Data Integration for
Entrepreneurship Indicators in Italy
Performance, Impact and Context Analysis
By M.G. Calza, P. Cella, F. Oropallo, S. Rossetti, C. Viviano
ISTAT-Eurostat-OECD Workshop on Entrepreneurship
Indicators
Rome, December 6-7, 2006
ISTAT-Eurostat-OECD
Workshop on
Entrepreneurship
Indicators
Outline
1.
2.
3.
4.
5.
6.
7.
Objectives
Background
Data Integration Issues
Framework of analysis
Entrepreneurship Performance Indicators
Entrepreneurship Impact Indicators
Entrepreneurship Determinants:
•
•
Barriers to competition
Profiles of new entrepreneurs and associated outcomes
8. An Entrepreneurship Scoreboard
9. Conclusions
Rome, December 7, 2006
ISTAT-Eurostat-OECD
Workshop on
Entrepreneurship
Indicators
Objectives
The objective of this work is to contribute to
research on entrepreneurship indicators
by:
1. Building indicators on new/young firms
2. Developing indicators which focus on factors that hinder
new entries and, more generally, competition
3. Using FOBS data to characterize the profiles of new
entrepreneurs and associated outcomes
Rome, December 7, 2006
ISTAT-Eurostat-OECD
Workshop on
Entrepreneurship
Indicators
Background (1)
Data on new/young firms are needed for various
entrepreneurship indicators.
Currently, there are two main sources of data :
1) The Business Demography database: It permits to identify real
births and real deaths, and to calculate performance indicators, e.g. rate
of new firms, business churn, survival rates
2) The Factor of Business Success Survey: It helps us to uncover
the socio-demographic characteristics of new entrepreneurs and to
understand their motivations and difficulties
The main drawbacks with both sources are:
(i) their “thin” coverage of economic variables
(ii) the hitches allied to their linkage with SME (PMI) survey data,
since new firms are inadequately represented in the latter
For this reasons it is useful and indeed rewarding to
integrate the information on new entrepreneurship with data
from other sources
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Background (2)
The development of new entrepreneurship is
deeply influenced by market entry barriers and the
regulatory context
Market barriers and competition are believed to be
important factors in the study of the Italian economy
Since these phenomena are multifaceted, their study
requires different indicators and data sources
To this effect Data integration is of paramount
importance
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Data integration issues (1)
Advantages:
- exploit existing statistical or administrative information
- enhance the statistical information system on new firms
- provide more and better information for policy making
- open up new vistas for economic analysis
Drawbacks:
- confidentiality problems related to the access to micro data
- administrative data are customarily collected for different purposes
- they may refer to legal units not statistical units
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Indicators
Data integration issues (2)
Matching different data sources (statistical/administrative) means
tackling a host of issue, e.g.:
Identifying business units
i.e. find an identifying variable which is a unique key that is a natural join between different
sources. In almost all firm databases we choose the fiscal code
Dealing with Matching Problems
i.e. whenever a key variable is unavailable or is not sufficient to identify the statistical unit. In
case of mis-matches or when sources do not contain the same unit
Identifying changes in business units
Changes involving a single unit (changes in kind of business classification, in legal form or localisation)
Changes in the number of units (death, birth, breaks up and splits off, mergers and acquisitions)
Addressing sampling problems
When merging survey data with exhaustive data from a subset of the population
Reconciling definitions and values among sources
Whenever a variable has not the same definition or value across different sources
Handling data editing and data reconstruction issues
Measurement Errors, Missing data, Outliers etc.
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ISTAT-Eurostat-OECD
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Indicators
Framework of analysis (1)
Following the OECD (Davis 2006) three types of
entrepreneurship indicators can be distinguished:
- Performance: which measure how a country performs in terms
of entrepreneurship.
Most of these indicators can be calculated using Business Register and
Business Demography
- Impact: which measure the outcome(s) of entrepreneurship.
To focus our attention on these indicators we need to “expand” the
information on new/young businesses and integrate it with
information from other sources
- Determinants/Context: which measure various aspects of the
conditions and qualities that foster or hinder entrepreneurship.
We focus our attention on two subgroups: barriers to competition and
entrepreneurs profiles
Rome, December 7, 2006
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Framework of analysis (2)
Units of analysis
New firms: real births from the Business Demography
Young firms: four-year surviving from Business Demography
Incumbent firms: taken as “benchmark firms”, i.e. standing on
markets for at least 5 years
Analyzed indicators
Performance
Impact
Determinants
- Rate of new firm start-ups
- Business churn
- Survival rate for new businesses
- Turnover of new firms
- Number of SMEs in total economy
- Importance of SMEs in total economy
- Share of employment in SMEs
Sources
Business Register, Business Demography,
SBS data, Foreign Trade Statistics,
Fiscal Data, Balance Sheets
- Growth rate of employment of young firms
- Growth rate of turnover of young firms
- Contribution of new firms to productivity growth
- Share of new/young firms that export
- Exports per employee of new/young firms
- Return on sales (Ros) for new/young firms
- Share of labour cost for new/young firms
- Financial burden on sales
- Barriers to competition
- Profiles of new entrepreneurs and associated outcomes
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Entrepreneurship Performance Indicators
Performance indicators
Description
Formula
Source
Nace Coverage
Rate of new firm start-ups
NF/TF
Business Register and Demography
C-K
Business churn
Survival rate for new businesses
Turnover of new firms
Number of SMEs in total economy
Importance of SMEs in total economy
Share of employment in SMEs
(NF+DF)/TF
NF(t,t+n)/NF(t)
T_NF/T_TF
SME/TF
T_SME/T_TF
E_SME/E_TF
Business Register and Demography
Business Register and Demography
Business Register and Demography
Business Register and Demography
Business Register and Demography
Business Register and Demography
C-K
C-K
C-K
C-K
C-K
C-K
NF : real births from Business Demography
NF(t,t+n): young firms (t-year surviving from Business Demography)
DF : real deaths from Business Demography
TF : All firms from Business Register
SME: Small-medium firms
T_ : Turnover…
E_ : Employment…
Breakdown by sector Nace, legal form, geographical area, size class …
Rome, December 7, 2006
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Entrepreneurship Impact indicators
Entrepreneurship impact Indicators
Description
Formula
Source
Nace Coverage
Growth rate of employment of young firms
E_NF(t,t+n)/E_NF(t)-1
Business Register and Demography
C-K
Growth rate of turnover of young firms
T_NF(t,t+n)/T_NF(t)-1
Business Register and Demography
C-K
Business Register and Demographyand
SBS data
D-F,G-K
Contribution of entries and exits to
productivity growth
(p
i NF
t
i
 Psec t )it
Share of new/young firms that export
NF(exp)/NF
Business Register, Demography and
Foreign Trade data
C-K
Exports per employee of new/young firms
Exp_NF/E_NF
Business Register, Demography and
Foreign Trade data
C-K
Return on sales (Ros) for new/young firms
OS_NF/T_NF
Business Register, Demography and
Fiscal data
D-F,G-I,K,M,N
Share of labour cost for new/young firms
LC_NF/TC_NF
Financial burden on sales for new/young firms
IP_NF/T_NF
Business Register, Demography and
Fiscal data
Business Register, Demography and
Fiscal data
NF : real births from Business Demography
NF(t,t+n): young firms (t-year surviving from Business Demography)
T_ : Turnover…
E_ : Employment
Exp_: Exports
OS_: Operating Surplus
LC_: Labour Costs
TC_: Total Costs
IP_: Interest Payments
P : Labour Productivity measured by Turnover on Employment
: Share of employment
Rome, December 7, 2006
Breakdown
by sector Nace, legal form, geographical area, size class …
D-F,G-I,K,M,N
D-F,G-I,K,M,N
Entrepreneurship Impact indicators
When Business Register, Business Demography, Foreign Trade,
Balance Sheets and SBS are integrated a great deal of new
opportunities open up
T-n
T-1
Survey Sources
B.Register
B.Demography
Structural Business
Statistics
Foreign Trade*
Archives
Balance Sheets**
Large
Small Medium firms
ISTAT-Eurostat-OECD
Workshop on
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Indicators
All Units
Representative Units
* Enterprises involved in foreign markets
** Corporate firms (Their account system is regulated by EU directives)
Population:
B.R. & B.D.
Foreign Trade
Balance Sheets
Linked with
Exporting/Imp. firms
corporate firms
Rome, December 7, 2006
SBS (sample)
domain level analysis
- Growth rate of employment of young firms
- Growth rate of turnover of young firms
- Contribution of new firms to productivity growth
- Share of new/young firms that export
- Exports per employee of new/young firms
ISTAT-Eurostat-OECD
Workshop on
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Indicators
Entrepreneurship Impact indicators
Growth rate of turnover and employment of young firms
Turno ver
Emplo yment
250
217.5
213.3
193.2
200
177.1
177.4
122.4
148.0
141.8
140.0
150
129.3
120.9
99.3
97.6
93.8
100
71.0
70.1
68.2
66.8
62.6
40.6
50
0
Scale
intensive
Rome, December 7, 2006
Specialised
suppliers
Transp.
Teleco m.
Supplier
do minated
Science
based
Co nstructio n
Ho tels
B usiness
Services
Trade
To tal
ISTAT-Eurostat-OECD
Workshop on
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Indicators
Psett 
Entrepreneurship Impact indicators
Contribution of entries and exits to productivity growth of
micro firms
 p 
iIncumbents
i sec t

  ( p
iIncumbents
i
i
 Psec t ) 
( p
iNewFirms
t
i
 Psec t )it 
( p
iExits
t k
i
 Psec t )it k  E sett
30
30
Within
Betw een
Entries
Exits
Changes in B.U.
Total
20
20
10
10
8.7
6.7
0
-0.6
-4.0
-1.3
0
-4.3
-8.1
-10
-8.8
-10
-13.8
-17.5
-20
-20
-30
-30
Supplier
dominated
Specialised Science based Scale intensive Construction
suppliers
Rome, December 7, 2006
Trade
Hotels
Transp.
Telecom.
Business
Services
Total
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Workshop on
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Entrepreneurship Impact indicators
Share of new, young and incumbent firms that export (%)
35
32.3
30
26.2
24.6
25
21.3
20
16.7
13.9
15
10
8.1
9.9
13.4
10.1
9.9
8.0
4.0
5
7.3
5.3
0
Supplier dominated
New firms
Rome, December 7, 2006
Specialised
suppliers
Young firms
Science based
Incumbents
Scale intensive
Total manufacturing
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Entrepreneurship Impact indicators
Exports per employee in firms at birth, after four years
(young firms) and in incumbent firms (thousand €)
180
160
145.1
152.8
140
120
100
75.2
80
58.1
60
40
46.2
21.6
27.3
31.9
26.6
28.3
23.2
19.7
38.8
42.7
24.9
20
0
Supplier dominated
New firms
Rome, December 7, 2006
Specialised
suppliers
Young firms
Science based
Incumbents
Scale intensive
Total manufacturing
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Entrepreneurship Impact indicators
Opportunities that open up when Fiscal data are integrated
Available information:
sectors from D to I and M:
48 balance-sheets-comparable
variables
sectors K and N: excluded from
the analysis since available variables
are not comparable
Population
% Linked
New firms
69
Young firms
73
Incumbents
81
Rome, December 7, 2006
Fiscal survey purpose
To support Tax Admin. control action
on small and medium firms
(Turnover less than 5 million €)
(Coverage: all business sectors except Energy (E),
Financial (J), Social (O)
Ros=Return on sales
LCI=Share of labour cost
IPS=Financial burden on sales
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Entrepreneurship Impact indicators
ROS (%) - Profitability
New firms
13.2
14
12.2
Young firms
Incumbents
13.0
12.0
12
10.8
10.8
9.9
10
8
7.8 8.1
8.1
7.8
7.2
6.7
8.6
8.6 9.0
7.0
6
4
1.5
2
0
D - Manufact.
Rome, December 7, 2006
F - Constr.
G - Trade
H - Hotels
I -Transp. &
Telec.
Total
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Workshop on
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Entrepreneurship Impact indicators
Share of labour cost (%) on total costs
New firms
25
20
Young firms
23.3
21.8
18.4
19.7
15
Incumbents
18.9
18.6
17.3
19.8
16.2
17.7
19.0
14.9
13.1
12.9
11.0
10
4.7
5
6.0
7.2
0
D - Manufact.
Rome, December 7, 2006
F - Constr.
G - Trade
H - Hotels
I -Transp. &
Telec.
Total
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Workshop on
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Entrepreneurship Impact indicators:
IPS=Financial burden on sales (%)
New firms
Young firms
Incumbents
2.5
2.0
2.0
1.8
1.6
1.7
1.6
1.5
1.6
1.4
1.3
1.1
1.1
1.1
1.1
1.2
0.9
1.0
0.7
1.2
1.0
0.7
0.5
0.0
D - Manufact.
Rome, December 7, 2006
F - Constr.
G - Trade
H - Hotels
I -Transp. &
Telec.
Total
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Entrepreneurship Determinants
For the analysis of entrepreneurship determinants more complex
methodologies have to be applied
Entrepreneurship Determinants
Description
Methodology
Source
Nace Coverage
Barriers to compettion
Composite Indicator
Business Register, Demography, SBS,
Balance sheets
D-K
Profiles of new entrepreneurs
and associated outcomes
Cluster Analysis
FOBS, Business Register, Demography
and Fiscal data
C-K
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Entrepreneurship Determinants:
Barriers to competition
Barriers to competition: Barriers to entry are an essential
condition to the existence of non-competitive behaviour
Anything that prevents new firms from
actually entering a market
Several indices relating to the existence of entry barriers
have been computed (at 3-digit level of aggregation):
- Herfindahl index (H) (Sum of squared market sale shares)
- Concentration Ratio (CR5) (Cumulative market sale share of the largest 5 firms)
- Share of advertising expenses (AE) (Advertising costs on sales)
As a proxy for
- Share of Fixed assets (FA) (Fixed assets on total Assets)
monopolistic
competition due to
- Dominant firm size (Size class that represents at least 50% of workers)
product differentiation
Sources: Business Register, Structural Business Statistics, Balance
Sheets
Coverage: D-K (Nace rev. 1.1)
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Entrepreneurship Determinants:
Barriers to competition
To measure the intensity of entry barriers for each market, a
composite index (summing up indicators re-scaled by their own mean values) is
computed
To avoid redundancy, indicators have been selected on the basis of
the correlation matrix below:
Herfindahl
Concentration R.5
Share of adv.
Share of Fixed assets
Herfindahl
100%
80%
-10%
26%
Concentration R.5
100%
0%
22%
Share of adv.
Share of Fixed assets
100%
0%
100%
Market Barriers Intensity = CR5/m(CR5)+AE/m(AE)+FA/m(FA)
Thanks to the above index, markets can be ranked and distinguished
for example according to their dominant size (micro, small, medium
and large)
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Context: Barriers to competition
0
K-Real estate services on a f ee or contract basis
D-Other f ood products
D-Animal and vegetable oils and f ats
K-Renting services of personal and household goods n
K-Renting services of other transport equipment
H-Camping sites and other short-stay accommodation s
H-Beverage serving services
F-Renting services of construction or demolition equ
K-Letting services of ow n property
I-Travel agency and tour operator services; tourist
Market
Barriers
Intensity Index
in 1999
(violet)
and 2003
(beige)
K-Other computer-related services
D-Metal secondary raw materials
K-Advertising services
H-Food serving services
D-Medical and surgical equipment and orthopaedic app
K-Renting services of other machinery and equipment
G-Retail trade services of second-hand goods in stor
K-Miscellaneous business services n.e.c.
J-Services auxiliary to f inancial intermediation, ex
D-Furs; articles of f ur
G-Sales on a f ee or contract basis
G-Other w holesale trade services
K-Data processing services
in all micro
(dominant
size) business
sectors
D-Cut, shaped and f inished ornamental and building s
G-Trade, maintenance and repair services of motorcyc
G-Retail trade services of pharmaceutical and medica
D-Builders' joinery and carpentry, of w ood
G-Retail trade services not in stores
J-Services auxiliary to insurance and pension f undin
G-Other retail trade services of new goods in specia
G-Retail trade services of motor f uel
G-Maintenance and repair services of motor vehicles
G-Repair services of personal and household goods
G-Wholesale trade services of agricultural raw mater
K-Maintenance and repair services of of f ice, account
G-Trade services of motor vehicle parts and accessor
K-Legal, accounting, book-keeping and auditing servi
K-Hardw are consultancy services
G-Retail trade services of f ood, beverages and tobac
K-Research and experimental development services on
K-Real estate services w ith ow n property
F-Building installation w ork
F-Site preparation w ork
K-Architectural, engineering and related technical c
Rome, December 7, 2006
F-Building completion w ork
F-Works f or complete construction or parts thereof ;
1
2
3
4
5
6
7
8
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Entrepreneurship Determinants:
Profiles of new entrepreneurs and associated outcomes
The Italian FOBS survey (a sample of 6 th. records) allows to sketch the following
identity of the “average” entrepreneur
Male
39 years old
secondary education
with previous working experience-in the same sector of activity
Given the vast array of information on entrepreneurs and their characteristic
gathered with the survey, different profiles, not just one, are likely to coexist
Multidimensional techniques (e.g. cluster analysis) can be used to group
entrepreneurs into homogeneous clusters subject to the following conditions:
- the within clusters distance should be as small as possible
- the between clusters distance should be as large as possible
Each cluster will define an entrepreneur’s profile
Rome, December 7, 2006
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Entrepreneurship Determinants:
Profiles of new entrepreneurs and associated outcomes
Steps of the clustering procedure
1. Choice of variables
Only a set of demo-social variables has been considered
(such as geog. area, Nace, occupation prior to starting-up enterprise, age, gender,
educational background , branch experience, a synthetic measures of the motivations at
start-up and a synthetic measure of the difficulties at enterprise start-up)
2. Distance measure between units: Gower’s dissimilarity formula
3. Cluster algorithm: Ward’s minimum variance method (it minimizes the
within group variance and maximizes the between groups variance)
4. Choice of the number of clusters: 6 clusters have been chosen according
to the results of pseudo t-test and pseudo f-test
5. Ex-post characterization of the cluster with economic information from
B.R. and Fiscal data: per capita turnover, employment variation and ROS,
LCI and IPS
Rome, December 7, 2006
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Entrepreneurship Determinants:
Profiles of new entrepreneurs and associated outcomes
The empirical analysis leads to portrait the following profiles:
1st cluster (7% of tot Fobs)
2nd cluster (30%)
3rd cluster (26%)
Experienced female with some difficulties
Senior experienced male
Young experienced male
97% Female
97% Male
97 % Male
80 % with branch experience
94 % with experience as entrepreneur
98 % with branch experience
46 % declares more difficulties at start-up
51 % secondary education
37% works in the industry
43 is the average age
47 is the average age
38 is the average age
4th cluster (18%)
5th cluster (10%)
6th cluster (9%)
South youngs previously unemployed
North inexperienced female with lower ed.
Higher educated
42% South and Islands
44% North West
47% South and Islands
98% without experience
97% Female about 40 years old
76 % business service (sect. K)
71 % secondary education
96% without experience
95% higher degree
36 is the average age
40% with lower secondary education
41 % declares more motivations at start-up
Rome, December 7, 2006
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Workshop on
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Entrepreneurship Determinants :
Profiles of new entrepreneurs and associated outcomes
How does each profile perform?
Fast grow ing firms (% - empl. grow th more than 100%)
Per capita
turnover (Keuro)
100
87
90
129
83
80
74
70
60
55
53
50
50
40
30
20
23.8
16.7
15.2
14.4
7.7
10
10.1
8.8
0
1) Experienced
Female
Rome, December 7, 2006
2) Senior
experienced
3) Young
experienced
4) South youngs
5) North
inexperienced
6) Higher
educated
Total
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Workshop on
Entrepreneurship
Indicators
Entrepreneurship Determinants :
Profiles of new entrepreneurs and associated outcomes
How does each profile perform?
Ros (%)
25
Share of Labour Cost (%)
Financial burden
on sales (%) (rhs)
1.6
1.4
20
18.7
1.4
1.1
1.4
1.3
20.2
15.9
18.2
1.2
1.2
17.4
1.0
15
14.9
10
0.8
7.0
1.0
10.6 11.1
10.9
7.9
7.6
6.6
0.8
0.6
5
0.4
0
-2.3
0.2
-5
0.0
1) Experienced
Female
Rome, December 7, 2006
2) Senior
experienced
3) Young
experienced
4) South youngs
5) North
inexperienced
6) Higher
educated
Total
0
ISTAT-Eurostat-OECD
Workshop on
Entrepreneurship Rate of new firm start-ups
Indicators
Business churn
5
10
15
20
1999
2003
25
30
35
40
Turnover of new firms
Number of SMEs (micro firms) in total economy
Share of employment in SMEs (micro firms)
Importance of SMEs (micro) in total economy
Growth rate of employment of young firms (4 years)
Growth rate of turnover of young firms (4 years)
Contrib. of entries and exits to product. growth (4 years)
Share of young firms that export
Exports per employee of young firms (th. euro)
Return on sales (Ros) for young firms
Share of labour cost for young firms
Financial burden on sales for young firms
New entrepreneur withRome,
tertiaryDecember
education 7, 2006
50
50
100
150
Towards an entrepreneurship
scoreboard
Survival rate for new businesses (4 years)
Average Concentration Ratio of markets
45
1999
2003
Data Integration for Entrepreneurship Indicators in
Italy: Performance, Impact and Context Analysis
CONCLUDING REMARKS AND PUZZLES:
•
We have tried to contribute to the “entrepreneurship debate”
focusing on selected “key concepts” and measuring them for
Italy
•
We have shown the potential of data integration. A wide range of
indicators can be developed, but further work is needed in other
areas (e.g. credit access)
•
Looking ahead, further analysis is needed on the assessment
and selection of indicators on grounds of their relevance and
other quality criteria (e. g., robustness, coherence, accurateness
…) to better support policies with “evidence”
•
From our analysis new/young firms appear to perform well.
How does this impact on the overall economy?
What policy implications can be drawn?
AND ABOVE ALL
• How an effective tool the Entrepreneurship Scoreboard can be
expected to be?
Rome, December 7, 2006