Today marks the publication of a landmark report from RSM, which looks at business births and deaths across 35 countries globally – The Road to Recovery: Insights from an international comparative study of business ‘birth’ and ‘death’ rates. Business creation and destruction are among the most telling indicators of economic vitality. As the seventh largest global network of audit, tax and advisory firms, with member firms in over 100 countries, RSM is ideally placed to take the pulse of economic well-being in key markets around the world.
The results of the research show that the net rate of business creation (births minus deaths) for the G7 countries (the industrialised West) was just 0.8 per cent on a compound annual basis over the five-year period of the study. The BRICS, on the other hand, show a net rate of business creation of 6.2 per cent per annum, approximately eight times the G7 rate.
The interesting outlier among the G7 is France, which has seen a compound annual growth rate in the number of active enterprises of 4.5 per cent, despite it being relatively stagnant economically over the period of the study. As the report explains, France took significant steps in 2009 to boost self-employment, known as the auto-entrepreneur system, which reduced tax and regulatory requirements for start-up enterprises.
The oddity among the BRICS is South Africa, which saw a compound annual growth rate of -3.8 per cent since the financial crisis. However, as the report explains, the interplay between births, deaths and economic vitality is complex, and a high churn, (sum of enterprise births and deaths) rate is often beneficial and frequently correlates with countries where starting a business is relatively easier and the legal/regulatory arrangements governing the closure of businesses (particularly the disposition of liquidated assets) are predictable and transparent.
The United States is a good example of a country where the death rate has often exceeded the birth rate (2008-10), but despite the high churn the three-year survival rate for new businesses in the United States is better than in Australia and the United Kingdom. Once U.S. companies traverse the so-called ‘valley of death’ (2-5 year growth period) their strong competitive assets (e.g. technology and human capital) means they are better equipped to prosper in the longer term.
These are just a few highlights. The report, I hope you will agree, makes for insightful reading. Please click here for the full paper.
I would like to thank the members of the RSM network who sourced the global data for this collaborative flagship report and RSM’s Economic Advisor, David Bartlett for writing the report.