National Research Council Industrial Research Assistance Program

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National Research CouncilIndustrial Research
Assistance Program

• Characteristics of Firms that Grow from
• Small to Medium Size
• Presented by Denise Guillemette
• FPTT Conference 17 June 2004

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Collaborative Project with Statistics Canada

• Collaboration between the Science, Innovation and
  Electronic Information Division (SIEID),
  Statistics Canada and NRC-IRAP (Frances Anderson
  and Michael Bordt, Stat Can Project Managers)
• Objective to increase the knowledge about the
  internal and external environmental factors
  surrounding the growth of firms in that very
  important phase of moving from small to medium
  size

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Methodology

• Literature review
• Interviews (25) with firms, some of which have
  made the transition
• Production of statistical tables from existing
  datasets
• The Longitudinal Employment Analysis Program
  (LEAP)/Small Area File (SAF) represent 1.1
  million of firms in 1995
• The Survey of Innovation 1999
• The Research and Development in Canadian Industry
  (RDCI)
• The Advanced Technologies in Canadian
  Manufacturing Survey 1998

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Definition of High Growth Firms

• High Growth Firms (also called Gazelles) are
  firms that doubled the number of employees in
  five years and at the end of the five years have
  at least 20 employees

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Definitions of Non-High Growth Firms

• Growers are firms that increased the number of
  employees by at least 20 and less than 100
• Stable firms are firms that remained within 20
  range of their employment from the start of the
  reference period
• Decliners are firms that decreased their
  employment by more than 20 form the start of the
  reference period
• Deaths are firm did not exist at the end of the
  five years.

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Methodology (contd)

• Comparison between the high growth firms
  (referred to as gazelles) and the non-high growth
  categorized as growers, stable firms, decliners
  and deaths by size category
• Size categories
• Small 1-99
• 1-19, 20-49, 50-99
• Medium 100-499
• Large 500
• Investigate differences between two size
  categories 20-49 and 50-99
• Period for the study is from 1995 to 2000 (with
  some exceptions)

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Theory of Stages of Growth

• Firms are not all growth oriented Growth
  orientation of a firm at the time of its
  formation maybe one of the most critical factors
  which will affect the growth path of the venture
• Life Style stage deliberate choice of the
  business manager/owner or it could be the limited
  nature of the enterprises market. Firms are set
  up to support a certain life style
• Foundation (family businesses) set up to
  generate enough income for those involved
• Capped Growth stage firms that have disengaged
  from the growth process after successfully
  expanding from the start-up phase
• Entrepreneurial growth-oriented firms aim is to
  increasing value, i.e. to realise a return on
  investment for stakeholders

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Growth Distribution of Firms Between 1995-2000
(LEAP/SAF)
Ref Statistics Canada LEAP/SAF
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Where were the Job in 1995?

• Only 4 of employment were in the firms that will
  will experience high growth (include 1 in the
  micro-high growth firms)
• 34 of employment were in firms that will
  experience growth (17 of growers 17 stable
  firms)
• The majority, 62, of employment were in firms
  that will either decline or died (40 decliners
  22 died)

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Who Pay More?

• In 1995, firms with 500 employees exhibit the
  largest average pay compare to any other size
  category
• In 2000, the high growth firms with 100-499
  employees (medium-sized) exhibit the highest
  average pay compare to any other size category
  and growth distribution (surpassing the large
  firms by 16.5)
• In general, between 1995 and 2000, the change in
  average pay is highest for firms that experienced
  high growth except for the large firms being
  the lowest

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Hypothesis 1 There will be more smaller high
grow firms than large high grow firms
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Profile of High Growth Firms

• Over the 16,000 high growth firms, the majority,
  72, were small firms with 1-19 employees
• With the exception of the size category 1-19, the
  of high growth firms in each category decreases
  as the size category increases
• Percentage of high growth firms in each size
  category (over total business employers in Canada
  between 1995-2000)
• 1.1 of firms with 1-19 employees
• 5.1 of firms with 20-49 employees
• 4.7 of firms with 50-99 employees
• 3.9 of medium-sized firms (100-499)
• 2.9 of large firms (500)

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High Growth Firms by Size Category, 1995-2000
Ref Statistics Canada LEAP/SAF
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Hypothesis 2 High growth small firms will be
concentrated in certain industries
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Distribution of High Growth Firms by Industry
Sector (SIC) All Firm Sizes
Ref Statistics Canada LEAP/SAF
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Secondary and Base Manufacturing

• Secondary Manufacturing
• Fabricated Metal Products (Except Machinery and
  Transportation Equip) 30, Machinery (except
  Electrical Machinery) 31, Transportation Equip.
  32, Electrical and Electronic Products 33,
  Non-Metallic Mineral Products 35, Refined
  Petreleum and Coal Products 36, Chemical and
  Chemicalo Products 37, Other Manufacturing 39
• Base Manufacturing
• Food 10, Beverage 11, Tobacco Products 12, Rubber
  Products 15, Plastic Products 16, Leather and
  Allied Products 17, Primary Textile 18, Textile
  Products 19, Clothing 24, Wood 25, Furniture and
  Fixture 26, Paper and Allied products 27,
  Printing, Publishing and Allied Products 28,
  Primary Metal 29

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Distribution of High Growth Firms by Industry
Sector (contd)
Ref Statistics Canada LEAP/SAF
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Distribution of High Growth Firms by Industry
Sector (contd)
Ref Statistics Canada LEAP/SAF
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Hypothesis 3 High growth small firms will be
concentrated in certain geographical locations
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Communities with High Growth Firms

• Top 5 communities in terms of number of high
  growth firms are
• Toronto 2781
• Montréal 2029
• Vancouver 1027
• Calgary 823
• Edmonton 668
• Top 5 communities in terms of of high growth
  firms are
• Yellowknife (NW) 3.4
• Wood Buffalo (AB) 3.2
• Saint-Georges (QC) 2.9
• Grande Prairies (AB) - 2.6
• Chatham (ON) 2.6

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Conclusion

• Based on the LEAP/SAF database, there is no
  evidence that large communities influence high
  growth
• Rank in percentage of major communities in
  Canada
• Vancouver 86
• Edmonton 34
• Saskatoon 53
• Winnipeg 58
• Hamilton 60
• Quebec 29
• Moncton 50
• St-Johns 46

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Hypothesis 4 Small firms that have developed
RD resources, competencies and capabilities will
be more likely to exhibit high growth
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Average Amount Spent on RD Activities Per Small
RD Performers in 1995 (in 000)
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Change in Revenues of Small RD Performers from
1995 to 2000 (constant value )
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Hypothesis 5 Small firms that have developed
innovation resources, competencies and
capabilities will be more likely to exhibit high
growth
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of Small Manufacturing Firms that Introduced
New or Significantly Improved Products and
Processes, 1997-1999
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Conclusion

• In very general terms, based on the Survey of
  Innovation 1999, high growth firms with 20-49
  employees are significantly different from other
  types of firms in the same size category.
• The High Growth firms are
• Are more innovative
• Apply more for patents
• Use more confidentiality agreements
• Use more RD Tax Credit programs
• Are more involved in innovation collaborations

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Exceptions for Firms with 20-49 Employees

• There is no significant difference between high
  growth and growers in terms of
• Involvement in RD activities
• Use of at least one government program
• There is no significant difference between high
  growth and declining firms in terms of
• Introducing a world first innovation

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Conclusion (contd)

• In very general terms, based on the indicators
  developed for the Innovation Survey 1999, there
  is not much difference between high growth firms
  with 50-99 employees and non-high growth firms
• Exceptions Significant differences exist
  between
• High growth and decliners in terms of
  innovators
• High growth and non-high growth in terms of
  introducing world first innovation
• High growth and stable and decliner firms in
  terms of patent applications
• High growth and decliners in terms of use of
  confidentiality agreements

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ThanksQuestions