Faculty of Economics in Osijek

Trg Lj. Gaja 7
31000 Osijek


The importance of high-growth enterprises for job creation has been widely substantiated by economic research in recent years. Findings suggest that high-growth enterprises contribute significantly to new jobs creation. The number and share of high-growth enterprises is relatively small, but the number and share of jobs they create is disproportionally large. High-growth enterprises are firms with average annualised growth in employees or in turnover greater than 20% a year, over a three-year period, and with ten or more employees at the beginning of the observation period (OECD definition). Understanding how enterprises grow, especially small and medium-sized enterprises (SMEs), is an important issue. In most industries, small firms account for much of the capital stock, employment, and a surprisingly large fraction of innovations (Acs and Audretsch, 1988, 1990, Acs, 1996). Studying firm growth can provide insights into the dynamics of the competitive process, strategic behaviour, the evolution of market structure, and perhaps even the growth of the aggregate economy. Delmar et al. (2003.) in their research state that rapid growth is not a random chance or event but is associated with specific firm attributes, behaviours, strategies and decisions that are critical in a firm’s ability to achieve and sustain rapid-growth. Additionally, crucial role that high-growth companies play in national economies is reflected in the fact that increasing employment rate. Aligned with that, factors that influence growth potential as well as the implications of their growth are investigated on the national level and enterprise level. There is an evident need and responsibility of academic community to make a contribution in increasing understanding of the high-growth enterprises, especially in terms of identifying country-specific factors that can boost or hinder potential to grow of small and medium-sized enterprises.     

From the academic research standpoint, recent studies in the field of firm’s growth potential have split their attention into two areas:

  1. designing models of firm’s growth potential with the focus on predictability of growth; and
  2. investigating and explaining reasons for growth with the focus on identification of determinants of growth.

It should be noted that business sector can benefit from both streams of research and that this field is characterized with strong connection between scientific research results and possibilities of applying those results in the world of practice.

Two overarching goals of this project are:

1.    Development of growth potential prediction models for SMEs in Croatia

The main activities leading up to this goal are: (i) to analyse previous studies relevant for the topic of SMEs’ growth potential; (ii) to develop growth potential prediction models for SMEs in Croatia; (iii) to make the model for assessing growth potential available to entrepreneurs and managers of SMEs to use for purposes of assessing and improving their businesses; (iv) to compare differences in growth potential among SMEs from main industries (based on NACE classification); (v) to analyse growth potential of SMEs within creative industries; (vi) to analyse growth potential of SMEs within processing industries. 

2.    Providing recommendations to policy makers, recommendations for development of educational programs for SME owners and managers, and recommendations related to sources of finance available to SMEs

Based on the research results and models created as part of this project, the main recommendations related to growth potential of SMEs will cover areas of: (i) policy making; (ii) education; and (iii) sources of finance. In recent years policy makers have shown increased interest in fostering fast growing enterprises as they are seen as a key driver of economic growth and employment. However, the number of studies about policies to support high-growth enterprises is still small. Countries that have implemented policies related to boosting growth potential of their SMEs and can serve as a benchmark are Denmark, Finland, Norway, Estonia, France, Ireland, Netherlands and Spain. Outside the Europe, examples can be found in Australia, the USA, China, Singapore and Republic of Korea. Studies conducted in listed companies have showed that two key aspects in supporting high-growth companies are education and access to finance. To allow for comparison of these countries with Croatia, results of this project will be published in relevant scientific journals. To help boost Croatian economy, the results will be presented to all stakeholders interested in this topic (entrepreneurs, governmental institutions and agencies, etc.)

The initial focus of the research is placed on investigating predictability of growth. In that context, two models will be developed. First model will be based solely on data provided in the financial statements, while the second model will incorporate non-financial data such characteristics of organizational structure, innovation capacity, work processes within a company, specifics of the industry, etc. The selection of relevant variables used for model development will be based on a detailed analysis of previous studies in this field. Model that incorporates only financial data will be created based on information from financial statements of small and medium-sized companies in Croatia for the period from 2001 to 2012. Database of financial statement of all Croatian SMEs is provided by the Financial Agency (FINA). Model developed based on financial data will be made public through the project website. Entrepreneurs and SME owners will be given access to the site in the period of 10 months. During that period, they’ll be able to evaluate growth potential of their enterprise in exchange of sharing some non-financial data of their business (the data will be collected through an online survey).

Previous research in growth prediction models confirms the relevance of financial data in segregating companies with a potential to grow. Sampagnaro (2013) has identified the balance sheet ratios that enable managers to predict which enterprises are better candidates for a high-growth path. The study pointed out that firm size, firm age and, primarily, internal cash flows (despite bank loans), are of most relevance to the growth and success of a firm.

Factors influencing growth in small firms have usually been understood in terms of three main categories: the entrepreneur, the firm and the strategy (Storey 1994). In such framework, many factors have been found to be particularly associated with high-growth firms. When it comes to characteristics of an entrepreneur, willingness to become involved in situations with uncertain outcomes and the need for significant experience at mid-management level have been singled out as relevant growth factors (Cassia et al. 2009). In terms of a firm and strategy, age and size of an enterprise, strategic orientation (Barringer et al. 2005), level of R&D (McGee, Dowling 1994), and innovation (Christensen and Bower, 1996; Fischer et al., 1997) are shown to influence potential for growth.

Previous studies emphasized the need for a cross-industry analysis of growth factors (Sampagnaro, Lavadera 2013). Therefore, this project will include a comparative analysis of 11 main groups of economic activity based on national classification of economic activities in Croatia. A special emphasis will be given to assessment of growth potential of creative industries and processing industries in Croatia for the reasons stated in the following text.

Creative industries attract academic and policy maker attention, especially after Florida’s (2002) book on how rise of the creative class has been transforming work, leisure, community and everyday life. Therefore, for the in depth analysis of the growth potential of creative industries in Croatia particular attention will be given to the primary market oriented subsections such as software, advertising or design.

In addition creative sector, processing industries also call for a greater attention. Manufacturing as an economic activity contributes up to 16% to a Croatia’s GDP (closely behind mining, quarrying and wholesale and retail). Food processing industry as a part of the manufacturing sector is also dominant type of economic activity in several parts of the country, and particularly for Slavonia and Baranja as one of the economically deprived parts of Croatia. Therefore, in depth analysis of the growth potential of manufacturing sector will also be done within the project.