High-growth enterprises in Slovakia

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The importance and positive impact of high-growth enterprises on employment growth, economic and social development can no longer be doubted. Yet, until recently, research on the economic importance of high-growth enterprises has been a peripheral topic that has received almost no attention. The intensified interest of the academic, business and political spheres in the issue of high-growth enterprises has been particularly evident in recent years. Related to this is the activity of individual countries, which are trying to identify as accurately as possible enterprises with high growth potential and to set conditions that will contribute to their further development. One example is the European Commission, which has already emphasised support for high-growth, innovative small and medium-sized enterprises in its Europe 2020 strategy. In Slovakia, the issue of high-growth enterprises has not yet received significant attention, while the support of high-growth enterprises is only partially mentioned in the national concept for the support of start-ups and the development of the start-up ecosystem in the Slovak Republic.

We at the Slovak Business Agency have therefore decided to contribute to a more accurate identification and better understanding of the basic characteristics of the group of high-growth enterprises in Slovakia. In addition, the study also set partial objectives. The first partial objective was to verify seven basic facts about high-growth enterprises in Slovakia, which are generally valid and repeatedly verified by studies from other countries. The second objective was to test how different criteria of growth in sales affect a sample of high-growth enterprises.

From an international perspective, Slovakia belongs to the group of the EU Member States with an above-average share of high-growth enterprises in all active enterprises, while using the criterion of growth in sales or employment. At the same time, Slovakia has the highest share among all V4 countries. Slovak high-growth enterprises are represented to a greater extent especially among enterprises in the industrial production sector, which reflects the greater development of the industrial sector. In the EU, the situation is different, with high-growth enterprises more prevalent, especially in the services sector.

In 2018, 3,093 high-growth enterprises were identified in Slovakia with a minimum year-on-year revenue growth of 10% over three consecutive years, i.e. between 2015 and 2018.  Of the total number of active business entities in Slovakia with 10 or more employees, this represents 17.2%. Raising the criterion for year-on-year revenue growth to 20%, 30% and 50% naturally reduces the number of high-growth enterprises. In the group of enterprises with high growth rates above 50%, the number of high-growth firms decreased to 199 and their share was 1.1%.

As much as 95% of high-growth enterprises in Slovakia belong to the SME size category. The remaining 5% are large enterprises with 250 or more employees. High-growth enterprises were identified in all major sectors of the economy. Slovakia is characterised by a high share of high-growth firms among active enterprises in the industrial sector (21%). The lower share of high-growth enterprises in services is mainly a result of the underdevelopment of this sector in Slovakia, which creates room for its further development and the emergence of new high-growth enterprises. Despite the general perception of high-growth enterprises as representatives of high-tech sectors, high-growth enterprises in Slovakia are less represented in high-tech sectors.

High-growth enterprises are mainly located in western Slovakia. In 2018, almost every third high-growth enterprise had its headquarters in the Bratislava Region. High-growth enterprises are more concentrated in regional cities. The capital city of Bratislava has a specific position, where approximately every fourth high-growth enterprise in Slovakia was based.

Approximately two-thirds of high-growth enterprises were privately owned domestically. However, firms that are internationally or wholly foreign-owned exhibit higher revenue growth dynamics. High-growth enterprises are often referred to as younger or innovative start-ups, but the reality is different. High-growth enterprises in Slovakia are not young. Their average age is 15 years, which is only 1 year less than that of all active enterprises.

The rapid growth of businesses in Slovakia is not artificially supported by various forms of public support. The low interest in the issue of high-growth enterprises is naturally reflected in the lack of public support that would be specifically targeted at this group of companies. According to data from the portal for registration and monitoring of aid, public support for high-growth enterprises is used approximately to the same extent as for other companies in Slovakia.

In addition, in 2018, we identified 195 gazelles in Slovakia, i.e. young high-growth enterprises that are less than 5 years old. Gazelles accounted for 6% of all high-growth enterprises in Slovakia and 1% of the total number of active companies with 10 or more employees.

Of the seven basic facts about high-growth enterprises that emerge from foreign studies, four have been verified to be valid in Slovak conditions: the distribution of growth values is irregular; high-growth enterprises are not more frequently represented in high-tech industries; it is difficult to predict which enterprises will grow; different growth indicators cause differences in the set of high-growth enterprises. The hypothesis that high-growth enterprises tend to be young but need not be small is partially valid. Due to data limitations, the study was unable to verify two facts about high-growth firms, namely: a small number of high-growth enterprises create a large share of new jobs or high growth does not persist over time.