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Office of the Chief Economist
High growth firms in the Australian economy
Omer Majeed
September 2017
Innovation Research
Insights and Evaluation Branch
2
Outline
•What are HGFs, and
what do they contribute
to the economy?
•Trends and
characteristics of HGFs
•Innovation and
(high) firm growth
•Structural shifts
and R&D HGFs
•Conclusions
•Preview
3
Preview
HGFs contribute significantly to the economy
HGFs are generally episodic
There is probably a two way link between HGFs
and the macroeconomy
HGFs tend to be younger and are found
in every sector
Goods and services and marketing innovation are
important for firm performance generally. For HGFs,
it is mostly goods and services innovation
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What are HGFs and
what do they contribute?
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What are High Growth Firms?
Definition of high growth firms
While there is no universal definition of a High Growth
Firms, the OECD definition is one of the most widely used.
The HGF definition is usually applied to both turnover and
employment growth, showing which firms are expanding
their employment and increasing their sales
We have extended this definition to firms that experienced
high growth in R&D
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What is BLADE?
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The economic contribution of HGFs
Proportion of firms
(per cent)
Contribution to employment
growth (per cent FTE growth)
9.0 46.1
What HGFs contributed to growth in employment, sales, value added and exports
in the Australian economy
Economic contribution of HGFs, all sectors, 2004–05 to 2011–12
Source: ABS (2017) Business Longitudinal Data Environment (BLADE). Analysis by Department of Industry, Innovation and Science
Employment HGFs Turnover HGFs
Proportion of firms
(per cent)
Contribution to sales
growth (per cent)
Contribution to value
added growth (per cent)
15.2 65.9 69.4
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Trends and
characteristics of HGFs
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High growth firms tend to be younger
•Age distribution of turnover HGFs, 2002–13
•Source: ABS (2017) Business Longitudinal Data Environment (BLADE), Business Characteristics Survey (BCS)
data linked to firm-level financial data. Analysis by Department of Industry, Innovation and Science
HGFs are typically younger
Between 2002–13 the median
age of HGFs was 8 years, and
11 years for non-HGFs
Despite being younger, there
are only small differences in
their size
0
10
20
30
40
50
60
70
2-10 years 11-20 years 21-30 years
Perc
enta
ge o
f tu
rnover
HG
Fs
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HGFs are found in all sectors across the economy
However, there are large differences in the number of HGFs firms in each sector
Proportion and number of employment HGFs, 2014
Source: ABS (2017) Business Longitudinal Analysis Data Environment (BLADE).
Customised data analysis commissioned by the Department of Industry, Innovation and Science.
Notes: The size of the bubble is gross value added by the sector (2014) over total GDP for 2014.
Agriculture, Forestry and FishingMining
Manufacturing
Electricity, Gas, Water and Waste
Services
Construction
Professional, Scientific and Technical Services
Administrative and Support Services
Arts and Recreation Services
0
5
10
15
20
25
0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500
Pro
port
ion o
f H
GF
s (
per
cent)
Number of firms
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Declining growth rates of HGFs
Growth rates in Australian HGFs have declined since 2006
•Firm growth rates, 2006–2013
•Source: ABS (2017) Business Longitudinal Analysis Data Environment (BLADE).
Customised data analysis commissioned by the Department of Industry, Innovation and Science
•Median growth rates in each HGF
cohort showed impressive performance.
Growth rates have declined over time.
But they remain impressive.
•Causality probably goes both ways:
Contribution of HGFs
Macroeconomic conditions0
10
20
30
40
50
60
70
80
2006 2007 2008 2009 2010 2011 2012 2013
Gro
wth
rate
s (
per
cent)
Turnover HGFs Non HGFs
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The episodic nature of HGFs
The majority of HGFs don’t persist as HGFs for long. They slow down.
•Proportions of persistent Turnover HGFs in different cohorts,
2002–06, 2009–13 and 2011–13
•Source: ABS (2017) Business Longitudinal Analysis Data Environment (BLADE).
Customised data analysis commissioned by the Department of Industry, Innovation and Science
Post mining boom, and during the
GFC, the persistence of HGFs has
deteriorated
However, the persistence of HGFs
seems to have stabilized
Firms are better able to maintain
growth and persistence in
conducive macroeconomic
environment
0
20
40
60
80
100
t t+1 t+2 t+3 t+4
Pro
port
ion o
f pers
iste
nt
HG
Fs
(per
cent)
Firms identified as a HGF in 2002 Firms identified as a HGF in 2009
Firms identified as a HGF in 2011
Persistence of HGFs has
declined following the
mining boom
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HGFs have increased their turnover
•Revenue of turnover HGFs by firm size category (median values), 2005 and 2014
•Source: ABS (2017) Business Longitudinal Data Environment (BLADE). Analysis by Department of Industry, Innovation and Science.
•Notes: The data has been adjusted for inflation.
Turnover HGFs have much higher revenue
The biggest difference (60 per cent) is in large
firms
Fewer HGFs in the economy but they are selling
more
Firm size 2005
($ millions)
2014
($ millions)
Difference from 2005
to 2014 (per cent)
Small 1.4 1.7 24
Medium 6.0 8.1 36
Large 108.9 174.4 60
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Turnover HGFs are also job creators
Turnover HGFs also contribute a disproportionate amount to FTE growth
•Turnover growth and employment growth for turnover
HGFs and non-HGFs (median values), 2002–13
•Source: ABS (2017) Business Longitudinal Data Environment (BLADE), Business Characteristics Survey (BCS) data linked to firm-level financial data.
Analysis by Department of Industry, Innovation and Science.
•Notes: Three year compound average
Turnover HGFs between 2002
and 2013 contributed 27.6 per
cent to FTE employment growth
Compared to just 0.1 per cent
from non-HGFs
Turnover growth
(per cent)
Employment
growth (per cent)
Non-HGFs 1.6 0.1
Turnover HGFs 45.4 27.6
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Characteristics of HGFs
HGFs have similar levels of labour productivity, but they’re growing much faster
Average annual growth in labour productivity by firm size, 2002–13
HGFs are prime drivers of
labour productivity
Labour productivity =
turnover/employment
HGFs are also job creators
Firms with 5–19 employees
show strong growth in labour
productivity
-2
-1
0
1
2
3
4
5
6
7
8
5-19 persons 20-199 persons 200+ persons Total
Gro
wth
in labour
pro
ductivity
(per
cent)
Turnover HGFs Non-HGFs
•Source: ABS (2017) Business Longitudinal Analysis Data Environment (BLADE).
•Customised data analysis commissioned by the Department of Industry, Innovation and Science
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Structural shifts
in R&D HGFs
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Proportion of R&D HGFsManufacturing has the highest share of R&D HGFs, but that has declined.
There is evidence of a structural shift towards PST and IMT.
0
10
20
30
40
50
60
2005 2010 2015Pro
port
ion o
f R
&D
HG
Fs (
per
cent)
Mining Manufacturing Information Media and Telecommunications Professional, Scientific and Technical Services
•Proportion of R&D HGFs in top four industries, 2005, 2010 and 2015
•Source: Department of Industry, Innovation and Science programme data for the R&D Tax Concession (2001 to 2011)
and the R&D Tax Incentive (2013 to 2015).
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•Real R&D by R&D HGFs – top four industries, 2005, 2010 and 2015
•Source: Department of Industry, Innovation and Science programme data for the R&D Tax Concession (2001 to 2011)
and the R&D Tax Incentive (2013 to 2015).
•There is a large difference in R&D expenditure.
The expenditure of R&D HGFs has become more diversified.
Expenditure of R&D HGFs
0
200
400
600
800
1,000
1,200
1,400
2005 2010 2015
R&
D (
$ m
illio
n)
Mining Manufacturing Information Media and Telecommunications Professional, Scientific and Technical Services
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Innovation
and (high) firm growth
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Innovation is important
•Impact of innovation on firm growth
•Source: ABS (2017) Business Longitudinal Data Environment (BLADE), Business Characteristics Survey (BCS)
data linked to firm-level financial data. Analysis by Department of Industry, Innovation and Science
•Notes: *** p<0.01, ** p<0.05, * p<0.1
Different types of innovation have
different impacts:
Product and marketing
innovation is important for all firms
Goods and service innovation is
a lot more important for HGFs
Organisational process
innovation shows mixed results
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Conclusions
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Conclusions
Policy should not focus on
individual firms — hard to predict
Innovation is an important driver
for HGFs — innovation system
needs to be strengthened. What
supports the innovation system?
Competition also plays an
important role in the
innovation system and an
optimal level of competition
needs to be encouraged
The macroeconomy plays a big
role in improving firm
performance-causality probably
goes both ways — HGFS to the
macroeconomy and vice versa
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Conclusions
HGFs are drivers of labour productivity
Based on R&D HGFS, there is evidence of structural shifts in
the economy (towards more human capital intensive sectors)
Medium growth firms are also vital
industry.gov.au24
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Insights and Evaluation Branch
Further information
Omer Majeed
Insights and Evaluation Branch
Office of the Chief Economist
Senior Economist
(02) 6213 6226
