Portuguese SMEs are struggling to grow in size. Only 3.4% have upgraded in five years

During the debate on the Government Programme, the Minister for the Economy and Territorial Cohesion, Manuel Castro Almeida, stressed the need for “small companies to become medium-sized companies and medium-sized companies to become large companies”. However, a study released by the Business Roundtable Portugal Association (BRP) reveals that the business sector is struggling to grow in size. Even so, there are 396 companies with the potential to make the leap.

Between 2019 and 2023, only 3.4% of companies managed to go from micro to small, from small to medium and from medium to large, according to the study ‘Gaining size to be big: The case of adolescent and young adult companies’, drawn up by Informa DB for the BRP. Apart from 0.7% that lost size, the rest remained in the same range of turnover.

The lowest percentage of companies that have moved up is in micro companies (2.9%), but it is also very low in small companies (10.6%) and medium-sized companies (9.5%). In the case of small businesses, the percentage of those that downgraded in that five-year period is even slightly higher (11%) than those that upgraded.

The study classifies companies with a turnover of up to 2 million euros as ‘micro’, those with a turnover of between 2 and 10 million as ‘small’, those with a turnover of between 10 and 50 million as ‘medium’ and those with a turnover of over 50 million as ‘large’.

“The Portuguese business fabric is made up almost entirely of micro-enterprises and small and medium-sized enterprises (SMEs). What’s more, very few of them manage to consistently grow their turnover or move up a size bracket”, BRP said in a statement.

According to the study, only 1.3% of the 380,000 Portuguese companies have managed to grow their turnover consecutively over the last 10 years, a percentage that rises to 6.8% over five years and 28% over three years. Even considering only the years 2022 and 2023, not even half (43%) managed to grow revenues consecutively.

The lack of business growth is reflected in employment: only 0.9% of companies increased their workforce consecutively over five years, 3.1% over three years and 7.9% over 2 years.

Almost 400 companies with potential to boost growth

Informa DB’s analysis identified 396 companies that escape the more general picture and have “high potential to drive economic growth” in the country. A universe made up of companies with a turnover of between 30 and 150 million euros, national capital control, which do not operate in the property sector and are financially solid.

Designated as “Adolescent and Young Adult Companies”, they generate a turnover of 22 billion euros, employ 94,000 workers and export 4.6 billion euros. The 396 companies are split between 191 “Young Adults” and 205 “Teenagers”. The number of the latter grew by 42.4% compared to last year’s study, which is explained by the elimination of a criterion and the fact that the previous edition considered the period from 2018 to 2022, when “the negative impacts of the pandemic were still strongly reflected in the results of many companies”.

Despite the youth implied in the designation, these companies are, on average, between 30 and 35 years old. “It shows that they are generally companies with a long history that are now ready for their next leap in development”. They are mainly dedicated to industry, wholesale and retail activities and are overwhelmingly located in the coastal districts. More than a third (36%) are family-run.

Teenage and Young Adult companies also stand out for having a higher average revenue growth rate between 2019 and 2023 (9.3%) than the business community as a whole (7.1%) and a higher return on equity (15.6%). More than half of them are exporters (57%), well above the 11% of the national business community, and they showed productivity growth of 8%, “the highest among all segments”.

The study also identifies a sub-group of 63 companies with an average rate of change in turnover of 28.4%, which, according to BRP, could “lead the next generation of large Portuguese companies”.

“Portugal needs more large companies. Supporting SMEs with high potential is essential to increasing productivity, wealth and wages,” says BRP president Carlos Moreira da Silva, quoted in a statement. The Association will contact the 396 companies identified to invite managers to take part in its Sponsorship programme, which puts them in contact with the CEOs of the 43 companies and business groups that make up the BRP, with the aim of helping them overcome obstacles and identify new avenues for growth.