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Scottish Economic Statistics 2003

chapter two: Corporate Sector

Enterprises

Structure of the corporate sector

Whole economy

At the end of November 2001 there were an estimated 243,600 enterprises (including the public sector) with employment in Scotland, which provided a total of 2,351,000 jobs in Scotland. These enterprises generated an annual turnover of 170 billion. There was an estimated increase of 7,000 in the number of enterprises and an increase of 63,000 in employment since the previous year. The breakdown of these enterprises into legal types is shown in table 2.A below.

Table 2.A: Legal status of enterprises in Scotland, 2001

Businesses

Tables 2.1 to 2.5 exclude local and central government establishments. Table 2.1 shows that in the private sector (including not for profit organisations and public corporations) an estimated 243,400 enterprises employed a total of 1,943,200 people in Scotland. The total annual turnover for these enterprises was 163 billion. Approximately 149,000 (61%) of these enterprises were sole traders or partnerships without employees. It should be borne in mind that the significant number of enterprises with no employees is estimated from a combination of sample surveys which are all subject to sampling error. For this reason year on year comparisons, especially containing the smallest size band (enterprises with no employees), should be regarded with caution.

Table 2.1 also shows that the overwhelming majority of enterprises operating in Scotland are small. 92% of enterprises have less than 10 employees and 98% have less than 50 employees. However, most of the employment is in large enterprises - and 44% work in an enterprise that has 500 or more employees. These make up just 0.6% of all enterprises in Scotland.

Between November 2000 and November 2001 there was an estimated increase of 7,000 in the number of enterprises operating in Scotland. Over the same time-span total Scottish employment fell by 1,300. Comparisons over time are affected by a decision by ONS to re-classify primary health care NHS trusts to central and local government in 2001. If the effect of re-classifying primary health trusts is removed the employment would have increased by 53,000 in the year to 2001.

In 2001, business activities, real estate and renting was the sector with the largest number of enterprises (17%), construction (16%) was second, as shown in table 2.2. The business services sector also recorded the largest increase in the number of businesses between 2000 and 2001 (+4,500). Transport, storage and communication (+2,700), construction (+1,900) and manufacturing (+1,800) also recorded sizeable increases.

Employment in business services increased by 23,000, transport, storage and communication recorded a increase of 13,000 jobs, community social and personal services increased employment by 8,000 and construction employed 6,000 more than in the previous year. Manufacturing accounted for 16% of employment. Health and Social work recorded a decrease of 42,000 on account of the re-classification. Mining, quarrying and utilities employed 5,000 less than in 2000. Chart 2.1 shows the data for 2001.

Chart 2.1: Employment in small, medium and large enterprises, by industry group, 2001

Registered enterprises

Some analyses can only be carried out for registered enterprises, that is enterprises that appear on the Inter Departmental Business Register (IDBR). For example this register holds information on date of registration and location that is not available for small, unregistered enterprises. While the registered enterprises account for less than an estimated two-thirds of enterprises, they provide almost 95% of employment. Article A5 provides more in-depth analysis of these enterprises than is given in this chapter.

Table 2.3 shows that the greatest concentration of registered enterprises and their associated employment is in the major population centres. Edinburgh and Lothian, Grampian and Glasgow LEC areas have the largest shares of enterprises, employment and turnover. Between 2000 and 2001 Edinburgh and Lothian, Lanarkshire, Glasgow and Forth Valley each recorded net increases of over 100 in the number of registered enterprises. In Ayrshire and Argyll and the Isles the number of enterprises decreased by 40 or more. Substantial increases in employment were recorded for Edinburgh and Lothian and Glasgow (+9,100 and +7,300). The biggest decreases in employment were in Tayside (-6,600) and Grampian (-5,000).

Changes over time

Tables 2.4 and 2.5 show extra analysis, which was first introduced in last year's SES. These tables allow more in-depth analysis of the data and a better understanding of the causes of the employment changes. As these tables are constructed by tracking enterprises over time they only include enterprises that are on the IDBR. Central and local government have been excluded.

Table 2.4 shows that between 1998 and 2001:

• 700 small enterprises increased to medium or large and over 200 medium enterprises became large, resulting in an increase in employment of about 68,000.
• Just over 100 large enterprises decreased in size-band and 250 medium enterprises became small, resulting in an employment drop of about 22,000.
• There was an increase of almost 139,000 in employment in the 105,000 enterprises who did not move size-bands.

By 2001, 29% of the enterprises operating in 1998 had left the register. However, in November 2001, there were an estimated 42,600 enterprises that had joined the register since 1998 (equal to 28% of the number of enterprises operating in 1998). Most of these would be genuine closures and openings of new enterprises (for example 81% of the enterprises opening had a birthdate after 1st November 1998) while the others might have already existed in other parts of the UK or were closed / created as the result of mergers, take-overs or re-structuring.

This becomes evident when considering that of the 515 large enterprises which had opened, only 50 enterprises had their main UK base in Scotland and only 20 had birthdates after 1st November 1998. This shows that a lot of the openings in the large enterprises could be enterprises opening local units in Scotland for the first time or a result of mergers, takeovers or restructuring.

In chart 2.2 it can be seen that the business activities sector had the most openings between 1998 and 2001. Retail had more closures than other sectors.

Chart 2.2: Number of enterprises that opened or closed between 1998 and 2001, by industry

Scottish Enterprise defines a high growth start-up as an enterprise that has reached 15 employees (or an annual turnover of over 750,000) within three years of starting. Table 2.5 shows enterprises first registered on the IDBR in 1998 ⁷. Of these enterprises:

• About 110 started with more than 15 employees.
• 5 enterprises were based outside Scotland, and all of these were in the large sizeband.
• 44% were no longer on the register three years later.

By 2001, about 90 enterprises had grown to at least 15 employees and of these 15 had 50 employees or more. Of these 90 enterprises, 15 had started with 0 employees and a further 25 had started with 1-4 employees. These 90 enterprises increased their employment by 2,100.

More detailed tables (including data for local authority areas) are available on the internet at http://www.scotland.gov.uk/stats/scs-00.asp

VAT Registrations

Table 2.6 provides the stock of enterprises and number of new enterprises by local authority from a different source to the preceding tables. It is taken from the Department of Trade and Industry's VAT registration statistics. This differs from Scottish Executive data because it only includes enterprises which have their headquarters in Scotland and are registered for VAT. The VAT data can provide comparisons with the rest of the UK as well as details of industry and location.

Regional Selective Assistance (RSA)

RSA is the main national scheme of financial assistance to industry. It provides discretionary grants to firms creating or safeguarding employment in the Assisted Areas (AAs) - areas designated for regional aid under European Community law. The scheme is operated in Scotland by the Enterprise and Lifelong Learning Department of the Scottish Executive.

The economic rationale of RSA is one of market failure - to bring under utilised resources and areas back into the productive economy. Its purpose is to encourage firms to implement projects that will enhance the competitiveness, employment prospects and overall prosperity of the AAs, which cover some 48% of Scotland's population. Offers of grant are made to help projects take place at all in an AA and/or to influence their scale, timing or quality.

Following an external review of RSA, new measures were launched in 2002 to ensure the scheme's continued relevance and contribution to Scotland's economic development in the light of globalisation, the downturn in inward investment and the growth of the knowledge economy. The aim of these changes was to improve the awareness and delivery of RSA, providing more support to high quality projects (such as research & development, commercialisation and other knowledge-intensive activities) and more focus on growing Scottish firms. Further information on the RSA scheme can be found on its new website at www.rsascotland.gov.uk.

Over the period 1997/98 to 2001/02, 1,333 businesses applied for RSA worth 799 million (Table 2.7). These applications resulted in accepted offers of RSA worth 530 million, corresponding with the planned investment of 4.6 billion and the proposed creation and safeguarding of 76,330 jobs. 317 million was paid out to companies in these years.

Of the above figures, foreign-owned firms accounted for 326 million of the accepted offers of RSA, relating to projects with planned investment of 3.5 billion and the anticipated creation or safeguarding of 40,662 jobs (Tables 2.8 and 2.9). UK firms represented 79 per cent of the total number of cases, 38 per cent of the total value of offers accepted and 47 per cent of potential jobs.

Payment of RSA is made in instalments, typically over several years as job and project expenditure targets are met. Not all accepted offers result in full payment, as projects are sometimes scaled down or abandoned before payments are made: experience suggests that, overall, less than two-thirds of the value of offers accepted is ultimately paid out. The accepted offer figures quoted in the tables, therefore, represent the maximum amount potentially payable, and not the total actually paid to date. All job numbers given in this report are based on firms' forecast figures, and are subject to change depending on future economic conditions and other factors affecting the businesses concerned.

All RSA grant agreements include legally enforceable conditions under which the department can seek full or partial recovery of grant monies paid, should breaches of the agreement arise. Over the period 1997/98 to 2001/02, 36.9 million was recovered from projects that had not fully met their grant agreement obligations.

Innovation in Scottish Industry

Introduction

The Framework for Economic Development in Scotland identifies enhancements of productivity throughout all enterprises as the critical element in improving the performance of the Scottish economy. It recognises the role of private enterprises as key drivers of the new economy, focussing on the generation of knowledge and on innovation. Priorities for action include support for innovation, the commercialisation of research and promotion of e-commerce. Indeed Smart Successful Scotland, the Executive's Strategy for the Enterprise Networks, contains twelve indicators of innovation in the Scottish Economy.

Table 2.B: Productivity measures for Scotland (UK=100)

The latest available figures show that Scotland is similar to the UK in productivity across the board. However manufacturing productivity is higher in Scotland while other sectors report lower productivity in Scotland.

Scottish Economic Statistics 2002 contained a text box in chapter 2 describing in outline the range of statistics that the Executive is planning to develop for the New Economy. Some of these statistics are now presented in the context of innovation in the Scottish economy in the remainder of this chapter and in tables 2.10 to 2.14.

The statistics cover the following aspects of innovation:

• Research and Development
• Commercialisation of Intellectual Property
• Patents
• Product and process innovation
• E-commerce
• Competition.

The last two factors enable innovation to spread through the economy. The extent of change in the Scottish economy caused by new businesses and closing businesses is documented above, and in more detail in the article 'Statistical Information on Businesses in Scotland'.

Table 2.C: Gross Expenditure on Research and Development 2000

Research and Development

Gross expenditure on R&D (GERD) includes expenditure by Businesses, Government and Higher Education Institutions.

Business Enterprise Research and Development (BERD) expenditure is measured annually through an ONS survey. Respondents are asked to allocate enterprise R&D expenditure to a plant and Scottish data have been extracted on this basis.

Detailed data are available for 2000 but totals are now available for 2001. In 2000 expenditure in Scotland was 400 million, 3.5% of the UK total. This works out at 250 per employee, compared to the UK average of 600. The figure for 2001 is 512 million, 4% of UK R&D expenditure.

Compared to the size of Scotland's economy BERD expenditure is relatively low, at 0.53% of GDP in 1999, it was less than half of the UK percentage and less than a fifth of the highest region. In the past few years, R&D expenditure by enterprises in Scotland has risen faster that in the UK as a whole. R&D expenditure as a percentage of GDP is shown for regions and countries in chart 2.3; note however that regional GDP data for the UK are currently under review.

Around 6,000 people work in R&D in enterprises in Scotland, 3,500 of them as scientists and engineers. R&D provides employment for 6% of all scientists and engineers in the Scottish labour market. The UK R&D sector provides employment for 13% of UK scientists and engineers.

Chart 2.3: Business enterprise R&D as a percentage of GDP, 1999

Around 600 enterprises undertake significant R&D in Scotland, half of them in manufacturing. Over half of the expenditure is due to 26 large firms (i.e. those employing over 1,000 in the UK).

Research expenditure is analysed by the product that benefits from the research. This is different to the analyses by industrial sector used in the remainder of this publication. Chart 2.4 shows expenditure by product group. Table 2.10 shows the research intensity of selected industries in Scotland, combining information on product groups with employment in the corresponding industrial sectors.

Chart 2.4: Expenditure on R&D in Scotland - selected sectors

The largest BERD expenditure in Scotland in 2000 funded the development of pharmaceuticals and electrical machinery and apparatus; these two sectors account for about half of the total Scottish R&D expenditure in businesses. Pharmaceuticals are also the highest spenders in the UK, followed by aerospace. R&D spending on pharmaceuticals has increased substantially in Scotland in the past few years.

Commercialisation of Research by Higher Education Institutions

Higher Education Institutions, in addition to learning/teaching and research, also have a third role: enabling the use of their intellectual property for economic benefit. University research can be the seed for local knowledge intensive industries. The commercialisation of intellectual property can take the form of companies set up with either university ownership ('spin-offs') or by staff and graduates who are permitted to exploit it ('start-ups'). Patenting and licensing as well as consultancy and placement of academics in enterprises are other forms of commercialising intellectual property.

As table 2.11 shows, 31 spin-out companies were established in 2000/01, Scottish institutions filed 104 patents and granted 107 licences for the use of their intellectual property.

Patents filed and granted in Scotland

The Patent Office publishes statistics on a regional basis. These are derived form the postcode of the applicant. Scottish applicants filed 1,120 UK patents in 2001, 5.3% of UK total. This represents a decline from 5.6% a year earlier. The number of patents granted to Scottish applicants was 107, 3.8% of the UK total in 2001, compared to 4.7% in 2000..

As table 2.12 shows, the percentage of patents filed broadly reflects the regions' share of R&D spending. The patent figures for London are higher than its R&D spending, with the opposite being the case for the research active areas around London.

Innovation

The DTI Innovation Survey (2001) is the UK element of an EU wide Community Innovation Survey. It covers the period 1998-2000. The size of the UK sample is 8,200 enterprises of which 800 are located in Scotland.

Innovation activity is defined as:

• introduction of a new or significantly improved good, service or process;
• longer term innovation activity such as basic R&D or technology watch;
• expenditure in areas such as internal R&D, training, acquisition of external knowledge or machinery and equipment linked to innovation activities; or
• formal co-operation on innovation with other enterprises or institutions.

The differences between Scotland and the UK are not large. Scotland appears to have a higher proportion of large enterprises that are active in product innovation new to the market and in local process innovation.

Table 2.D: Innovation in Scottish businesses

E-commerce

The integration of information and communications technologies into business processes is a key factor for improving productivity. E-commerce can facilitate different management and reporting structures and can speed up and simplify processes, for example ordering, selling, dispatch and stock control. A number of surveys measure progress in this area and four of these are summarised here, starting with surveys undertaken by the national statistical organisations. Definitions and a standard questionnaire have now been agreed for the EU and OECD countries - e-commerce being a relatively new and fast changing area of statistics. In 2002 all EU member states were expected to undertake surveys compatible with the standard questionnaire, although the coverage in terms of business size and sector varied.

For a number of years, DTI and Scottish Enterprise have additionally undertaken an International E-commerce Benchmarking survey. Being a voluntary telephone survey response rates are lower than in the government surveys. The results of this survey are tabulated weighted by business size (measured by employment). Totals therefore closely reflect the situation in larger firms, whereas the government surveys are not weighted in that way (and consequently their totals are similar to the figures for small firms).

The third source of data on e-commerce adoption by businesses is the Scottish E-business Survey, a telephone survey of 11,000 Scottish enterprises. This survey is good for smaller area estimates for Scotland or for an analysis of detailed sectors. It also collects a range of attitudinal data on e-commerce adoption including benefits and barriers.

Table 2.13 shows the data from the business surveys in their most comparable form i.e. excluding government, agriculture, construction, mining and quarrying and some smaller service industries and restricting the analysis to firms employing 10 or more. Table 2.14 presents some results from the Benchmarking Survey. Accordingly 80% of these Scottish enterprises use the internet and 70% have their own website. 12% allow their customers to order over the internet; the figure rises to 35% if the results are weighted by the number of employees.

Use of the internet by consumers

Use of the internet by consumers is an important indicator of the level of social change. For businesses this is important, as increased use of the internet by consumers could encourage Scottish businesses to be more innovative in their marketing and business methods. According to the Expenditure and Food Survey for the period between October 2001 and September 2002, 40% of Scottish households had access to the internet at home. Data on the use of the internet by households and individuals are also being collected by the Scottish Household Survey.

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