Large firms, small firms

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Most of my writing has, quite naturally for an entrepreneurship academic, focused on highlighting some of the major issues facing the small firm sector in Wales.

More importantly, it has examined how specific policies can be developed to help small businesses, which would be expected given that small firms make up the vast majority of businesses within the region and that there are countless opportunities to provide advice and funding to support the sector.

This is not to say that large firms - those employing more than 250 people - cannot make as important a contribution to the development of the small firm sector as the public sector, especially through relationships which provide direct support for smaller companies.

In Wales, the latest statistics from the Small Business Service indicate that there are only 180 businesses employing more than 250 employees. Whilst Wales has the lowest number of large firms of any other UK region apart from Northern Ireland, their relative importance to the economy mustn’t be underestimated, given that they collectively account for 165,000 jobs and an annual turnover of £24.2 billion.

More importantly, many have created a synergistic relationship with the small firm sector in the region.

In particular, the increasing role of small firms as suppliers means that entrepreneurial ventures have become increasingly important to large firms in maintaining competitive advantage in the market-place, mainly because of their ability to supply both customised parts and services cheaper, quicker and better than the large firm itself could.

These services include skilled functions such advertising and information technology provision, as well as other services such as construction, repair, plant security and maintenance services.

In many cases, these are provided at less expense by flexible small firms having lower overhead costs, thus making larger firms more competitive. Indeed, many of the growth firms we have seen emerging on the Fast Growth 50 project during the last decade have been those which are supplying business to business services.

However, it is important that large firms in Wales should not act as merely a passive partner and that, through their considerable resources, they could be providing specific financial assistance as well as help to upgrade the technical know-how and managerial competence of their smaller partners.

For example, small firms are often put into quite vulnerable positions by larger firms in terms of late payment for goods and services. To alleviate this, offering prompt and generous terms of payment to small suppliers can make a real difference to the success or failure of a small business, especially during the credit crunch that many are currently experiencing across Wales.

Indeed, large firms can be proactive in analysing and monitoring subcontractors’ financial position and, if they wish to maintain a strong relationship for the future, could provide financial support for consolidation as well as growth.

Large firms can also make available their more specific knowledge and expertise such as marketing know-how and distribution methods, through arrangements such as franchising, piggyback arrangements or shared marketing departments (including services for canvassing international markets).

Technological research and development support, including access to the big firms’ development programmes, can also help small firms develop their business potential. This would be particularly beneficial in Wales, which has one of the lowest incidences of private sector R&D expenditure in the UK.

Clearly, this should not be a one-way relationship based on cost and efficiency gains for the larger businesses. There are also quite distinct advantages in accessing small firms' particular expertise, especially in areas of technological development.

The formation of partnerships between two different sizes of organisation combines the advantages of the small business (in which a highly committed and motivated team of individuals is able to focus on creativity and innovation without being subjected to the constraints of a bureaucratic structure), with the financial power, marketing know-how and logistics of big business. This gives the large firm access to new technologies, products and services and the small firm access to new markets and possible finance of further development projects.

Therefore, like any partnership, both the large firm and the small firm can benefit from a closer working relationship and, in turn, the economy of Wales can reap rewards from having a more competitive industrial sector.

Certainly, such relationships should be encouraged and developed further in ensuring that the 180 large firms we have in Wales are fully embedded into the economy and working closely alongside other smaller businesses in the region.

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