31-05-2013, 03:02 PM
A survival analysis of small and medium enterprises (SMEs) in central China and their determinants
ABSTRACT
This paper makes a comprehensive analysis of small and medium enterprises (SMEs)’ survival and its
determinants based on a sample of 54,573 new-established small and medium-sized industrial
enterprises in central China, which were founded during the period from 1998 to 2007. This study uses
life table method and the log-logistic model. Through this analysis, the “liability of adolescence”
hypothesis is confirmed by industrial enterprises in central China. Moreover, the research shows that
the SMEs in larger-size and monopoly industries, located at less agglomerated regions, or of individual
types, have better survival prospects. Furthermore, an explicit analysis implies that the SMEs of
different technology intensity and monopoly level are characterized with different survival features.
INTRODUCTION
The survival of the small and medium enterprises (SMEs)
is an important field in the industrial organization theory
and the organizational ecology theory (Hannan and
Freeman, 1989; Mahmood, 2000; Esteve-Pérez and
Mañez-Castillejo, 2008), which has always been the hot
issue in academic circles as well as the attention of
Chinese government in recent years. Though the SMEs
play an important role in national economy and provide
the majority of job opportunities, the survival of SMEs are
not optimistic around the world. According to previous
researches, 68% of all SMEs in the United States made
their exit from business within 5 years, only 19% survived
from 6 to 10 years, and merely 13% survived for more
than 10 years (Lv, 2000). In Europe, only 65% of SMEs
survived for more than 3 years, and 50% survived for
more than 5 years (Abdesselam et al., 2004). Thus, the
research on the determinants of SMEs survival should
shed light on explanations of this phenomenon.
LITERATURE REVIEW
There are abundant empirical studies on the determinants
of enterprise survival. In accordance with Brüderl
et al. (1992)’s classification, we divide the impact factors
into personal/demographic, enterprise-specific, sectorspecific
and other environmental levels.
Entrepreneurs-specific determinants
From the perspective of the entrepreneurs’ personal
factors, their gender, age, professional background,
educational attainment and other characteristics all have
impacts on SMEs survival and post-entry performance.
However, due to the lack of entrepreneurs’ personal
characteristics information, the empirical studies in this
context are still few. Abdesselam et al. (2004) base their
study on the data from the survey conducted by the
French National Institute of Statistical and Economic
Studies. They used 29 variables to reflect three factors of
new enterprise survival, which are the profile of the
entrepreneur, the context of the entrepreneurship and the
degree of insertion of the entrepreneur in entrepreneurial
networks.
Enterprise-specific determinants
From the angle of enterprise itself, the widely examined
factors include enterprise’s age, initial size, financial
strength and ownership type.
There are three different points of view on the
relationship of age and SMEs survival. In an early study,
Stinchcombe (1965) first investigates the phenomenon
that enterprise’s death risk decrease with the increasing
of enterprise’s age from the perspective of organization
theory. Specifically, the enterprises survival is in line with
the hypothesis of "liability of newness". Since then, some
studies found consistent evidence (Mitchell, 1994; Mata
and Portugal, 1994; Dunne et al., 1989). The main explanation
for this is that the enterprises gradually adapt to
the environment, format a specific culture and processes,
and establish a trust relationship with other enterprises
with the increasing of age, so the elder enterprises have
a higher survival rate than the news ones (Carroll and
Hannan, 2000; Nelson and Winter, 1982).
Other environmental determinants
The regional environment of a start-up is a determinant
factor on SMEs survival. With different system, culture
and resource endowment across regions, the SMEs
survival exhibits various characteristics. Unfortunately,
suffering from the lack of detailed regional information,
many studies only take the degree of regional agglomeration
into account. There are arguments for both a
positive and a negative relationship between the degree
of regional agglomeration and survival. For example,
while Keeble and Walker (1994) show that the regional
agglomeration has a positive relationship with the newly
established enterprise death risk, Audretsch and Vivarelli
(1995) and Gerlach and Wagner (1994) argue there is no
convincing evidence that the regional agglomeration has
a significant impact on the new enterprises’ survival.
Besides, Fotopoulos and Louri (2000a) find that new
manufacturing enterprises in Greek have a better survival
prospects in high-agglomerated areas. The evidence and
explanations regarding the impact of regional agglomeration
on SMEs survival is mixed and plausible. On
the one hand, the supportive view believes that regional
agglomeration is not only useful to reduce the distance
between enterprises and suppliers, customers and cooperation
partners, but also more useful for enterprises to
find and employ high quality employees. On the other
hand, the opposite argues that with the expansion of
trade, the overload transportation costs and the high-level
salaries will be harmful to SMEs survival in the regional
agglomerated areas.
Conclusions
In this paper, we conduct a comprehensive analysis
of the SMEs’ survival and their determinants, based on a
sample of 54,573 new-registered small and mediumsized
industrial enterprises in Hunan Province, whose
capital are below 10 million Yuan and were founded
during the period of 1998 to 2007. Based on the literature
analysis and the actual situation in Hunan Province of
China, we study the impact of such factors to SMEs
survival.