High-growth, innovativeenterprises in Europe: How many are there?

Dániel Vértesy

INNOVA Measure Workshop: “Innovation, high-growth and internationalization of R&D”, Brussels, 28 Nov 2017

Motivations

Interesting for multiple policy domains:• Post-crisis job creation: A small group of high-growth innovative enterprises (HGIEs)

generate a large share of new jobs • Structural change towards innovative sectors (close EU <> US gap in technology

intensity)

Yet, a growing high-growth enterprises [in EMPL terms] may simply indicate increase in labor-intensive (rather than knowledge-intensive) activities

Despite the interest, we still don’t know about the share of HGIEs in the European economy(data challenge: both innovation & growth)

1. What is the share of HGIEs in Europe?

2. Identifying HGIEs:• HGIEs grow fast… but how fast growth makes them HGIEs?• HGIEs innovate… but what kind of innovations makes them HGIEs?⇒ Understand the relationship between normative definitions and alternative definitions

based on empirical observations?

3. How does high-growth and innovation performance of sectors and countries relate to one another at the country and sectoral level?(Do the two co-occur?)

Research Questions

∆ Employment 20%∆ Employment 10%∆ Employment 10%

∆ Sales 20%

1

23

??

Methods we followed

1. Discuss the theoretical considerations for measuring high-growth and innovativeness of firms

2. Construct a Growth and Innovativeness Matrix to measure the share of HGIEs using 20-country CIS2012 microdata and analyze the difference between the various HGI measures

3. Reduce the number of dimensions to analyze how sectors and countries perform in terms of high-growth and innovation?

Measuring high-growth: theoretical considerations

• Evidence of uncertainty: • Eurostat <> OECD EIP disagree in growth thresholds (10% vs. 20%)

• Definition is crucial – results are sensitive to… :• indicator (turnover- or employment-based?)• Measure (absolute or relative? Or, combined? /Birch Ind/)• Period considered (growth spurts vs. sustained growth?)• The process of growth (organic vs M&A)• Threshold for high-growth (absolute (above X%)

or relative (Top N% of distribution))(Delmar, 1997; Delmar et al, 2003; Coad et al, 2014)

• => We should apply many alternative definitions to ensure more valid results

• CIS-based measurement: richer data on inputs and outputs• Oslo Manual (OECD, 2005); [4th ed. update in progress]• Quantitative data from innovation survey responses are of various quality (Mairesse

and Mohnen, 2010); • (Other proxies: i.e. patents, new designs, R&D, etc.)

• Alongside cross-country & cross sectoral differences, companies’ innovative profile differs in terms of...

• Innovation types (product, process, organizational, marketing)• Degree of novelty (new to world or new to firm /diffusion/)

• Importance of new products in turnover• Whether and where they perform R&D (in-house or external);

and R&D intensity (overall, by sector, country, etc.)

Measuring innovativeness: theoretical considerations

Our “core” measuresOur “core” measures

Our “contextual” measuresOur “contextual” measures

The Data: distribution of firms by country and size

20 countries weighted sample

{ IT, DE, ES, FR }: ~80%

All firms~450,000

[92,960]

Small(76%)

Large(4%)

Medium(20%)

Total Employment0 − 300

300 − 600600 − 1,200

1,200 − 2,2002,200 − 3,6003,600 − 9,4009,400 − 96,380

CIS2012microdata

Limitations:• Cannot measure persistency of

high-growth or use other measures of growth performance;

• For many sectors, data was collected on a voluntary basis

Absolute and relative growth thresholds: What is the difference?

0 100

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

RO LV NO BG LT EE SE CY LU CZ HU SK SI PT BE HR

Eur2

0 IT FR ES DE

Empl

oym

ent c

hang

e, 2

012/

2010

med P90 P95p75 ESTAT (10%) OECD (20%)

∆ Empl. 10% [Eurostat]∆ Empl. 10% [Eurostat]

∆ Empl. 20% [OECD]∆ Empl. 20% [OECD]

Top 10% of distributionTop 10% of distribution

Top 25% of distributionTop 25% of distribution

The share of HGIEs among European firmsThe HGIE matrix results

Inn1 Inn2 Inn50

Hg1

Hg2

Hg30

0.1 – 31% of European firms are HGIEs (depending on the definition)0.1 – 10% of firms are HGIEs in the 90% of cases

Reading the matrixinn1 inn2 inn3 inn4 inn5 inn6

Prod. Proc. Pd/Pc Org/Mkt Anyhg1 7% 8% 10% 11% 4% 14%hg2 5% 6% 7% 8% 3% 11%hg3 4% 4% 5% 6% 2% 7%hg4 1% 1% 2% 2% 1% 3%hg5 0% 0% 0% 0% 0% 0%hg6 12% 12% 16% 17% 6% 22%hg7 9% 10% 13% 14% 5% 18%hg8 7% 8% 10% 11% 4% 14%hg9 3% 3% 4% 5% 2% 6%hg10 1% 1% 1% 1% 0% 1%hg11 13% 14% 18% 20% 7% 25%hg12 13% 13% 18% 19% 7% 25%hg13 17% 17% 23% 24% 9% 31%hg14 17% 17% 23% 24% 9% 31%hg15 1% 1% 1% 1% 0% 1%hg16 1% 1% 2% 2% 1% 2%hg17 2% 2% 2% 3% 1% 4%hg18 3% 3% 4% 5% 2% 6%hg19 1% 1% 1% 1% 0% 2%hg20 2% 2% 2% 3% 1% 3%hg21 3% 3% 3% 4% 1% 5%hg22 4% 4% 6% 6% 2% 8%

Top

Empl

HGiINNj

Top

Sale

sEM

PLSA

LES

Birc

h Em

pl.

Birc

h Sa

les

Sales 20% [OECD]Sales 20% [OECD]

Empl. 10% [Eurostat]Empl. 10% [Eurostat]

The co-occurrence of high-growth & innovativeness across countries, sectorsAim: reduce dimensions• 30 x 50 HGIE indicators: too many to handle

⇒2 pillars of high-growth⇒1 core innovation pillar

• Around core variables (ESTAT-based definition + relative threshold; all types of innovation); statistically coherent

• Address uncertainty in the establishment of thresholds• Leave contextual variables apartOutcome: 3 pillars1. “HG_P1”: Employment growth: absolute threshold2. “HG_P2”: Various growth measures: top N% of distribution3. “INN_P1”: Core innovation types

Both “absolute” and “relative” HG pillars negatively correlated with the innovation core pillar at the country level

Countries strongest in Innovation relatively weaker in high-growth• Less innovative firms grow fast in RO, BG, LV,

LT or NO• [ES: not fully comparable due to larger number

of sectors]

Country level

inn_p1 hg_p1 hg_p2inn_p1 1hg_p1 -0.329 1hg_p2 -0.553 ** 0.904 *** 1

Country-level

At the sectoral level: no association between HG & INN

• Yet: positive correlation observed at 1-digit sectoral level [heterogeneity within 1-d sectors]

Sectoral level [2-digits] 1

2

35

6

7

8

9

10

11

12

13

14

15

16

1718

19

20

2122

23

2425

26272829

30

31

32

33

35

36

37

3839

41

4243

45

4647

49

50

5152

535556

58

5960

61

62

6364

65

6668

6970

7172

7374

75

77

7879

80

8182 85

86

87

88

90

91

92

93

9596

0

.1

.2

.3

.4

HG

_P1

0 .2 .4 .6INN_P1

1

2

3

5

6

7

8

9

10

11

12

13

1415

16

1718

19

20

21

22

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2425

262728

29

30

31 32

3335

3637

38

39

41

42

43

45

4647

49

50

51

52

53

55

56585960

61

62

6364

65

66

68

69

70

71 72

7374

7577

78

79

80

81

82

85

8687

88

90

91

92

9395 96

0

.05

.1

.15

.2

HG

_P2

0 .2 .4 .6INN_P1

inn_p1 hg_p1 hg_p2inn_p1 1hg_p1 0.183 1hg_p2 -0.012 0.774 *** 1

NACE 2-digit

inn_p1 hg_p1 hg_p2inn_p1 1hg_p1 0.406 * 1hg_p2 0.257 0.819 *** 1

NACE 1-digit

Core innovation activities:• KIABI:

• positive, moderate correlation; • more innovative sectors show both

high & low [65] HG performance• Non-KIABI:

• no association between HG & INN

HKnowledge-intensive sectors do not seem to underperform other (more labour-intensive) sectors

Sectors by knowledge-intensity

17

1038

24

27

16

1353

4637

3952

49 33

11

29

36

20

31

3225 14

15

22 3012

28

3550

2318

62

61

64

71

26

72

58

59

6351

65

66

60

21

19

73

.1

.2

.3

.4

0 .2 .4 .6 0 .2 .4 .6

non-knowledge-intensive, core knowledge-intensive, core

mean(hg_p1) 95% CI Fitted values

HG

_P1

INN_P1

Graphs by KIABI

Conclusion

Novelty of study: quantify the share of HGIEs in Europe using CIS2012 data• between 0.1 and 10% in case of 90% of HGIE def. combinations • Results most sensitive to growth measure and threshold & degree of novelty of innovations.• A useful method to characterize innovative profiles of high-growth enterprises

Observed difference between country-level and sector-level relationship between HG & I• Very high heterogeneity within country / sector aggregations• Chasing 2 targets at the same time: danger of trade-off between high-growth &

innovativeness [especially in catching-up countries]• Horizontal HGIE policy may be problematic

Thank you!Thank you!Welcome to email us at: daniel.vertesy@ec.europa.eu

Country and sectoral performance gaps largely related to firm size structure

Innovation and growth by average firm size