New Zealand Business Demography Statistics (Business Dynamics): February 2007

New business demography dynamic series

This is the first official publication of a new business demography dynamic statistics series, based on a recently developed statistical resource, the Longitudinal Business Frame (LBF). The release includes a new range of statistical measures, including counts of the births and deaths of enterprises, and analysis of the survival rates of new enterprises. The births and deaths counts, and survival rates, are presented by industry and business size.

To enable trends to be studied, the series has been backcast to February 2001 and released on a provisional basis. It is expected the largest revisions will occur in the most recent reference periods. This is mainly due to the lags associated with the processing of administrative data. Analysis of the 2007 deaths data should be completed with caution. The data is preliminary until the February 2008 snapshot is available.

Newly developed methods make it possible to identify with greater certainty the level of real enterprise births and deaths, as opposed to enterprise entries and exits that include dormant enterprises, reactivations, and administrative churn (such as company restructuring and ownership changes). This is in line with the development of international standards for business demography by Eurostat and the Organisation for Economic Co-operation and Development, and comparable to methods used by other countries. The technical notes included in this release detail the methodology used.

This release follows the initial publication of an improved set of business demography structural statistics on 26 February 2008 which presented a snapshot of the structure and characteristics of New Zealand businesses. The business demography series now covers all industries, and includes an expanded coverage of New Zealand businesses.

 

Business demography statistics

Business demography statistics provide an annual snapshot (as at February) of the structure and characteristics of New Zealand businesses. The series covers economically significant individual, private sector and public sector enterprises that are engaged in the production of goods and services in New Zealand. This generally includes all enterprises with GST turnover greater than $30,000 per year.

New Zealand business demography statistics are provided in two separate releases:

• The already released structural statistics provides an annual snapshot (as at February) of the structure and characteristics of New Zealand businesses. It includes statistics on a range of variables including industry, region, institutional sector, business type, size (employment levels), and degree of overseas ownership.
• This release presents business dynamics statistics. Business dynamics count the number of enterprise births and deaths that occurred over the previous 12 months, and analyse the survival of new births over time.

The structural statistics can be accessed through Table Builder on the Statistics New Zealand website. The tables now have data available to area unit, added as part of the making more information freely available initiative.

Total number of enterprises and geographic units

At February 2007, the number of enterprises on Statistics NZ's Longitudinal Business Frame (LBF) was 463,380. The number of geographic units (business locations) corresponding to these enterprises was 499,940. These businesses engaged a total of 1.923 million employees. See the business demography structural release for more detailed data on counts of businesses.

Births and deaths of enterprises

Births and deaths of enterprises are new statistical measures introduced with this release. Births and deaths are presented on an annual basis, as at February. For a birth or death to be counted in a reference period, it must have occurred at some stage during the year (start of March to the end of February), and not have a changed status by the February reference point. For example, an enterprise which ceased operation at some stage during the year, and then recommenced operation before February, will not be counted as a death. In the commentary and graphs below for births and deaths, the term 'February' (eg February 2007) is used to describe this annual reference period for measuring births and deaths.

In the February 2007 reference period 60,440 new enterprises started operation (births). These new enterprises accounted for 13 percent of the total number of enterprises (463,380) in New Zealand at February 2007. In the February 2007 reference period it is estimated that 54,410 enterprises ceased operation (although this a preliminary estimate and should be treated with caution). There was an overall increase of 2 percent in the total number of enterprises from February 2006 to February 2007.

Over the period 2001 to 2007, the number of enterprise births each year has varied from 42,850 to 70,600. Note that the 2004 figure of 70,600 is influenced by a methodology change and needs to be interpreted with caution (see the technical notes). The number of enterprise deaths has varied from 37,790 to 54,410 over the period 2001 to 2007. In every year from 2002, the number of births exceeds deaths and consequently there has been steady growth in the total number of enterprises each year to 2007.

The number of births each year can be expressed as a birth rate (percentage) by dividing the number of births by the total population of enterprises. Over the period 2001 to 2007, the annual birth rate of new businesses varied between 12 and 17 percent. Note that the high value in 2004 (17 percent) coincides with a change in methodology (see the technical notes). The annual death rate varied between 10 and 12 percent. The resulting business turnover rate (sum of the birth rate and death rate) ranged from 23 percent to 27 percent.

Breakdown of births and deaths

Births can be analysed further and classified as:

• surviving births (births that survive at least one reference period in the business demography population)
• short-lived births (births that do not survive one period in the business demography population, either due to death or dormancy)

and

• pure births (births that have a recent birth date. The birth dates of all geographic units and the enterprise are less than two years from the February reference period).

Analysis of births over the periods 2001 to 2007 suggests around four in five births survive at least one reference period (surviving births). Of the 63,040 births in the February 2006 reference period, 51,390 survived until February 2007, representing 82 percent of total births.

Analysis of births over the periods 2001 to 2007 shows that between 82 percent and 88 percent of births can be classified as pure births. The remaining births are likely to be reactivations (existing enterprises which have been dormant for a period of time and come back into the business demography population).

Births by industry

In the February 2007 reference period, the property and business services industry had the largest number of births (43 percent of total births), followed by construction (12 percent) and agriculture, forestry and fishing (8 percent). From 2001 to 2007 the property and business services industry has had the highest number of births in each year.

In the February 2007 reference period the government administration and defence industry had the lowest number of births, followed by electricity, gas and water supply and then mining. These three industries consistently had the lowest number of births over the period 2001 to 2007.

Deaths by industry

In the February 2007 reference period the property and business services industry had the largest number of deaths (39 percent of total deaths), followed by construction (12 percent), agriculture, forestry and fishing (11 percent) and retail trade (8 percent). Industries with low death numbers included government administration and defence, and electricity, gas and water supply.

Births by employee size group

In the February 2007 reference period, the majority of births were non-employing enterprises (86 percent). Twelve percent of the births were in the one to five employees category. All other employee size categories had small numbers of births. This is a consistent trend over the period 2001 to 2007. Only in 2001 did enterprises with 100 or more employees record more than 10 births. In total, the new enterprises for 2007 had 30,500 employees, which is approximately 1.5 percent of the total number of paid employees for all enterprises.

Deaths by employee size group

In the February 2007 reference period, the majority of enterprise deaths were non- employing businesses (91 percent). A further 7 percent were in the 1 to 5 employees category. In total the ceased business had 23,100 paid employees (approximately 1 percent) of total paid employees.

Surviving births

The longitudinal nature of the LBF (source data for business demography statistics) allows enterprise births in any reference period to be tracked over subsequent years. Survival rate statistics can be used to analyse the rate of survival of new births, by both industry and business size. Survival rates are calculated as the percentage of births in each reference period that survive into future reference periods in the business demography population (surviving births divided by total births for a particular reference period). To be considered a survivor the birthed enterprise must exist in the specified succeeding reference period, as well as every reference period in between.

Survival rates of enterprises birthed in 2001

The analysis presented below concentrates on enterprises birthed in 2001. Similar trends are observed for enterprises birthed from 2002 to 2005.

In the February 2001 reference period there were 42,850 new enterprise births. Of these, 79 percent survived the first year, 66 percent survived the second, 57 percent survived the third, 50 percent survived the forth, 45 percent survived the fifth, and 40 percent survived the sixth (2007).

Non-employing enterprises had a significantly lower proportion (37 percent) of new births surviving the six years to 2007 than businesses with paid employees. This compares with 56 percent of the 1 to 5 employee size group that survived, and the larger employee size groups with a 59 percent survival rate or higher.

Industries with higher survival rates over the six years included mining (69 percent), government administration and defence (67 percent), health and community services (54 percent), and finance and insurance (54 percent). Lower survival rates were observed for communication services (28 percent), cultural and recreational services (33 percent), and property and business services (35 percent).

For technical information contact:
Mathew Page, Christchurch 03 964 8700
or Geoff Mead, Auckland 09 920 9100
Email: info@stats.govt.nz