Scalers and the economy

A small group of SMEs that grow fast over a short period of time, i.e. “scalers”, provide a large part of the growth in jobs and economic value in OECD countries. This section contains an overview of the recent trends in the number of scalers in Austria and benchmark their contributions to job and value creation with other countries.

Around 15% of Austrian SMEs are scalers

In Austria, about 4 000 small or medium-sized enterprises (SMEs) became scalers between 2017 and 2020, accounting for 15% of the 26 000 SMEs in the non-financial business sector. Among those, about 2 100 were scalers in employment, 3 100 were scalers in turnover, and 1 250 were scalers in both employment and turnover.

Scalers in year 2020 are defined as enterprises with 10 to 249 employees (SMEs) that increased employment or turnover by at least 10% per year, on average, over the three previous years (2017-20). This means they grow by at least 33% over the three-year period.

The number of scalers in turnover grew by 46% from 2015 to 2019, reaching 4 200. The number of scalers in employment gradually increased over the same period and peaked in 2019, surpassing 2 500. The upward trend reflects a period of economic expansion across the OECD in the wake of the Global Financial Crisis. The number of turnover scalers declined sharply in 2020 as the COVID-19 pandemic spread. The number of scalers in employment fell as well, but less so. The reason is that SMEs that grew in 2018 and 2019 and were on track to become scalers by 2020 were unable to continue growing and might even had to reduce output or employment. The impact on turnover was more severe than on employment as generally firms tend to try to retain staff even through a crisis and particularly during the COVID-19 pandemic, Austria and most other OECD countries provided relief measures to support employee retention.

High-growth scalers, defined as SMEs with annual growth rates exceeding 20% over three consecutive years, may exhibit distinct trends through economic cycles. Compared to other scalers, high-growth scalers may be faster to react to economic shifts and new market opportunities, but they may also be more constrained by lack of financial resources or tight labour markets. In 2020, there were 600 high-growth scalers in employment and 1 000 high-growth scalers in turnover. The number of high-growth scalers in employment has seen a modest increase over time before the covid-19 crisis, beginning at around 550 units in 2011 and reaching 650 units by 2019. The data indicates fluctuating trends in high-growth scalers in turnover over the years, ranging from a low of 900 in 2015 to a peak of 1 400 in 2012.

Scalers in employment created 55 000 jobs over three years

In Austria, scalers in employment created 55 000 jobs over the 2017-20 period, which accounts to 6.1 jobs for every 100 workers in SMEs in 2017. Austria belongs to the group of countries in which scalers in employment made a particularly small contribution to job creation by SMEs. The group also includes Slovak Republic and Estonia.

The contribution of scalers in turnover was below the average of other countries

The total turnover of Austrian scalers in turnover in 2020 was EUR 30 billion larger than in 2017. The increase corresponds to 9.5% of the total turnover of all Austrian SMEs in 2017. This compares to 12% on average across countries with available data, indicating that the contribution of scalers in turnover to value creation is about 22% lower in Austria.

Scalers’ characteristics

All types of SMEs can scale up. This section describes the characteristics of scalers in terms of sector of activity, size, age, and geographical distribution. It also compares the likelihood of SMEs to scale up in Austria and in other countries across different groups of SMEs.

Austrian SMEs operating in non-tradable services and advanced services are more likely to scale up

Most Austrian scalers operate in non-tradable services, advanced tradable services, and construction (24%, 22%, and 20%, respectively). The distribution of scalers across economic activities mirrors largely the distribution of SMEs across these activities.

However, in certain sectors scalers are overrepresented, particularly in advanced tradable services, which comprise 22% of scalers but 14% of SMEs. This reflects the higher probability of SMEs to scale up in these sectors. About 34% of SMEs in the advanced tradable services sector become scalers, compared to 17% in the medium-low tech manufacturing sectors. Relative to other countries, Austrian SMEs have a lower likelihood to become scalers in all sectors except advanced tradable services.

Sector groups include the following two-digit NACE sectors:

• Low and medium-low technology manufacturing and extractive industries: food, textile, paper, wood, refined petroleum, rubber, plastic, basic metal products, mining.

• Medium-high and high technology manufacturing: chemical products, pharmaceuticals, computer, electronic/electrical equipment, machinery, transport equipment.

• Advanced tradable services: software, telecommunications, consultancy, legal services, accounting services, architectural activities, scientific research.

• Other tradable services: travel agency, services to buildings/landscape, employment activities, veterinary, accommodation/food services, services for transportation.

• Other non-tradable services: electricity, gas and water supply, waste management, wholesale and retail trade, repair of motor vehicles/household goods, real estate activities.

• Education, social care and health services: Education, human health activities, residential care, social work.

• Construction: construction of buildings, civil engineering, specialised construction activities.

Source: Manufacturing sectors are aggregated using Eurostat’s high-technology classification of manufacturing industries. The classification of tradable and non-tradable services is based on Piton, S. (2021). Economic integration and unit labour costs. European Economic Review, 136, 103746.

Small SMEs are more likely to scale up

More than 40% of Austrian scalers have between 20 and 49 employees at the beginning of the growth period, and 39% have between 10 and 19 employees. In contrast, SMEs with 100 to 249 employees represent only 7% of scalers. Compared to all SMEs, scalers are overrepresented among the smallest SMEs with less than 20 employees, as in Austria these SMEs have a higher likelihood to scale up than larger SMEs with 20 employees or more. About 26% of SMEs in the 10-19 size class become scalers, compared to 16% of SMEs in the 100-249. Differences in the likelihood to scale up across size classes in Austria are aligned with the cross-country averages.

Most Austrian scalers are mature SMEs

Most Austrian scalers (65%) are mature SMEs that are more than 10 years old. 20% of scalers are less than 6 years old (i.e. young) and the rest (15%) are between 6 and 10 years old.

Young SMEs are twice as likely to scale up as mature SMEs. About 35% of young SMEs scale up, compared to 31% of SMEs aged six to ten, and 18% of mature SMEs. This results in scalers being overall younger than other SMEs. The share of young scalers in all scalers is equal to 20%, i.e., seven percentage points more than the share of young SMEs in all SMEs. However, eight out of 10 SMEs are mature firms in Austria. It follows that most scalers are mature SMEs, as the lower likelihood to scale up is counterbalanced by a larger base. Similar to size, differences in the likelihood of scaling up across age classes are similar in Austria and in the 15 other countries.

SMEs in large metropolitan areas are more likely to scale up

Most Austrian scalers are located in (large) metropolitan regions (34%). This reflects the overall geographical distribution of economic activity in the country, as the shares of scalers and all SMEs are very similar across typologies of regions.

The OECD metropolitan/non-metropolitan typology for small regions (TL3) helps assess differences in socio-economic trends in regions by controlling for the presence/absence of metropolitan areas and the extent to which the latter is accessible by the population living in each region. TL3 regions are classified as “metropolitan” if more than half of their population lives in a functional urban area (FUA) of at least 250 000 inhabitants and as “non-metropolitan” otherwise. A “metropolitan region” becomes a “large metropolitan region” if the FUA accounting for more than half of the regional population has over 1.5 million inhabitants. The typology further classifies “non-metropolitan” regions based on the size of the FUA that is most accessible to the regional population. More specifically, “non-metropolitan” TL3 regions are subclassified into three possible types: i) with access to a metropolitan area, if at least half of the regional population can reach an FUA of at least 250 000 inhabitants within a 60-minute car ride; ii) With access to a small/medium city, if at least half of the regional population can reach an FUA of between 50 000 and 250 000 inhabitants within a 60-minute car ride; iii) remote, if reaching the closest FUA by car takes more than 60 minutes for more than half of the regional population.

Source: Fadic, M., et al. (2019), ‘Classifying small (TL3) regions based on metropolitan population, low density and remoteness’, OECD Regional Development Working Papers, No. 2019/06, OECD Publishing, Paris, https://doi.org/10.1787/b902cc00-en

However, the proximity of SMEs to large metropolitan regions is associated with a larger likelihood to scale up. In Austria, 24% of SMEs in large metropolitan regions scale up, compared to 19% among SMEs in remote regions.

Growth trajectories

While many SMEs consolidate at their new size after scaling up, rapid growth also brings new challenges, with some scalers failing to adapt. This section illustrates the growth trajectories of scalers in the three years following their (first) expansion phase.

The majority of scalers maintained their new size or even continued to grow

Between 2016 and 2019, 17% of Austrian scalers in employment continued to scale up in employment after a first scaling up in the previous three years. These 150 firms employed 6 200 more people after six years. Among scalers in turnover, 19% achieved two high-growth periods in a row, reaching a total turnover that was 301% higher in 2019 compared to 2013.

Despite the relatively small share of Austrian scalers continuing to scale up in the following three years, the share of scalers that maintained their size or grew moderately are the highest among all countries included in the analysis. Specifically, 50% of scalers in employment and 52% of scalers maintained their size or grew moderately in turnover in the following three years.

One in six scalers contracted after scaling up

Scaling up also brings challenges for SMEs. Firms may need to comply with stricter regulations, improve their managerial practices, or adopt a different financial model. Some scalers may struggle to adapt and experience a contraction after growing. In Austria, 17% of SMEs that scale up in employment between 2013 and 2016 reduced their workforce over the following three years. Similarly, 16% of scalers in turnover had a lower turnover three years after scaling up, underscoring the challenges inherent in maintaining an expanded scale. Relative to other countries, the share of scalers having a reversal in Austria was the lowest among all countries included in the analysis.

One in seven scalers was inactive three years after scaling up

For 16% of scalers in employment and 13% of scalers in turnover, there was no information available on their employment or turnover levels in 2019. This lack of information is open to different interpretations. First, the firm may be closed or about to close, which in most cases indicates that the business has not been successful. Second, the company may have been acquired by another entity, which often indicates success rather than failure. Third, the lack of information may simply be a “nuisance” in the data, e.g. due to reporting errors. It is not possible to know the exact incidence of each of the three alternatives. However, it is known that acquisitions are rare events even for growth-oriented businesses. Conversely, around 8-10% of businesses close each year. Therefore, it is likely that most former scalers with missing information have ceased operations.