High-growth businesses are economy’s lifeblood
AFrom left, ALS Managed Services MD Steve Lanigan, Steve Galvin and Ruby Harcombe of the Development Bank of Wales, ALS financial director Gavin Payne and ops director Joe Morris at the time of last year’s management buyout. ALS was the fastest-growing firm in Wales last year
T THE end of next week, the search for the 2019 Wales Fast Growth 50 will close with the list being published in a special Western Mail supplement and the achievements of all 50 firms celebrated at the annual awards in Cardiff in November.
Since the project was established in association in 1999, the 602 firms that have appeared from 1999-2018 are estimated to have created 40,000 jobs and generated an estimated £20bn of additional turnover, much of which is spent in their local area.
The fastest-growing firm in Wales last year was ALS Managed Services, which achieved an incredible growth rate of 4,238% on the way to a turnover of nearly £11m in 2017.
To date, there have been entries from some amazing Welsh businesses based across all sectors and communities in Wales and it looks likely that record average growth rate achieved in 2018 will be surpassed this year.
Given the ability of these growth firms to create jobs and wealth at a regional and national level, it is not surprising that there has been considerable interest from both politicians and policy-makers in how to maximise their economic impact.
Indeed, the latest report from the Scale-Up Institute shows that highgrowth or scale-up businesses (which are defined as those firms growing their employment numbers and/or turnover by more than 20% a year over a period of three years, with at least 10 employees at the start of the period) are making a significant contribution to the UK economy.
According to data gathered by the Office for National Statistics (ONS), there were 36,510 scale-ups in the UK in 2017, an increase of 3.7% as compared to 2016. In terms of impact, scaleups employed 3.4 million people in 2017, generating a total turnover of £1.3 trillion for the UK economy (or more than half of the total turnover generated by the total SME population).
Of these scale-up firms, only 36% had grown the number of jobs, while 84% had increased their turnover during the period 2016-17. This is a very similar pattern to that found in last year’s Fast Growth 50, which showed an average growth in turnover of 193% as compared to a growth in employment of 49%.
According to the Scale-Up Institute, the decline in the proportion of those scale-ups increasing their employment could result from a lack of available talent and skills limiting their ability to expand.
Alternatively, it could reflect their desire to primarily increase turnover through greater use of technology or innovative product developments than through increasing the number of employees.
One of the main characteristics of the Wales Fast Growth 50 during the past 20 years has been the wide variety of sectors in which fast-growth firms are found. According to the ONS data analysis, the three largest sectors for scale-up firms are traditional industries such as health and social work, wholesale/retail and administrative/support services.
The sector showing the largest increase in the number of highgrowth firms was professional, scientific and technology, which reflects the trend we have seen in the Fast Growth 50 over the past five years, with the number of knowledge-based firms appearing on the list increasing every year.
In terms of productivity, it would seem that scale-ups are more productive than other firms in almost every sector of the UK economy, generating over £380,000 in turnover per employee. The average productivity premium across all sectors was 42% and within the construction and transport sectors, scale-ups were more than twice as productive as other businesses.
This is undoubtedly a result of some of the influences which drive growth within such firms – such as improved management practices, innovation and internationalisation – also being key factors in enhancing productivity. Given this, it is not surprising that a number of economists have suggested that one of the solutions to low productivity within the UK economy is to create an environment where greater number of scaleups can thrive.
If we examine the growth rates by geography, it is not a shock, given the performance of those firms appearing on the Wales Fast Growth 50 every year, to find that Wales is growing its number of scale-ups at a faster rate than most of the UK and has twice the proportion of scale-ups as Scotland has for its economy
Therefore, scale-up firms continue to make a disproportionate impact on the UK and Welsh economies in terms of employment, sales growth and productivity.
Certainly, the preliminary list for the 21st Wales Fast Growth 50 suggests that this trend will continue and that those firms recognised in 2019 will, as for the past two decades, demonstrate the best of the Welsh business community across all parts of the nation.
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