Small businesses in the recession: a follow-up study of new manufacturing firms in South Hampshire

Abstract

The paper reports on a follow-up study, undertaken in mid 1983, of 52 new manufacturing firms in South Hampshire, all started since 1975, and which were originally interviewed in 1981 in a study of new firm formation (the results are presented in Discussion Paper No 13). The study therefore covers a two year period, 1981-1983, in which the economy was in a deep depression, having "bottomed out" following the steep fall in the level of economic activity in late 1979/1980. However, such adverse economic circumstances do not appear to have had as detrimental an impact on the panel of firms as might have been anticipated. Admittedly, 23% of the original group of firms had closed in the period between the two surveys, but some were already clearly in difficulty as a result of internal problems when first interviewed. Moreover, less than half of the surviving firms claimed to have been adversely affected by the recession. Indeed, as a group the panel of surviving firms is characterised by increases in turnover, floorspace and employment and improvements in the quality of premises, capital stock and technological sophistication - all supporting the notion of a company ' life cycle' model. However, changes in other dimensions of business development - notably management structure, markets and customers - tended to be quite limited. The panel is also characterised by increased variability in employment, with the upper quartile value increasing by a greater rate than the median on most indicators - a result of the rapid growth of the small number of 'high fliers' which have pulled further away from the majority of firms in the group. Moreover, it is this small group of 'highfliers' in the panel which has made the greatest contribution to employment generation and economic development. It is concluded that policy would achieve more substantive results by shifting from its present indiscriminate assistance to the small firm sector towards a more selective approach which attempts to encourage the creation of greater numbers of rapid growth firms.

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