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Key Small Business Statistics - July 2012

What share of firms are high-growth firms?

The Canadian economy is dynamic, involving a great deal of churning, i.e., entry and exit of firms. Within this ever-changing environment, start-ups and new firms are very important for creating jobs and wealth. Those firms that achieve high growth in a short period of time tend to make very large contributions in terms of employment and wealth creation. This is one of the reasons for the rising interest in growth firms over the past years among policy-makers and academics.

According to the definition of the Organisation for Economic Cooperation and Development, high-growth firms are those with average annualized growth rates greater than 20 percent per year, over a three-year period, and with 10 or more employees at the beginning of the period. Their growth can be recorded in terms of revenue or employment (number of employees).

Figure 4 illustrates the distribution of all firms based on average annual employment growth between 2003 and 2006. While 4.7 percent^{Footnote 3} of businesses are high-growth firms (defined in terms of employment), they created approximately 45 percent of net new jobs. They are more prevalent in terms of revenue than in terms of employment, with 12 percent of firms achieving high growth in revenues. High-growth firms are present in every economic sector and are not just concentrated in knowledge-based industries. As shown in Figure 5, the highest concentration of high-growth firms for the 2003–2006 period was in professional, scientific and technical services; construction; and administrative and support, waste management and remediation services.

Figure 4: Distribution of all Firms Based on Average Annual Employment Growth, 2003–2006

[Description of Figure 4]
Source: Statistics Canada, Small and Medium-Sized Enterprises Data Warehouse, 2009; Industry Canada calculations.

Figure 5: Distribution of High-Growth Firms (Employment Growth) by Industry, 2003–2006

[Description of Figure 5]
Source: Statistics Canada, Small and Medium-Sized Enterprises Data Warehouse, 2009; Industry Canada calculations.

High-growth firms are more likely than other firms to be research and development (R&D) intensive.^{Footnote 4} Over the period 2001–2004, 8 percent of high-growth firms were R&D intensive compared with 4.3 percent of traditional firms. Furthermore, employment for the average high-growth firm grew 87.8 percent compared with 0.1 percent growth for the average non-high-growth firm over the same period.^{Footnote 5}

Figure 6 shows the share of high-growth firms in Canada and ten other countries. Canada ranks fifth, behind the first-ranked United Kingdom (6.4 percent) and third-ranked United States. However, Canada ranks higher than six other countries whose share of high-growth firms ranges from 3.2 to 4.4 percent.

Figure 6: Share of High-Growth Firms (Employment Growth), International Comparisons, 2002–2005

[Description of Figure 6]
Source: Biosca, A.B., Growth Dynamics, Exploring Business Growth and Contraction in Europe and the U.S. National Endowment for Science, Technology and the Arts (NESTA), 2010.

For more information on high-growth firms, please refer to Growth Map of Canadian Firms, Special Edition: Key Small Business Statistics (January 2010).

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