Chapter 8. Methodology of the country profiles
Part II is composed of individual country profiles aiming to provide insights on SME performance and entrepreneurial trends in each country, and to present business conditions in countries, along with recent policy initiatives to foster business dynamics and support SMEs in innovating and scaling up. The structure of the country profiles follows the conceptual framework of Part I, and information is presented in three sections: i) national SME sector structure and performance; ii) SME access to strategic resources; and iii) SME business environment.
The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.
The SME and Entrepreneurship (SME&E) Outlook country profiles provide a concise overview of SME sector structure, performance and business conditions in each OECD country and they present recent national policy initiatives implemented to foster business dynamics and support SMEs in innovating and scaling-up.
For benchmarking SME access to strategic resources and SME business environment, a broad range of indicators are used and presented in the form of indices. Benchmarking indices rank from 0 to 200 (0 being the lowest OECD value, 200 the highest and 100 the median value, i.e. the middle position among OECD countries for which data are available). The charts highlight the position and dispersion of the top five (high performing countries) and bottom five (low performing countries) OECD values, as well as the country’s relative position vis-à-vis the median (dot). When data are not available, the dot, i.e. the country’s position in the ranking, does not figure on the graph.
In some cases, where indicators reflect potential barriers to SME performance (costs, administrative burden etc.), the benchmark was reversed (and marked with *), so that, in these cases, when a country ranks high, the country effectively performs well as compared to the OECD median.
The SME&E Outlook country profiles build on the most recent work and data available at the time of drafting. However due to differences in data collection calendars and methodologies, there may be time gaps across indicators and data interpretation should be done with caution.
Purpose and structure
Part II of the SME and Entrepreneurship (SME&E) Outlook is composed of individual country profiles aiming to provide insights on SME performance and entrepreneurial trends in each country and to present recent policy initiatives implemented to foster business dynamics and support SMEs in innovating and scaling-up.
The structure of the country profiles follows the conceptual framework of the publication as described in the reader’s guide at the forefront of the publication (Figure 8.1 and Figure 8.2). This conceptual framework is also applied in Part I that describes recent trends in SME business conditions and policy responses.
Information across the profiles is presented in three sections focusing respectively on: i ) national SME sector structure and performance, ii) SME access to strategic resources and iii) SME business environment. The content of the country profiles is standardised and harmonised in order to enable international comparison.
Part II covers 36 OECD countries. An abridged version of the profiles is available in the publication, a full version with more statistical and benchmarking tools is available online. The online version also proposes profiles for several emerging economies for which data and policy information is available.
SME structure and business dynamics
The first part of the country profiles presents, for a given country, the structure of and performance of the SME sector in terms of employment, value added, productivity and compensation of employees, and compares it with the OECD average (USA average in case of productivity). Recent trends in business dynamics, in particular enterprise creations and bankruptcies, are also commented, together with the evolution of job creation and destruction by enterprise births and deaths.
The analysis draws on the OECD Structural and Demographic Business Statistics (SDBS) database, which consists of official business statistics collected by the Statistics and Data Directorate in cooperation with national statistical offices and Eurostat; and the OECD Timely Indicators of Entrepreneurship (TIE) database, covering official business statistics and administrative data. The country profile of Canada makes also use of data from the OECD Trade by Enterprise Characteristics (TEC) database, which is a collection of official statistics compiled via the microdata linking of business and trade statistics.
Benchmarking SME business conditions: general approach and methodology
The country profiles are designed to provide a concise overview on SME business conditions in a particular country. Each dimension, e.g. access to finance, access to skills or market conditions etc., covers a range of SME policy relevant topics that are standardised in focus and contents for benchmarking purposes (Figure 8.2).
As to cover the many different aspects that are relevant to SME business conditions, the SME&E Outlook built on work carried out across the OECD and beyond, including on measurement and indicators.
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The benchmarking indicators used to monitor SME business conditions are drawn from a broad range of primary OECD and non-OECD data sources. An inventory of indicators was conducted in the course of 2017-18 taking into account criteria of SME policy relevance, international comparability, regularity in data collection, country coverage and fair comparability over time. Indicators and primary data sources are presented in more details in Annex 8.A.
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Policy information was drawn from recent OECD and non-OECD exercises of policy information collection and major international reports, in the same vein as for Part I. The sources used for each country are presented at the end of each profile. Some are general resources covering a number of countries, especially OECD countries; others are more country-specific.
A data infrastructure was built and integrated into the OECD corporate data management system in order to gather, store and harmonise information. After consolidation, the OECD SME ‘data lake’ is aimed to support future SME-related policy analysis and to evolve as needs evolve.
All indicators are presented in the form of indices for benchmarking purposes (OECD median=100).
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The country’s values are compared to the median value observed in the OECD area, i.e. the middle position among OECD countries for which data are available. The use of the median avoids a statistical bias towards large players that skew the average, while still reflecting international rankings. The median has also the advantage over a simple ranking that it preserves the deviation between country values.
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The distance of the country’s value from the OECD median value appears on the chart at a proportional distance from the median. This applies equally to all countries. In a simple ranking, the difference between two successive country values is 1 and the distance to the median is the rank.
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Indices are reported on a common scale from 0 to 200 (0 being the lowest OECD value, 100 the median value, and 200 the highest) to make them comparable.
Given the value for country c at time t and the OECD minimum, the OECD median and the OECD maximum at time t, the country index of benchmark is calculated as followed:
If then
If then
The benchmark charts highlight the position and dispersion of the Top five (High) and Bottom five (Low) OECD values. The country’s relative position is marked with a dot. However, when data are not available, the dot, i.e. the country’s position in the ranking, does not figure on the graph.
In some cases:
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Indicators were normalised to take account of the size of the economy (e.g. by GDP). This is for instance the case of electricity capacity.
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The country benchmark was reversed (and marked with *) for the indicators that are considered as measures of potential barriers to SME performance. This is for instance the case of all indicators related to costs of accessing strategic resources, administrative, regulatory or trade barriers, the indebtedness of economic actors that may weigh on final demand and market prospects, fear of failure etc. In these cases, when a country ranks high on an indicator that usually monitors a barrier to entrepreneurship or a weakness in the SME business environment, the country effectively performs well as compared to the OECD median.
SME access to strategic resources
Three thematic sections explore the conditions under which SMEs can access and make use of strategic resources (Figure 8.2). Smaller firms are typically at disadvantage as compared to larger firms in accessing funding, appropriate skills and innovation assets (i.e. technology, data, business models and organisational practices, networks etc., either in their tangible or intangible forms). Yet financial capital, human capital and knowledge-based capital are key production factors and the determinants of firms’ competitiveness in knowledge-based economies.
Access to finance
Accessing appropriate sources of finance across all stages of their life cycle is critical for SMEs to start, innovate and grow. Yet, SMEs remain undercapitalised and heavily reliant on straight debt. Recent evidence suggests that financial institutions have become even more risk-averse, placing an extra burden on high-risk SMEs or on firms without collateral.
This section on SME access to finance focuses on:
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SME self-funding capacity through profit;
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The state of national banking system (i.e. financial soundness, the scope of bank credit to the private sector) and the existence of an interest rate spread for SMEs;
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The effective access of SMEs to bank credit (including SME new lending, growth in SME outstanding loans, SME long-term loans, i.e. loans used to fund investment and growth needs rather than current operations) and potential barriers to SME bank credit in terms of cost (SME interest rate) and risk of rejection.
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The availability of venture capital to support SME development at different stages (i.e. early stage including seed and start-up phases, and later stage).
This section builds on the work carried out for the Financing SMEs and Entrepreneurs: an OECD Scoreboard as well as the G20/OECD High-Level Principles on SME Financing (OECD, 2018[1]). It also makes use of OECD Structural Business Statistics and data compiled for the OECD Entrepreneurship Financing Database. Indicators on national banking systems also come from the International Monetary Fund Financial Soundness Indicators and the World Bank (WB) Data Bank on Development (Annex 8.A).
Access to skills
SMEs face greater difficulties in identifying, attracting and developing skills than larger firms. Recent survey results also show that people are not more confident in their ability to start a business than in the past. Yet skills are key assets for technology and innovation absorption and for managing the organisational changes needed during the transition.
This section on SME access to skills focuses on:
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Adult literacy and training that reflect skills availability in the country and that is measured by adult educational attainment, adult skills for information and communication technologies (ICT), learning and creative thinking, and the access of workers’ to on-the-job training.
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Student proficiency that reflects future skills potential in the country, and that is measured by the performance of 15-year-olds in collaborative problem-solving, mathematics and reading, as well as national graduation rate at tertiary level.
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Entrepreneurial skills that are measured by perceived capabilities, entrepreneurial intentions and fear of failure among working-age population.
This section builds on the work carried out in the framework of the OECD Programme for International Student Assessment (PISA) and the OECD Programme for International Assessment of Adult Competences (PIAAC), as well as the OECD Job Quality database and official data on education collected by the OECD and the UNESCO. Results of the last Global Entrepreneurship Monitor (GEM) adult population survey are also included (Annex 8.A.).
Access to innovation assets
Innovation results from a process of accumulation through which firms increase their stock of knowledge-based capital. SME face particular barriers in adopting new technologies or new organisational and marketing practices, in participating in technology-intensive activities or integrating innovative networks.
This section on SME access to innovation assets focuses on:
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Technology through SME acquisition of equipment and software, and SME adoption of high-speed broadband.
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Organisation and processes with SME use of new IT-enabled tools (e.g. big data analysis, cloud computing services, supply chain management) and SME adoption of new commercial practices (e.g. e-sales).
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SME collaboration networks, i.e. SME collaboration on innovation with the science base (universities and public research institutions), within supply chains (e.g. with suppliers) and within international networks (through cross-border participation in innovation collaborations).
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SME R&D and innovation, and the relative percentage of domestic SMEs performing research and development (R&D) or engaged in innovation activities.
This sections builds on several international data collection including OECD-Eurostat R&D surveys, Eurostat Community Innovation Survey and the OECD ICT usage by Businesses database.
SME business environment
Three thematic sections explore the business environment and framework conditions under which SMEs can do business and grow. SMEs are typically more dependent on their business ecosystem than larger firms. Smaller firms are more vulnerable to deficient framework conditions, market failures and economic shocks, while inefficient infrastructure hampers their access to markets and the strategic resources they need to operate.
Institutional and regulatory framework
Although regulatory barriers to entrepreneurship have declined over time, the complexity of regulatory procedures is still a major obstacle for SMEs and entrepreneurs. Costs of complying with administrative requirements remain comparatively higher for smaller businesses. Inefficient insolvency regimes limit the restructuring of viable firms and the second chance offered to entrepreneurs.
This section on institutional and regulatory framework focuses on:
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Regulation and looks into the level of administrative burdens on start-ups and the costs of starting a business or resolving insolvency, as well as efforts made to simplify procedures and strengthen the insolvency framework.
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Justice, competition and taxation through a range of dimensions, including the quality of judicial process, the cost of enforcing contracts, distortions induced by State involvement, barriers in service and network sectors and the time to comply with tax obligations.
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Public governance efficiency, proxied by the intensity of government debt, the adoption of regulatory impact assessment, the availability and relevance of participatory services on government websites and efforts to promote open government data.
This section builds on OECD work carried out for monitoring product market regulation, Measuring Regulatory Performance, the OECD Government at a Glance, as well as some WB indicators on Doing Business.
Market conditions
There is a large cross-country diversity in the opportunities and challenges for SMEs to access markets. Increased public attention has been given to levelling the playing field in recent years. Conditions for entering international and public markets, or accessing infrastructure, remain relatively difficult for smaller firms.
This section on market conditions focuses on:
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Domestic market and considers the size of the domestically-supplied demand as well as consumption and investment prospects, proxied by the debt of non-financial corporations and households.
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Public procurement, in particular, the size of domestic public procurement market, the provision of e-procurement functionalities that can ease access to tenders and contract management, and good practices in terms of payment of suppliers.
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Trade and foreign direct investment, the country’s positioning in global value chains (i.e. the spread of its backward and forward linkages), trade restrictiveness on computer services, engineering and telecom services, trade facilitation practices and regulatory restrictiveness on foreign direct investment.
This section builds on OECD National Accounts, OECD Trade in Value Added (TiVA) database, the Services Trade Restrictiveness Indicators (STRI) database, OECD Trade Facilitation indicators and OECD FDI Regulatory Restrictiveness index, as well as work on public procurement carried out for the OECD Government at a Glance publication. In addition this section uses results of the latest WB Benchmarking Public Procurement report.
Infrastructure
Physical, digital and network infrastructure is the foundation of a dynamic business ecosystem. The quality of infrastructure is especially relevant for SME entry into distant markets and engagement in GVCs, or to secure their cost-efficient access to strategic resources.
This section on infrastructure focuses on:
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Logistics and energy, especially the intensity of investment in transport infrastructure, the quality of infrastructure (e.g. in terms of logistical performance, electricity capacity or energy supply reliability) and their accessibility in terms of cost.
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ICT and internet, the intensity of investments in ICT, the performance of digital infrastructure (measured by fixed and mobile broadband penetration rates and the level of digital security) and their accessibility in terms of cost.
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R&D and innovation, the intensity of domestic R&D investment, the performance of R&D infrastructure (proxied by its output in number of international patents and the density of its connections, i.e. industry-science linkages, inter-regional linkages and international linkages).
This section builds on a broad range of international data resources, including: for transport and logistics, the OECD International Transport Forum database, the WB Logistics Performance index and the WB Doing Business indicators; for energy, the International Energy Agency (IEA)’s electricity information and IEA energy prices and taxes, as well as WB Doing Business indicators; for digital infrastructure, OECD National Accounts, OECD Broadband statistics and the OECD ICT usage by business database; for R&D and innovation infrastructure, OECD work on R&D, science, technology and industry (STI) and intellectual property data, more specifically the R&D Statistics (RDS) Database, Main Science and Technology Indicators (MSTI) database and the STI Micro-data Lab. Regional data are drawn from an earlier version of the OECD Regions at a Glance report.
Caveats and caution in interpretation
The SME&E Outlook country profiles build on the most recent work and data available at the time of drafting. However due to differences in data collection calendars and processes, benchmarking data may not refer to the same year across all indicators. Therefore there may be several years of time lag between SME performance data and SME business environment data. In some cases, data on business conditions are posterior to data on SME performance. This should be kept in mind when interpreting results. The cut-off date for the indicators on SME business conditions is mid-March 2019, except for the product market regulation indicators that were officially released later in Spring 2019.
Several analytical dimensions were not covered and may receive closer attention in the future when and where data allow. These include gender breakdown, industrial disaggregation or sub-national data for instance.
Some areas of interest may be unevenly covered by statistics as data in primary sources are not always available for all countries. This is the case of indicators on access to knowledge assets for non-EU countries.
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