Unleashing SME Potential to Scale Up

Executive summary

Boosting growth by unleashing SME potential to scale up

The vast majority of firms are SMEs and half of all business sector jobs in OECD countries are in SMEs. They also contribute significantly to growth and gross job creation. Between 2014 and 2020, in the 16 OECD and accession candidate countries with available data, start-ups and growing SMEs created, on average, 16 additional jobs for every 10 jobs created by large firms. Scalers, i.e. the small share of SMEs firms that grew rapidly, contributed between 41% and 62% of the jobs created by growing SMEs between 2017 and 2020 in the 17 countries with available data.

Scalers are defined as SMEs with 10-249 employees that grew at an average rate of at least 10% per year over three years in either employment, turnover or both. In 2020, 8-14% of all SMEs were scalers in terms of employment and 12-24% in terms of turnover. As some SMEs scale up both their turnover and employment, the share of scalers in either employment and/or turnover ranged from 16% to 27% across countries. To put this into perspective, over the same period, half of all SMEs grew at an annual rate of 1% or less in terms of employment and 3% or less in terms of turnover.

Investing in growth, investing in competitiveness

Investments underpin the growth of scalers. More than half of scalers – 53% to 61% – are “strategic scalers”, meaning that they undertake investments before scaling and rank in the top 25% of SMEs in terms of at least one of three measures: average compensation per employee (a proxy for skill-intensity of production), capital intensity and productivity. Another 31% to 39% of scalers are “transformational scalers” that invest during their growth phase, as evidenced by productivity growth as they scale up. Only between 3% and 9% of scalers are “expansionist scalers”, growing without significant operational transformation during their growth phase or relatively high levels of capital intensity, productivity or use of human capital in the year before they start to scale up.

Scalers contribute to competitiveness by having higher productivity than other SMEs and by increasing their productivity faster. In the year before scalers start their high-growth phase, they are already 20% more productive, on average, than the average SME. This productivity edge increases to 35% after three years of scaling up. They also contribute indirectly, through “allocative efficiency”. As scalers attract capital and talent, more investors and employees benefit from their productivity advantage. Without scalers, multi-factor productivity – a measure of how efficiently firms utilise their capital and the work of their employees – would have been 6% lower for the median SME in 2020 across 11 countries with available data.

SMEs of all sizes, ages and in all sectors scale up but their growth paths differ

All types of SMEs can scale up but they differ in how they grow before, during and after scaling up. Age and sector are important factors that help differentiate growth paths. For example, more than one‑third, 38%, of “young” SMEs that have been operating for five or fewer years become scalers, on average, compared to 22% of “mature” SMEs with more than 10 years in the market. However, because there are significantly more older firms, mature SMEs account for 58% of scalers in total.

Young scalers differ from older ones as they are more likely to follow “up-or-out” growth paths. They take greater risks and invest more in experimentation, which leads to a higher likelihood of scaling up for a second time than mature scalers but also a higher likelihood to exit the market through closure or being acquired.

There are also differences by sector. The average share of SMEs that scale up is highest for advanced tradable services sectors, high and medium-high tech manufacturing, and construction, all at around 25%. In other sectors, between 17% and 20% of SMEs scale up. SMEs in advanced tradable services tend to grow even before scaling up and continue to do so after their first high-growth phase. Together with scalers in other digital-intensive sectors, scalers in advanced tradable services invest less in physical capital and instead rely on hiring and maintaining a skilled workforce, with average compensation per employee 30% higher than for other scalers. In contrast, becoming a scaler marks a turnaround for 25% of scalers in construction that were declining in the previous three years. The cyclicality of the building sector and the boom-and-bust nature of obtaining large contracts also lead to low shares of construction scalers that maintain their new scale compared to other sectors.

Between 54% and 73% of scalers remain at their newly achieved scale or continue to grow in the three years after scaling up in the 15 countries with available data. Those who grew initially in employment are especially likely to follow up with gains in productivity and further investments to scale up turnover. Between 22% and 40% of employment scalers become turnover scalers in the following three-year period. But scaling up brings new challenges and some scalers struggle to adapt. About 1 in 10 scalers reduce employment or turnover to below their initial levels and about 1 in 10 even exit the market. One aspect where the challenges for scalers are evident are their higher levels of indebtedness than in comparable SMEs and the higher interest costs they face after but not before scaling up.

An effective policy mix for scalers includes broad-based support and targeted interventions

Broad measures enhance the framework conditions for all SMEs, across sectors, sizes, and regions. They support access to finance, skills, digital tools, and innovation assets. Targeted policies focus on firms with a high likelihood of scaling up, such as tech-intensive SMEs and start-ups, offering tailored support and diverse financing options, including equity investments.

To help countries identify policy options, the OECD’s SME and Entrepreneurship Policy Dashboard provides information for all 38 OECD countries on over 2 500 SME‑supporting policy measures across five areas: access to finance, data governance, trade and internationalisation, innovation networks, and skills for the twin transition. Information is also available on almost 520 institutions implementing the different policy measures. Over half of the mapped SME policies in OECD countries apply broadly to all SMEs. About 20% are sector-specific and about 14% target firms based on age criteria, typically start-ups or other young firms. Financial support measures, such as grants and public loans, are the most common interventions.

There are differences in the policy mix across countries. In Canada, Chile, Finland and Mexico, about half of all SME support measures mapped are financial support measures. In contrast, they account for less than one quarter in Colombia, Hungary, New Zealand and Switzerland. Support for trade is another major intervention area, accounting for about one in five of measures overall, and for one-third or more of measures in the Czech Republic, Denmark, Slovakia and Sweden. Some countries put relatively greater emphasis on integrating SMEs in innovation networks than others, including the United Kingdom, Austria and Japan, or on upskilling of SME workforces, as in Portugal and Ireland.

National strategies and action plans are an important tool for coordination of SME and Entrepreneurship policies that can support SMEs in scaling up. Coordination is essential given the cross-cutting nature of policy measures. A significant share of institutions (about 37%) implementing these measures are not primarily responsible for SME policies but rather for policies in areas including innovation, foreign direct investment attraction, trade, and infrastructure.