Why is the number of employer companies in Finland decreasing?

Entrepreneurship has accepted as a key accelerator of economic growth and vitality. It is worrying that over the past ten years, the number of employer companies in Finland has been declining. This situation particularly affects micro and small businesses that provide employment.
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Very rapid changes that have occurred in the business environment have recently challenged the operating conditions of companies. The decline in the number of employer companies cannot be explained solely by the crises of recent years. This situation has continued uninterruptedly for over ten years.

For business, the COVID-19 pandemic, attack of Russia on Ukraine, and the resulting difficulties in the availability of raw materials, materials, and components has been insurmountable. Companies that have had shortcomings in their preparedness have encountered difficulties.

An additional challenge was that inflation started to rise rapidly and the European Central Bank began to raise interest rates. The price of money rose from zero rates to levels not seen in past ten year. This has had a major impact on consumer confidence and has practically stopped, for example, housing construction.

Business growth occurs as a process, where growth does not happen linearly

Business research has traditionally viewed business growth as a linear event, and only in recent years have researchers turned their attention to business growth as a process. The research has identified several business growth models, where growth continues linearly, i.e., continuously from one stage to another. When growth is studied as a process, it is essential to ask "how" growth has occurred, not "how much"?

The research identifies factors supporting the growth of small businesses, including owner management and entrepreneurial orientation. Conversely, factors that can slow down growth may include deficiencies in skills in various business areas and board work.

On the other hand, we know that for sole entrepreneurs, the biggest obstacle to hiring the first person is the fear of wrong recruitment. It is natural for sole entrepreneurs to increase capacity by operating as part of a business network. Often, growth from a micro-entrepreneur employing at most ten people to a small entrepreneur employing 10-50 people also remains undone.

Research data needed on the decline of employer firms

There is little available research information on the reasons that have led to the decline of employer companies. Is it so that the prevailing corporate culture in Finland no longer produces enough growth-oriented entrepreneurs? What follows if such a change in corporate culture has occurred? Why it is worthwhile to employ in Finland is a question that needs to be answered.

Kai Hänninen, Senior Research Fellow, Docent, Kerttu Saalasti Institute, University of Oulu.