Continuation Rates
Larger firms remain longer in the business demography dataset than SMEs.
Continuation rates measure how long enterprises remain in the business demography dataset. These rates are calculated by matching the business reference numbers for entries in 2000 with those of subsequent years.
Continuation rates are generally lower for smaller enterprises. Figures 16 shows that, of the businesses with 1-5 employees registered on the Business Frame in 2000, 72.24 percent were still there in 2002, dropping to 56.9 percent in 2004. In contrast, of the enterprises employing more than 500 employees in 2000, 75 percent were still on the Business Frame in 2004.
Figure 16: Continuation Rates of 2000 Enterprise Entries by EC Size Group
→ Long Description of Figure 16: Continuation Rates of 2000 Enterprise Entries by EC Size Group
Continuation rates for enterprises established in 2000 are analysed by industry sector in Figure 17. Excluding government administration and defence, the industries in 2000 with the highest continuation rates into 2004 were finance, insurance and education, health and community services. Electricity, gas and water supply also had high continuation rates.
The lowest continuation rates in the same period were in accommodation, cafes and restaurants (35.99 percent) and communication services (38.94 percent).
Figure 17: Continuation Rates of 2000 Enterprise Entries by ANZSIC
→ Long Description of Figure 17: Continuation Rates of 2000 Enterprise Entries by ANZSIC
2001 enterprises show a similar survival pattern to 2000 enterprises.
The following figures show survival rates by EC category and ANZSIC classification for enterprises born in 2001.
Figure 18: Continuation Rates of 2001 Enterprise Entries by EC Size Group
→ Long Description of Figure 18: Continuation Rates of 2001 Enterprise Entries by EC Size Group
Figure 19: Continuation Rates for 2001 Enterprise Entries by ANZSIC
→ Long Description of Figure 19: Continuation Rates for 2001 Enterprise Entries by ANZSIC
Continuation rates do not necessarily reflect the number of enterprise failures.
The length of time that enterprises remain in the business demography dataset is not a measure of the "survivability" of firms. Therefore continuation rates do not necessarily indicate that SMEs have a higher probability of failure than larger firms. The continuation rates do indicate the dynamic nature of the SME sector. New Zealand SMEs are a key source of innovation for the economy, often starting from a single idea or new product. They typically rely heavily on the skills of the founder or owner, focus on a small range of products or services, and operate under tight resource constraints.12 These characteristics, and the fact that most enterprises are SMEs, mean that the number of enterprises in the business demography dataset is unlikely to remain static.
Firm turnover, also known as business churn, is associated with greater economic efficiency, in that new firms replace obsolete firms (which may themselves be new).13 This positive interpretation of business churn is supported by a recent Treasury paper, which found that from 1995 to 2003, firm turnover contributed positively to labour productivity growth in New Zealand.14
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