Formation of New Firms : Lessons from Switzerland Najib Harabi, Professor of Economics, Solothurn University of Applied Sciences, Switzerland

Contents Introduction Theoretical Framework An Empirical Investigation of Swiss Firms Discussion of Results and Concluding Comments

Introduction Contribution to Employment and Economic Growth Contribution to Structural Change Contribution to Technological Change and Innovation Contribution to Stimulation of Competition in Product and Factor Markets

Theoretical Framework Why new firms get formed? What are the major determinants of survival and success of new firms? What is the impact of new firms on the economy?

Relevant Theories Question 1 Question 2 Question 3 Neoclassical microeconomic theory Transaction costs theory Industrial Organization Organizational Ecology Industrial Organisation

An Empirical Investigation of Swiss Firms Data Results

Data 20 Case Studies Survey: Oltner Survey 1999 Sample Frame: 5019 Firms Response Rate: 32%

Overall Results Portrait of Business Founders Success of Firm Formations Factors Affecting Success of New Firms Policy Recommendations

Portrait of Business Founders Mainly male (84%) Average Age: 42 Stable Family Relationship (Partner and Child) Majority: Swiss Nationals

Success of Firm Formations Majority either „rather successful or „very successful“ 70% successful with regard to sales 56% successful with regard to profit 31% successful with regard to # of employees 80% successful successful with regard to non-material criteria

Determinants of Success Person-related Success Factors Firm-level related Success Factors Environmental and Sector related Success Factors

Person-related Success Factors Type and length of founder‘s school education. Founder‘s professional experience in his current field of activity Founders‘s experience of self-employment

Firm-level-related Success Factors Original new firm start-ups more successful than firm takeovers. Age: older firms grow faster (!) Size: smaller firms grow faster Size of sales in the first year has a decisive positive impact of firm growth

Environmental and Sector related Success Factors Services-sector (specially „training/education“, „health and social services“) more conducive for firm formation Manufacturing less conducive (No firm formation in agriculture)

Policy Recommendations Firm Founders Banks/Financing Institutions Business Organizations Public Authorities

End Thank you for your attention!