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

About one in five Spanish SMEs is a scaler

In Spain, about 20 800 small or medium-sized enterprises (SMEs) became scalers between 2018 and 2021, accounting for 17% of the 120 000 SMEs in the non-financial business sector. Among those, about 11 100 were scalers in employment, 17 000 were scalers in turnover, and 7 300 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 doubled from 2013 to 2019, reaching 26 000. The number of scalers in employment followed a similar pattern, peaking at 19 000 units 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, Spain and most other OECD countries provided relief measures to support employee retention. In 2021, there was a partial rebound in the number of scalers in turnover, due to the improvement in economic conditions. Conversely, the count of scalers in employment continued to decline, as persistent uncertainty deterred SMEs from committing to long-term investments in expanding their workforce.

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 Spain, there were 3 600 high-growth scalers in employment and 6 200 high-growth scalers in turnover in 2021. The number of high-growth employment and scalers in turnover grew steeply from 2013 to 2019, reaching a peak of 6 500 and 10 100 units, respectively. In 2020 and 2021, their trends mirrored the trends of the overall population of scalers, with a sharp decline in the number of high-growth scalers in turnover in 2020 and a recovery in 2021, and a smaller decrease in in the number of high-growth scalers in employment in 2020 that extended to 2021.

Scalers in employment created 360 000 jobs over three years

In Spain, scalers in employment over the 2017-20 period created 360 000 jobs, which accounts to 10 additional jobs for every 100 workers in SMEs in 2017. Jointly with Finland, France and Netherlands, Spain is among the countries in which scalers in employment provided the highest contribution.

Scalers increased total SME sales by 10%

The total sales of Spanish scalers in turnover in 2020 was EUR 70 billion larger than in 2017. The increase corresponds to 10% of the total sales of Spanish SMEs in 2017. This compares to 12% on 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 Spain and in other countries across different groups of SMEs.

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

Almost a quarter of Spanish scalers in employment or turnover operate in non-tradable services, i.e., services that are mainly consumed locally, and about one fifth of scalers operate in construction. 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 SMEs but 21% of scalers. This indicates a greater likelihood for SMEs in these sectors to scale up. About 36% of SMEs in the construction sector become scalers, compared to 17% among SMEs providing other (non-advanced) tradable services. Relative to other countries, Spanish SMEs have a lower likelihood to become scalers in education, social or health services, and in the medium-high tech manufacturing 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 of all sizes can scale up

More than half of Spanish scalers have between 10 and 19 employees at the beginning of the growth period, and almost one third have between 20 and 49 employees. In contrast, SMEs with 100 to 249 employees represent only 4% of scalers. The likelihood to scale up is similar across SMEs of different sizes, thus the size distribution of scalers closely follows the size distribution of other SMEs. About 22% of SMEs in the 10-19 size class become scalers, compared to 21% of SMEs in the 100-249 size class. Differences in the likelihood to scale up across size classes in Spain are aligned with the cross-country averages.

Most of Spanish scalers are mature SMEs

Most Spanish scalers (63%) 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 (17%) are between 6 and 10 years old.

Young SMEs are 1.7 times as likely to scale up as mature SMEs. About 32% of young SMEs scale up, compared to 29% of SMEs aged 6 to 10, and 19% 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., 6 percentage points more than the share of young SMEs in all SMEs. However, seven out of 10 SMEs are mature firms in Spain. 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 Spain and in the 15 other countries.

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

About 45% of Spanish scalers are located in the large metropolitan areas of Barcelona, Madrid, Sevilla and Valencia. An additional 34% is headquartered in other metropolitan regions around the country.

The concentration of scalers in metropolitan regions closely mirrors the geographical distribution of SMEs in the country. This implies that SMEs have the same probability to scale up in metropolitan regions, in smaller cities and in remote areas.

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

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 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, 22% of scalers in employment continued to scale up in employment after a first scaling up in the previous three years. These 1 600 firms employed 82 000 more people after six years, with an increase in the workforce of 216%. Among scalers in turnover, 26% achieved two high-growth periods in a row, reaching a total turnover that was 308% higher in 2019 compared to 2013.

In addition, 46% of scalers 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 Spain 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 reverse their growth. In Spain, 20% 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 experiencing a reversal was below average for both employment and scalers in turnover.

One in ten scalers was inactive three years after scaling up

For 11% of scalers in employment and 9% 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.