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July 29, 2013

RSM study reviews global business creation

The BRIC countries have outperformed the advanced industrialised economies in business creation since 2007, a study by RSM has found.

RSM researched data on business ‘births’ and ‘deaths’ in 35 countries from 2007 to 2011. The research revealed that the BRIC economies have produced 4.8m new enterprises, which accounts for a compound annual growth rate of 5.8%. In comparison the G7 countries have only experienced a compound annual growth of 0.8% in the same period.

"The divergence between the G7 and the BRICS is particularly striking, with the BRICS creating businesses at more than seven times the rate of G7 economies since the financial crisis," Jean Stephens chief executive of RSM said.

According to Stephens, the access to capital might be the single biggest constraint on new business creation in advanced economies. "Since the financial crisis, banks have de-risked and come under pressure to hold more capital in reserve, which has hindered their ability to lend to businesses," Stephens said.

She also said governments in developed nations face the dilemma of debt reduction and the need to raise taxes to facilitate that process.
"Reduced public spending has sent many firms which supply the public sector out of business, while tax rises have eaten into the ability of businesses to invest and create jobs."

The study also revealed that the net rate of business creation in the UK is less than half the European average.

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In the five year period, the UK has seen the creation of 63.000 new businesses, an annual compound growth rate of 0.7% against 1.4% for the 12 European countries surveyed.

"In the UK, the cost of borrowing for businesses, despite record low interest rates, remains too high," Neil Sevitt, head of SME at RSM Tenon said.
"This is preventing businesses from investing for the future and new entrants coming to market. The government is trying hard to reduce taxation, reduce regulation, and make borrowing easier, but the reality is that at grass roots level these changes have not yet filtered through."

One of the other interesting contrasts revealed in the study is the strong performance of European countries compared to the US and Canada. From 2007 to 2011 the 12 EU countries included in the research recorded an annual growth rate of 1.4% while the US and Canada recorded a 0.4% annual growth rate in the same period.

Stephens commented: "The banking sector in many European countries has come under significant pressure to support struggling businesses, which may partly explain why many European countries have seen marginally higher rates of new business creation and survival than the US or Canada."

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