Punching above their weight

It may have tak­en quite a while, but British busi­ness appears to have a smile on its face once more. Eco­nom­ic growth and con­sumer spend­ing con­tin­ues to rise, while unem­ploy­ment is on the slide.

The twice-year­ly snap­shot of cor­po­rate Britain, pub­lished last month by Lloyds Bank, found that busi­ness con­fi­dence had hit its high­est lev­el in the survey’s 22-year his­to­ry. Some 65 per cent of busi­ness­es expect total sales to rise in the next six months, while just 7 per cent think they will fall. More than 50 per cent of com­pa­nies expect exports to jump in the same peri­od, com­pared with 6 per cent fore­cast­ing a decline.

Most mid-mar­ket com­pa­nies – typ­i­cal­ly those with annu­al rev­enues of between £15 mil­lion and £700 mil­lion – will also be look­ing ahead with renewed opti­mism. There are some 300,000 com­pa­nies in this sec­tor in Britain, accord­ing to Deloitte, and not all have been affect­ed by the eco­nom­ic gloom of the past five years.

Despite being per­haps the least vis­i­ble part of the busi­ness sec­tor – account­ing for few­er than 1 per cent of com­pa­nies in Britain – the CBI says that firms with between 50 and 499 employ­ees punch well above their weight by employ­ing 16 per cent of work­ers and account­ing for 22 per cent of total UK rev­enue.

Matthew Fell, direc­tor of com­pet­i­tive mar­kets at the CBI, says that mid-mar­ket com­pa­nies also account­ed for a third of all pri­vate sec­tor jobs cre­at­ed between 2010 and 2013, help­ing Britain to recov­er from the eco­nom­ic down­turn, under­lin­ing their role as a busi­ness bell­wether. He believes that com­pa­nies in this sec­tor have been some­what unloved because they are too large to take advan­tage of gov­ern­ment schemes to help small busi­ness­es, but lack the scale to com­pete with big busi­ness.

The CBI says that more mid-mar­ket firms need help to become “gazelles”, with high rates of growth, which would make a sig­nif­i­cant con­tri­bu­tion to rais­ing GDP in the com­ing years. “A big part of that is get­ting more con­fi­dence and ambi­tion into that mid-cat­e­go­ry after they reach a respectable size and growth rate – encour­ag­ing them to upskill and kick on to that next lev­el of pro­fes­sion­al­ism,” says Mr Fell.

More than 50 per cent of com­pa­nies expect exports to jump dur­ing 2014

Get­ting some mid-mar­ket com­pa­nies out of their com­fort zone, par­tic­u­lar­ly those that are well estab­lished, fam­i­ly run and gen­er­ate respectable returns, is a par­tic­u­lar chal­lenge. Part of the prob­lem is their reluc­tance to high­light the mid-sec­tor suc­cess and their con­tri­bu­tion to the econ­o­my in the same way that Ger­many reveres its equiv­a­lent Mit­tel­stand, for exam­ple.

While UK Trade and Invest­ment has con­duct­ed trade mis­sions for mid-mar­ket com­pa­nies to emerg­ing mar­kets such as Turkey and Brazil, Chris Gen­tle, head of Deloitte Insight, believes there is more that gov­ern­ment can do, includ­ing mak­ing it more cul­tur­al­ly accept­able to work for such firms. Despite this he says that, in the wake of the eco­nom­ic down­turn, more grad­u­ates now want to work for small­er com­pa­nies or take advan­tage of tech­no­log­i­cal advances to set up their own enter­pris­es.

THREE GROWTH RULES

Accord­ing to Deloitte’s Busi­ness­es Lead­ing Britain report, which exam­ined the fastest-grow­ing 1,000 com­pa­nies with rev­enues between £30 mil­lion and £1 bil­lion, there are three rules for growth. Many of these firms oper­ate in niche busi­ness-to-busi­ness mar­kets, which means they are not house­hold names, but are high­ly suc­cess­ful because they have cap­i­talised on the devel­op­ment of intel­lec­tu­al prop­er­ty.

Many chief exec­u­tives of these 1,000 com­pa­nies have a long-term vision that can dri­ve growth and know how to recruit and retain the right staff to make that hap­pen, Deloitte found. The third com­mon fac­tor was being adept at exploit­ing export oppor­tu­ni­ties. Estab­lish­ing a fac­to­ry in cen­tral Europe had allowed one eye­care spe­cial­ist to dou­ble turnover to £100 mil­lion in just five years.

Yet com­pa­nies can only expand into new mar­kets with access to suf­fi­cient finance, some­thing that has not always read­i­ly avail­able at rea­son­able cost. The CBI calls for more incen­tives for com­pa­nies to invest in inno­va­tion, mak­ing it eas­i­er for mid-mar­ket com­pa­nies to issue debt and access a broad­er range of fund­ing sources.

Despite the many chal­lenges, the out­look for mid-mar­ket com­pa­nies is promis­ing, accord­ing to research con­duct­ed by CEB, the mem­ber-based advi­so­ry com­pa­ny. It found that 77 per cent of the com­pa­nies it works with are expect­ing to expand in the next 12 months.

How­ev­er, CEB’s Scott Engler warns there is a dan­ger that expec­ta­tions are pre­ced­ing actu­al growth. He also points out that while almost all exec­u­tives in mid-mar­ket com­pa­nies sur­veyed by CEB agree growth was a pri­or­i­ty, only 28 per cent of chief finan­cial offi­cers in these firms have faith that their cor­po­rate strate­gies will result in such expan­sion.

To that end, the Deloitte report calls on big busi­ness in the UK to play their part in help­ing their mid-mar­ket coun­ter­parts to grow by men­tor­ing and guid­ing them.

THREE GROWTH RULES