chapter  1
16 Pages

New firm formation and regional economic development

An introduction and review of the Scottish experience
ByMichael W. Danson

Over the last two decades there has been an increasing realisation of the importance of small and medium enterprises (SMEs) to the development and health of the national and regional economy, as any reader of this series or of the journals in this area will be well aware. As a corollary of this, there has been a perceived need to intervene in the market to ensure that the high proportion of SMEs which fail each year are replaced, and to promote the creation of new businesses to compensate for the decline in large plants. A measure of the potential importance of improving the rate at which new firms are formed is demonstrated by Ashcroft and Love in Chapter 2 of this volume. They show that, on average, the development of each new company will lead to four net new jobs being created after four or five years. Competitive pressures from more efficient enterprises and imports, sectoral-specific decline, industrial restructuring and other forces in the marketplace have all led to differential degrees of new firm formation across regions and nations. The different rates of success across areas in meeting the challenges of a more flexible economic world and of attempting to overcome the effects of the decline of dominant plants and industries have led to a concomitant expansion in research and analysis into these regional developments and their business environments. In recent times these Western experiences, analyses and policies have been extended to Eastern Europe and the former Soviet Union as these economies have under-gone massive restructuring.