Fundamental role of medium-sized businesses

By | Business
The mid-market provides employment throughout the UK, serving as an engine of local economies credit via - www.publicagenda.org

In the UK medium-sized business (MSB) market there are around 34,000 firms of 50 to 499 employees. In comparison, there are around 3000 large corporations, and 1 million small to medium-sized firms of 1 to 49 people.

The mid-market makes a significant contribution to the UK GDP, in fact, its growth in GDP contribution now outstrips the UK’s nominal GDP growth. Much of this contribution is in the form of wages and salaries into the pockets of UK households, affecting spending power. MSBs contributed £270million to the UK economy in 2013, which is the equivalent in size to the financial services sector and real estate sector.

A recent study from Grant Thornton shows that the total number of employees supported by MSBs in 2013 was some 3% higher than at the beginning of 2012. This is compared with the slower growth in the total number of employees supported by both small businesses, at 1.7%, in 2013 and large firms, at 1.3% in 2013.

The total size of the MSB population was 5.4% larger at the start of 2013 than before the financial crisis in 2007. This evidence shows that the medium-sized business market was the most resilient segment during the economic downturn.

These businesses had an annual turnover of £712 billion, which is an increase of 7.5% in 2013 and estimated at a significant 21.7% of total private sector turnover. Also, one in six are owned directly by a family or individuals while many more are owned independently through other companies.

The mid-market provides employment throughout the UK, serving as an engine of local economies. As expected, London and the south-east top the chart in terms of the number of jobs provided by MSBs. London has 745,000 and the south-east has 609,000. While the north-west also benefits, the West Midlands have seen the greatest increase in mid-market employment in recent years, standing at 349,000 at the start of 2013.

Strong mid-market growth over recent years has also seen this segment outpace other business sizes, and the overall UK labour market, in the rate of employment expansion. Headcounts are growing faster at MSBs than they are at larger and smaller firms, and the significant majority of mid-sized business leaders expect to create more jobs in the next year.

However in saying this, MSBs average productivity lags behind that of their counterparts in much of Europe. The UK is behind many European countries, including Ireland, Austria, France and Germany.

Noel Delaney, the Corporate Audit Partner at Grant Thornton Ireland has recently made comments on why Ireland is doing better than the UK. He said, “What has emerged in the eight or so years since the beginning of the collapse has been an economy that continues to nimbly adapt to the circumstances it faces. Led in no small way by the business owners themselves, the Irish business world has sought to address the imbalances that prevailed pre 2006 and have focused on regaining and retaining Irish competiveness on the international stage. By concentrating again on export markets, innovating processes through lean technology and profit improvement, Irish business owners have ‘gone back to knitting’ by working harder yet more importantly by working smarter.”

The percentage of UK MSBs that have international operations compares unfavourably with Germany and the Eurozone. Also the UK mid-market’s export growth is slowing and overall UK exports are being outplayed by growing economies. Looking at the figures, only 29% of UK MSBs have international operations, in contrast with, nearly half of German firms.

The business confidence monitors Grant Thornton have also made some recommendations to the British government on how to improve MSBs. They suggest sharper definition of the MSB sector, including consistent sector engagement by all levels of government, providing more support for exporting and improving skills and the access to capital.

In which ways do you believe the government should encourage more people to set up their own business, for example tax breaks?

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