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 France and benchmark their contributions to job and value creation with other countries.

More than 15% of French SMEs are scalers

In France, about 30 000 small or medium-sized enterprises (SMEs) became scalers between 2017 and 2020, accounting for 16% of the 180 000 SMEs in the non-financial business sector. Among those, about 20 000 were scalers in employment, 19 900 were scalers in turnover, and 9 600 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 employment and turnover both grew by about 70% from 2014 until 2019, reaching 22 000 for scalers in employment and 29 000 for scalers in turnover. 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, France 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.  About one in three scalers grows by more than 20% per year, on average, over three consecutive years, qualifying as “high-growth” scalers. In France, there were 6 800 high-growth scalers in employment and 7 100 high-growth scalers in turnover in 2020. The number of high-growth scalers in employment grew by 41% since 2013. The number of high-growth scalers in turnover saw a faster increase (66%) from 2014 to 2019, to then contract sharply in 2020, mirroring the general trend of all scalers in turnover.

Scalers in employment created 530 000 jobs between 2017 and 2020

In France, scalers in employment created 530 000 jobs over the 2017-20 period. This amounts to 10 additional jobs for every 100 employees in SMEs in 2017. France belongs to the group of countries in which scalers in employment made a particularly large contribution to job creation by SMEs. The group also includes Finland, Spain and the Netherlands.

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

The total turnover of French scalers in turnover in 2020 was EUR 113 billion larger than in 2017. The increase corresponds to 8.2% of the total turnover of all French 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 50% lower in France.

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 France and in other countries across different groups of SMEs.

Most French scalers operate in service sectors

More than 60% of French scalers operate in service sectors, with similar shares providing non-tradable services, advanced tradable services and other tradable services. Less than 15% of scalers operate in manufacturing. The distribution of scalers across economic activities mirrors largely the distribution of all SMEs.

However, in certain sectors scalers are overrepresented, particularly in advanced tradable services, which comprise 12% of SMEs but 19% of scalers. This indicates a greater likelihood for SMEs in these sectors to scale up. Specifically, 30% of advanced services SMEs scale up, compared to 15% in medium or low-tech manufacturing. Relative to other countries, French SMEs are less likely to scale up in construction and, to a lesser extent, manufacturing.

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.

SMEs of all sizes can scale up

More than half of French scalers have between 10 and 19 employees at the beginning of the growth period, and almost one third have between 20 and 49 employees. Only 5% of scalers have between 100 and 249 employees before the expansion phase. The similar distribution of scalers and SMEs across size classes implies that the likelihood to scale up is not very different between smaller and larger SMEs. About 22% of SMEs in the 10-19 size class become scalers, compared to 15% of SMEs in the 100-249. Differences in the likelihood to scale up across size classes in France are aligned with the cross-country averages.

Most French scalers are mature SMEs

Most French scalers (61%) are at least 11 years old, i.e. they are mature SMEs. 19% of scalers are less than 6 years old, i.e. are “young”, and the remaining 20% are between 6 and 10 years old.

Young SMEs are twice as likely to scale up as mature SMEs. About 34% of young SMEs scale up, compared to 27% of SMEs aged 6 to 10, and 17% 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, six out of ten SMEs are mature firms in France. 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 France and in the 15 other countries.

SMEs in remote areas are as likely to scale up as SMEs in metropolitan areas

More than 70% of French scalers are based in regions that are part of a metropolitan areas. This reflects the overall geographical distribution of economic activity in the country, as the shares of scalers and other 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 France, 23% of SMEs in large metropolitan regions scale up, compared to 18% 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

About one in five scalers in employment or turnover continue on their high growth path. Between 2016 and 2019, 21% of French scalers in employment continued to scale up in employment after a first scaling up in the previous three years. These 1 300 firms employed 58 000 more people after six years, with an aggregate increase in the workforce of 220%. Among scalers in turnover, 23% achieved two high-growth periods in a row, reaching a total turnover that was 318% higher in 2019 compared to 2013.

In addition, 45% of scalers in employment and 49% of scalers in turnover maintained their size or grew moderately in the following three years. The share of scalers that consolidated at the new size or continued growing in France was slightly above the average value across the other countries with available data.

One in five 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 France, 25% of SMEs that scale up in employment between 2013 and 2016 reduced their workforce over the following three years. Similarly, 19% 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 was above average for scalers in employment, and slightly below average for scalers in turnover.

One in ten scalers was inactive three years after scaling up

For 9% of scalers in employment and 11% 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.