Growth Firms Project
From Data to Research for Policy
OECD Growth Firms Meeting
Chris Parsley, Manager
Small Business Policy Branch
Industry Canada
Introduction
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Growth Firms Project began in 2002 with the aim of
1) Understanding growth firms: who they are, where they are located, how much
do they contribute to employment growth
2) What are some of the factors that are associated with growth firms: exporting,
age of firm, innovation etc.,
3) Gain some insights into the process of growth
• Is High Growth = High tech?
• Does firm growth have a “Hockey Stick” profile
• Are there risks to growth?
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Work was undertaken jointly with Statistics Canada
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Growth of What for What?
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Policy Goal determines the unit of analysis
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Employment
Revenue/Turnover
Payroll
Exports
Productivity
Research of Ontario growth firms finds that sales grows twice as fast as
employment in high growth firms
– High growth firms were defined as having at least 50% growth in sales
over 3 years, and this was equivalent to at least 22% growth in
employment
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Industry Canada Work on Growth Firms
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Industry Canada’s work was constrained by data availability; growth was
measured with employment
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Employment measure was Individual Labour Unit
– One ILU is assigned to each person that receives a T4 (income summary
statement for personal income taxes)
– If somebody receives more than one T4 slip, their “unit” is distributed among
issuing businesses in proportion to income earned
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Strengths:
– direct count, independent of industry average wages
– no double counting in case of multiple employers
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Weaknesses:
– hours of work are not accounted for (i.e. there is no distinction between parttime, seasonal work and full-time work)
– Working-owners that are not on their own payroll are not counted
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Methodology and Employment Growth Definition
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Private and public sectors were separated
Firms assigned to growth category based on their growth over first 4 years of
observed period (10+ years):
Employment growth criterion (first 4 years)
Hyper-growth: 150%+
Strong growth: 50-150%
Slow growth: 0-50%
Declining: negative
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Firms then tracked over medium term and examined by growth category, size,
industry, province, etc
One phase linked to Exporter Registry to examine relationship between growth and
exporting
Able to also examine:
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growth over different segments of the business cycle
the ability of businesses to maintain growth
growth by firm age
firm survival
growth patterns of different cohorts of business start-ups
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Data Sources: Primary (LEAP)
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Longitudinal Employment Analysis Program (“LEAP”) was principal data source
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Administrative database that covers all employer firms
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Strengths:
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Constructed from tax records
Annual data
Longitudinal
Covers all regions, industries and firm sizes
Variables include: Industry, Province, Employment, Payrolls
Comprehensive
Longitudinal
Firm-level data: enterprise
Weaknesses:
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Very large database; “noise”
No age of firm variable (except for start-ups)
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Data Sources: Linkages (Exporter Registry)
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Export data were linked to LEAP data by matching business numbers,
business names and pools of employees
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Exporter Registry covers virtually all merchandise exports; annual data
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Variables include: value of exports, destination of exports, product, industry
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Strengths
– Complete
– Firm level
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Weakness
– Covers only merchandise trade; not possible to capture other cross border
activities
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Data Detail
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By Size (employees):
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By Industry:
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Covers all provinces and territories
It is possible to move to a sub-provincial level, subject to confidentiality restrictions.
Time Period:
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70 2-digit SIC-1980 (early phases of the project)
3-digit NAICS mapped onto 2-digit SIC scheme to reduce data suppression due to
confidentiality
Easy to approximate the private sector
By Provinces and region:
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Firm size categories can be defined according to user needs
Annual data, longitudinal
Initial study used SIC 1985-1999
Using NAICS data, the first usable year is 1993; most recent year is 2005
Sub-periods can be defined according to user needs
Wage and wage growth data also available
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Data Challenges
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Ensuring that false entries and exits are corrected
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Hours worked data not available
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Working owners that are not on their own payroll are not captured in the
data
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Revenue/turnover data are not readily available
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Data linkages are possible, but gaining access to the data is not always
easy
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Export data cannot fully capture international business activities
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Insights and Policy Implications
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Growth firms are very important to the
economy: A small number of firms
create a huge number of jobs
Small businesses are important in the
growth process
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Start-up is not the key, but ensuring
conditions for growth
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Growth firms found in all industries,
not only high tech
The growth cycle is not always
continuous: some declining firms
reinvent themselves, some high
growth firms go through slower periods
of growth
Strategies for growth suggest there is
often a risk-high growth trade off
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Particular challenges for growth in
small firms, e.g. financing,
management skills
No picking winners
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Difficult to apply universal policy
prescriptions as business strategies
for vary from firm to firm
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Role for government is to ensure that
the conditions for growth are such that
firms can maximize their opportunities
for growth.
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Concluding Remarks
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There are important implications from this work:
– Getting policy for growth firms right will have huge payoffs for the economy
– Increasing small business’ participation in exporting can help diversify Canada’s
exports
– Entry into emerging markets will become increasingly vital
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Next Steps:
– Explore other data linkages to get information on revenue and other financial
data and R&D data
– Examine different strategies for internationalization, not simply exporting
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Web site for further information: www.strategis.gc.ca/sbresearch
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