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

Around one in five Slovak SMEs is a scaler

In the Slovak Republic, about 3 000 small or medium-sized enterprises (SMEs) became scalers between 2018 and 2021, accounting for 19% of the 16 000 SMEs in the non-financial business sector. Among those, about 1 100 were scalers in employment, 2 800 were scalers in turnover, and 800 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 showed a modest increase from 2017 to 2019, reaching 3 600 in 2019. The number of scalers in employment showed a 6% decrease over the same period, marking 1 800 in 2019. The number of scalers declined sharply in 2020 as the COVID-19 pandemic spread. 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. In 2021, the number of scalers in turnover partially rebounded, reflecting a quick recovery for many SMEs, in part supported by relief measures. Conversely, the count of scalers in employment remained stable, 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 390 high-growth scalers in employment and 1 100 high-growth scalers in turnover. The number of high-growth scalers in employment has been constantly declining over time, starting from more than 720 in 2017. High-growth scalers in turnover showed an upward trend before the onset of the COVID-19 pandemic, reaching a peak of 1 500 in 2019.

Scalers in employment created 33 000 jobs over three years

In the Slovak Republic, scalers in employment created 33 000 jobs over the 2017-20 period, which accounts to 6.5 jobs for every 100 workers in SMEs in 2017. The Slovak Republic 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 Austria and Estonia.

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

In 2020, the total turnover of Slovak scalers in turnover was EUR 8 billion larger than in 2017. The increase corresponds to 11.2% of the total turnover of all Slovak SMEs in 2017. The value is close to the average across countries with available data.

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 Slovak Republic and in other countries across different groups of SMEs.

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

Most Slovak scalers operate in non-tradable services, medium-low tech manufacturing and extractive or tradable services (27%, 19%, and 19%, 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 the construction sector, which comprise 14% of scalers but 11% of all SMEs. This reflects the higher probability of SMEs to scale up in these sectors. About 29% and 28% of SMEs in the construction sector and the construction sector become scalers, respectively, compared to 18% in the other services tradable sector. Relative to other countries, Slovak SMEs have a lower likelihood to become scalers in the construction sector and in the advanced tradable 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

53% of Slovak scalers have between 10 and 19 employees at the beginning of the growth period, and 32% of scalers 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 23% 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 the Slovak Republic are aligned with the cross-country averages.

Most of Slovak scalers are mature SMEs

Most Slovak scalers (52%) are mature SMEs that are more than 10 years old. 23% of scalers are less than 6 years old (i.e. young) and the rest (25%) are between 6 and 10 years old.

Young SMEs are 1.8 times as likely to scale up as mature SMEs. About 32% of young SMEs scale up, compared to 25% of SMEs aged 6 to 10, 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 23%, i.e., seven percentage points more than the share of young SMEs in all SMEs. However, half of SMEs are mature firms in the Slovak Republic 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 Slovak Republic and in the 15 other countries.

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

38% of scalers are located in metropolitan regions and the majority of Slovak scalers are located in non-metropolitan regions. SMEs in non-metropolitan regions show comparable likelihood to scale up than SMEs in metropolitan regions, as the distribution of scalers and other SMEs is very similar across typologies of regions. This indicates that the proximity of an SME to a metropolitan region does not significantly influence its scaling up potential.

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

At 23%, the likelihood for Slovak SMEs to scale up in large metropolitan regions is only marginally higher than in remote regions (21%). This indicates that SME proximity to metropolitan regions is not a strong predictor of their scaling up potential, in the Slovak Republic as well as in most other countries.