Distribution and determinants of high-growth firms in Portugal International Workshop “High-Growth firms: Local policies and local determinants” 28th March

Distribution and determinants of high-growth firms in Portugal

International Workshop “High-Growth firms: Local policies and local determinants”

28th March 2012Copenhagen

Elsa Sarmento

Universidade de Aveiro

([email protected])

Catarina Figueira

Cranfield University

([email protected]

)

Introduction

Target: Employer Enterprise Population (enterprises with more than one paid worker according the registrars of the Portuguese Social Security System), using the entrepreneurship dataset obtained from Quadros de Pessoal.

Methodology: The compilation of this dataset follows the methodology applied by Eurostat and OECD (2007) on the classification of what constitutes a High Growth or Gazelle firm.

Dataset: The derived dataset from the application of this methodology consists of an annual average of 215,903 active employer enterprises, with an annual average of 36,803 births and 23,743 enterprise deaths over the period 1985-2007. In 2007, there were 354.920 employer enterprises employing 3.205.372 workers.

Population of

Enterprises with Ten or More Employees

High-Growth Enterprises (as Measured by Turnover)

High-Growth Enterprises (as Measured by Employment)

Gazelle Enterprises (as Measured by

Turnover)

Gazelle Enterprises (as Measured by

Employment)

Gazelle enterprises are a subset of High Growth enterprises which consist of employer enterprises that during a period of at least 5 years have had an annual average growth in turnover or employment, respectively, greater than or equal to 20 % per year.

Growth can be measured either by the number of employees or by turnover.

High turbulence

Decreasing firm average size

Hint at size dependence of growth

Less survival ability

Significant disparities among regions

Effect industry growth in survival rates

Firm dynamics and

performance

Observed factors about firm dynamics in Portugal

0

5

10

15

20

25

30

35

10000

60000

110000

160000

210000

260000

310000

360000

410000

1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

%

Nu

mb

er

of

em

plo

yer

en

terp

rise

s

External factorsPopulation and birth rate of active Employer enterprises

Growth of employer enterprises

Active employer enterprises

Birth rate

QCA IIIQCA II

Empresa na Hora

QCA I

Election year

Election year

QCA IIIQCA I

QCA II

IES

Introduction Euro

Digital delivery QP (compuslory > 10 employees) from

July 04

Election year

Maastricht criteria

Economic recession

Portugal joined EMS

Rendimento Mínimo

Garantido

Source: Sarmento and Nunes (2010).Based on: Eurostat, Statistics Portugal for Portugal INE (EIP) data and own calculations based on Quadros de Pessoal GEP, MTSS for Portugal QP (Eurostat/OECD)and SDBS Business Demography Indicators from the OECD (EIP).Notes: Preliminary version of 2005 for Bulgaria, Romania, Portugal and Slovenia. * Employer enterprises according to the Eurostat/OECD methodology, based on Quadros de Pessoal. ** Statistics Portugal data, for enterprises with more than 1 paid employee (employer enterprises).

.05

.06

.07

.08

.09

0 5 10 15 20analysis time

95% CI Smoothed hazard function

Smoothed hazard estimate - Broad Economy

Entrants and exiters average firm size, by NUTII

Norte Algarve Centro Lisboa Alentejo Açores Madeira Portugal Norte Algarve Centro Lisboa Alentejo Açores Madeira Portugal

1985 7.9 6.3 6.0 6.8 5.7 3.1 7.0 6.81986 7.5 5.7 6.0 6.1 6.3 3.7 9.1 6.51987 6.2 4.7 5.2 5.1 4.5 3.6 6.9 5.4 8.4 5.1 5.9 6.3 5.2 3.3 8.1 6.71990 6.1 4.1 5.3 6.3 4.3 3.0 4.8 5.7 7.7 4.9 5.7 6.1 4.6 3.4 7.1 6.41991 6.2 4.4 5.3 6.8 4.0 2.8 6.2 5.8 8.0 4.1 6.3 6.7 4.4 2.7 4.5 6.61992 5.6 4.0 4.6 5.5 4.2 3.4 4.4 5.1 7.6 4.5 5.9 6.3 4.9 3.2 5.9 6.41993 4.9 3.8 5.1 6.5 4.1 4.4 5.0 5.2 7.6 4.6 6.1 12.4 5.4 3.6 5.4 8.21994 5.9 4.1 4.5 8.6 4.3 3.8 5.4 6.1 6.5 3.8 4.6 5.5 3.9 4.0 4.3 5.41995 4.6 3.4 3.6 4.3 3.3 2.8 5.2 4.1 6.4 3.6 4.6 4.9 4.3 3.1 3.2 5.21996 4.3 3.3 3.8 4.5 3.9 2.4 4.7 4.1 5.5 3.4 4.6 5.0 3.9 2.4 4.5 4.91997 4.5 3.4 3.5 4.4 3.6 2.5 3.8 4.1 5.9 3.5 4.3 5.6 3.9 2.1 3.7 5.11998 4.6 3.3 3.4 5.1 3.3 3.2 4.4 4.3 6.0 3.0 4.1 4.8 3.2 2.5 3.4 4.81999 4.2 3.4 3.6 4.8 3.6 2.6 4.0 4.1 6.4 3.2 4.0 6.1 3.5 2.9 5.6 5.42000 4.0 2.9 3.1 6.6 3.1 3.9 4.3 4.3 5.2 3.1 4.3 5.7 3.0 3.0 4.3 4.82001 4.6 3.4 3.7 4.6 3.3 4.1 4.8 4.2 5.0 4.1 4.2 5.7 3.6 3.3 4.9 4.82002 4.1 3.2 3.3 4.4 3.3 3.9 4.4 3.9 5.0 3.0 3.8 4.8 3.4 3.2 3.9 4.42003 4.2 3.3 3.3 4.6 3.1 3.5 3.6 4.0 4.2 2.9 3.3 5.0 2.8 3.3 3.2 4.02004 3.8 3.3 3.3 4.5 3.2 3.9 4.2 3.8 3.9 2.9 3.0 4.5 3.0 3.7 3.2 3.72005 3.9 3.5 3.8 4.9 3.5 3.3 3.3 4.0 3.5 2.9 3.3 4.4 2.6 3.0 4.0 3.62006 3.4 3.2 2.9 3.8 2.9 3.3 4.1 3.42007 3.4 3.0 2.7 3.9 3.1 3.5 3.7 3.4

Average firm size of entrants Average firm size of exiters

Survival Table for Employer Enterprise Births by NUTII region, 1987-2005

Time Norte CentroLisboa e Vale

do TejoAlentejo Algarve Açores Madeira

1 85,6% 87,4% 85,5% 85,8% 85,6% 85,1% 86,1%2 75,1% 77,7% 75,1% 75,5% 75,5% 74,2% 76,0%3 66,5% 70,1% 67,0% 67,0% 67,7% 67,0% 68,3%4 59,8% 64,0% 60,5% 60,4% 61,2% 59,9% 61,3%5 54,1% 58,9% 55,0% 54,9% 55,8% 54,5% 56,2%6 49,4% 54,5% 50,4% 50,7% 51,1% 50,5% 51,6%7 45,3% 50,7% 46,6% 46,9% 47,2% 46,7% 47,5%8 41,7% 47,5% 43,2% 43,4% 44,2% 43,7% 44,6%9 38,7% 44,5% 40,2% 40,5% 41,1% 41,2% 41,7%10 35,8% 41,9% 37,6% 37,7% 38,5% 38,9% 38,6%11 33,0% 39,5% 35,1% 35,2% 36,2% 36,3% 36,6%12 30,5% 37,4% 32,8% 33,0% 34,0% 33,9% 34,3%13 28,1% 35,3% 30,8% 31,0% 32,0% 31,3% 31,7%14 26,4% 33,4% 29,0% 29,3% 30,2% 29,4% 29,9%15 24,8% 31,8% 27,4% 27,8% 29,0% 28,2% 28,2%16 23,2% 30,4% 26,1% 26,2% 27,8% 26,4% 26,9%17 21,9% 28,9% 24,6% 24,9% 25,4% 25,4% 26,6%18 20,7% 27,4% 22,9% 23,2% 23,9% 23,8% 25,4%

hazard ratio >1: an increase in the given explanatory variable increases the probability of exit.

High-Growth and Gazelle enterprises (by employment)

4,18

3,84

3,32

2,74 2,732,56

2,832,99

3,38 3,363,54

3,72

3,30

2,792,67

2,58

2,822,97

1,13

0,91 0,920,72 0,78 0,73

1,00 0,99

0,75 0,82 0,790,68 0,74 0,76 0,78

0,68

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

4,0

4,5

0

500

1.000

1.500

2.000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

%

Num

ber

of e

nter

pris

es

High-growth and Gazelle Enterprises by Employment (enterprises)

High-growth enterprises by employment (enterprises) Gazelle enterprises by employment (enterprises)

High-growth enterprise rates by employment (enterprises) Gazelle rates by employment (enterprises)

Source: GEE based on Quadros de Pessoal, GEP, Ministério do Trabalho e da Solidariedade Social

Dados de base

Source: Own calculations, based on "Quadros de Pessoal", GEP, Ministério do Trabalho e da Solidariedade Social and the OECD/Eurostat´s (2007) methodology.

High-Growth and Gazelle enterprises (by turnover)

8.5577.885

7.556

6.405

5.177

4.4123.880

4.5865.150 5.422

5.737 5.894 5.723

4.8784.271

4.858 5.079 5.127

1.726 1.574 1.254 963 8361.011 1.353 1.392 1.211 1.272 1.402 1.310 1.336

1.9181.532

1.186

24,6

22,120,4

17,4

13,911,9

10,511,7

12,5 12,4 12,5 12,0 11,59,9

8,7 9,4 9,8 9,5

4,7 4,33,4 2,6 2,3 2,6 3,3 3,2 2,6 2,6 2,8 2,7 2,7

3,7 3,0 2,2

-20

-15

-10

-5

0

5

10

15

20

25

30

0

2.000

4.000

6.000

8.000

10.000

12.000

14.000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

%

Nu

mb

er

of

en

terp

rise

s

High-growth and Gazelle Enterprises by Turnover (enterprises)

High-growth enterprises by turnover (enterprises) Gazelle enterprises by turnover (enterprises)

High-growth firm rates by turnover (enterprises) Gazelle rates by turnover (enterprises)

Source: GEE based on Quadros de Pessoal, GEP, Ministério do Trabalho e da Solidariedade Social

Dados de base



Number of employees in high-growth firms according to the employment criteria, by NUTII (1997, 2004 and 2007)

0 a 5000

5001 a 50000

> 50000


Number of employees in gazelles according to the employment criteria, by NUTII (1997, 2004 and 2007)

0 a 1000

1001 a 6000

> 6000

Share of High-Growth firms in 10+ employees firms (by employment and turnover)


4,2 3,83,3

2,7 2,7 2,6 2,8 3,0 3,4 3,4 3,5 3,7 3,32,8 2,7 2,6 2,8 3,0

24,6

22,1

20,4

17,4

13,9

11,9

10,511,7

12,5 12,4 12,512,0 11,5

9,9

8,79,4 9,8 9,5

0

5

10

15

20

25

30

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Ave

rage

siz

e

Share of High-Growth Enterprises in 10+ employees enterprises, by employment and turnover

Share of High-growth enterprises in 10+employ enterprises (by employment)

Share of High-growth enterprises in 10+employ enterprises (by turnover)

Only 9,5% of all Portuguese employer enterprises (with more than ten employees) have a turnover that is in line with that of High Growth firms. If we consider the growth according to the number of employees instead, then the percentage of High Growth firms drops to just 3 %.

Share of High-Growth employment in 10+ employees firms (by employment and turnover)


7,4 7,26,0

5,36,4 6,3

7,07,9

8,910,0 9,9 9,9

8,27,0 7,3

6,27,2 7,6

26,9

24,425,4

19,6

16,6

13,9

12,5 12,4

15,2 14,8

13,4 13,112,4

11,610,6

9,2 9,6 10,0

0

5

10

15

20

25

30

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Ave

rage

siz

e

Share of High-Growth Employment in 10+ employees enterprises, by employment and turnover

Share of High-growth employment in 10+employ enterprises

Share of High-growth employment in 10+employ enterprises

Over time, we can observe a narrowing gap between the two measurement criteria, for both HG and Gazelles.

Average firm size in HG firms and Gazelles and total population of firms, births and deaths


92,596,6

89,7 92,0

106,9

114,4 113,8119,1 118,9

130,8

121,2

113,3

101,1104,3

116,7

101,3

109,1 109,88

15,7 15,1 14,3 13,4 12,0 11,6 11,3 11,0 10,8 10,6 10,0 10,0 9,4 9,3 9,3 9,0 9,0 9,0

67,9 66,0

93,2

105,2100,0

95,9

103,5

116,7

102,1 102,1

81,2

97,8101,8

86,3

69,0

93,66

0

20

40

60

80

100

120

140

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Nº

em

plo

yee

s

Average Firm Size HG and Total population of firms

Average HG enterprise size - by employment(nº HG emp/nº HG ent)

Average firm size active pop firms (employment)

Average firm size births (employment) Average firm size deaths (employment)

Average Gaz enterprise size - by employment(nº G emp/nº G ent)

The average HG firm size is higher by an average of 18 employees than that of a Gazelle. The growth in average size registered until 1999 was not maintained during the following years. In line with the overall population of firms, HG and Gazelles average size have also decreased from 2000 onwards.

Share of HG firms (by employment) by size class


0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

199019911992199319941995199619971998199920002001200220032004200520062007

Share of High-Growth Enterprises (employment) by size class10 to 19 20 to 49 50 to 249 250 or more

The majority of HG firms and Gazelles are SMEs.


Share of HG and Gazelles (by employment) by NACE

There is a shift in the distribution of both High Growth firms over the period of analysis, away from manufacturing (34% in 1995, down to 20% in 2007) to services and commerce (39% in 1995 up to 56% in 2007) as well as construction (15% in 1995, up to 20% in 2007). A similar pattern is observed for Gazelles.

Distribution of employment: HG and Gazelles (employ) by NUTII regions

41,8

33,1

15,8

4,42,9

0,9 1,1

46,7

32,8

12,7

3,01,9 1,5 1,4

54,9

26,9

11,4

2,2 2,61,1 1,1

0

10

20

30

40

50

60

Lisboa e Vale doTejo

Norte Centro Alentejo Algarve Açores Madeira

%

Distribution of HG (empl) employment by NUT II regions

1990 2000 2007

33,3

44,3

13,0

2,24,6

1,3 1,3

57,3

25,0

10,2

1,73,0 2,1

0,7

56,1

25,6

10,2

3,1 3,60,8 0,6

0

10

20

30

40

50

60

70

Lisboa e Vale doTejo

Norte Centro Algarve Alentejo Açores Madeira

%

Distribution of employment in Gazelles (empl) by NUT II regions

1992 2000 2007


More than half of HG firms are concentrated around the area of Lisbon and another quarter in the North.

Share of HG (employ) in total employment in enterprises +10 employees by NUTII regions


3,1

2,4

1,2

0,30,2

0,1 0,0

4,6

3,3

1,3

0,30,2 0,1

0,0

4,2

2,0

0,9

0,2 0,20,1

0,00,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

4,0

4,5

5,0

Lisboa e Vale do Tejo Norte Centro Alentejo Algarve Açores Madeira

%

Share of HG (Empl) employment in total employment in enterprises + 10 employees

1990 2000 2007

The share of employment in HG firms is higher in Lisbon, which was in 2007, more than twice the share of the second most important region, the North.


7,6

6,6

7,9

9,5

12,1

6,1 6,0

11,9

9,4

7,5 7,77,9

10,2

7,0

10,5

6,1

5,2

4,0

6,0

5,2

3,9

0,0

2,0

4,0

6,0

8,0

10,0

12,0

14,0

Lisboa e Vale do Tejo Norte Centro Alentejo Algarve Açores Madeira

%

Share of HG (Empl) employment in each regions´employment (+10 employees)

1990 2000 2007

Share of HG (employ) employment in each NUTII regions 'employment (+10 employees)

In 1990, the Algarve had the biggest share of regional employment in HG firms. But the situation reversed and in 2007, with Lisbon leading the regional ranking.

Between 2005 and 2008, the UK High Growth firms tripled, on average, the number of employees. In Portugal, firms have experienced a sustained decrease in the number of employees.

Furthermore, High Growth firms account for 6% of the total population of UK firms in terms of employment growth (NESTA, 2009), which is the double of what the evidence shows for Portugal.

When Portuguese firms are compared with their UK counterparts, it is noticeable that:•on average High Growth firms in the UK have been more successful at creating employment than the Portuguese •Portuguese High Growth firms tend to display a higher degree of volatility.

16

UK comparison

4,27,4

3,87,2

3,36,0

2,75,3

2,76,4

2,66,3

2,87,0

3,07,9

3,4

8,9

3,4

10,0

3,5

9,9

3,7

9,9

3,38,2

2,87,0

2,77,3

2,66,2

2,87,2

3,07,6

50%

55%

60%

65%

70%

75%

80%

85%

90%

95%

100%

ENT

EMP

ENT

EMP

ENT

EMP

ENT

EMP

ENT

EMP

ENT

EMP

ENT

EMP

ENT

EMP

ENT

EMP

ENT

EMP

ENT

EMP

ENT

EMP

ENT

EMP

ENT

EMP

ENT

EMP

ENT

EMP

ENT

EMP

ENT

EMP

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Share of High Growth firms in total firms and employmentNon High Growth High Growth


A significant number of High Growth firms in Portugal operate in the Construction sector, which has been particularly affected by variations in the business cycle.

17

UK comparison

20062005

20042003

20022001

2000

1999 1998

1997 1996

199547

49

51

53

55

57

59

61

64 65 65 66 66 67 67 68Share of enterprises, %

Sh

are

of

em

plo

yees,

%

Services

19951996

19971998

1999

2000

2001

20022003

2004

2005

2006

24

26

28

30

32

34

36

38

40

13 14 15 16 17 18 19 20 21Share of enterprises, %

Sh

are

of

em

plo

yees,

%

Manufacturing

Share of enterprises and employees in the construction sector, 1995-2006

1995

1996

19971998

1999

2000

2001

2002

20032004

20052006

9

10

10

11

11

12

12

13

13

14

14

10 11 12 13 14 15 16

Share of enterprises, %

Sh

are

of

emp

loye

es, %


Firm turbulence (excessive creative destruction?)

Short-term factors (business cycle)

Sectoral (and not regional)

Servicisation of the economy

Quality of entrepreneurs

Agglomeration effects

Possibledeterminants of

performance

Determinants of HG and Gazelles performance

High growth does not grant better survival chances in Portugal.

Gazelles seem more prone to dying than HG, showing that rapid growth based on short-run factors does not grant longevity or sustained growth.

From the 87% microfirms in BP´s Central de Balanços, only 10 grew into large firms (2000-2009).

19Source: Bank of Portugal, based on Central de Balanços data and the Eurostat/OECD´s (2007) methodology.

Share of HG and Gazelles closed during 2000-2009

Structure High-Growth Gazelles

Total Universe of non financial firms 23,8% 25,8%

Microfirms 83,6% 23,6% 26,5%

SMEs 16,2% 20,0% 21,9%

Large firms 0,2% 14,6% 18,8%

Lisbon 29,7% 25,9% 28,2%

Porto 17,4% 24,6% 26,3%

Other locations 52,9% 22,4% 24,3%

Limited liability companies 94,3% 23,6% 25,5%

Public limited companies 3,1% 17,7% 21,2%

Other 2,6% 38,9% 43,9%

Agriculture and Fisherires 2,7% 19,1% 22,2%

Manufacturing 13,7% 26,6% 28,9%

Electricity and Water 0,3% 12,7% 14,7%

Construction 14,8% 23,2% 25,5%

Commerce 28,4% 28,4% 30,2%

Other Services 40,1% 20,3% 21,8%

By dimension

By district

By juridical nature

By sector

Dimension HG firms Gazelles

Microfirms 86,4% 87,8%

SMEs 13,6% 12,2%

Large firms 0,0% 0,0%

Microfirms: 1991-2009

What is the maximum size attained by HG firms and Gazelles throughout their

life?

20

No targeted support policies: One size fits all (CSF support, financing schemes, venture capital, business angels, incubators)

Support assessement for HG firms and Gazelles

Few policy synergies:Innovation & Internationalization & Entrepreneurship/SME policies.

Weak involvement with the regional administration

Policy assessment

Obstacles and rigiditiesAccess to capital, Labour Market, Regulation, Red tape and Bureaucracy

Main (slide) bibliography

Bank of Portugal (2010), “Estrutura e dinâmica das sociedades não financeiras em Portugal” Lisbon.Cabral, L. (2007), “Small firms in Portugal: a selective survey of stylized facts, economic analysis and

policy implementation”, Portuguese Economic Journal, 6(1), 65-88.Eurostat; OECD (2007), “Eurostat-OECD Manual on Business Demography Statistics”, Paris, OECD

Publishing.Instituto Nacional de Estatística [INE] (2009), “O empreendedorismo em Portugal. Indicadores sobre a

demografia das empresas 2004-2007”, Destaque INE, Lisboa.NESTA (2009), “The vital 6 per cent, How high-growth innovative businesses generate prosperity and

jobs”, Research summary of October 2009.NESTA (2011), “Vital growth: the importance of high-growth business to the recovery”, Research

summary, March 2011.Nunes, A. and E. de Morais Sarmento (2012) “Business Demography Dynamics in Portugal: A Non-

Parametric Survival Analysis”, in Bonnet, J. et al. (eds.) The Shift to the Entrepreneurial Society: A Built Economy in Education, Sustainability and Regulation, Edward Elgar (Chapter 18).

Nunes, A. and E. de Morais Sarmento (2011), “Sobrevivência de empresas – o caso da região Norte de Portugal” in Rui Nuno Baleiras (Coord.), Livro de Casos de Desenvolvimento Regional, Principia.

OECD (2008), “Measuring entrepreneurship: A digest of indicators”, OECD-Eurostat Entrepreneurship Indicators Programme, OECD Statistics Directorate.

OECD (2009), “Measuring entrepreneurship: a collection of indicators”, 2009 Edition, OECD-Eurostat Entrepreneurship Indicators Programme, OECD Statistics Directorate.

Sarmento, E. de Morais and A. Nunes (2012), “Getting smaller: size dynamics of employer enterprises in Portugal” in Bonnet, J. et al. (eds.) The Shift to the Entrepreneurial Society: A Built Economy in Education, Sustainability and Regulation, Edward Elgar.

Sarmento, E. de Morais and A. Nunes (2010), “Entrepreneurship performance indicators for active employer enterprises in Portugal”, Temas Económicos nº 9, Ministério da Economia, da Inovação e do Desenvolvimento, Lisboa.

Documents

Distribution and determinants of high-growth firms in Portugal International Workshop “High-Growth firms: Local policies and local determinants” 28th March