Will companies’ life expectancies be reduced still further?

The life expectancy of companies is shortening all over the world. In Germany it has fallen to 18 years, while in France it is 9 years. In Turkey 80 percent of all businesses do not reach their fifth year and 96 percent do not reach their tenth. According to the World Bank the average age of Turkish companies is 34… There is no serious threat in Turkey yet. But experts say that in the future company mergers and acquisitions will be one of the most important factors affecting the life expectancy of Turkish companies.

The US company DuPont is 200 years old, Mitsui of Japan 300 and Sumitomo 500 while the Swedish Stora firm is 700 years old. Although these well-established companies have been stubbornly surviving for so many years, all over the world the life expectancies of companies are declining. Studies have shown that the life expectancy of a firm in Germany has fallen from 45 years to 18 years, in France from 13 to 9 and in the UK from 10 to 4.

The average age of the companies which are included in Forbes magazine’s ‘The 500 Largest Companies in the World’, which lists the biggest firms in the world, is 40 years. According to a study by Stanford University, the average life expectancy of companies in North America and Europe varies from 10 to 20 years.

Arie de Geus, who has become famous for his studies on the life expectancies of companies, claims that the average lifetime is less than 12 years. Arie De Gues explains that: “We conducted a study on the average lifetime of companies some 20 years ago. We made a generalization based on examples of companies from North America, Europe and the Far East. According to the results of this study, the average life expectancy of a company was 17 years. When we repeated this study ten years later we found that the average lifetime had been reduced to 12 years. I can say that companies now survive for less than 12 years.”

The Life Expectancy In Turkey Is 34 Years
When we look at Turkey we see that over 90 percent of all companies were founded in the last 20 years. In 1980 the number of companies in the country stood at 25,000. At the end of 2005 it had risen to 650,000. Of these, 400,000 had been founded in the last five years. This means that it is young companies who are serving as the locomotive for the Turkish economy.

We should say immediately that it is impossible to find a reliable study on the life expectancies of companies in Turkey. Maestro Consulting Board Chairman Ferudun Gündüz says that, based on data from the World Bank, 80 percent of companies established in Turkey do not survive for five years and 96 percent do not make it to ten years. Again according to the World Bank, the average lifetime of a company in Turkey is 34 years.

A survey by the Ankara Chamber of Commerce (ATO) entitled ‘Company Statistics from the Republic to the Present Day: 1923-2005’ shows that the life expectancy of members of the ATO at least is limited to 12 years. The study shows that between 1923 and September 2005 a total of 166,436 companies were founded. 40,755, or 24 percent, of these have since closed. 18.6 percent of the companies closed within 6-10 years of being established, while 17.5% remained operational for 15-20 years. The same study shows that only 1.8 percent of ATO members have managed to survive for more than 40 years.

Top 500 Dominated By Youth
The Capital500 is one of the most important studies which evaluates the annual performance of the largest private-sector companies in Turkey. In one sense, the survey is equivalent to an annual x-ray of the economy. When we look at the dates when the first 500 companies in the Capital500 survey for 2005 were founded, we see that the economy really does have a young, dynamic foundation. 11 percent of the companies in the Capital500 are 0-9 years old. Another 24.2 percent are 10-19 years old and 18 percent 20-29 years old. That means that the majority of the economy, that is 53.2 percent of the total, is comprised of young companies.

There have been numerous discussions in different countries about the age range which should be used to define young companies. But we believe that the 30-39 age range should be included in the young category. If we add the 110 companies, 22 percent of the total, in this category in the young companies category, then we see that 75.2 percent of the 500 are classed as young. Only 124, or 24.8 percent, of the companies are 40 years old or older. The average age of the Capital500 is 29 years. Prof. Dr. Erol Taymaz notes that the average age of the top 500 companies in Turkey is higher than the average of the companies in the country as a whole. He cites manufacturing industry as an example. According to the information provided by Taymaz, approximately half of all workplaces in manufacturing industry close within five years of opening. Taymaz makes the following comment: “Given that the average lifetime of larger companies is longer it is natural that the average of the largest 500 is longer than the average in the country as a whole.”

There Are Many Fatal Factors
Just as there are factors such as stress, illness, living conditions and genetics which affect the life expectancies of humans, so there are also factors which determine the life expectancies of companies.

NCM Associates President Ali Nail Kubalı says that the list is headed by mistakes made by the management of the company. Kubalı says these mistakes include the refusal of family companies to institutionalize, conflicts within the family, running the company with cheap, low quality human resources from within the family and the success of individual family members fuelling megalomaniac tendencies.

Maestro Consulting Board Chairman Ferudun Gündüz says that if companies do not have a business plan when they are founded or are growing, then their life expectancy will be shortened as a result.

The reasons vary according to the largeness or smallness of the company. In general, the Turkish economy is dominated by SMSEs. Ferudun Gündüz says that the list of factors which reduce the SMSEs’ life expectancy is headed by the failure to find additional funding at a suitable cost in order to meet their needs for new technology and operating capital. Problems such as the quality of human resources, the failure to open up to foreign markets, institutionalize or introduce a brand can also have an impact on life expectancies. Gündüz explains the problems facing operations with more than 250 people as follows:
“Factors such as being late to adapt to technological developments which will make companies competitive and failing to allocate a sufficient budget to institutionalization or branding can have an effect. Conflicts within the family and confusion of authority result in losses. Other reasons that can be listed are a failure to open up to foreign markets and an inability to correctly interpret developments on foreign financial markets.”

Ebru Firat
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