There are 22.8 million micro-enterprises in the EU, accounting for 93.1% of companies and 29.4% of jobs in the EU-28. Over the past ten years, micro-enterprises have generated almost one third of the positive net job change in the EU-28 (Eurostat 2021). There are 340,485 micro-enterprises in Finland, which represent 94% of Finnish companies and a quarter of companies' workforce (Statistics Finland 2021).
In this blog, I will concentrate on a bottleneck whose elimination could improve the prerequisites for sustainable growth in micro-enterprises: the low rate of business start-ups.
While we take care of micro-enterprises’ operating conditions from the perspective of vitality, growth and exports, it is also important to continue long-term efforts to encourage an entrepreneurial culture, for example by investing in entrepreneurship education at all levels of education and training. The business start-up rate is low in Finland. Young people’s entrepreneurial intentions, which have shown signs of increasing in recent years, are not yet being realised as a higher start-up rate.
According to the World Bank, only 4.3 new companies per 1,000 working age inhabitants are established in Finland each year, which is a significantly low rate compared to the Nordic countries and Estonia and on par with the EU average. What makes the situation more difficult is that, additionally, no successor can be found for a large number of viable companies.
From Finland's perspective, small advanced economies in Europe form a particularly interesting benchmark in many ways. Similarly to Finland, they are innovation-driven and dependent on exports. They do not have access to similar economies of scale as Germany, France, China or the United States. As advanced economies they also face many similar challenges as Finland. In the International Monetary Fund's classification, Small Advanced Economies comprise developed countries with a population ranging from half a million to 20 million. In Europe, they include the Netherlands, Belgium, Ireland, Greece, Latvia, Lithuania, Luxembourg, Norway, Portugal, Slovakia, Slovenia, Sweden, Finland, Switzerland, Denmark, and Estonia.
We can look to small advanced economies where the business start-up rate in high for examples of factors that drive this rate. Among the small advanced economies, particularly successful countries regarding start-up rates are Estonia (23.6 companies per 1,000 working-age inhabitants), Luxembourg (17.2), Denmark (10.1), Norway (8.6), Latvia (8.0) Sweden (7.2) (World Bank 2021).
Relying on concrete examples, bridging the gap between young people’s entrepreneurial intentions and the start-up rate will be possible in the future.
RBy looking at our reference countries, we can find solution models. When we examine the start-up rates, our neighbours among small advanced countries, or Estonia, Sweden and Norway, are doing well. Crossing borders between neighbouring countries is not a cost issue.
While we learn from the best examples in Europe, we should also follow the example of small advanced economies outside Europe. This group includes New Zealand, Israel, Singapore and Puerto Rico, which can offer interesting mindsets and new operating models outside the European context.
To increase the start-up rate, evidence-based information and concrete actions will be needed. In the light of the statistics, we cannot afford to have an NIH (Not Invented Here) mentality. We have to genuinely learn from others.
During the forthcoming programming period, regional, national and cross-border projects carried out in European cooperation will provide an excellent platform for finding practical solutions to concrete problems. A higher number of companies means more and bolder new openings, entrepreneurship being seen as a standard career option, and stronger networks. A higher volume also means better quality over the long term.
While we set the goal at increasing the start-up rate, it is important to ensure an environment that makes sustainable growth possible, enabling as many of the start-ups as possible to also be profitable in three, five and ten years' time. It is additionally important to take care of those entrepreneurs whose business does not survive for one reason or another.
Author:
Matti Muhos, DSc. Tech., Director, Professor (Industrial Engineering and Management, business renewal and digitalisation)
In Kerttu Saalasti Institute's blog we write about the topics of the Institute's research groups, micro entrepreneurship education and the Institute's general topics. The authors are researchers, experts and members of networks.
Our topics are: micro entrenepreneurship, future manufacturing technologies, regional excellence, micro entrepreneurship education