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BEMM108

Individual assignment
Growth Businesses are different

QIAN CHENG 630013092


Table of contents

Introduction..................................................................................3

Definition......................................................................................3

Entrepreneurship and Growth Business.......................................3

Discussion about Entrepreneurship..............................................4

Conclusion....................................................................................6

Reference.....................................................................................8
Introduction
In recent years there is an increasing interest of policy makers around the
world to support and foster fast growth enterprises including companies
named gazelles or gorillas in terms of its size and age. These businesses
are often viewed as important driving power of economic growth, employment
rate and even social well-being (Stefan, 2011). However, some firms grow but
others do not, which still remains debated (Candida, Dennis, Robert, 2009)
and leads to the argument that it is a dangerous assumption that all growth
businesses can be a bullet that will create jobs, generate innovation and
conduct sorts of economic benefits (Scott, 2009). This essay will first present
the definition of high-growth business and then dialectically demonstrate the
role of the defined growth business by mainly discussing issues of
entrepreneurial activity before the final conclusion.

Definition
Perhaps the simplest method to distinguish high-growth business from other
firm is to define it according to several predetermined threshold and those
who are satisfied with these threshold can be seen as growth business
(Ahmad, Petersen, 2007). Traditionally, high-growth business often refers to
the concept of gazelle firm which is defined as All enterprises up to five
years old with average annualized growth greater than twenty
percent per annum over a three-year period, and with ten or more
employees at the beginning of the observation period. by OECD
(2007) (Audretsch, 2012). On the other hand, another two basic attributes are
often used to define a high-growth business: a strong growth of size of its
number of employees and this growth of size should happen over an intensive
period (OECD, 2010). Both employment and turnover should be taken into
account and thus high-growth business is defined by the Organization for
Economic Co-operation and Development as all enterprises with average
annualized growth greater than 20% per annum, over a three year
period, and with ten or more employees at the beginning of the
observation period. Growth is thus measured by the number of
employees and by turnover. The definitions from OECD will be adapted as
the standard in this essay.

Entrepreneurship and Growth Business


By traditional view, gazelles, as a subset of high-growth business, may often
be affiliated with entrepreneurial activity (Stefan, 2011) which is one of the
central factors in economic development (David, 2003). Entrepreneurs not
only manage to identify and grab profitable opportunities, they also take risks
in order to achieve their goals (OECD, 2002). Countries with constant
entrepreneurial activities are more likely to generate new products and
services by which older ones are replaced (OECD, 2002). The process
obviously concerns all economic activity and is not only related to high-
technology areas or particular industry. At the same time, entrepreneurship
can characterize the behaviors of both new and well operated firm as well as
small and large business. Due to the breadth of the concept of
entrepreneurship, there is no accurate measurement of entrepreneurship.
However, in practice, new companies and innovation are two main features of
entrepreneurship (OECD, 2002). According to the Knowledge Spillover Theory
of Entrepreneurship (Audretsch, Keilbach and Lehmann, 2006, Acs,
Braunerhjelm, Audretsch and Carlsson, 2009; Audretsch and Keilbach, 2007),
high growth firms are often expected to be related to the firm-oriented
characteristics of size and age and growth firms may particularly expected to
be young and small companies (Audretsch, 2012). The relationship between
entrepreneurship and firm growth can be depicted as figure 1. In this essay,
new and young venture will be seen as one of the main components of growth
business and dialectically discussed.

Figure 1

Discussion about Entrepreneurship


It is generally believed that entrepreneurship is beneficial for economic
growth and national development (Wim, 2013). There are various statements
in the empirical literature presenting the relationship between
entrepreneurship and economic growth and national development (Carree;
Thurik, 2002). It is reported by OECD (2002) that growth firms which are
measured by employment expansion rates and are often related to new and
young firms account for a large portion of jobs created and play as a key role
in economic growth. There exist a general claim of entrepreneurship that new
and young business leads to economic growth and overall development
(Maria, 2008). At the same time, program of supporting entrepreneurship has
become a core part of economic strategies in many countries (Heather; Mark,
2011). Recent studies present that the contribution of the entrepreneurial
activity to employment rate and GDP is increasing (Audretsch & Thurik, 2001;
Birch, 1987; Kumar & Liu, 2005). Audretsch and Thurik (2001) argue that the
entrepreneurial sector plays a more crucial role in national development and
smaller and more flexible entrepreneurial firms become more important in an
increasingly knowledge-based economy (Maria, 2008). Gilbert, McDougall, and
Audretsch (2006) suggest that, in the last 20 years, smaller and more
dynamic businesses have been seen as key drivers of development, and a set
of national policies are designed to promote entrepreneurial activity
everywhere (Maria, 2008). Figure2 shows a conceptual model developed by
Global Entrepreneurship Monitor demonstrating the systematic relationship
between entrepreneurial activity and national economic growth (Amit, 2012).
Figure 2
New firms not only bring macro-economic benefits but also micro-economic
benefits. It is suggested that new startups not only constitute a large part of
high-growth business but also contribute a lot to employment rate (Audretsch,
2012). There is also evidence that new business create more new job than
that of average firms, which leads to its important role in an economy
(Mitusch; Shimke, 2011). Studies by Fritsch and Mueller (2004) using data for
Germany, and Mueller, van Stel and Storey (2008) with longitudinal data from
the Netherlands, and Acs and Mueller (2008) utilizing longitudinal data for the
United States all show significant evidence that new and young companies
considerably contribute to the growth of employment (Audretsch, 2012). Their
studies also observe the impact of the new business on employment over a
period of time after the establishment of the firm. As Figure 3 shows, the
employment impact is high in the first year of the foundation of firm and then
decreases in following years (Audretsch, 2012).

Figure 3
As supporting entrepreneurship becomes one of the core strategies for many
countries in order to make contribution to economic growth, there are also
many studies concern that policy maker believe in a dangerous myth (Scott,
2009) and evidence on whether entrepreneurship contributes to economic
growth is not obvious (Wim, 2013). This belief is flawed since it is not always
the reality that all entrepreneurial business can generate job, enhance
economic growth and boost innovation. It is found that owner of new firm do
less on R&D and their contribution to productivity growth is relatively low
(Wim, 2013). Wim (2013) also argue that majority of entrepreneurs would
earn more than wage employees, and while entrepreneurs bring more job
creations compared to non-entrepreneurs, the quality of jobs they offered is
often low. Therefore not all entrepreneurial activities drive economic
development, and not all entrepreneurs are innovative (Shane, Stam and
Wennberg, 2009). Getting economic growth and new jobs from
entrepreneurial activity is not a number game but to chase for high quality
and high growth, namely not every new and young firm is growth business
(Scott, 2009). Scott Shane (2009) argues that encouraging entrepreneurship
may not be a good policy since new venture is not always the source of
economic growth and job creation. According to the research of Haltiwanger,
Lane, and Speltzer (1999), it is observed that companys productivity often
increases with firm age, which means that most of new firms make worse use
of resources than that of existing larger firm and economic benefits are
achieved more from expansion of large firms than that of new and small
businesses. New firms contribute to a minority of gross and net new
employment. In fact, in order to make the assumption that 50 percent of net
new jobs are generated by new businesses all firms that are nine years old or
less have to be considered as new business (Scott, 2009). Anyone knows
that nine-year-olds are not new. In Daniel and Rosss view (2014), it is
wrong, at least misleading, by saying that Small business is the
backbone of our economy (Obama, 2010) or New businesses are
the lifeblood of a healthy economy (Cameron, 2013) because it is
more wise to bet on high-growth firms than on new and young business which
is often seen as a subset of all high-growth firms.

Conclusion
By definition, growth business should take all enterprises with average
annualized growth greater than 20% per annum, over a three year
period, and with ten or more employees at the beginning of the
observation period. Growth is thus measured by the number of
employees and by turnover into account and new and young firms
count little among all growth firms. In reality, it is a small minority of new and
young businesses that grow significantly and create the majority of economic
and other benefits. Entrepreneurial business as kind of growth business is
often associated with employment, economic development and innovation.
However, when it comes to relationship between entrepreneurship and
employment, the results are often different (Audretsch, 2012). In fact, those
high-growth firms contribute to most of the employment rate growth are often
larger and more mature and they tend not to be in any particular industry or
sector. Growth represents a phase during the life of an enterprise and it is not
a characteristic of a specific subset of firms. Studies of Davidsson, Steffens
and Fitzsimmons (2006) suggest that growth may not be a good sign of
enterprise development. Another fact is that in any country, high-growth
businesses represent a minority of the overall number of enterprises. As is shown
in the figure 3 which is the data collected by OECD, these firms represent on
average 3-6% and 8-12% of all firm population when growth is measured by
employment (Figure 3.1) and turnover respectively (Figure 3.2). The number of
new and young growth business is also very small in all countries. The gazelles
represent on average less than 1% and 2% by employment and turnover
respectively of the total population (Figure 3.3, Figure 3.4), and less than 1/5 of
high-growth enterprises. Nevertheless, the main trends of high-growth business
also apply to new firms namely gazelles. It is reported by OECD (2008) that high
growth in young manufacturing firms is more likely to occur in terms of turnover
and in services industry high growth in new firms happens in terms of both
employment and turnover.
Figure 3.1

Figure 3.2

Figure 3.3

Figure 3.4

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