HOW SCALE-UPS CAN HELP PRODUCTIVITY THRIVE IN THE UK ECONOMY
At the end of next week, the search for the 2019 Wales Fast Growth 50 will close with the list being published in a special Western Mail supplement and the achievements of all fifty firms celebrated at the annual awards in Cardiff in November.
Since the project was established in association in 1999, the 602 firms that have appeared from 1999 to 2018 are estimated to have created 40,000 jobs and generated an estimated £20 billion of additional turnover, much of which is spent in their local area.
To date, there have been entries from some amazing Welsh businesses based across all sectors and communities in Wales and it looks likely that record average growth rate achieved in 2018 will be surpassed this year.
Given the jobs and wealth creating ability of these growth firms at a regional and national level, it is not surprising that there has been considerable interest from both politicians and policymakers in how to maximise their economic impact.
Indeed, the latest report from the Scale-Up Institute shows that high growth or scale up businesses (which are defined as those firms growing their employment numbers and/or turnover by more than 20% a year over a period of three years, with at least 10 employees at the start of the period) are making a significant contribution to the UK economy.
According to data gathered by the Office for National Statistics (ONS), there were 36,510 scaleups in the UK in 2017, an increase of 3.7% as compared to 2016. In terms of impact, scaleups employed 3.4 million people in 2017 generating a total turnover of £1.3 trillion for the UK economy (or more than half of the total turnover generated by the total SME population).
Of these scaleup firms, only 36% had grown the number of jobs whilst 84% had increased their turnover during the period 2016-17. According to the Scale-Up Institute, the decline in the proportion of those scaleups increasing their employment could result from a lack of available talent and skills limiting their ability to expand. Alternatively, it could reflect their desire to primarily increase turnover through greater use of technology or innovative product developments than through increasing the number of employees.
One of the main characteristics of the Wales Fast Growth 50 during the last 20 years has been the wide variety of sectors in which fast growth firms are found. According to the ONS data analysis, the three largest sectors for scaleup firms are traditional industries such as health and social work, wholesale/retail, and administrative/support services.
The sector showing the largest increase in the number of high growth firms was professional, scientific and technology which reflects the trend we have seen in the Fast Growth 50 over the last five years with the number of knowledge-based firms appearing on the list increasing every year.
In terms of productivity, it would seem that scaleups are more productive than other firms in almost every sector of the UK economy generating over £380,000 in turnover per employee. The average productivity premium across all sectors was 42% and within the construction and transport sectors, scaleups were more than twice as productive as other businesses. This is undoubtedly a result of some of the influences which drive growth within such firms – such as improved management practices, innovation and internationalisation – also being key factors in enhancing productivity.
Given this, it is not surprising that a number of economists have suggested that one of the solutions to low productivity within the UK economy is to create an environment where greater number of scaleups can thrive.
If we examine the growth rates by geography, it is not a shock given the performance of those firms appearing on the Wales Fast Growth 50 every year to find that Wales is growing its number of scaleups at a faster rate than most of the UK and has twice the proportion of scaleups as Scotland has for its economy
Therefore, scaleup firms continue to make a disproportionate impact on the UK and Welsh economies in terms of employment, sales growth and productivity. Certainly, the preliminary list for the 21st Wales Fast Growth 50 suggests that this trend will continue and that those firms recognised in 2019 will, as for the last two decades, demonstrate the best of the Welsh business community across all parts of the nation.