The Scottish Government

« Previous | Contents | Next »

Listen

Chapter two: Enterprises

Introduction

This chapter presents data on Scottish business stock and innovation activity. The first section provides an analysis of the Scottish Corporate sector. The timetable for this analysis was brought forward last year and consequently data for 2005 and 2006 have been published since the last Scottish Economic Statistics publication. The timetable change took place to allow for more comparable analysis with UK figures and more timely data. For more information on the timetable change please see the 2006 Corporate Sector Statistics ¹ publication. The analysis below will mainly focus on the latest figures, which are based on a March 2006 extract of the Inter Departmental Business Register ( IDBR).

Table 2.A: Legal status of enterprises in Scotland, 2006

Source: Scottish Executive, ONS ( IDBR)
Note: Totals may note equal the sum of the constituent parts due to rounding.
1 Registered for VAT and/or PAYE

Structure of the economy

The total number of public and private enterprises active in Scotland in March 2006 was 265,640. The associated employment and turnover of these enterprises was 2.4 million and £196 billion respectively. Table 2.A shows a breakdown of these figures by legal status.

Private Sector

The estimated number of enterprises in the private sector in Scotland (excluding central and local government) was 265,435 in March 2006 (up 0.1% since 2005) ( Table 2.1). The associated employment and turnover of these enterprises was 1.88 million and £181 billion respectively.

The sector with the highest proportion of all enterprises was the 'Business Activities, Real Estate and Renting' sector (16%) followed by the 'Construction' sector (16%). The sector with smallest proportion of all enterprises was the 'Motor trade including vehicle repairs and fuel sales' (2%) ( Table 2.2a). The 'Business Activities, Real Estate and Renting' sector also had the most employment in 2006 (16%) followed by the 'Retail trade and repairs sector' (13%) and the Manufacturing sector (13%) ( Table 2.2b). Manufacturing generated the greatest proportion of turnover of all the sectors (17%) ( Table 2.2c). Chart 2.1 shows employment by employee size band for each industry group.

Chart 2.1: Employment in small, medium and large enterprises, by industry group, 2006

Source: Scottish Executive, ONS ( IDBR)

Registered Enterprises

The figures above relate to all enterprises operating in Scotland. This includes registered enterprises ( i.e. those registered for VAT and/or PAYE) and unregistered enterprises (enterprises with no employees, estimated from a combination of surveys). Information on the location of enterprises is, however, only available for registered firms, and Table 2.3 shows the location of the registered enterprises by Local Enterprise Company ( LEC) area. The areas with the most registered enterprises and employment, were Edinburgh and Lothian (16% of enterprises and 19% of employment), Grampian (13% of enterprises and 11% of employment), and Glasgow (11% of enterprises and 16% of employment). In comparison to Glasgow, Grampian has a higher number of enterprises but lower employment, indicating a relatively smaller average business size in Grampian LEC.

VAT Statistics

Statistics on VAT registrations and de-registrations, as well as the start-of-year stocks of all VAT registered businesses, are released annually by the Small Business Service ( SBS) at the Department of Trade and Industry. The data does not provide a complete picture of business activity as only companies with an annual turnover of £60,000 or more ( VAT threshold for 2005/06), are required to register for VAT. The figures consequently exclude around half of all firms. VAT statistics are available on a consistent basis for all of the UK, allowing comparison with Scotland.

It is important to note that the SBS data differs from the Scottish Executive Corporate Sector statistics because they only include enterprises who have their headquarters in Scotland and who are registered for VAT. The Scottish Executive figures additionally include enterprises which are based outside Scotland but have business units in Scotland, and also those enterprises which are not registered for VAT but are registered for PAYE.

The stock of VAT registered enterprises has increased steadily since 1997, with highest year on year percentage changes taking place in 1998, 1999 and 2006 (Chart 2.2).

Chart 2.2: Change in stock of VAT registered enterprises in Scotland, 1997-2006

Source: DTI, SBS 2006

Business registrations and de-registrations

The SBS statistics on VAT registrations and de-registrations are the best official source for estimating business start-ups and closures. However, it should be noted that the number of business de-registrations is not a direct measure for the number of business "failures". Businesses can de-register for VAT for a number of reasons, e.g. de-registration could be associated with a merger with another firm to form a new business.

Table 2.4 shows the stock of enterprises, new registrations and de-registrations, along with per head figures to allow comparisons across areas. Scotland has a lower rate of both registrations and de-registrations (28 and 24 per 10,000 population respectively) compared to the UK (37 and 31 per 10,000 population respectively). However, these rates vary across Scotland. For example, Stirling, Aberdeenshire and Highland all have high registration and de-registration rates that are well above the average for Scotland. Meanwhile, West Dunbartonshire and Inverclyde have registration and de-registration rates that are well below the Scottish average. This is reflected by the business stock figures; of all the mainland local authorities, business density ( VAT registered stocks per 10,000 population) is highest in Aberdeenshire and Highland, and lowest in West Dunbartonshire and Inverclyde. This highlights the correlation between the level of registration and de-registration and business density.

Business Survival Rates

Business survival rates can be calculated using the SBSVAT statistics. The survival rate is the proportion of businesses that register for VAT in a given year that have not de-registered within a certain timescale. Businesses that are registered for VAT can be tracked from the time they first register until the time that they notify HM Revenues & Customs that they have ceased trading or that their turnover has fallen below the VAT threshold. The turnover threshold for VAT registration in November 1995 was £47,000, rising each year to £60,000 in April 2005.

Table 2.5 shows the survival rates in Scotland up to 10 years after registration. These figures suggest that since 1995, survival rates in Scotland have been rising, despite levelling off in recent years. For example, of all the businesses who registered in 1995, 88.5 per cent were still registered one year later. This 1 year survival figure had risen to 91.4 per cent by 2004.

Innovation in Scottish Industry

Introduction

Innovation is central to productivity and competitiveness and is a key factor in the growth of the Scottish economy. For any business, innovation is crucial to maintaining profitability, meeting competition and providing customers with high value products and services. Such innovation activity is broad, extending beyond the development of new technology and knowledge, to include the dissemination and use of such knowledge, and the improvement of organisation and management strategies. The remainder of this chapter considers Scotland's performance across the different aspects of innovation, including:

• Research and development
• Innovative products and processes
• Commercialisation of academic knowledge
• Patents
• Use of e-commerce

Research and development

Gross Expenditure on Research and Development ( GERD) is comprised of R&D undertaken by the business, government and higher education sectors. The latest data for 2004 found that Scottish GERD was £1,379 million, which is 7 per cent of the total UK figure and represented 1.46 per cent of Scottish GDP, compared to 1.72 per cent in the UK.

Business Enterprise Research and Development ( BERD) expenditure is measured annually through an ONS survey. The most recent survey in 2005 ², found that BERD expenditure in Scotland was £584 million, which represents 4.4 per cent of the UK total. Expenditure increased from £494 million in the previous year (16% in real terms). This is the highest level of Scottish BERD in cash terms since 1999, however in real terms it is just below the levels seen in 2001 and 2002. Over the longer term, BERD in Scotland has increased by 29 per cent in real terms in the 6 years between 1999 and 2005, compared to a real terms increase of 3 per cent in the UK.

Compared to the size of Scotland's economy, BERD expenditure is relatively low, reaching only 0.59 per cent of GDP, nearly half of the UK equivalent figure (1.08%). Compared to other UK regions Scottish BERD is in the third quartile and is less than a fifth of the rate in the highest region of the UK (Chart 2.3). The level of business R&D in Scotland is also relatively low when compared to the OECD average, as illustrated in Table 2.6.

R&D 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 analysis by industrial sector used elsewhere in this publication. In 2005, nearly two thirds of Scottish BERD supported just three product groups: 'Pharmaceuticals' (40%); 'Precision Instruments' (17%); and 'Radio, TV and communication equipment' (9%). Table 2.7 shows how expenditure for broad product groups has changed over time.

Chart 2.3: BERD as a % of GDP in UK regions 2000 and 2005

Source: Scottish Executive, ONS.

Over three quarters of R&D undertaken by businesses in Scotland was funded by UK businesses. The largest companies (400 employees and over) accounted for 72 per cent of BERD expenditure, while companies employing 100 to 399 employees accounted for a further 12 per cent. American owned firms undertook 50 per cent of BERD in Scotland, followed by Scottish based firms (24%).

Although business expenditure on R&D is relatively low, Scotland performs better on other measures of R&D. Scotland performs very well in terms of Higher Education R&D ( HERD). In 2004 Scottish HERD accounted for the largest part of GERD, at £610 million, which is 12.8 per cent of the UK figure and 0.65 per cent of GDP. In comparison to other regions in the UK, Scotland is ranked first in terms of HERD as a percentage of GDP. At an international level, Scottish HERD as a percentage of GDP is in the first quartile of OECD countries, as illustrated in Chart 2.4. Scotland also performs well in terms of Government expenditure on R&D ( GovERD) as a percentage of GDP Scotland comes 4th in 2004 compared to other regions of the UK.

Chart 2.4: HERD as a % of GDP for Scotland and OECD countries that reported in 2004

Source: Scottish Executive, OECD ( MSTI 2006/2)

Innovative products or processes

The Community Innovation Survey ( CIS) provides a regular snapshot of innovation inputs, outputs and the constraints faced by businesses in their innovation activities, across the range of industries and business enterprises. The fourth UK Innovation Survey ³ ( CIS4) was conducted by the DTI in 2005 and provides information on the period 2002-2004.

The CIS4 found that 56 per cent of Scottish firms were innovation active, this is an increase of 12 percentage points since the last survey, which covered the period 1998-2000. In comparison, innovation activity in the UK increased at a slower rate of 10 percentage points, from 47 per cent to 57 per cent ( Table 2.8).

More detailed analysis of the Scottish results from CIS4 was recently published by the Scottish Executive. Article A2 provides a detailed analysis of innovation is Knowledge-Intensive Business Services ( KIBS).

Commercialisation of Research by Higher Education Institutes

Universities and colleges contribute to the competitiveness of Scotland's economy through the commercialisation and transfer of knowledge. This activity is more intensive in Scotland than would be expected on the basis of its population size; this is, in part, due to the relatively higher number of Higher Education Institutes ( HEIs) in Scotland.

The Higher Education-Business and Community Interaction survey ( HE- BCI) ⁴ covers the strategies and activities undertaken by HEIs on the commercialisation of knowledge. Table 2.9 shows some selected results from the survey. Scotland performs well compared to other countries as shown in Chart 2.5, with a rate of 4.1 spin offs per million population.

Chart 2.5: Number of university spin out companies per million population, 1999/00 to 2003/04

Source: HEFCE (2006), AUTM (2004), ONS (2006), OECD (2004)

Patents filed and granted

Patents represent an outcome of technologically oriented innovation. The UK Intellectual Property Office ⁵ (formerly The Patent Office) publishes statistics on a regional basis, which are derived from the postcode of the applicant. In 2005 Scottish applicants filed 1,053 patents, which is 6 per cent of the UK total. Chart 2.6 shows that Scotland is in the third quartile of UK regions with 2.1 patents filed per 10,000 population, below the UK average of 2.9.

Chart 2.6: Patents filed per 10,000 population, 2002 and 2005

Source: UK Intellectual Property Office (2006) and ONS

E-Business

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 out with Scotland.

Results from the latest Scottish E-Business Survey ( SEBS), carried out by Scottish Enterprise and Highlands and Islands Enterprise, were published in January 2007. The survey captured information from over 4,000 companies of all sizes and types across Scotland on their attitudes to e-business, levels of ownership, usage and preferred support services. Table 2.10 shows the percentage of businesses that consider e-business to be important to their needs has increased to 68 per cent in 2006 and is at the highest level since the survey began in 2001. This table also shows that more businesses are utilising e-business technologies in 2006. The percentage that use the internet and have their own website has increased from 73 to 83 per cent and from 45 to 46 per cent respectively. Again, these are the highest levels since the survey began. Furthermore, trading online is becoming more popular with 55 per cent of connecting businesses placing orders over the internet and 36 per cent of connecting businesses receiving orders via the internet in 2006.

The Scottish Executive's 'Framework for Economic Development in Scotland' ( FEDS) ⁶ notes the importance in strengthening of the electronic infrastructure in ensuring that Scotland has a communications network that allows business and individuals to exploit the opportunities presented by access to the internet and to e-commerce. Broadband, in particular, is potentially one of the major facilitators of e-commerce in both new and old enterprises, offering access to major new market opportunities and re-engineering existing processes to reduce costs and/or improve customer service. It is therefore encouraging to see that of all those businesses with an internet connection, the proportion using Broadband has increased significantly each year since 2002 to reach 79 per cent in 2006.

« Previous | Contents | Next »