In the report, we examine connections between small and medium-sized companies' experiences of obstacles to growth, actual growth and productivity, and what characterizes companies that experience obstacles to growth.

A thriving business sector is crucial for the growth and prosperity of the Swedish economy. The growth of small and medium-sized enterprises (SMEs) plays a vital role, not least for the firms themselves, but also for policymakers who aim to boost employment. The ability of firms to create and sustain growth is central to their survival. However, many firms either stagnate or exit the market prematurely. Therefore, understanding the factors that enable sustained growth and also those that impede it is important. Insights from firms’ own experiences with the challenges they face are particularly valuable.

This study, Perceived obstacles to growth, observed growth and productivity in small and medium enterprises, has three primary objectives. The first is to explore the characteristics of firms that encounter different obstacles to growth. The second is to analyse how the perception of barriers to growth align with firms' observed growth and productivity. The third is to explore the relationship between the perception of regulations as barriers to growth and the observed growth of companies.

The analysis employs microdata on Swedish SMEs, combined with descriptive statistics and regression analysis, to investigate the characteristics of firms that encounter obstacles to growth and the relationship between perceived obstacles, observed growth and productivity. The primary data source is the The Situation and Conditions of Enterprises, a survey administered by the The Swedish Agency for Economic and Regional Growth. The survey is sent to a random sample of Swedish small and medium-sized enterprises and, among other things, gathers information on various factors that may hinder business development and growth. The barriers examined in this report include the availability of suitable labour or skills, the capacity of current premises and equipment etc., access to capital, and regulations.

The study population consists of firms with five to 249 employees that were at least four years old at the time of the survey. The obstacles most frequently experienced by these firms are the supply of labour/skills and government regulations. We use a linear probability model to investigate which firm characteristics have a statistically significant relationship with the perception of various obstacles. We also examine how the perception of barriers varies across the growth and productivity distributions. To determine whether there is a relationship between the perception that government regulations constitute an obstacle to growth and the observed growth rate of firms, we calculate a regression model that accounts for the possibility that both the perception of obstacles and the growth rate may be influenced by the differing characteristics of firms and the industries in which they operate.

The main findings

• Small firms are more likely than medium-sized firms to perceive labour/skills shortages as well as legal/regulatory constraints as major obstacles to growth.
• Smaller and younger firms are more likely than medium-sized and older firms to see access to capital as a significant barrier to growth.
• Firms that have introduced product and service innovations about the time of the survey report a greater number of growth barriers compared to non-innovative firms.
• The proportion of firms identifying labour/skill shortages as a major obstacle increases with both growth rates and productivity. However, firms with high growth rates are more likely than high-productivity firms to cite capacity, access to capital, and laws and regulations as significant obstacles to their development and growth.
• Firms that perceive laws and government regulations as major obstacles tend to experience lower growth compared to firms that do not share this perception. This result is particularly evident among firms that previously exhibited moderate to high growth, and a similar pattern is seen among firms with moderate to high productivity.

To conclude, the results indicate that perceptions of barriers to growth differ among firms with varying characteristics. While differences are relatively small when considering factors like age and size, they become more pronounced when examining how they vary across different industries. It is expected that fast-growing firms are more likely to encounter barriers. As their operations expand rapidly, their needs evolve, and management faces new challenges due to increased organizational complexity. Nonetheless, the fact that many fast-growth or high-productivity firms perceive labour/skill shortages and regulations as barriers suggests that policymakers still have opportunities to enhance conditions for business growth in these areas. However, in order to develop accurate tools a deeper understanding of the genuine impediments to growth is necessary. For one, evaluations of the (causal) impact of changes in specific regulations often yield valuable insights. Carefully conducted qualitative studies can also enhance our understanding of the barriers firms encounter and whether other factors influencing their growth and ambitions exist, which may be relevant to policy considerations.

A significant challenge in empirically investigating whether firms' perceived obstacles to growth truly hinder their progress is that these obstacles are simultaneously influenced by the growth rate. This simultaneity complicates determining the direction of cause and effect, making it challenging to state that the observed relationships are causal. However, since individual firms have little control over the design and scope of the laws and regulations they encounter daily, these results can provide an indication of how the experience of these obstacles affects firm growth.

It should also be emphasized that although the analysis is based on a random sample of firms, the results may not necessarily be generalizable to a larger population. Firms that responded to the survey might differ from those that did not. Furthermore, since we track firms over a period spanning both before and after the survey, we've made restrictions to the data for which the survey was not originally designed. Considering the empirical challenges, the findings in this report should be regarded as indicative. Nonetheless, they contribute to an area of study where knowledge gaps remain. To improve the conditions for future studies to approach causal relationships, it is essential to collect more detailed data on firms’ experiences of obstacles.