Demographics and Education
Entrepreneurship in Germany in 2019: First growth in 5 years – 2020 overshadowed by coronavirus pandemic
Bolstered by cyclical and labour market growth, entrepreneurial activity in Germany picked up again in 2019 for the first time in years. The number of newly founded businesses rose to 605,000 (+58,000). This was primarily due to a significant rise in part-time business start-ups, while full-time start-ups dropped to a new low. At the same time, the number of opportunity start-ups grew by a disproportionately high 439,000. The number of internet-based and digital start-ups also rose. The outlook for entrepreneurial activity in 2020 was positive but the coronavirus pandemic is changing much of this. Many entrepreneurial plans, which had increased again, will now likely be put off. However, the crisis can be expected to result in more necessity start-ups.
Demographic changes are driving the need for accessible housing. Today, Germany has some 3 million households with mobility restrictions and that number will grow to 3.7 million in 2035. However, only 560,000 homes are accessible. In order to reduce the enormous deficit, KfW is providing investment incentives under its ‘Age-Appropriate Conversion’ programme. In the years 2014–2018, promotional loans and investment grants were used for the conversion of 190,000 homes. A recent evaluation has found the promotion to be effective. By far the largest number of measures implemented were those which the research literature has identified as being crucial to accident prevention and independent living – reducing thresholds and steps, as well as building age-appropriate bathrooms. The primary target group, people with mobility limitations, was also reached very well, mainly because the grant support provided is suitable for elderly and low-income households.
One third of SMEs cannot meet their digital skill requirements. The problem applies not just to basic digital skills, such as the use of standard software and digital devices, but also to advanced skills such as programming and statistical data analysis. Most SMEs attempt to build digital skills through further training. But short training measures with often limited skill-building effects predominate. More intensive training is hampered primarily by financial barriers. One third of SMEs describe the direct costs as a problem, while one quarter are challenged by employees’ absence from work. Digital learning formats enable more flexible learning, so they have the potential to stimulate further training in small and medium-sized enterprises.
There has been a slight drop in the number of upcoming SME successions in Germany. Around 152,000 owners of SMEs want to transfer their business to a successor by the end of 2021. This is illustrated by recent data of the KfW SME Panel. One reason for the recent drop is that business starters have been showing greater interest in taking over existing SMEs. Besides, more enterprises already have a succession plan. Succession within the family continues to lose importance. On the other hand, there is an increasing demand for external buyers. Owners’ price expectations have also increased again. Looking ahead, demographic change will increase the need for successors. A growing number of SME owners who are ready for a transfer will be facing a shrinking number of potential successors. There are not enough emerging entrepreneurs to take over existing businesses.
Please note: Up to the year 2018, our publication was called the KfW Start-up Monitor
Bolstered by a healthy domestic economy, start-up activity in Germany stabilised in 2018 after declining for many years. The number of business starters was 547,000, down slightly on the previous year. The number of business start-ups by women grew, while male start-ups continued trending downward. Start-up activity has been dominated by new business creation. The year 2018 saw more of it than ever before: Eight in ten business starters ventured into self-employment by setting up new businesses. But there has also been a positive trend regarding business starts through the takeover of existing firms for some time now. Business starters have invested noticeably more capital in their business on average in the past decade. Full-time business starters in particular are investing larger amounts. Overall, start-up finance remains a hurdle at which even many start-up plans fall.
A new study by KfW Research has fact-checked popular myths about the labour market impacts of digitalisation. Key findings: The negative impacts are often exaggerated in public debate, which instils unnecessary fear. Jobs will be lost but this will likely affect only a fraction of the labour force. Structural change has slowed down in past decades, creating high job security. Incomes from work are unlikely to decline as a result of automation in the near future. Given the current demographic trends, however, the weak labour productivity rate is a cause of concern. Digitalisation and automation offer an opportunity to overcome productivity weakness. That would require increasing the low investment and innovation rates, along with a digital education initiative that also reduces the high share of low-skilled workers.
Three quarters of the population between the age of 18 and 67 has a generally positive attitude towards skilled migrants. These are the findings of a representative survey by KfW Research. Forty-four per cent of the working-age population is of the opinion that Germany should step up its efforts to attract skilled migrants, 30% believe the current level is sufficient and 21% would prefer less. A majority of graduates, high earners and self-employed persons endorse higher skilled migration, unemployed persons are more likely to oppose it. People in rural areas and in eastern Germany are also less likely to see a need for foreign skilled migrants.
Fear of failure hampers start-up activity in Germany more than elsewhere. But the good news is that this fear is slowly fading. Fear of failure is mostly driven by fear of financial burdens, should things go wrong. Contrary to widespread assumption, fear of stigmatisation hardly plays a role. Financial risk is part and parcel of entrepreneurial freedom and must not be ignored. Improved teaching of entrepreneurial skills and basic economics, however, can provide potential business founders with the tools to more accurately gauge this risk and take away some of the fear – a knowledge basis that should be created early.
According to recent data collected by the KfW SME Panel, around 227,000 owner-managers of small and medium-sized enterprises want to place their business into the hands of a successor by the end of 2020. More than one third of these enterprises have already found a successor. A further quarter are conducting negotiations. The current generation of owner-managers is generally more aware of the need to face the challenges of generational change in a timely manner. Succession outside the family is generally on the rise. Most succession planners have a sound earnings situation, profitability and equity base. Nevertheless, not all will succeed in handing over their business. Time is running out for 36,000 SMEs in particular. They want to complete their succession in the next two years but have not even taken the first step yet. And the main bottleneck remains: The pool of emerging entrepreneurs is too small.
Migrants are more active entrepreneurs than the average citizen. For one thing, they have a stronger desire for occupational independence and for another they have lower formal qualifications on average and, hence, more limited labour market opportunities. Migrant start-ups are also different, as they have more co-workers and focus on the personal services sector. They are more strongly affected by certain start-up problems, such as financing. All these patterns are even slightly more pronounced among migrants who live in a non-German-speaking household. Language barriers play a role here and it takes time and support to break them down.
In 2017 there were around 154,000 ‘young’ social entrepreneurs with 108,000 social enterprises in Germany. That was a share of 9% of all young entrepreneurs. Besides seeking to make a profit, at the very top of their target system is a particular social or ecological concern for which they forgo possible returns. In addition, they also like to break new ground. Just under one third of ‘young’ social entrepreneurs offer new-to-market innovations that were previously unavailable in their target market and one in four develop technological innovations of their own to market readiness. That makes many social entrepreneurs pioneers of sustainable economic development. The share of social entrepreneurs is above average among older business founders. They show that it is possible to realise new plans even at an advanced age and that should be welcomed in the face of demographic change. Social entrepreneurs are more likely to be unsure about having the required business skills, so they should be supported in acquiring such skills.