Entrepreneurial companies that grow quickly have significant economic benefits for local regions. A new study from the United Kingdom examines these effects, with particular attention on fast-growth companies and their impact on the other companies in the same region and sector.
The authors, Jun Du and Enrico Vanino, studied both manufacturing and professional services firms along two dimensions: those that have rapidly increased their labor productivity, and those that have rapidly increased their employment numbers.
The report explains several important findings that have implications for policymakers and city leaders. Fast-growth companies can affect local markets positively, in the form of spillover effects, or negatively, in terms of crowding out.
The difference in economic gains or losses depends on their industry, and whether their growth is in labor productivity or employment numbers.
Below are some examples of these effects:
- Manufacturing firms with rapid growth in productivity can benefit the labor productivity of other local manufacturing companies.
This is possibly due to increased efficiencies and knowledge sharing within the sector.
- Conversely, manufacturing firms with rapid growth in employment numbers have negative crowding out effects on the employment growth of other local firms in the industry.
- Professional service firms with high productivity growth have positive effects on other companies further down the supply chain, but negative effects on direct competitors.
- Professional service firms with rapid growth in employment numbers have a positive “market-creating” impact on employment growth at other firms in the sector. These knowledge-based companies, especially those providing technology solutions, often stimulate more demand, which spurs further growth of related sub-sectors.
The full report can be accessed here.
Contributed by Leah D. Barto