2009 Entrepreneurship Index. Entrepreneurship Conditions in Denmark

Transcription

1 2009 Entrepreneurship Index Entrepreneurship Conditions in Denmark November 2009

2 2009 Entrepreneurship Index Entrepreneurship Conditions in Denmark This publication can be ordered or picked up from: Rosendahls-Schultz Distribution Herstedvang 10 DK-2620 Albertslund Tel.: Fax: Distribution@rosendahls-schultzgrafisk.dk Website: This publication can also be downloaded from the website of the Danish Enterprise and Construction Authority: Print run 250 units Price DKK , inclusive of VAT ISBN Printed edition: Electronic edition: ISSN Printed edition: Electronic edition: Design Rosendahls-Schultz Grafisk Printed in Denmark, November 2009 by Rosendahls-Schultz Grafisk Danish Enterprise and Construction Authority Dahlerups Pakhus Langelinie Allé 17 DK-2100 Copenhagen Ø Tel.: Fax: Authors: Danish Enterprise and Construction Authority: Kristoffer Boye Astrup, Søren Fansher Holten Hansen, Morten Bo Isaksen, Lars Nordal Jensen, Dorte Høeg Koch, Nicki Brøchner Nielsen and Jes Ørberg Ratzer. Division for Research and Analysis (FORA), Danish Enterprise and Construction Authority: Thomas Ebdrup, Henrik Lynge Hansen, Louise Lempel and Glenda Napier. Statistics Denmark: Peter Bøegh Nielsen, Michael E. Nielsen and Zuzanna Tilewska.

3 2009 Entrepreneurship Index Entrepreneurship Conditions in Denmark

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5 Table of Contents Preface 5 1. Introduction Report structure The Impact of the Financial Crisis on Entrepreneurship New enterprises in Denmark, Impact of the crisis on the influx of new enterprises New enterprises in other countries New enterprises broken down by sector New enterprises in the regions New enterprises broken down by sector and region High-growth start-ups New Enterprises in Denmark, to Ownership in the new enterprises The new enterprises sectors Geographic location of the new enterprises Entrepreneurs gender Entrepreneurs age Entrepreneurs civil status Entrepreneurs ethnicity Entrepreneurs educational background Entrepreneurs sector familiarity Entrepreneurs occupational experience Entrepreneurs contribution to the national economy Entrepreneurial Activity International comparisons of new-enterprise start-ups International comparison of high-growth start-ups International comparison of high-growth enterprises Summary Enterprise Growth Fastest growing enterprises High-growth enterprises and their importance for job creation Size of high-growth enterprises How behind the US is Denmark? Age of high-growth enterprises Entrepreneurship Index 3

6 5.6. Percentage of young enterprises among the biggest 100 enterprises Framework Conditions for Entrepreneurship Factors affecting entrepreneurship Policy areas important to entrepreneurial activity Changes in the new framework-condition model Denmark s overall ranking in Denmark s overall position compared to the top four countries Denmark compared to the Nordic countries and the UK Denmark and the top four countries in the individual policy areas Trends in selected policy areas since Appendix 1 Normalising Data for Framework Conditions 93 Appendix 2 Appendix 3 Description of Framework-Condition Indicators 95 Description of New Entrepreneurship Indicators 147 Bibliography 151

7 Preface The economic crisis has clearly left its mark also on entrepreneurs. At the same time, statistics show that the Danish Government s actions to support Denmark s entrepreneurs have paid off. Measured in terms of the number of high-growth start-ups, we are substantially stronger in spite of the crisis than we were when records began in Fewer people have started up new enterprises over the past year. Brand-new statistics show that the start-up rate at the end of Q was the lowest in ten years. Preliminary statistics show that other countries are also seeing a decline in the start-up rate even if this decline is not as dramatic as in Denmark. The Danish Government has made a targeted effort to mitigate the effects of the crisis, including by adopting the credit packages and most recently the business package, which includes a framework allocation of DKK 4 billion targeting small and medium-sized enterprises. The business package improves enterprises options for exports, raising loans and gaining access to venture capital. The positive news is that the percentage of high-growth start-ups did not decline nearly as much as the percentage of new enterprises. Despite a slight decline from 2007 to 2008, Denmark still has more than twice as many highgrowth start-ups as in Growth generated by entrepreneurs is crucial for ensuring that Denmark emerges from the crisis in good shape. Entrepreneurs create almost one-third of all new jobs in Denmark. The small group of high-growth start-ups is especially important for this job creation. In the first five years of their existence, they create almost ten times more jobs per enterprise than other entrepreneurs. Their productivity is higher as well. Thus, having more high-growth start-ups can be an important contribution to putting Denmark back on the growth track. The Danish Government continues to focus on long-term initiatives required for ensuring that Denmark can emerge from the crisis with good framework conditions for high-growth start-ups. This annual analysis shows that Denmark has improved its framework conditions again this year, and we continue to narrow the gap with the best-performing countries. Closing it completely, however, will require a focused effort with everyone working together to maximise Denmark s potential. Enjoy your reading! Lene Espersen Danish Minister for Economic and Business Affairs November Entrepreneurship Index 5

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9 1. Introduction Every year, many Danes take the leap and set up a new enterprise. On average, more than 18,000 new Danish enterprises are established each year. These new enterprises contribute to Denmark s growth and competitiveness. Entrepreneurs create almost one-third of all new jobs in Denmark. This equated to 86,000 new jobs a year on average from 2003 to The small group of high-growth start-ups is especially important for job creation: in the first five years of their existence, high-growth start-ups create almost ten times more jobs per enterprise than other entrepreneurs. In addition, high-growth start-ups are appreciably more productive than other enterprises. The Danish Government has set two ambitious goals for Denmark s entrepreneurship: first, Denmark must continue to be a leading country in Europe in terms of the number of newly started enterprises; and second, by 2015, Denmark must be a world-leading country in terms of the number of high-growth start-ups. Each year, the Danish Enterprise and Construction Authority publishes the Entrepreneurship Index to follow up on the Danish Government s goals. The latest international data from 2006 show that Denmark is among the top countries in terms of new-enterprise start-ups. The financial crisis has possibly changed Denmark s ranking, as preliminary statistics for the latest trends show a sharper drop in start-ups in Denmark than in other countries. However, Denmark s point of departure is so good that Denmark is still expected to have decent start-up statistics compared to other European countries. Accordingly, the Danish Government still expects to achieve the first goal. Denmark performs less well in terms of high-growth start-ups. This year s measurement is based on newly-collated OECD and Eurostat data. The new data show that Denmark is in the median range in the international comparison of high-growth start-ups. The data cover only two years, however, and are only available for a limited number of countries. This complicates specifically assessing how far the best countries are ahead. In order to create a better platform on which to assess Denmark s ranking, the analysis is supplemented by an international comparison of high-growth enterprises. These data verify the conclusions drawn by the measurement of highgrowth start-up data. Thus, Denmark is still behind the countries with the largest percentage of high-growth start-ups. In order to achieve the Danish Government s target for high-growth start-ups, Denmark needs to increase the percentage of high-growth start-ups by more than the percentage achieved by other countries Entrepreneurship Index 7

10 Entrepreneurship and the economic crisis Two new indicators from Statistics Denmark shed light on how the crisis has affected entrepreneurship. The indicators show that the number of new enterprises and the percentage of high-growth start-ups were both steadily rising up to This trend reversed when the economic crisis started to unfold in Q The number of new enterprises continued to decline throughout 2008 and sharpened in the first two quarters of The present level of start-ups is the lowest in a decade. Preliminary statistics from other countries mirror the trend. Even so, preliminary data indicate that the decline of start-ups in Denmark and the US is greater than in other countries. There is no similarly sharp decline in Denmark s latest statistics for the number of high-growth start-ups. After having doubled in size from 158 in 2004 to 340 in 2007 the number of high-growth start-ups declined slightly (13 fewer or a 4% decline) from 2007 to The sharp drop in Denmark s start-up rate in 2009 varies from one sector to another. Thus, the Construction sector is experiencing a strikingly more severe and faster decline than Business Services. In return, the decline in number of new enterprises is fairly even across the five regions. Region Zealand is slightly harder hit than the remaining regions, however. Good framework conditions will ensure entrepreneurial activity in the long term Financial trends are significant for variations in entrepreneurial activity, whereas general differences between countries start-up rates and percentage of high-growth start-ups can be explained by the various countries entrepreneurship framework conditions. Previous indexes have demonstrated how factors such as easy access to capital, reasonable regulation and a sound entrepreneurial infrastructure promote a country s entrepreneurial performance. For this reason, each year the Entrepreneurship Index compares Denmark s framework conditions with those of the best-performing countries. The Entrepreneurship Index has been thoroughly revised since last year. The measurements of framework conditions for start-up and growth have been renewed, and more than thirty new indicators are included in this year s Index. The Index shows that Denmark is ranked sixth overall among the countries studied or three positions higher than last year. The countries are so closely ranked, however, that even small improvements in the framework conditions change the countries rankings in relation to one another. The Entrepreneurship Index also shows that Denmark has only slightly improved its framework conditions since This trend is not surpris Entrepreneurship Index

11 ing considering that Denmark, like many other countries, primarily concentrated its efforts over the year on mitigating the effects of the current economic crisis. The countries with the best framework conditions, for instance, experienced a slight worsening of their framework conditions. Since the first Entrepreneurship Index in 2004, Denmark has strikingly improved its framework conditions for entrepreneurship. Today, Denmark is ranked higher than countries like Sweden and Norway, which were far ahead of Denmark in the initial analyses. The leading entrepreneurial countries have also improved over the years, however, and are still ahead of Denmark, but Denmark has narrowed the gap. Denmark s good framework conditions are reflected in the high start-up rate but not in the percentage of high-growth start-ups which, despite an increase, is still below the best-performing countries. This is due to a variety of reasons, including the fact that it takes a while for good framework conditions to result in a higher percentage of high-growth start-ups. Statutory amendments, for instance, should not only be capable of influencing new enterprises but after an amendment has been adopted, it takes up to five years from the establishment of an enterprise before it can be included in the high-growth start-up statistics. In other words, there is a time lag from the time the framework conditions are changed until this affects entrepreneurial performance. Who are the entrepreneurs? A new feature of this year s index is the introduction of a statistical portrayal of new Danish enterprises. The portrayal shows that a typical entrepreneur has a vocational education and at least five years of professional experience. He is 38 years old, married, comes from an ethnic Danish background, is leaving a salaried position and does not have first-hand experience in the sector in which he is starting an enterprise. International comparison of high-growth enterprises A special theme of this year s Index takes an in-depth look at international comparisons of the importance of high-growth enterprises to the economy. These analyses show that the 10% of Danish enterprises with more than 10 employees and which grew fastest from 2002 to 2005 contributed more than 50% of the total number of jobs created in the same period. But they also show that the corresponding contribution to job creation was even greater in other countries like Italy, the Netherlands, Spain and the US. At the same time, the analysis shows that 3 6% of the enterprises in Italy, Spain, the Netherlands, Austria, Canada, the US and Denmark are highgrowth, a figure which is highest in the US and lowest in Austria. There were a total of 601 high-growth enterprises in Denmark from 2002 to This equates to 4% of all Danish enterprises with more than 10 employees Entrepreneurship Index 9

12 In order for Denmark to reach the same level as the US, the number of high-growth enterprises must increase by 290 enterprises. Yet as Denmark s high-growth enterprises also grow less than in the best-performing countries, each high-growth enterprise would have to increase its (employment) growth by 47% on average to bring Denmark up to the same level as the US Report structure Chapter 2 presents the latest data which also cover the crisis including the newly developed indicators from Statistics Denmark for start-up trends and high-growth start-up trends respectively. The number of start-ups is updated all the way to Q High-growth start-up data are updated to The chapter also presents leading indicators for start-ups in a number of OECD countries, with data up to mid A new feature of the Entrepreneurship Index is a statistical portrait (Chapter 3) of entrepreneurs and new enterprises nationwide and broken down by region. The analysis is based on statistics from 2001 to Chapter 4 compares Denmark s entrepreneurial activities with a number of countries. The comparison is based on new OECD/Eurostat data. Chapter 5 widens the focus from entrepreneurs to high-growth enterprises to illustrate some of Denmark s challenges in generating growth and creating jobs. Chapter 6 compares Denmark s framework conditions for entrepreneurship with the top four countries the US, South Korea, Canada and Ireland. Appendix 1 explains how data are normalised to enable the measurement of the combined framework conditions and performance indicators. Appendix 2 reviews all the policy areas in the new model for framework conditions for entrepreneurship. Appendix 3 describes the design of Statistics Denmark s new indicators Entrepreneurship Index

13 2. The Impact of the Financial Crisis on Entrepreneurship Denmark and the rest of the world are currently in the midst of a financial crisis which has caused the deepest recession in decades. Denmark s business community is affected by the decline in international and national demand, which means layoffs, negative economic growth and, as a consequence, falling prosperity. This year s Entrepreneurship Index examines the impact of the economic crisis on the willingness of Danes to start their own business. The analysis is based on brand-new data collated by Statistics Denmark, including new quarterly data for the number of new enterprises and new yearly data for the number of high-growth start-ups. The new statistics make it possible to follow the influx of new enterprises all the way up to Q and the number of high-growth start-ups up to and including The new statistics show that the decline in newly established enterprises started already in Q after several years of substantial increase in the number of new enterprises. The decline occurred at a time when unemployment was still at a record-setting low level and before the negative GDP growth rates. yet it also occurred as the property market was reversing in terms of property prices and equity values and the interest rate increased from early The decline in the number of new enterprises is dispersed almost equally over the five regions. Only Region Zealand is slightly harder hit than the other regions. A similar trend is seen in other countries. The OECD has collected early indicators for start-ups from a number of countries. A decline is seen in every country starting in The decline in other countries does not appear to be quite as dramatic as Denmark s, however. The crisis has not affected the percentage of high-growth start-ups to the same extent. The number of high-growth start-ups has not fallen appreciably, but the number of jobs they create has declined by one-third Entrepreneurship Index 11

14 2.1. New enterprises in Denmark, The annual statistics for the influx of new enterprises show that increasing numbers of entrepreneurs have started their own enterprise since the beginning of this millennium (see Figure 2.1). In addition to a decline caused by the bursting of the IT bubble in 2002, equating to an 8% decline compared to the year before, the influx of newly-started enterprises steadily increased up to Q This was followed by a sustained decline in the influx of new enterprises in the remaining period up to Q The decline worsened after the impact of the financial crisis was felt in earnest in Q The number of new enterprises declined by 42% between Q and Q This is almost 50% less compared to Q The number of startups in mid-2009 is still the lowest since Figure 2.1. Index for the influx of new enterprises, 1994 Q Q2 2006Q4 2007Q2 2007Q4 2008Q2 2008Q4 2009Q2 Note: The figure contains two data interruptions. The data for 1994 to 2001 were calculated on the basis of the old entrepreneurship database. The data were linked to the new entrepreneurship database in Data from 2001 to 2006 are based on the specification of new enterprises in the annual Business Demography, where 2006 equals index 100. New quarterly statistics (see Appendix 3 for specification method) are also included. In the graph, the quarterly average for 2006 represents index 100. Source: Statistics Denmark Entrepreneurship Index

15 Box 2.1. Quarterly and annual statistics for the influx of new enterprises Method: These new data were developed by Statistics Denmark to shed light on the quarterly influx of new enterprises. The statistics supplement the annual statistics for the influx of new enterprises, familiar from the annual Business Demography. As the quarterly statistics are calculated earlier, they must be generated on a slightly different basis from those used in the annual statistics. The statistical method corresponds to the internationally standardised method for generating annual business demographic statistics, which follow enterprise identities over a period of time. Several factors are included as criteria in connection with the quarterly statistics: starting date, demographic relationships and lower threshold limit (see Appendix 2). Season: The new data show obvious seasonal fluctuations. The number of start-ups is high in the first quarter and low in the last. It is still not possible to adjust the data for seasonal variations as this requires a longer sequence of years. For this reason, the trend between a quarter in one year is compared to the same quarter in the following year, e.g. between Q and Q Seasonal fluctuations make it more difficult to decipher the underlying trend. For instance, it can be difficult to see from the figure when the trend reverses. But a comparison of the number of start-ups in each quarter of 2007 with the corresponding quarter of 2006 shows that this number increases in the three first quarters of 2007 compared to 2006, whereas the number of start-ups in Q is lower than in Q Impact of the crisis on the influx of new enterprises The new quarterly statistics for number of start-ups make it possible to assess the extent to which the recession has affected the establishment of new enterprises in Denmark. Economic growth stagnated in 2007, measured in terms of the gross domestic product (GDP), compared to the previous period of 2004 to 2006, typified by relatively high growth. The first major decline in GDP took place in Q Rather striking negative GDP growth is seen from Q Entrepreneurship Index 13

16 Comparing this GDP trend with the trend in number of newly started enterprises shows that the trend for entrepreneurial activity in Denmark correlates with the financial trends. This correlation is also manifested in previous analyses (The Danish Economic Council: Danish Economy, Spring 2003). In other words, the number of newly-started enterprises increases in times of favourable economic trends and declines in periods of stagnation and recession. By contrast, the level of start-ups is determined by the framework conditions for entrepreneurship. Figure 2.2. Gross domestic product, and Q Q2 2009, and start-up trends Q2 2006Q4 2007Q2 2007Q4 2008Q2 2008Q4 2009Q GDP, annual growth rates GDP growth, compared to previous quarter Start-ups, year Start-ups, quarter 0 Note: The gross domestic product is adjusted for seasonal variations and calculated in 2000 prices, linked values. Entrepreneur statistics contain two data interruptions. The data for were calculated on the basis of the old entrepreneurship database. The data were linked to the new entrepreneurship database in Data for are based on the specification of new enterprises in the annual Business Demography equals index 100. New quarterly statistics (see Appendix 3 for specification method) are also included. In the graph, the quarterly average for 2006 represents index 100. It is not possible to seasonally adjust the new leading indicator for number of start-ups, whereas the quarterly GDP growth has been adjusted for seasonal variations. Source: Statistics Denmark The decline in number of start-ups takes place earlier than negative GDP growth, which first occurred in the course of There are several possible explanations for this. One could be the initial drop in equity value for owner-occupied flats which occurred in Q and for single-family houses in Q As entrepreneurs often raise loans for establishing new enterprises based on the economic potential of their personal finances (Statistics Denmark, 2003), the housing market decline Entrepreneurship Index

17 and rising interest rates from mid-2006 could help to explain the early decline in the number of new enterprises. Another possible explanation is prospective entrepreneurs expectations of economic trends e.g. expressed as consumer expectations which are assumed to play a part in the desire to start a new enterprise. To the extent the signs of negative financial forecasts spread before the actual decline, this would also help to explain the earlier decline. A third explanation is the sharp fall in consumer spending after Q2 2008, where the general financial decline also made itself felt. This helps to explain the further decline in prospective entrepreneurs desire to start their own business (see Figure 2.3). Figure 2.3. Consumer spending, Q Q2 2009, DKK million Q1 2004Q2 2004Q3 2004Q4 2005Q1 2005Q2 2005Q3 2005Q4 2006Q1 2006Q2 2006Q3 2006Q4 2007Q1 2007Q2 2007Q3 2007Q4 2008Q1 2008Q2 2008Q3 2008Q4 2009Q1 2009Q2 Note: Consumer spending is adjusted for seasonal variations and calculated in 2000 prices, linked values. Source: Statistics Denmark 2009 Entrepreneurship Index 15

18 Box 2.2. Unemployment and entrepreneurship: necessity or opportunity? When the fluctuation in the number of new enterprises follows economic trends, this indicates that enterprising people see an opportunity for succeeding in setting up their own enterprise when market trends are favourable. This type of correlation is called an opportunity effect: the prospects of establishing a viable enterprise under good market conditions thus result in more start-ups. By contrast, studies of entrepreneurship in Denmark in the early and mid-1990s show that a relatively large percentage of the people who started a new enterprise were unemployed prior to establishing their own enterprise (Export Promotion Agency, Ministry of Business Affairs, 1996). Thus, periods of economic recession with rising unemployment can be assumed to increase the influx of new enterprises. These are instances of a necessity effect where unemployed people react to their situation by establishing an enterprise. The question is whether it is possible at present to see whether the rate of newly started enterprises is affected by rising unemployment. Figure 2.4 shows the trend in both unemployment and the rate of newly established enterprises since Unemployment in Denmark steadily declined up to Q After this, the trend reversed and unemployment increased up to Q If a necessity effect had emerged in this period, it would have been manifested in a larger number of newly established enterprises, but this did not occur. On the contrary, the number of newly established enterprises declined steadily in Q On the basis of this, rising unemployment does not yet seem to have resulted in a clear-cut necessity effect producing more new enterprises Entrepreneurship Index

19 Box 2.2. Continued Figure 2.4. Unemployment and new enterprises, index Q Q Q Q Q Q Q Q Q Q Q Q Q Q2 Unemployment Genuine new enterprises Note: The quarterly average for 2006 represents index 100. Unemployment is calculated quarterly and is not adjusted for seasonal variations. See Appendix 3 for a review of the calculation of genuine new enterprises. Source: Statistics Denmark The reason a clear-cut necessity effect cannot be identified at present could in part be due to changes in entrepreneurial policy. Entrepreneurial policy of the 1990s was used as an instrument of the then unemployment policy. For example, a subsidy was granted to the unemployed when they established their own enterprise. This political approach changed as from the late 1990s, after which the policy has primarily been focused on the positive social impact of new enterprises and thus on creating the best framework conditions for entrepreneurship. Another possible explanation is that any positive effects caused by rising unemployment are overshadowed by the negative effects of generally declining cyclical trends. For this reason, it is presumably too early to completely rule out that a more striking necessity effect will eventually appear New enterprises in other countries The financial crisis is worldwide. Therefore the impact of the financial crisis is also reflected in other countries key figures, including the number of new entrepreneurs. This is also true of the countries which most closely resemble us. International specifications of start-up rates are not available after Nevertheless, the OECD has compiled previous start-up indicators for se Entrepreneurship Index 17

20 lected countries (OECD, Measuring Entrepreneurship, 2009). The statistics are not as comparable as those in Chapter 4, but do indicate the impact of the crisis. The figures show that the decline in newly established enterprises in the US and Germany started in 2006, but did not begin in the other countries until The statistics also show that the decline in newly established enterprises in Denmark in 2008 and especially the first half year of 2009 is much sharper than observed in several of the other countries where statistics are available. It is remarkable, however, that the US ended up at almost the same low level as Denmark in the first half year of Figure 2.5. Early indicators of trends in the number of new enterprises in selected countries (1st half year) Belgium Denmark Finland France Germany Italy USA Note: Definitions are not the same in these countries. Denmark s statistics are based on new entries at the Danish Commerce and Companies Agency. Source: OECD, Measuring Entrepreneurship, New enterprises broken down by sector Most Danish newly started enterprises in 2006 i.e. before the economic crisis were within Retail, Transport, etc. (29%), a sector which includes wholesale trade, retail trade and transport. Almost a quarter of the entrepreneurs were employed in Business Services (24%), whereas the Construction sector and Information and Communication sector accounted for 19% and 7% respectively of all newly-started enterprises. For the purpose of understanding the impact of the economic crisis on entrepreneurship, the new enterprises sector breakdown must be analysed, as susceptibility to market fluctuations varies greatly among the sectors Entrepreneurship Index

21 The trend for Construction, an extremely cyclical sector, departs from the overall picture (see Figure 4). In late 2007, the influx of new enterprises in Construction was already below the 2006 level. This was followed by a sustained decline in the number of new enterprises in the sector. The decline continued in both Q1 and Q2 of The number of new enterprises in Information and Communication and in Business Services also declined in the course of 2008, but the number did not fall below the 2006 level in these sectors until Q The number is lower in both Q1 and Q2 of 2009, compared to the same quarters of previous years. This decline is relatively less than the decline in the influx of new enterprises in Construction, however. From Q4 2007, a decline also occurred in Retail, Transport, etc., the sector responsible for almost a third of newly-started enterprises during the entire period. This decline intensified throughout The impact of the crisis is manifested in the fact that the number of new enterprises within Retail and Transport was 61% lower in Q than in Q Figure 2.6. Index showing the influx of new enterprises, selected sector categories Q Q Q Q Q Q Q Q Q Q Q Q Q Q2 Total Construction Retail, Transport, etc. Information and Communication Business Services Note: The quarterly average for 2006 represents index 100. See Appendix 3 for a more detailed explanation of the data. Source: Statistics Denmark 2009 Entrepreneurship Index 19

22 2.5. New enterprises in the regions The vast majority of new enterprises were started in the Capital Region of Denmark. In 2006 i.e. before the economic crisis more than 37% of all new enterprises were established in the Capital Region of Denmark, whereas 20% were established in the Central Denmark Region and 19% in the Region of Southern Denmark. Newly started enterprises in Region Zealand and the North Denmark Region accounted for 15% and 10% respectively of the total. The new quarterly statistics show that in the first three quarters of 2007 the number of enterprises established in all the regions was better than the 2006 average (see Figure 2.8). A striking increase in the number of newly created enterprises took place in the Central Denmark Region in particular. In the North Denmark Region, the increase in the first three quarters of 2007 was more moderate compared to the 2006 level than in the other regions. In the course of 2008 and part of 2009, the number of new enterprises declined in every region. Region Zealand was the hardest hit in Q The number of new enterprises in this region declined by 53% compared to Q The decline was similarly striking (40%) in the North Denmark and Central Denmark regions. The influx in the Region of Southern Denmark fell by 33% in Q2 2009, compared to the same quarter of the previous year Entrepreneurship Index

23 Figure 2.7. Decline in the influx of new enterprises from Q to Q2 2009, broken down by region -42,2% -39,7% -43,8% -53,5% -32,8% National Survey and Cadastre (G.5-00) Decline in new enterprises from Q to Q (%) Slightest decline (-39, ,8) Medium decline (-53, ,7) Sharpest decline ( -53,5) 2009 Entrepreneurship Index 21

24 Even in the Capital Region of Denmark, which as mentioned was home to more new enterprises than any other region, the influx of new enterprises drastically declined throughout 2008 and in early Thus, 44% fewer enterprises were established in the Capital Region of Denmark in Q2 2009, compared to the same quarter the previous year. Figure 2.8. Influx of new enterprises in Denmark s regions, index Q Q Q Q Q Q Q Q Q Q Q Q Q Q2 Total Capital Region of Denmark Central Denmark Region North Denmark Region Region Zealand Region of Southern Denmark Note: The quarterly average for 2006 represents index 100. See Appendix 3 for a more detailed explanation of the data. Source: Statistics Denmark 2.6. New enterprises broken down by sector and region The Construction sector is prone to cyclical fluctuations (see Figure 2.6). A closer look at regional trends in Construction reveals two regions that set themselves apart. One is the Central Denmark Region, where the number of new enterprises grew by more than the nationwide rate in the first three quarters of 2007 (see Figure 2.9). The other is the Capital Region of Denmark where the number of new enterprises in the sector fell already during Q2 2007, compared to the same quarter the previous year. The trend in the Central Denmark Region did not reverse until Q From Q and up to and including Q1 2009, the decline in the number of new enterprises in the region was much sharper than the nationwide decline. In the Capital Region of Denmark, on the other hand, the number of new enterprises declined less than the national average in this period. The trend in Q differs from previous quarters (see Figure 2.9). Whereas the number of new enterprises in both the regions and Denmark on the whole was strikingly lower than the level for Q2 2008, the decline in Entrepreneurship Index

25 the Central Denmark Region was less than the national average. In the Capital Region of Denmark, the influx of new enterprises in the Construction sector declined by all of 55% compared to Q Figure 2.9. Influx of new enterprises in Construction. Index for selected regions Q Q Q3 Total 2006 Q Q Q Q Q4 Capital Region of Denmark 2008 Q Q Q Q Q1 Central Denmark Region 2009 Q2 Note: The quarterly average for 2006 represents index 100. See Appendix 3 for a more detailed explanation of the data. Source: Statistics Denmark The regions also show regional trends in the Business Services sector. In the Central Denmark Region, the number of new enterprises continued to increase all the way up to 2008, when a relatively drastic decline took place (see Figure 2.10). This trend is markedly different from the Capital Region of Denmark Entrepreneurship Index 23

26 Figure Influx of new enterprises in Business Services. Index for selected regions Q Q Q3 Total 2006 Q Q Q Q Q4 Capital Region of Denmark 2008 Q Q Q Q Q1 Central Denmark Region 2009 Q2 Note: The quarterly average for 2006 represents index 100. See Appendix 3 for a more detailed explanation of the data. Source: Statistics Denmark 2.7. High-growth start-ups Statistics Denmark has developed a new early indicator for the number of high-growth start-ups. As a result, data now apply up to and including This makes it possible to follow the trend in the number of high-growth start-ups with less of a time lag than has been the case with the annual Entrepreneur Database. In this context, high-growth start-ups are defined as one to two-year-old enterprises with five or more employees at the time the enterprise is founded. Over a three-year period the number of employees must grow by an average of 20% a year. Even if trends in the number of high-growth start-ups should also be expected to be somewhat prone to cyclical fluctuations, the crisis has yet to make a striking impact on them. After steadily increasing up to 2007, a minor 4% decline occurred from 2007 to At the same time, the number of high-growth start-ups more than doubled in 2008, compared to Entrepreneurship Index

27 Figure Number of high-growth start-ups, Note: The calculation of high-growth start-ups in 2005 and 2006 is based on an annual calculation related to structural data, whereas the calculations made in 2007 and 2008 are projected calculations based on the ATP employment statistics. See Appendix 3 for a more detailed explanation of the data. Source: Statistics Denmark The most striking trend was seen in Retail, Hotels and Restaurants, which tripled the number of high-growth start-ups in the early years and subsequently experienced a 16% decline in At the same time, Finance and Business Services experienced a 13% increase in 2008 (see Figure 2.12). Figure Trend in the number of high-growth start-ups, , indexed Construction Finance and Business Services Retail, Hotels and Restaurants Manufacturing Note: 2005 equals index 100. The calculations are based on both structural data and new data for 2007 and 2008 respectively, based on the ATP employment statistics. See Appendix 3 for a more detailed explanation of the data. Source: Statistics Denmark 2009 Entrepreneurship Index 25

28 High-growth start-ups were still creating new jobs and growth in Denmark in 2008, although to a lesser extent than previously. Overall, the 340 highgrowth start-ups in 2007 created more than 7,100 additional new jobs from 2004 to In 2008, this figure declined, with high-growth start-ups creating one-third fewer new jobs, i.e. 4,600, from 2005 to Most of the jobs were created in Finance and Business Services from 2004 to 2007, where the 108 high-growth start-ups created almost 2,500 additional jobs (see Figure 2.13). It is worth noting, however, that the definition of growth is partly retrospective as the growth is calculated over a three-year period. As a result the figures for high-growth start-ups for 2008 also reflect the positive market trends from 2005 to Figure New jobs created by high-growth start-ups in 2007 and 2008 respectively, broken down by sector Construction Finance and Business Services Retail, Hotels and Restaurants Manufacturing Other industries Growth Growth Note: The green colour shows new jobs created by high-growth start-ups from 2004 to 2007, whereas the red colour shows the same specification for See Appendix 3 for a more detailed explanation of the data. Source: Statistics Denmark Entrepreneurship Index

29 3. New Enterprises in Denmark, From 2001 to 2006, between 16,000 and 24,000 new enterprises were started each year in Denmark. The number of newly-established enterprises increased 40% nationwide, from the lowest number in 2002 to the highest in 2006, when the boom peaked. The vast majority of new enterprises established in 2006 were sole proprietorships in the Construction sector in the Capital Region of Denmark. Most were started by men in their late thirties. A typical entrepreneur is characterised as having a vocational education and at least five years of professional experience. He is 38 years old, married, comes from an ethnic Danish background, leaves a salaried position and does not have first-hand experience in the sector in which he is starting an enterprise. The same characteristics apply to women entrepreneurs, except that there are fewer of them. The number of entrepreneurs with a long-cycle higher education has increased, especially among entrepreneurs over 40. Entrepreneurs, and high-growth start-ups in particular, are important for getting Denmark back on the growth track, because they create many new jobs every year. Calculations show that new enterprises create 86,000 jobs a year or almost a third of all new jobs created during the course of a year. The small group of high-growth start-ups are especially important. On average, a high-growth start-up creates almost 10 times as many jobs in the first five years of its existence as other entrepreneurs to 2006 This chapter presents a series of key figures for entrepreneurship and new enterprises in Denmark from 2001 to In this period, the number of new enterprises increased to its highest level so far in The trend is shown in Figure 2.1 in Chapter 2. The purpose is to profile the new entrepreneurs in order to contribute new knowledge relevant to the players in society working with entrepreneurial policy. The key figures are based on large administrative databases which have a long production time. This explains why the latest statistics date from Accordingly, they do not take account of the current economic crisis Entrepreneurship Index 27

30 3.2. Ownership in the new enterprises Most new enterprises in 2006 are sole proprietorships, approximately 60% in 2006, which is due to the advantages associated with starting a sole proprietorship. The statutory costs for starting an enterprise as a company also play a part. Many entrepreneurs start their enterprises as a sole proprietorship and convert it into a company (i.e. a private or public limited company) later on. Analyses show that enterprises established as companies generate more revenue and have more employees, a higher rate of survival and more growth (Danish Enterprise and Construction Authority, 2006; Statistics Denmark, 2003). Up through the 1990s and from 2001 to 2006, a relatively greater number of enterprises tended to start out as companies (Danish Enterprise and Construction Authority, 2003). In the latter six-year period, the percentage of new sole proprietorships and partnerships declined slightly, by 4.1%. The decline was counteracted by a slight increase (4.2%) in the number of new private and public limited companies. Figure 3.1. New enterprises broken down by ownership Sole proprietors Companies Other Source: Own calculations based on data from Statistics Denmark The new enterprises sectors Most new enterprises are started within Finance and Business Service, but entrepreneurs in Retail, Hotels and Restaurants and in Construction also constitute a high percentage Entrepreneurship Index

31 The number of new enterprises in Retail, Hotels and Restaurants increased only slightly (2%) from 2001 to Figure 3.2 shows the trends within six sector categories since As the figure shows, Construction experienced the sharpest increase in the number of entrepreneurs of any sector. The Energy and Water Utility sector experienced a dramatic decline (37%) in the number of entrepreneurs in the period indicated, i.e. from 2001 to As the Electricity sector was deregulated as of 1 January 2003, this prompted a number of municipalities to divest their municipally owned power utilities (Sørensen and Larsen, 2006). The decline in the number of newly established companies is presumably related to the fact that the new enterprises were created in the period leading up to the deregulation. Figure 3.2. Trend in the number of new enterprises broken down by sector Energy and Water Supply Finance and Business Services Retail, Hotels, Restaurants, etc. Manufacturing Construction Source: Own calculations based on data from Statistics Denmark. Table 3.1 shows the start-up rates of nine sector categories. As is shown, most start-ups relatively speaking took place in Construction as well as in Finance and Business Services. The start-up rates amount to 14% and 12% respectively in During these six years, the number of entrepreneurs in Construction increased dramatically Entrepreneurship Index 29

32 Table 3.1. New enterprises broken down by sector categories, % Start-up rate Construction 8,6 7,8 8,1 9,6 11,9 14,0 Energy and Water Supply 3,9 5,0 2,5 2,5 2,4 2,3 Finance and Business Services 10,6 9,8 10,4 10,5 11,6 12,0 Manufacturing 5,2 5,2 5,5 5,8 6,4 6,8 Retail, Hotels, Restaurants, etc. 8,6 8,0 8,6 8,7 8,9 8,7 Personal Services 9,3 7,9 6,8 9,8 11,2 9,8 Transport, Postal Services and Telecom 8,1 6,8 6,5 7,2 8,5 9,5 Total 8,8 8,1 8,4 9,1 10,1 10,5 Source: Own calculations based on data from Statistics Denmark Geographic location of the new enterprises The vast majority of new enterprises in 2006 were established in the Capital Region of Denmark (37.5%), followed by the Central Denmark Region, the Region of Southern Denmark and Region Zealand. The North Denmark Region had the lowest number of newly started enterprises. The number of start-ups corresponds to the population base to some extent. This applies both to the population on the whole and when focusing on people aged 16 to 66, the age cohort responsible for most of the startups. Almost a third (30%) of the Danish population resided in the Capital Region of Denmark in This region is followed by the Central Denmark Region and the Region of Southern Denmark, which are roughly the same size with 22% of the population residing in both regions. The North Denmark Region and Region Zealand have the lowest population. However, by comparing the number of start-ups with the age cohort, Region Zealand s start-up frequency is greater than that of the North Denmark Region. Similarly, the Capital Region of Denmark is clearly higher than the other regions. The nationwide average is 6.5 new enterprises per 1,000 inhabitants between the ages of 16 and Entrepreneurship Index

33 Figure 3.3. Establishment frequency broken down by regions 5,5 per thousand 6,0 per thousand 7,9 per thousand 5,5 per thousand 6,5 per thousand National Survey and Cadastre (G.5-00) Number of new enterprises as a proportion of the population between the ages of 16 and 66, per thousand Lowest establishment frequency (5,5) Medium establishment frequency (5,6-6,5) Highest establishment frequency (6,6-7,9) Note: The figure does not take account of regional business structures. Source: Own calculations based on data from Statistics Denmark, National Survey and Cadastre. The breakdown of the combined mass of enterprises in Denmark corresponds to the dispersion of the Danish population. The regions with the most enterprises are the Capital Region of Denmark, the Central Denmark Region and the Region of Southern Denmark. Yet, rather surprisingly, Region Zealand has more enterprises than the North Denmark Region, which is therefore ranked lowest. By comparing the number of start-ups to the combined mass of enterprises in the regions (the start-up rate ), Region Zealand moves up to second place after the Capital Region of Denmark, which is somewhat higher than the rest of Denmark (see Figure 3.4) Entrepreneurship Index 31

34 Figure 3.4. Start-up rates broken down by regions, ,5% 9,9% 11,6% 9,6% 10,6% National Survey and Cadastre (G.5-00) Number of new enterprises as a percentage of the total number of enterprises, % Lowest start-up rate (9,5-9,8) Medium start-up rate (9,9-10,6) Highest start-up rate (10,7-11,6) Number of new enterprises as a percentage of the total number of enterprises, %. Source: Own calculations based on data from Statistics Denmark, National Survey and Cadastre. From 2001 to 2006, Region Zealand also showed the greatest increase in number of start-ups with a more than 40% increase. The Capital Region of Denmark s increase was only 15% Entrepreneurship Index

35 Figure 3.5. Number of new enterprises broken down by region Capital Region of Denmark Central Denmark Region Region of Southern Denmark Region Zealand North Denmark Region Note: New enterprises are defined as all new enterprises established during the year. Source: Own calculations based on data from Statistics Denmark s entrepreneurial database. The municipal breakdown emphasises that the vast majority of start-ups take place in the major cities, i.e. Copenhagen, Aarhus, Aalborg and Odense. Copenhagen s neighbouring municipalities Frederiksberg and Gentofte are close behind. Out of the four major cities Copenhagen, Aarhus, Aalborg and Odense Aarhus saw the greatest increase in the number of entrepreneurs from 2001 to 2006, with a 35% increase. Aarhus was followed by Odense and Aalborg with increases of 28% and 23% respectively. Copenhagen is somewhat below them with a 12% increase. Nationwide, the top performers were the municipalities of Sorø and Fanø, which saw the number of new enterprises double during the period. It is worth noting, however, that small communities usually have relatively few entrepreneurs. This means that even small numerical fluctuations equate to large percentage increases. Hvidovre and Albertslund in the west area of Greater Copenhagen saw the number of entrepreneurs decline from 2001 to The six lowest ranked municipalities in absolute figures are the island communities of Christiansø, Læsø, Fanø, Samsø, Ærø and Langeland Entrepreneurship Index 33