Productivity and performance
Insight

Recent trends in the digital creative sector in Coventry and Warwickshire

The digital creative sector plays a key role both a provider of jobs in its own right and also as an enabler of digital innovation in other sectors. In this note we provide a brief statistical profile of the development of the digital creative sector in Coventry and Warwickshire over the last decade. This is one of a series of papers ERC will be publishing in the run up to Coventry City of Culture 2021.

Authors
Associated Themes
  • Business Growth
Insight

High performing firms and job creation: a longitudinal analysis (1998-2013) ERC Insight Paper

The OECD High-Growth Firm (HGF) measure was a pragmatic solution to a practical problem. It was designed to assist in identifying the small group of firms which contributed disproportionately to job creation. This statistic could be used to inform national policy and to make comparisons across countries, since it could be readily replicated using business register data. The decade since the measure was first published has seen increasing dissatisfaction amongst the academics and policymakers seeking to make use of it. There are two important criticisms. First, it focuses attention on relatively short ‘bursts’ of growth rendering invisible the reality of growth for the majority of businesses, and second, it does not in fact capture some important members of its target group the ‘relatively small proportion of firms that contribute disproportionately to job creation’.
We present a new analysis of job creation in the UK, using data on a cohort of start-ups born in 1998 to identify three different groups of high performing firms. Of these three groups we find that HGFs as defined by the OCED do not create the most jobs, in fact they grow more slowly and have a lower survival rate than the comparators. Notably, though, most of the observed growth in all three groups takes place within the first five years after start-up.

Associated Themes
  • Business Growth
Insight

Understanding self-employment – ERC Insight Paper

This Insight Paper presents the key findings of studies presented at the "Understanding Self-Employment” workshop organised by the Microbusiness Research Portal with the support of the Centre for Enterprise and Economic Development Research (CEEDR) at Middlesex University Business School on the 7th June 2016. The seminar explored the recent increase in self-employment in the UK, discussed the problems related to the definition of self-employment and presented the implications for policy development.

Authors
Associated Themes
  • Entrepreneurship
Insight

Sustaining growth – the HR dimension HR practices and management and leadership skills of High Growth SMEs

This research set out to investigate human resource management (HRM) practices and leadership behaviours in UK SMEs that represent a small proportion of firms to have achieved long-term growth. We interviewed 30 senior leaders of such SMEs and found that most leaders espouse key high performance work practices such as selective hiring, employee development, open communication, and, to a varying degree, performance management and employee participation. Through flexible informal practices, SME leaders tap into employee’s intrinsic motivation to enhance performance and to develop personal trust and reciprocity. Overall, our research paints a picture of HRM in growth-oriented UK SMEs as a complex phenomenon where a number of formal and informal HR levers interact, guided by a compelling vision, and creating a positive company culture in the process.

Associated Themes
  • Management and Leadership
  • Productivity and performance
Insight

Spatial Incidence of High Growth Firms.

High-Growth Firms (HGFs) are a very small proportion of the UK business population yet they have a disproportionate impact on job creation.
We present data at local economic area level over time to show that there is a very distinct geography emerging for the incidence rate of HGFs since the recession.

Associated Themes
  • Business Growth
Insight

Contribution to Job Creation by High Growth SMEs.

High-Growth Firms (HGFs) are a very small proportion of UK businesses population yet they have a disproportionate impact on job creation. We re-visit the issue to confirm that typically, over a three year period, high growth SMEs represent less than 1% of established businesses, but generate 20% of all job growth amongst established businesses which grow

Associated Themes
  • Business Growth
Insight

LEP Innovation Benchmarks 2002. 2010

The UK Innovation Survey provides information on product/service and process innovation as well as the barriers to innovation activity for a relatively large number of UK firms.
In this paper we present the first local economic area analysis of this data derived from four surveys covering the 2002-04, 2004-06, 2006-08 and 2008-10 periods.

Associated Themes
  • Innovation
Insight

UK’s Hidden Growth Champions

The Enterprise Research Centre (ERC) has developed an alternative approach to identifying groups of fast-growing firms which contribute disproportionately to job creation and output. This will have significant implications for policy discussions on the relative importance of SMEs and which types of firms drive growth in the economy.

Associated Themes
  • Business Growth
Insight

Growing Global – Moving Up the Exporting Ladder

Much has been done to support SME exporting in the UK in recent years. Only around a quarter of UK SMEs currently export, however, and a very small group - only 6 per cent of SMEs - currently export more than 50 per cent of their sales. For a very significant proportion of UK SMEs, therefore, the potential opportunities provided by exporting remain unexploited. Who are these SMEs? This question is important if we are to effectively target support and enable these firms to reap the growth benefits of exporting. ERC research helps to identify some markers of export potential which should allow more effective profile-led marketing of export support.

Associated Themes
  • Productivity and performance
Insight

Financing Growth

Recent ERC research provides new insights into bank borrowing among UK SMEs and emphasises the potential value of effective company boards in helping firms to access appropriate finance. The evidence suggests that only around 1 in 7 small businesses in the UK seek bank funding. Yet we know that firms which do utilise external finance grow more rapidly. As the upswing takes hold what can be done to encourage more small firms to seek external finance to support their growth? Recent ERC research provides some of the answers and highlights other ‘known unknowns’.

Associated Themes
  • Finance
Insight

Explaining the US-UK Ambition Gap

Data from the Global Entrepreneurship Monitor highlights a persistent gap between the US and the UK in the proportion of business owner-managers with high growth expectations. Professor Jonathan Levie examines the evidence and finds that employers in the UK and the US are in fact equally likely to be ambitious. He concludes that the ambition gap is a result of a rising proportion of new self-employed with no employees and relatively low growth ambition in the UK and a significant increase in the number of established business owners with employees in the US.

Authors
Associated Themes
  • Entrepreneurship
  • Productivity and performance
Insight

Innovation or imitation: Which boosts growth in recession?

Innovation or imitation which leads to faster growth? Innovation – introducing products or services which are new to the market – may yield first mover advantages. Imitation – introducing new to the firm but not new to the market products or services is a safer, more conservative strategy. Drawing on data from UK innovation surveys, Stephen Roper, Director of ERC identifies some key trends

Authors
Associated Themes
  • Innovation
Insight

Moving on from the ‘Vital 6%’

High-Growth Firms (HGFs) represent only a small minority - the ‘Vital 6%’ - of the UK business population yet they have a disproportionate impact on job creation and innovation. This paper confirms the headline conclusion for job creation: that is, a small number of job creating firms (mostly small firms) are responsible for a significant amount of net job creation in the UK. It also suggests the existence of a smaller group of 'extraordinarily prolific job creating firms' who were micro firms in 1998 and now employ almost 100,000 people.

Associated Themes
  • Business Growth
Insight

UK Mid-Market – ‘Overlooked Middle’ or Lair of the Hidden Champions?

This paper highlights two alternative views of the UK mid-market. The ‘overlooked middle’ perspective emphasises that UK economic policy in relation to Medium Sized Businesses (MSBs) has been symbolic rather than substantive, lacking scale and consistency. The 'Hidden Champions' perspective recognises the rapid growth of leading MSBs and the lack of acknowledgement they receive in the UK.

Authors
Associated Themes
  • Business Growth
  • Productivity and performance
Insight

Gearing up for Growth Vouchers

This paper suggests some key lessons for the Growth Vouchers scheme based on the experience of the Nesta Creative Credits Project.

Authors
Associated Themes
  • Business Growth