This research seeks to inform and stimulate discussion on high-growth business in New Zealand. It involved, firstly, reviewing published research and, secondly, examining the dynamics of growth (measured in turnover and in employment) for all New Zealand businesses using data held at Statistics NZ.
We were particularly interested in identifying those businesses that have achieved exceptional growth. The OECD defines high-growth businesses as all enterprises with 10 or more employees at the beginning of a three-year period that record average annualised growth (in employment or turnover) greater than 20 per cent per annum over the three-year period. Many businesses achieve high growth in short bursts. But very few (in any jurisdiction) meet the OECD definition. Such businesses are of interest because they tend to be extraordinary innovators, challenging other businesses and enhancing competition and productivity.
The work complements an evaluation of business incubators, a government supported initiative, instrument used to support the establishment of businesses with high growth potential.
Key Results
Most businesses achieve modest growth including periods of negative growth
Our analysis shows that the median annual growth rate for New Zealand business was negative; i.e. for any one year, half of all businesses experienced a drop in sales.
High growth businesses
We applied the OECD definition of high-growth to the New Zealand business demography dataset. This indicates that in terms of GST sales, 5.8 per cent of businesses were high-growth in the three years to 2009. In terms of employment levels, 2.5 per cent of businesses were high-growth in the period to 2010. These measures do not reflect growth in exports and other aspects of business growth.
These businesses generally have relatively high profit to capital ratios, R&D spend and export presence (table 8, page 25).
The presence of high growth businesses has been declining
Both the absolute number and proportion of high-growth businesses in New Zealand appear to have been declining (figure 5, page 10). While there are some obvious considerations such as our size, geographic isolation and the risks associated with small/young firms seeking to internationalise, it is unclear what factors underlie these figures.
There are few consistent insights on the sources of high-growth business
International research offers a set of stylised facts on high-growth business (Autio & Hölzl, 2008). These are broadly consistent with the New Zealand evidence and are as follows:
• High-growth businesses derive from individual entrepreneurship and innovation;
• They are rare and are widely disbursed across the economy;
• Their growth is volatile, unpredictable and seldom sustained; and
• They tend to thrive in specialised factor markets.
• However, there is no clear consensus on what causes high-growth – barring the fact that the ‘intention to grow’ is a necessary condition.