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ANALYSING THE CONTRIBUTION OF SMALL FIRMS TO THE WELSH ECONOMY

Over the weekend, I was fascinated to read the report "Size Analysis of Welsh Business, 2010" which provides data on the structure of enterprises active in Wales between 2003 and 2010, including estimates for the very smallest businesses that operate below the VAT threshold.

Some initial observations on this data are as follows.

MICRO-BUSINESSES - The data shows that the number of micro-enterprises has grown by 31,200 between 2003 and 2010, a growth of 19.7%. However, what is interesting is that the majority of this growth (which reflects, to some extent, the number of new businesses being created) occurred during the period 2003-2005, when the Entrepreneurship Action Plan (EAP) was still in existence in Wales. It just demonstrates what a disaster it has been for the creation of new businesses that the EAP was abolished without any real replacement strategy to focus on increasing entrepreneurial activity in Wales.

SMEs AND EMPLOYMENT - 70 per cent of all employment growth in Wales during the period 2003-2010 came from SMEs i.e. 68,000 jobs. However, there are clearly geographical differences in the influence of large firms across Wales. For example, 46 per cent of employment in East Wales in 2010 came from large firms as opposed to 36 per cent in West Wales and the Valleys i.e. small firms are driving employment within our poorest communities, a fact that is yet again being ignored by policymakers in Wales

FOREIGN OWNED COMPANIES - If we look at employment by ownership then between 2003 and 2010, employment in non-UK owned enterprises increased by 20.9 per cent, compared with a 9.0 per cent increase in UK owned enterprises. What is fascinating was the fact that, in 2010, a third of large companies in Wales were non-UK owned and that this proportion had grown by 4.4 per cent since 2003. Indeed, non-UK owned firms  accounted for a third of all large firm employment in 2010. In this respect, these statistics demonstrate the importance of managing the relationship with the parent company, a point this blog has made time and time again. Indeed, given that there are only around 500 large foreign owned companies in Wales, that shouldn’t be too difficult, even for WAG. However, that policy clearly failed during the recession with the number of foreign owned firms falling by 5.9 per cent between 2009 and 2010. In addition, employment fell by 7.4 per cent in foreign owned firms in Wales during the same period as opposed to a fall of 1.2 per cent in indigenous firms.

Given the limited nature of the statistical release, I am expecting to see some more detailed data posted on Stats Wales before Christmas so we can really examine, longitudinally, the state of the business community in Wales. Nevertheless, these initial statistics suggest that much of the economic policy of the last decade has been misdirected. It is just a shame that the Economic Renewal programme takes little notice of these facts in developing a policy that will support the small firms that are creating jobs in the economy.

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