KfW-Research: High-growth enterprises in Germany employ graduates, target international markets early, and have R&D based business model

• Fast-growing enterprises are crucial for economic growth and job creation
• Employment of graduates, international orientation and R&D activities are the main drivers of fast growth

Frankfurt am Main, 02-Aug-2017 — /EuropaWire/ — Successful, fast-growing enterprises are very important for economic development. While the success of enterprises cannot be planned with certainty, high-growth enterprises in Germany have several features that set them apart from the rest of the entrepreneurial landscape. Growth leaders include enterprises that employ graduates, target international markets early, and have a business model based on research and development (R&D). The age of the business owner also plays a major role, as enterprises with young bosses are at an advantage. These are the key findings of a recent study conducted by KfW Research on the basis of the KfW SME Panel.

Dr Jörg Zeuner, Chief Economist of KfW, emphasised the importance of growth enterprises: ‘Fast-growing enterprises are at the forefront of economic development and the guarantors of new, sustainable jobs’. Our analysis shows: key to their success are open markets and availability of well-trained, skilled workers in combination with an innovation strategy based on research and development. For Germany it is a core challenge to create, maintain and develop these conditions.’

The main results of the KfW study:

• Skilled workers as a determining factor:
  The likelihood of becoming a high-growth enterprise increases by two fifths for businesses with graduates in their workforce compared with those that have none. It is also evident across the SME sector as a whole that a shortage of skilled workers has serious consequences for business growth and thus for the entire economy. From the middle of the next decade, when more and more workers of the baby boomer generation retire from the workforce, the gaps they leave behind in the labour force potential will have to be closed with urgency to prevent the decline from creating a dramatic skills shortage.
• International orientation as a determining factor:
  The likelihood of belonging to the group of fast-growing enterprises rises by a good one third in enterprises with international sales compared with those that have only regional sales. This is due not only to increased demand for their products and services and the economies of scale they can achieve as a result, but also to more cost-effective access to input as well as new knowledge from abroad. The differences between businesses that target regional markets and the German market, in turn, are negligible.
• Research and development (R&D) as a determining factor:
  Enterprises with R&D activities are 45% more likely to belong to the group of high-growth enterprises than those without.
• Age of entrepreneur as a determining factor:
  Growth enterprises are primarily small and young enterprises managed by young owners. Entrepreneurs below the age of 40 are most likely to be managing a growth enterprise, at 4.2%. Up to an age of more than 60 years, that probability drops to 1.1%.

KfW’s analysis also illustrates that growth enterprises often have weak credit ratings – an expression of pronounced growth in the past. That often poses barriers to funding, making it crucial for them to access alternatives to bank loans. ‘Growth enterprises need an adequate offer of venture capital and quasi-equity funding’, said KfW’s Chief Economist Zeuner. ‘By further developing KfW’s equity finance schemes we will make a significant contribution to meeting these enterprises’ funding requirements.’

The analysis by KfW Research entitled ‘Success factors of high-growth enterprises’ can be found at Fokus Volkswirtschaft(soon available in English also).

SOURCE: KfW

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