Methodology

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How we define a “small business”

There is no commonly accepted definition of what counts as a ‘small business’. In general, what counts as a ‘small business’ largely depends on: 1) who is asking, and 2) for what purposes.

For the purpose of this study, we defined ‘small businesses’ as businesses of less than 200 employees, excluding non-employing businesses (e.g. legal structures that do not employ workers). The reason for this is to:

  1. Cast a wider net to ensure coverage of industries where labour might be a critical input.
  2. Align to previous economic modelling and existing research and analysis.

It is worth noting, that our aim was to capture a broad range of small businesses in a variety of different industries. As such, our definition, and in turn key statistics like the number of small businesses, may differ others out in the public domain. For example, some cite the number of small businesses as more than 2 million. According to the ABS this statistic includes non-employing small businesses, which we have excluded for the purpose of this study.

How we estimate the economic impact of technology

To achieve a similar level of productivity performance achieved by small businesses in the five major economies surveyed, Australian small businesses would need to make operational changes and innovations that contribute to multifactor productivity (MFP) growth.

To develop an estimate of the economic impact of technology on small business, we drew insights from a 2013 Boston Consulting Group (BCG) study, which analysed the impact of small and medium business technology adoption in five countries.

The BCG study estimated the impact of improved internet technology take-up rates in United States, Germany, China, India and Brazil whereby technology ‘laggards’ and ‘followers’ become technology ‘leaders’ (e.g. 15% of ‘laggards’ and 30% of ‘followers’ were to become ‘leaders’ in these five countries). 

Implicit in its definition of ‘leader’ is that leading small businesses are using advanced internet and cloud based technologies in their day-to-day operations.

To estimate a modelling ‘shock’ of the potential benefits of internet and mobile technology, using the BCG study to ‘anchor’ our calculations, our approach of calculating an Australian equivalent impact consists of two parts:

  1. Demand impacts: small business technology leaders in advanced economies tend to grow revenue faster than followers and laggard (BCG’s survey results suggest by 7% and 13% respectively); and
  2. Supply side impact: small business leaders using advanced technologies can potentially realise savings in terms of IT capital expenditure and IT operational expenditure. To estimate this cost savings, we applied a technical assumption of a 50% reduction in IT capital expenditure and a 25% reduction in IT operational expenditure.

Because the BCG study focused on revenue growth, we converted the BCG findings into a relevant Australian gross domestic product (GDP) impact, expressed as a percent of GDP.

We then calculated the MPF growth impact and validated this estimate through Productivity Commission and KPMG studies. We found the additional MFP productivity growth for small businesses needs to be over 1% per annum to obtain similar levels of GDP impacts reported for five countries quantified by BCG. 

We then applied this result to a computable general equilibrium (CGE) model to estimate the total (direct and flow-on) impacts to the economy from changes in technology take-up over time. Our CGE model contains explicit representations of intra-industry, intra-regional, inter-regional and international trade flows. The CGE model calculated a net growth in gross value add of over a ten year period. 

Because the purpose of this study is to look at private sector small businesses, we have excluded two sectors, ‘Electricity, gas, water and waste services’ and ‘Public administration and safety’. While important to the overall Australian economy, these sectors are typically quite regulated or are actively funded by government.

How we map the impact

PwC’s Geo-spatial Economic Model (GEM) is a method of distributing an economic impact over a geographic location and presenting it in a more meaningful way, such as on a map.

To do this, we identified all the businesses within each Federal electorate by way of a correspondence from Statistical Area Level 2 (SA2) outputs. We then used the ABS’s Count of Businesses by employee size, region and industry data to apportion output. 

To display internet speed and quality data, supplemental custom data sets were obtained and aligned to the GEM modelling output identified above. The first related to internet usage, innovation and the extent of ICT usage in businesses processes by industry and businesses by employee size. The second related to barriers and drivers of innovation by industry and employee size. We estimated rating of Broadband Availability and Quality using the Department of Communications' MyBroadband data cube and PwC GEM analysis. Distribution Area level information was aggregated to Exchange Service Areas.

Fixed broadband quality and availability scales

The broadband quality and availability scales included in each of our State / Territory and Federal electorate analyses relate to those used by the Department of Communications in a 2013 report on broadband availability and quality. Details of each rating scale are provided below. Note that actual user speed will vary depending on factors such as user connection, technology, and network conditions.

Availability scale:

Quality scale:

Our reading list

Australian Bureau of Statistics, ‘8158.0 Innovation in Australian business, 2012-13’, 8 May 2015, available at:
http://www.abs.gov.au/ausstats/abs@.nsf/mf/8158.0

Australian Bureau of Statistics, '“8165.0 Businesses by Industry Division by Statistical Area Level 2 by Employment Size Ranges, June 2013 and June 2014'”, 8 May 2015, available at:
http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/8165.0Jun%202010%20to%20Jun%202014?OpenDocument

Australian Communications and Media Authority, '“SMEs and digital communication technologies: A qualitative market research report'”, last accessed 14 June 2015, available at:
http://www.acma.gov.au/~/media/Regulatory%20Frameworks%20and%20International
%20Engagement/Information/pdf/SMEs%20and%20digital%20communications%20technologies%20pdf.pdf


Boston Consulting Group, '“Ahead of the Curve: Lessons on Technology and Growth from Small Business Leaders'”, October 2013, available at:
http://www.bcg.com.cn/en/files/publications/reports_pdf/BCG_Ahead_of_the_Curve_Oct_2013.pdf

Deloitte Access Economics, '“Connected Small Businesses: How Australian small businesses are growing in the digital economy'”, last accessed 5 June 2015, available at:
https://www.deloitteaccesseconomics.com.au/uploads/File/Connected%20Small%20Business.pdf

Department of Communications, '“Broadband Availability and Quality Report'”, last accessed 14 June 2015, available at: https://www.communications.gov.au/publications/broadband-availability-and-quality-report

KPMG, '“Modelling the impact of cloud computing, for the Australian Information Industry Association'”, 2012, available at:
http://www.kpmg.com/au/en/issuesandinsights/articlespublications/pages/modelling-economic-impact-cloud-computing.aspx

NERA Economic Consulting, '“Levelling the Playing Field: The Role of the Internet and Mobile Computing in Improving the Efficiency and Competitiveness of Australian Small Business'”, last accessed 15 June 2015, available at:
http://www.nera.com/content/dam/nera/publications/2014/PUB_Role_Intnet_Eff_Comp_Sm_Business_1114.pdf

Productivity Commission, '“The effects of ICTs and complementary innovations on Australian productivity growth'”, July 2003, available at:
http://www.pc.gov.au/research/completed/ict-innovations/eictci.pdf

Reserve Bank of Australia, '“Small Business: An Economic Overview'”, May 2012, page 1, available at:
http://www.rba.gov.au/publications/workshops/other/small-bus-fin-roundtable-2012/pdf/01-overview.pdf

Sensis, '“Sensis e-Business Report 2014: The Online Experience of Small and Medium Enterprises'”, last accessed 15 June 2015, available at:
https://www.sensis.com.au/content/dam/sas/PDFdirectory/Sensis-eBusiness-Report-2014.pdf

See ABS catalogue '8165.0 - Counts of Australian Businesses, including Entries and Exits , Jun 2007 to Jun 2011, Explanatory Notes (Glossary)' for more detail concerning non-employing businesses.