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

Around 22% of Dutch SMEs are scalers

In the Netherlands, about 13 500 small or medium-sized enterprises (SMEs) became scalers between 2017 and 2020, accounting for 22% of the 62 000 SMEs in the non-financial business sector. Among those, about 7 600 were scalers in employment, 11 200 were scalers in turnover, and 5 300 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 were stable from 2017 to 2019, reaching a peak of 12 000 in 2018. The number of scalers in employment showed a 14% increase over the same period, surpassing 9 200 in 2019. 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, the Netherlands and most other OECD countries provided relief measures to support employee retention. In 2021, the number of scalers in turnover returned close to the level of 2019, reflecting a quick recovery for many SMEs. Conversely, the count of scalers in employment continued to decline, as persistent uncertainty deterred SMEs from committing to long-term investments in expanding their employees.

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 2021, there were 2 500 high-growth scalers in employment and 4 400 high-growth scalers in turnover. The number of high-growth scalers in employment grew 13% between 2017 and 2019, reaching a peak of 3 030 in 2019. The number of high-growth scalers in turnover were stable over the same period, reaching a peak of 4 600 in 2018.

Scalers in employment created 213 000 jobs over three years

In the Netherlands, scalers in employment created 213 000 jobs over the 2017-20 period, which accounts to 10.6 jobs for every 100 workers in SMEs in 2017. The Netherlands 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 and Spain.

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

The total sales of Dutch scalers in turnover in 2020 was EUR 111 billion larger than in 2017. The increase corresponds to 16% of the total sales of Dutch 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 33% higher in the Netherlands.

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 the Netherlands and in other countries across different groups of SMEs.

Dutch SMEs operating in construction and advanced services are more likely to scale up

Most Dutch scalers operate in service sectors (27% in non-tradable services, 20% in advanced tradable services, and 18% in other tradable services). 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 construction, which comprise 13% of scalers but 9% of all SMEs. This reflects the higher probability of SMEs to scale up in these sectors. About 38% of SMEs in the construction sector become scalers, compared to 21% in the education, social or health services sector. Relative to other countries, Dutch SMEs have a higher likelihood to become scalers in the construction and in the non-tradable services sector.

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 across all size classes scale up

Almost half of Dutch scalers have between 10 and 19 employees at the beginning of the growth period, and one third have between 20 and 49 employees. In contrast, SMEs with 100 to 249 employees represent only 6% of scalers. The likelihood to scale up is similar across SMEs of different sizes, therefore the size distribution of scalers closely follows that of all SMEs. About 27% of SMEs in the 10-19 size class become scalers, compared to 22% of SMEs in the 100-249. Differences in the likelihood to scale up across size classes in the Netherlands are aligned with the cross-country averages.

Most of Dutch scalers are mature SMEs

Most Dutch scalers (60%) are mature SMEs that are more than 10 years old. 22% of scalers are less than 6 years old (i.e. young) and the rest (18%) are between 6 and 10 years old.

Young SMEs are 1.6 times as likely to scale up as mature SMEs. About 36% of young SMEs scale up, compared to 31% of SMEs aged 6 to 10, and 23% of mature SMEs. This results in scalers being overall younger than other SMEs. The share of young scalers in all scalers is equal to 22%, i.e., six percentage points more than the share of young SMEs in all SMEs. However, six out of ten SMEs are mature firms in the Netherlands. 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 the Netherlands and in the 15 other countries.