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Scottish Economic Statistics 2004

B2 chapter two: Corporate Sector

Enterprises

Structure of the corporate sector

Whole economy

The total number of enterprises active in Scotland increased by 4%, since 2002, to 262,750 in November 2003. The associated employment of these enterprises was 2,375,110, an increase of 17,920 over the year. These enterprises also generated turnover of 168 billion. Table 2.A shows a breakdown of enterprises by legal status. The table shows that over one third of enterprises registered for VAT or PAYE are companies and their associated employment accounts for half of total employment.

Details of data sources, calculation methods and reclassifications since last year can be found in the Definitions, Methodologies and Sources section.

Tab le 2.A: Legal Status of enterprises in Scotland, 2003

Private sector

Tables 2.1-2.5 exclude the public sector (i.e. local and central government). Table 2.1 shows the estimated number of enterprises in the private sector is 262,545, an increase of 10,460 since 2002 ¹⁵. There has been a decrease in employment of 91,360, since 2002, to 1,858,430, but this is due to a classification change. ONS decided to re-classify NHS trusts to the government sector in 2003, and while this affects relatively few large enterprises the discontinuity in the employment and turnover tables is considerable. The re-classification removed employment of 95,530 from the Health and Social work sector with a turnover change of -4.7 billion in 2003. For more information please see the Definitions, Methodologies and Sources section.

The majority of enterprises have 0 employees (i.e. only comprise the proprietors), with 64% of enterprises in this sizeband. In addition, 93% are micro (0-9 employees) and 98% are small (0-49 employees). However, the sizeband with the greatest share of employment is the 500+ employee sizeband, with 42% of employment. Enterprises in the private sector generated an annual turnover of 165 billion, an increase of 4 billion since 2002.

Industrial sectors

Table 2.2a shows that the sector with the most enterprises was the Business Activities, Real Estate & Renting sector (18%) followed by the Construction sector (15%). The sector with the least number of enterprises was the Mining, Quarrying & Utilities sector (0.8%). The Business Activities, Real Estate & Renting sector also had the greatest increase in enterprises (+4,855) followed by Transport, Storage & Communication (+2,780). The Health & Social work sector saw the greatest decrease since 2002 of 2,595 enterprises, partly due to the reclassification.

The Business Activities, Real Estate & Renting sector had the most employment in 2003 (15%) followed closely by the Manufacturing sector (14%) and the Retail Trade & Repairs sector (13%). The Business Activities, Real Estate & Renting sector (+17,860) and Financial Intermediation (+8,650) both experienced the greatest increases in employment since 2002. Chart 2.1 shows the data by employee sizeband for 2003.

Manufacturing generated the highest turnover of all sectors, amounting to 20% of the overall total.

Chart 2.1: Employment in Small, Medium and Large Enterprises, by Industry group, 2003

Registered enterprises

Registered enterprises are enterprises that appear on the Inter-Departmental Business Register (IDBR) which indicates that they have registered for VAT and/or PAYE. The number of unregistered enterprises is estimated annually, but it is not possible to determine the location of these enterprises. Table 2.3 shows the location of the registered enterprises by Local Enterprise Company area.

Table 2.3 shows that the areas with the most registered enterprises were Edinburgh & Lothian (16%), Grampian (12%) and Glasgow (11%). Also, the areas with the most employment were Edinburgh & Lothian (19%), Glasgow (16%) and Grampian (11%). Despite the fact that there are more enterprises in Grampian than Glasgow there is more employment in Glasgow, indicating that there are more small enterprises in Grampian, as illustrated in the table.

Changes over time

Tables 2.4a, 2.4b and 2.5 show extra analysis which examines change in employment between 2000 and 2003 of enterprises that were in existence in 2000 and 2003.

Table 2.4a shows that

• 550 enterprises increased from small to medium or large between 2000 and 2003
• 200 enterprises increased from medium to large in the same period
• These changes generated an increase in employment of 43,790.

Also between 2000 and 2003, 43,485 enterprises with 312,990 employment left the IDBR and 42,285 enterprises joined the register, creating 223,950 employment.

Chart 2.2 shows the distribution of these openings and closures by sector. The chart shows that the Business Activities, Real Estate and Renting sector had most openings and closures, followed by the Retail Trade and Repairs sector. Further analysis on business change can be found in the panel on business growth.

Chart 2.2: Number of enterprises that opened or closed between 2000 and 2003, by industry

Table 2.4b also shows change in employment between 2000 and 2003, but only for enterprises that were first registered in 2000. Table 2.4b shows

• 195 enterprises grew from 0-9 employees to 10 or more between 2000 and 2003;
• 105 enterprises grew from less than 15 employees to 15 or more between 2000 and 2003;
• 85 new companies started with less than 10 staff in 2000 but managed to grow to 15 or over by 2003;
• These enterprises which grew and moved into a higher sizeband increased their employment by 3,620 over the 3 years;
• 45% of new starts in 2000 had left the register by 2003, the majority of these were in the 0-9 employee sizeband.

Table 2.5 shows the change in employment between 2000-2003 but differs from Table 2.4a as it is based on actual change of employment, not change of employee sizeband. Table 2.5 shows:

• 35% had the same employment in 2000 and 2003;
• 29% closed between 2000 and 2003;
• 18% increased employment and 17% decreased employment.

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

VAT Registrations

Table 2.6 shows the stock of enterprises and new businesses based on the Department of Trade and Industry's VAT registration statistics. These figures are an indication of the size of the business population and the number of new business start-ups, but differs from the Scottish Executive data because it only includes enterprises who have their headquarters in Scotland and are registered for VAT. VAT statistics are also available for the rest of the UK, allowing comparisons with Scotland.

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 current AA map will be in place until end December 2006.

The scheme's 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. It is operated in Scotland by the Enterprise, Transport and Lifelong Learning Department of the Scottish Executive.

Over the last 5 financial years 1999/00 to 2003/04, the Executive received 1,257 applications for RSA totalling 665 million (Table 2.7). Over the same period 935 offers of RSA were accepted totalling 415 million, linked to planned capital investment of 2 billion and the proposed creation and safeguarding of 60,250 jobs. 244 million was paid out to companies in these years.

Of the above figures, UK-owned firms accounted for 197 million of the accepted offers of RSA, relating to projects with planned investment of 989 million and the anticipated creation or safeguarding of 29,529 jobs (Table 2.8). UK firms therefore represented 80 per cent of the total number of cases, 48 per cent of the total value of offers accepted and 49 per cent of potential jobs.

Around three-quarters of RSA offers accepted are from manufacturing companies (Table 2.9). Of these, the largest number relate to companies manufacturing electrical and optical equipment. These accounted for 34% of the total value of RSA offers accepted over the last 5 years.

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 1999/00 to 2003/04, 50.6 million was recovered from projects that had not fully met their grant agreement obligations.

Further information on the RSA scheme can be found at www.rsascotland.gov.uk.

Innovation in Scottish Industry

Introduction

The Framework for Economic Development in Scotland recognises innovation as a key driver of productivity. Changes in the corporate stock contribute to innovation as generally the more innovative firms will tend to replace the output of less innovative ones. Measures of the magnitude of these dynamics have been presented above. The remainder of the chapter looks at direct measures of innovation inputs and outputs:

• Research and Development
• Commercialisation of academic knowledge
• Patents
• Innovative products and processes
• Use of e-business techniques.

Productivity

Scotland's performance is a little below the United Kingdom average. For 2000 the Regional Competitiveness Indicators compiled by the Department for Trade and Industry show the following comparison between Scotland and the UK:

Research and Development

Gross Expenditure on R&D (GERD) includes expenditure on R&D (2002 figures) undertaken in

With 1.75% of GDP the total R&D effort in Scotland reaches 95% of the level of the UK and about three quarters of the OECD average, as Chart 2.3 shows.

Chart 2.3: Breakdown of gross expenditure on R&D as a % of GDP, 2002

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.

The 2002 expenditure in Scotland of 640 million represents 4.9 per cent of the UK total. This works out at 390 per employee in Scotland, compared to the UK figure of 670.

Compared to the size of Scotland's economy, BERD expenditure is relatively low; in 2002 reaching 0.77 per cent, around three fifths of the equivalent UK percentage and a quarter of the rate in highest region (Chart 2.4).

Chart 2.4: Business Enterprise R&D expenditure as a percentage of GDP, 2002

Around 11,000 people work in R&D in enterprises in Scotland, 6,500 of them scientists and engineers. R&D provides employment for 9% of all scientists and engineers that work in Scottish businesses, compared to 11% in the UK.

Around 900 enterprises undertake significant R&D in Scotland, half of them in manufacturing. Over half of the expenditure is due to the 55 large firms (i.e. those employing over 400 in the UK).

Research expenditure is analysed by the product that benefits from the research, thus ensuring that R&D contracted out is allocated to the final product. This is different to the analyses by industrial sector used in the remainder of this publication. Chart 2.5 shows how expenditure for important product groups has changed over time. The chart also illustrates the substantial increase in R&D expenditure in Scotland over the past few years. Adjusted for inflation, R&D undertaken in enterprises was worth 324 million in 1994, 422 million in 2000 and 640 million in 2002. 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 2.5: Expenditure on R&D 1994 - 2002 (constant 2002 prices)

The largest BERD expenditure in Scotland in 2002 funded the development of pharmaceuticals and electrical machinery ¹⁶, 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.

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 direct economic benefit. The commercialisation of intellectual property can take the form of companies set up with university ownership ('spin-offs') or by allowing staff and graduates to use IP for the purpose of setting up new enterprise ('start-ups'). Patenting and licensing as well as consultancy and placement of academics in enterprises are other important forms of commercialising intellectual property.

As Table 2.11 shows, 23 spin-off companies were established in 2001/02, Scottish institutions filed 167 new patents and granted 102 licences for the use of their intellectual property. These commercialisation activities amount to between 13% and 17% of the UK total.

Patents filed and granted

The Patent Office publishes statistics on a regional basis. These are derived from the postcode of the applicant. Scottish applicants filed 1,165 UK patents in 2002, 6% of the UK total. The number of patents granted to Scottish applicants was 163, being 5% of the UK total in 2002.

Table 2.12 shows the number of patents filed by UK region. The filing of patents relative to the amount of Business R&D spending varies considerable between the regions; the number of Scottish patent applications is slightly above the UK level on that measure.

Innovation

The UK Innovation Survey (2001) is the UK element of an EU wide Community Innovation Survey. It covered the period 1998-2000 and found that 44% of Scottish firms were innovative - very slightly, but not significantly, below the UK level. The survey is to be repeated in 2005 to capture innovation activity that has taken place between 2001 and 2004.

E-commerce

E-business processes are increasingly becoming more important for businesses, for improving and maintaining efficiency and competitiveness in the Scottish economy. Adoption of these processes are currently measured via various surveys, within and outwith Scotland.

The Scottish E-Business Survey (SEBS) is in its fourth year and is carried out by Scottish Enterprise and Highlands and Islands Enterprise. The survey samples around 12,500 businesses each year and takes the form of a voluntary telephone survey. This survey collates information on adoption of e-business applications and but also attitudes to e-business and its perceived relevance to businesses. Table 2.13 shows the number of businesses that use e-business processes such as e-mail and the internet has risen steadily between 2001 and 2003. The number of businesses that have their own website has also increased recently. In addition, more businesses consider e-business to be relevant to their needs than before, with the number of businesses considering it to be important rising from 37% in 2001 to 55% in 2003.

The International Benchmarking Survey (IBS) has been running for 7 years and is sponsored by the Department of Trade and Industry (DTI). Over 8,000 businesses in 11 countries worldwide contribute to it, namely the UK, Australia, Canada, France, Germany, Italy, Japan, the Republic of Ireland, South Korea, Sweden, the USA and some results are available by UK region. Survey results are weighted by employee distribution to allows more meaningful comparisons between countries. Selected results are shown in Table 2.14. Table 2.14 shows that Scotland is not far behind its European counterparts when it comes to adopting e-business practices in the workplace. In fact, there was a greater percentage of businesses that have and use a website, internal and external e-mail and trade online than there were in France, in 2003.

Table 2.1: Number of enterprises ^1,2 in Scotland, and their total Scottish employment, 1999-2003

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