Targeting Established SMEs: Does Their Age Matter?

DAVID SMALLBONE IS THE HEAD OF THE Centre for Enterprise and Economic Development Research and David North is Reader in Local Economy at Middlesex University, United Kingdom. This paper is concerned with established small and medium-sized enterprises. It considers the question of whether a firm's age should be a key criterion in any future targeting of business support. Using evidence from a recent study of the survival and growth of a panel of manufacturing SMEs in the UK in the 1980s, two main arguments for focusing support on younger firms are considered: first, that their prospects for employment generation are better than that of older firms, and second, that they may need particular help in order to evolve successfully into more mature businesses. The empirical evidence presented shows that while younger firms may have a higher propensity to generate jobs than older SMEs, this is to some extent offset by their lower survival chances. Since some mature firms also demonstrate a potential to generate jobs, the authors conclude that it would be a mistake to target policy support exclusively on younger firms. It is growth potential not age per se that matters from the point of view of an SME's employment generating potential so that policy should seek to encourage and support growing firms at different stages of their development. However, within the context of such a policy, one particular target group for policy support are those young firms which are growing strongly but which have weaknesses which may threaten their longer-term development (such as a shortage of development finance). Nevertheless, while some young growing firms may need particular kinds of support this should be offered within the context of policies designed to encourage and support growing businesses at different stages of development.