AN INTERNATIONAL BENCHMARKING ANALYSIS …

1 AN INTERNATIONAL BENCHMARKING ANALYSIS OF public PROGRAMMES FOR HIGH-GROWTH FIRMSP repared by the OECD Local Economic and Employment Development programme in collaboration with the Danish Business AuthorityMarch 2013 This work is published on the responsibility of the Secre tary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of the Organisation or of the governments of its member countries. This document and any map included herein are without pr ejudice to the status of or sovereignty over any territory, to the delimitation of INTERNATIONAL fr ontiers and boundaries and to the name of any territory , city or area. The statistical data for Israel are supplied by and under the responsibility of the relev ant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of INTERNATIONAL law.

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3 4 INTRODUCTION .. 7 PART I BENCHMARKING ANALYSIS .. 9 CHAPTER 1. DESIGNING POLICY FOR HIGH-GROWTH SMES .. 10 CHAPTER 2. THE HIGH-GROWTH programme ASSESSMENT FRAMEWORK .. 18 CHAPTER 3. THE BENCHMARKING RESULTS .. 28 CHAPTER 4. KEY MESSAGES FOR DENMARK .. 39 PART II THE BENCHMARKED PROGRAMMES .. 43 CHAPTER 5. DENMARK'S GROWTH HOUSES .. 44 CHAPTER 6. SCOTLAND S COMPANIES OF SCALE programme .. 64 CHAPTER 7. THE NETHERLANDS GROWTH ACCELERATOR .. 85 CHAPTER 8. FLANDERS GAZELLE JUMP .. 106 CHAPTER 9. GERMANY'S HIGH-TECH GRUNDERFONDS .. 131 CHAPTER 10. COMMERCIALISATION AUSTRALIA .. 153 PART III OTHER LEARNING MODELS .. 183 CHAPTER 11. ENGLAND'S GROWTH ACCELERATOR .. 184 CHAPTER 12. IRELAND'S MANAGEMENT FOR GROWTH programme .. 189 CHAPTER 13. SWEDEN S NATIONAL INCUBATOR PROGRAM .. 195 CHAPTER 14. THE JOBS AND INNOVATION ACCELERATOR CHALLENGE .. 202 CHAPTER 15. ONTARIO'S MEDICAL AND RELATED SCIENCE DISCOVERY DISTRICT.

4 207 CHAPTER 16. CHILE'S SEED CAPITAL programme .. 214 CHAPTER 17. BRAZIL S INOVAR VENTURE CAPITAL programme .. 219 ANNEX A. ASSESSMENT FRAMEWORK FOR HIGH-GROWTH PROGRAMMES .. 222 4 EXECUTIVE SUMMARY Applied economic research shows that net job creation comes from a small batch of successful fast-growing firms, rather than from a large majority of averagely performing SMEs. The evidence for different countries suggests that around 4-6 percent of high-growth firms produce half to three/quarters of all new jobs. Two common features to high-growth firms are that they are prevalently young and small, with age being a stronger determinant of rapid growth than size. However, they are not disproportionally present in any specific sector, including technology-based ones, and their incidence is in fact stronger in services than in manufacturing. By definition, rapid business growth is not a steady phenomenon and high-growth firms do not remain as such for a long time.

5 Periods of high-growth are episodic rather than persistent and multiple instances are rare. Evidence from the UK shows, for example, that firms that achieved mean sales growth of 36 percent per year over the period 1992-1996, only grew by 8 percent over the following 1996-2001 period. Repeated periods of rapid growth only affected one/third of UK high-growth firms. The contribution to net job creation by a few rapidly growing firms provides one of the rationales for policy intervention. High-growth firms generate positive externalities ( increased employment and consumer demand) that benefit the whole of the economy beyond the private returns available to the entrepreneur, which makes them worth of policy support. But there are other market failures that affect high-growth firms and that policies seek to address. Business expansion require external finance, often of equity nature, which is hardly available in the markets, especially to enterprises that are too young or too small and have not yet achieved the stage of development likely to attract Venture Capital.

6 Business growth also calls for improved management skills. Fast business development is a disruptive process that alters the organizational dynamics and management practices of an enterprise, from production to logistics, from marketing to staff management. New leadership and management skills are often needed to cope with this process. The programmes analysed and benchmarked in this report fall under the two categories of management skills and finance, although not always is the distinction neat. Programmes that have a focus on finance also tend to offer management support, while the opposite is generally not true for schemes with a management focus. Programmes have been analysed through an assessment framework consisting of 35 indicators garnered by 7 categories: context of the programme ( objectives, governance, and geographical scope); staff profile ( academic and professional background); client firms ( selection process, prevailing sectors, market orientation, and follow-up); type of business diagnosis ( business concept, business organisation, customer relations, and operations); delivery arrangements ( degree of externalisation of support, client firms/staff member ratio, proactiveness towards client firms, selection and evaluation of intermediary organisations); monitoring and evaluation in place ( coverage, type, independence, frequency, and use); and performance of client firms ( turnover, employment, export).

7 Each indicator was linked to a set of questions, typically between one and three, which have assisted in assigning a score between 1 and 5. Each score is to portray a situation that progressively moves towards a best-practice scenario, based on past experience of the OECD LEED programme in the ANALYSIS of entrepreneurship and SME development policies. Context: while all six benchmarked programmes have set clear qualitative objectives, this is not always the case with quantitative objectives. This is surprising but sometimes justified by the small size of the programmes or the extensive use of intermediary organisations in implementation which makes a 5 coherent set of objectives difficult to establish. Programmes have been designed in an inclusive manner, involving different government departments and the business sector. Local-level governments have, on the other hand, not always been engaged ( Germany s High-Tech Gr nderfonds), which can undermine co-ordination with similar initiatives at local level and tailoring of national programmes to different local needs.

8 Finally, while all programmes are available to firms from all regions of the country, there tends to be a concentration of client firms in the richest regions. This is perhaps not surprising but raises a flag about the possibility that high-growth policies disproportionally favour the most advanced regions, thereby enhancing regional disparities. Staff: it is often said that the success of public programmes depend on their staff. As could be expected, an education background in management is stronger in business accelerators ( Companies of Scale and the Dutch Growth Accelerator), while an education background in applied sciences is stronger in technology-based programmes ( Germany s High-Tech Gr nderfonds and Commercialisation Australia). On the other hand, a strong entrepreneurial experience is often lacking in the staff of the programme , with the partial exception of the Danish Growth Houses and Commercialisation Australia.

9 There is scope for strengthening weaker competences ( entrepreneurial or technological) in public schemes through the set-up of external advisory boards. Client firms: participant firms are selected on the basis of a combination of quantitative and qualitative criteria where the latter play a prevailing role. This makes high-growth schemes quite distinctive compared to most public programmes where quantitative selection metrics are most common. This choice reflects the fact that some key growth factors ( the ambition of the entrepreneur, internal business organisation, innovativeness of the product, etc.) are not easily captured by quantitative metrics. The six benchmarked programmes do not have any specific sector focus, which reflects a good practice scenario since empirical research shows that high-growth firms are found in all sectors.

10 On the other hand, the extent to which programmes work with INTERNATIONAL firms vary largely, from more than 80% in Scotland s Companies of Scale to 10% in Commercialisation Australia, which points to the heterogeneous nature and goals of these programmes. Finally, follow-up with participant companies is common everywhere but, quite expectably, stronger in those programmes that work with a smaller number of entrepreneurs ( Scottish and Dutch cases). Business diagnosis: the diagnosis of the strengths and weaknesses of client firms is a feature shared by all six benchmarked programmes, although the key focus sometimes differs depending on the primary goal of the scheme. Germany s High-Tech Gr nderfonds and Commercialisation Australia do not get very much into the details of business operations, while the customer relations of the supported firms are not so closely analysed by Companies of Scale and the Dutch Growth Accelerator.