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MittelstandsMonitor 2009
German economy has entered recession - downturn also hits SMEs
- SMEs are in recession but still less affected than big enterprises
- Decline in investment and employment plans is still relatively moderate
- Number of business start-ups continued to fall in 2008
- Older enterprises conduct less R&D than younger ones and
their innovations have a lower degree of novelty
Recession hit German SMEs head on in the course of 2008, particularly in the second half. So far, however, the crisis has hit big enterprises with international operations harder, particularly in industry. Over the year 2008 the business climate among small and medium-sized enterprises deteriorated quickly and massively amid the global economic downturn which began in the middle of the year and was aggravated considerably by the financial crisis. The business expectations of small and medium-sized enterprises dropped far below previous historic lows at the end of 2008.
Measured against this drop, the decline in small and medium-sized enterprises' investment propensity and employment plans remained relatively moderate. Many companies appear to be intent on preventing their production facilities from becoming obsolete and holding on to scarce skilled workers even amid the crisis in order to be equipped for the next upturn. These are the findings of the new MittelstandsMonitor 2009 which KfW Bankengruppe publishes annually together with the Verband der Vereine Creditreform , the IfM in Bonn, the RWI in Essen and the ZEW in Mannheim. This issue of the MittelstandsMonitor , or SME Monitor, also focuses on business start-ups and liquidations as well as micro-financing operations involving start-ups in Germany, the dynamics of innovative behaviour and patent activities of small and medium-sized enterprises.
Current economic downturn is not yet perceptible in start-ups and liquidations
Since the year 2005 the number of new business start-ups in Germany has been on the decline. Preliminary estimates suggest that start-up intensity dropped again in 2008 (start-ups per 10,000 employable persons). The continuing downward trend of the past years must be seen in close connection to the very good economic situation that lasted up to mid-2008. This situation was associated with a rising number of people in paid employment and a decline in the jobless rate, which reduced the willingness to start a new business. The financial and economic crisis is expected to impact on start-up activities in 2009. Start-ups by unemployed persons in particular are expected to increase again.
As in 2006, the rate of liquidations (company closures per 1000 enterprises) and the rate of insolvencies were on the decline in 2007 as well thanks to the good shape of the economy. The number of liquidations dropped again in 2008 as well, and the trend in insolvencies is also reversing. However, the chairman of Creditreform , Prof Helmut Rödl, pointed out: "If the cyclical downturn becomes more strongly perceivable in 2009 there should be more enterprises closing again." The balance of start-ups to liquidations has been declining since 2004. Although start-ups outnumbered liquidations in 2007 a negative balance is anticipated for 2008.
Microfinance for business start-ups is relevant for Germany
By far the majority of business founders applying for debt capital require funds in the form of microfinance. In accordance with the EU definition, this means business financings in a volume of up to EUR 25,000. In 2007 just under 200,000 start-up entrepreneurs borrowed (external) microfinance funds. This represents a financing volume of roughly EUR 1 billion. Start-ups often have to overcome particular obstacles when they borrow small volumes of funds. "Therefore, having access to a suitable and sufficient supply of microfinance schemes is not only important for developing countries but also for Germany", said KfW's chief economist Dr Norbert Irsch, adding: "Considering that business start-ups by jobless people are on the rise, the cyclical downturn could enhance the growing relevance of microfinance".
Older enterprises innovate despite less R&D
The share of enterprises conducting research and development (R&D) and producing innovations in the form of new products and processes has evolved against the trend over the last 10 years in Germany. The share of enterprises conducting continuous R&D activities has risen moderately while the share of innovators is declining. The innovative activities of small and medium-sized enterprises (SMEs) have generally developed with less intensity than those of the big enterprises.
The results of the MittelstandsMonitor show that the share of enterprises with R&D activities in R&D-intensive manufacturing industries tends to decline as the enterprise grows older. The same applies to the share of enterprises that bring forth innovations, particularly new market products. "As enterprises become older they increasingly focus on gradually improving their products and production methods", said the president of the ZEW , Prof Wolfgang Franz. "Many of them develop existing products further in response to requests from customers. In so doing they benefit from experience they have gathered over many years."
SMEs conduct patent activities not only in high-tech sectors
Some 20% of all patent applications in Germany come from SMEs. This is a low percentage compared with their share of employment or turnover, and it is due in part to a low share of SMEs conducting active research. Another reason is that SMEs are more inclined than big enterprises to keep inventions secret instead of protecting them through a patent.
An analysis of patent activities in textile and nanotechnology demonstrates that in both areas SMEs make an important contribution to innovation activity in a complementary relationship to big enterprises. The central message for political decision-makers is that the development of new forward-looking technologies and markets often takes place with sustantial participation of SMEs outside the realm of high technology in the traditional branches of the manufacturing industry.
09 March 2009
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