The Importance of High Growth Enterprises (HGEs)

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Definition of High Growth Enterprises

In order to perform any empirical research on the effect high growth businesses have on the economy, clear guidelines have to be established to categorise and identify them. The most widely used and accepted guideline is the OECD definition of high-growth firms. The OECD suggest to use two performance indicators, the employment size and the turnover. Enterprises are classified in the high growth sector if their average annualised growth is larger than 20% per year over a 3 year period, ideally in both previously introduced indicators (OECD, 2007, Ch 8). Additionally a size threshold of 10 is applied to the employment measure to exclude 100% growth rates of companies that grow from one to two
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This further provides evidence that the general assumption that newly created enterprises always have positive economic and employment effects is wrong under the assumption that profitability ensuring a companies survival is a basic prerequisite to generate an economic contribution.
Although these studies seem to provide several aspects to establish technical measurements to identify potential future HGEs in order to provide early support, an OECD document recently published states that the relationship is more complex. The key findings do agree with the previously mentioned studies but conclude that continuous growth over long periods of time (t > 10 years) is rare, most HGEs experience growth in a cyclical manner (OECD, 2010, page 16). This shows that HGEs also underly certain business cycles and demonstrates the business dynamics they share, making it harder to clearly identify them.

The Economical Contribution of HGEs

The major reason to support the initiation of new companies is the believe in the economic benefit they create exceeding the opportunity costs of any external support, in the form of governmental action (Wennekers & Thurik, 1999). Although it is questionable weather a undifferentiated and widespread support program meets the targeted objective. The low survival rate as seen in Figure 1 combined with the research findings that many new enterprises have low or no growth rate, resulting in low or none economic contribution exceeding the

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