Appendix 2: Statistics based on the Longitudinal Business Frame
Business demography statistics at present are an annual snapshot (at February) of the structure and characteristics of New Zealand businesses on Statistics New Zealand's Business Frame. The Business Frame is currently maintained using information from Inland Revenue, as well as Statistics New Zealand's survey information.
The major limitations of the current Business Demography series are:
- The current methodology for identifying enterprise births and deaths from the Business Frame cannot distinguish between genuine enterprise start-ups and failures on the one hand, and enterprise entries and exits due to administrative changes on the other hand.
- The population base for the current series excludes the agriculture industry.
- Previously published statistics in the series cannot easily be updated if information relating to past periods changes on the Business Frame.
These limitations, together with international developments in business demography which have given rise to new methods for defining and recognising enterprise births and deaths, were key factors in the construction of the Longitudinal Business Frame (LBF) as an alternative source for business demography statistics.
The LBF is a larger dataset than Statistics New Zealand's Business Frame, and is updated monthly. It uses internationally recommended statistical methods to track enterprises over time and to link – if possible – new enterprise identifiers with their predecessors. Thus it is possible, to a greater extent, to separate enterprises that are continuing, dormant or reactivated from real enterprise births and deaths. The calculated firm birth and death rates align well with international results.
The first experimental results using the LBF were released in May 2006. The results showed that basing business demography statistics on the LBF is feasible and that the differences between the experimental and official series are explicable. The table below shows a comparison of the experimental and official data series, which used the LBF and Business Frame respectively (farming enterprises are excluded to give an accurate comparison).
Results of Experimental Series Compared with Official Series (excluding agriculture)
Statistics (at February 2005)
|
Experimental series (excluding agriculture) |
Official series as published October 2005 (excluding agriculture) |
Difference |
| Number of enterprises |
369,402 |
334,340 |
+35,062 |
| Number of employees |
1,755,100 |
1,726,140 |
+28,960 |
| Percentage of enterprises with fewer than 10 employees |
93% |
92% |
+1 percentage point |
| Identified enterprise entries/births |
47,875 (births) |
58,144 (entries) |
-10,269 |
| Entry rate/birth rate |
13% (birth rate) |
17% (entry rate) |
-4 percentage points |
| Identified enterprise exits/deaths |
37,953 (deaths) |
48,097 (exits) |
-10,144 |
| Exit rate/death rate |
10% (death rate) |
14% (exit rate) |
-4 percentage points |
| Turnover rate |
23% |
31% |
-8 percentage points |
Statistics New Zealand will release the first official publication of business demography statistics based on the LBF by late 2007. Future editions of Structure and Dynamics will incorporate this data.
Results of the Experimental Series
The following table summarises the key results for business demography from the LBF. [Note: Its population of enterprises includes agricultural firms (ANZSIC A01)].
It is important to note that the number of businesses on the LBF is greater than in the Business Frame (which is the current data source for statistics in the Structure and Dynamics report). The difference is that the LBF series uses additional IRD information to expand the population coverage. Most of the additional enterprises are SMEs.
Results of Experimental Series (including agriculture), at February 2005
| Total number of enterprises |
433,089 |
| Births |
51,934 |
| Deaths |
42,283 |
| Birth Rate |
12% |
| Death Rate |
10% |
| Turnover Rate |
22% |
It should be kept in mind that these results and those discussed in the following are experimental and may change in officially released statistics.
Births and Deaths
In the year to February 2005 there was a net increase of 9,212 businesses (Structure and Dynamics 2006 reports 10,047 net new businesses during this period). The business turnover rate (defined as the sum of the birth rate and the death rate) means that, according to the LBF data, in the twelve months to February 2005 around 22 percent of enterprises in the economy were affected by births and deaths. By way of comparison, the LBF results are very consistent over the period 2001-2005.
The majority of business births from 2001 to 2005 were non-employing businesses (85 percent), followed by businesses that employ one to six employees (12 percent). The experimental series found also that opportunities for employment in new enterprises are most likely to come from SMEs (70 -75 percent).
The new methodology shows that from 2001 to 2005, most enterprise deaths were SMEs (99 percent). Non-employing businesses were most likely to die, accounting for 88 percent of deaths. About two-thirds of employment losses during the same period occurred as a result of SME deaths. Such data reinforce the importance of SMEs as employers.
Survival Rates
Survival rates measure the probability that new enterprises will live beyond a given time. The results from the LBF show that 69 percent of businesses that were born in 2001 survived at least two years. Overall, 52 percent of businesses begun in 2001 were still operating in 2005.
For SMEs birthed in 2001, survivability was highest for those that began with 10 to 19 employees (71 percent survived from 2001 to 2005). Non-employing enterprises born in 2001 had the lowest chance of surviving for four years (less than 50 percent). If non-employing enterprises were excluded when calculating overall survivability for SMEs birthed in 2001, the average survivability rate jumps to approximately 69 percent. This reflects what a strong influence non-employing enterprises have on enterprise survivability. This is because of the high proportion of these enterprises in the economy, and the fact that it is a relatively simple and inexpensive process to start and close a business in New Zealand. It is relatively common for people to register companies for tax purposes or legal reasons, or without significant long term expectations.
Another significant influencing factor on the level of firm survivability is the industry to which that enterprise belongs. Enterprises birthed in 2001 into the communication services industry had the least chance of survival until 2005. Firms belonging to the cultural and recreational services industry also had a survival rate below 50 percent. However, firms birthed into the Mining industry, the Finance and Insurance industry and Electricity, Gas and Water supply industry all recorded a survivability between 2001 and 2005 of approximately 70 percent.
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