NACE: High-Growh Inroducion Enerprises and background 18 chaper
High-Growh Enerprises 8 8.1 Definiion A variey of approaches can be considered as providing he basis for defining high-growh enerprises. Many sudies, for eample, have focused on indicaors ha define high-growh enerprises as he op Y% of companies, for eample Birch ype measures, which marry absolue and relaive changes in growh as a way of overcoming he small enerprise bias inheren in measuring enerprise growh raes. Growh = ( 1 ) 0 Where is eiher employmen, urnover or some oher indicaor of size in year. Or he Davis, Haliwanger, Schuh measure used by US saisical agencies for eample, which measures growh on he following basis (a second order approimaion o raes measured in logs): Growh = ( )/( ) / 2 1 0 + 1 0 Perhaps he simples ype of indicaor however, and moreover one ha has clearer inerpreabiliy, is one ha defines high-growh enerprises as hose ha saisfy some predeermined hreshold ha disinguishes hem as high-growh, wih a secondary qualificaion ha enerprises have o be above a cerain size, o miigae any small enerprise growh bias. This is he approach used in his manual. Like he measures above, hresholds are seleced by convenion based largely on individual counry sudies/eperiences. High-growh enerprises can be defined boh in erms of employmen (number of employees) and in erms of urnover. In order o sudy he phenomenon of high growh enerprises, i is recommended ha boh crieria are used. The definiion of high-growh enerprises recommended is as follows: All enerprises wih average annualised growh greaer han 20% per annum, over a hree year period should be considered as high-growh enerprises. Growh can be measured by he number of employees or by urnover. A meaningful size hreshold () should be se o avoid he growh of small enerprises disoring he picure. For insance, an enerprise growing from one o wo employees would auomaically be a high growh enerprise, using he above growh hreshold, alhough his growh occurs a a very low level wih relaively negligible economic impac. On he oher hand, he size hreshold should be low enough o avoid ecluding oo many enerprises. A provisional size hreshold has been suggesed as 10 employees a he beginning of he growh period, bu a final recommendaion is epeced afer ess have been performed using differen hresholds. Noe ha he provisional size hreshold of 10 or more employees holds for boh he urnover and employmen measures. The advanage of his is ha he iniial populaion is he same, regardless of wheher growh is measured in employmen or urnover. Moreover, i would be difficul o apply a consisen urnover hreshold across all counries paricipaing in he daa collecion. In order o compare high-growh enerprises of roughly he same size, i would in any case be necessary o idenify a urnover hreshold ha corresponds o a cerain employmen size. 1 0 8.2 Calculaion When rying o idenify high-growh enerprises, i is no necessary o check he change in employee numbers or urnover from one year o he ne over a hree-year period. I is sufficien o consider only he populaion of acive enerprises reaching he employee hreshold (N ) in year -3 and o measure he number of employees in year. As average annualised growh has o be measured, he formula describing high-growh enerprises is: Eurosa OECD Manual on Business Demography Saisics 61
8 High-Growh Enerprises Measured in employmen 3 employees employees ( ) ( 3) 1 > 0.2 Measured in urnover 3 urnover urnover ( ) ( 3) 1 > 0.2 In pracice, average annualised growh of 20% over hree years would be equal o 72.8% growh from -3 o year. Thus, he easies way o find ou which of he populaion N -3 can be considered high-growh enerprises in year is o check by ID number comparison which enerprises in populaion N -3 are sill in populaion N, and hen check wheher he number of employees, or urnover respecively, in year is a leas 1.728 imes higher han in year -3. If a any ime (-1 or -2, and for urnover based measures) he number of employees falls below he employee hreshold he enerprise can sill be regarded as a high-growh enerprise so long as beween -3 and oal growh is 72.8% or higher. 8.3 Eclusions When idenifying he populaion of high-growh enerprises for a given reference year, enerprises ha were born hree years ago should be ecluded from he populaion. This is because he populaion R -3 (newly born enerprises wih a leas employees) were born a differen poins in ime during year -3, and so on average hese enerprises were born around 1 s July. Consequenly heir average urnover in he birh year is significanly lower han in following years simply because of he shorer average period of aciviy in he birh year. A seeming urnover growh from he birh year o following years may be due only o he fac ha he operaing period in he birh year was only a few monhs long. Therefore he daa on high-growh enerprises should be cleaned by removing unis ha were born in year -3. Oherwise i would be necessary o annualise urnover in he birh year, which would inroduce imprecision and make i necessary o idenify he dae when he enerprise firs generaed urnover. The same problem would no occur if only employmen were measured, because i is measured as an annual average over he operaing period and does no accumulae over he year. However, o ensure ha high-growh enerprises are always idenified from he same base populaion, populaion R -3 should be removed also from high-growh enerprises measured by employee growh. If growh in he number of employees or urnover was due o mergers or ake-overs, he enerprise in quesion should no be considered a high-growh enerprise. In pracice, he problem of growh by merger should no occur if a new ID number is assigned o he new enerprise resuling from he merger. An enerprise ha was in populaion N -3 will no longer be found in populaion N if i merged wih anoher enerprise. A ake-over may also increase employmen and urnover considerably, so ha he enerprise could misakenly be considered a high-growh enerprise. While he enerprise ha is aken over ceases o eis, he enerprise aking over he oher one coninues and keeps is ID number. As informaion on ake-overs should be a by-produc of he mehodology used for idenifying enerprise deahs (secion 7.1), his informaion could also be used o idenify unis ha show high growh because of such a ake-over, and ha should herefore be ecluded from he resuls. 62 Eurosa OECD Manual on Business Demography Saisics
High-Growh Enerprises 8 8.4 Gazelles Gazelles are he subse of high-growh enerprises which are up o five years old. The definiion is All enerprises up o 5 years old wih average annualised growh greaer han 20% per annum, over a hree year period, should be considered as gazelles. The difference in scope and daa reporing is ha we consider populaions of newly born enerprises (R ) raher han enire populaions of acive enerprises (N ). In principle, he high-growh period of 3 years, referring o a populaion R, can occur a differen sages in he fiveyear monioring and survival period. In a given reference year, gazelles may be in he differen cohors of newly born enerprises R -3, R -4 or R -5, i.e. enerprise in heir hird, fourh or fifh year of survival (remembering ha he birh year iself of an enerprise is considered as year zero). To be consisen wih he eclusions suggesed for high-growh enerprises in general, survivals from populaion R -4 and R -5 should be considered, bu no from populaion R -3. To summarise, poenial high growh enerprises in reference year mus have been in populaion N -3. Gazelles as a subse mus fulfil he addiional condiion ha hey were in populaion R -4 or R -5. The idenificaion of high-growh enerprises on an annual basis may lead o he inclusion of an enerprise in he populaion of high-growh enerprises in several years. The quesion arises wheher a high-growh enerprise, and hus also a gazelle, should be couned in more han one reference year if i fulfils he given definiion. The recommendaion is o do so. For insance, a gazelle born in year could be couned as such eiher once or wice, if i shows high growh over a hree year period from he firs o he fourh survival year and/or from he second o he fifh survival year. As he daa on highgrowh enerprises are colleced on an annual basis, he quesion wheher an enerprise was idenified as a high-growh enerprise in any previous year is no relevan. 8.5 Indicaors Daa on high-growh enerprises and gazelles should be produced in erms of he numbers of enerprises. Employmen and urnover should be used as measures of growh and hus crieria for he idenificaion of high-growh enerprises, bu no as characerisics o be repored in he saisics. The following indicaors based on he numbers of enerprises may be produced: Rae of high-growh enerprises: Number of high-growh enerprises as a percenage of he oal populaion of acive enerprises wih a leas employees. Rae of gazelles among newly born enerprises: Number of gazelles as a percenage of all acive enerprises wih a leas employees ha were born four or five years ago. Eurosa OECD Manual on Business Demography Saisics 63