State of the Union: Insights on current market trends in Asia-Pacific

The following overview dives into the state of the union for current market trends in the Asia Pacific region. Currently, Australian small- and medium-sized firms make up 95.9% and 3.8% of total businesses commenced in Australia alone.

Source: Australian Small Business and Key Statistics and Analysis

In Australia, business and economic growth as compared to the rest of the APAC region is below average.

Source: CPA Australia Asia-Pacific Small Business Survey 2017

As will be seen, businesses in other regions are undertaking key activities and specific strategies — drivers of growth — that are leading to significantly greater rates of growth. In other words, while Australian businesses continue to grow, their overall rise is not as prominent or meteoric as other APAC countries.

Source: CPA Australia Asia-Pacific Small Business Survey 2017

While Australian businesses have certainly grown, the fact that only 13% expect to ‘grow strongly’, shows that Australian businesses have room for improvement. These businesses have room to ask, ‘What other pieces can we put in place to raise the bar from 13% to 53%?’

Says the Startup Genome Report, a whopping 90% of startups are failing because of self-destruction.

It’s often a founder’s own bad choices, a lack of preparedness or even a failure to grow through each stage with eyes wide open that kills plenty of start-ups 36 months out more than any ‘bad luck’ or ‘market conditions’ ever could.

Source: Australian Small Business and Key Statistics and Analysis

A large swath of nascent firms (who continue to remain at the ‘nascent’ stage after 36 months) will terminate.

According to the Australian Small Business Key Statistics and Analysis Survey, however, only 50% of ‘nascent’ firms will ever reach operational status.

But, if businesses can make it to the next stage — through to the survival stage or even ‘success’, as will be seen later in this report — even after 36 months of maintaining their ‘young firm’ status, a staggering amount will continue to be operational.

Very few are terminated at this point and even fewer are ‘still trying’.

In other words, they’ve mastered their positions within the business cycle and, coupled with solid growth marketing techniques, they’re able to keep their operational status going strong.

These young firms actually demonstrate that there’s a sweet spot of arrival: They’re not completely new and they’ve been in operation for less than 10 years. They’ve hit a good stride with their strategy. It’s these ‘young’ ventures that remain more robust.

In fact, the annual termination rate for young firms is 14% cumulatively, while only 8% of young firms report an ‘uncertain’ or ‘still trying’ status.

Source: Australian Small Business and Key Statistics and Analysis

Is there a difference in entry and exit by type of firm?

Yes, as it turns out. Product-based nascent firms such as retailers and manufacturers are less likely to reach an operational state and more likely to terminate when compared with service-based firms.

This doesn’t mean that product-based nascent firms in Australia are any less or more viable. They simply require a different kind of growth strategy that keeps this incidence in mind

In practice, this makes sense: Retailers and manufacturers have high operational costs. Even if barriers to entry within the particular country are low, the barriers to survival are high.

Meanwhile, the survival rate of firms in the small business sector is much lower than that of larger-format businesses. While there are more small businesses than larger-format businesses, more small businesses have also downsized than upsized in recent years. Their exit rates have generally exceeded the entry rate.

Source: Reserve Bank of Australia

Now, there’s always a chance to course-correct but this requires the understanding of a company’s position in the business lifecycle in order to stay ahead of the game and defy these odds.

What’s notable, in fact, about the above graph is that, from ‘1-4’ number of employees, the company is looking to grow. The moment it hits anywhere from ‘5-19′, there’s downsizing. The rate of downsizing rises when companies grow from ’20-199’, i.e., from small to medium-sized firms.

However, it’s also at this point where companies seem to have ‘made it’ over an implicit threshold. At this point, they may be downsizing and cost-cutting but are not exiting the market or terminating in droves.

This shows the point of growth and the business cycle stage at which businesses are prone to hit ‘issues’, allowing these very businesses to anticipate the coming and current potential challenges.

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