Last week, the Western Mail reported on "Size Analysis of Welsh Business, 2006", a government report that provides data on the structure of enterprises active in Wales, including employment, turnover and the sectors in which businesses operated.Drawing on its own unique Welsh data set, it indicated that 41% of business sector employment was accounted for by large firms i.e. enterprises with 250 or more employees.
Not surprisingly, the CBI commented that this proved that large businesses were “vital for Wales’ economic survival.
It went on to say that while large firms accounted for 0.8% of total businesses, they contribute a staggering 55% of Wales’ national turnover and that, as a result, we should “readjust our understanding of what factors deliver the most wealth and employment for Wales and support them to innovate and grow here in Wales.”
So there we go, 20 years of an academic career down the drain!
Why on earth have I bothered to focus on supporting the development of small firms in Wales when, all along, I should have been expounding the importance of large firms to the economy?
However, doesn’t this data seem to contradict other information about the business sector in Wales? For example, the Western Mail’s Top 300 supplement of the biggest firms in Wales shows that only 135 of the companies listed would qualify as a large firm under the current standard definition.
So have the government number-crunchers got it wrong? Well, yes and no.
If anyone bothers to read the statistical report in detail, they will discover an interesting disclaimer hidden away in the notes. This states that “in all cases, the size band of the enterprise is based on the number of UK employees… so an enterprise employing 10,000 UK staff but only a handful in Wales is categorised as a large, and not a micro, enterprise”.
Basically, that means a company employing 300 employees in Manchester and having a base in Llandudno employing 30 people would be classed as a large firm, even though it would be employing the same number of people in Wales as a small independent store next door.
Indeed, what it shows is that there are about 800 large firms with an employment presence in Wales but only around 150-200 large firms which are completely based in Wales, which roughly reflects the Top 300 estimates.
Is this surprising?
Of course it isn’t, as many of the shops and stores we find in the high streets up and down Wales are branches of large companies which are based across the border, such as Burger King, Boots, Waterstone’s, Jessops, Body Shop, WH Smith and Moss Bros.
With the honourable exceptions of the Principality and a couple of smaller building societies, most of the large banks and building societies also do not have headquarters in Wales.
Indeed, more than 50% of the 405,000 jobs within large firms in Wales can be accounted for by retail and finance companies and, according to the report, every large company has, on average, around 10 branches across Wales employing about 30 people.
That is not to disparage the contribution of large UK firms with branches in Wales to the Welsh economy and any job is critical in the current economic downturn.
However, even by stretching the imagination, I fail to see how we can encourage a branch of NatWest in Barry or Debenhams in Bangor “to innovate and grow here in Wales”, as claimed by the CBI.
While many Welsh companies have kept the faith with their employees during the worst recession since the Second World War, it is the branch plants of many non-Welsh firms which have closed their operations and abandoned thousands of workers.
More importantly, will it be large firms that are going to lead the Welsh economy out of recession during the next few years?
The evidence seems to suggest otherwise. For example, if we examine the US economy in the period 1980 to 1986, while 34 million jobs were lost, 45 million jobs were created with 32 million of these being generated from the birth of new businesses.
Indeed, during the recessionary period of 1980-82, small firms provided almost all of the new jobs in the US economy. Closer to home, the growth of the UK economy since the last recession of the early 1990s has been supported by an increase of more than 25% in the number of small businesses.
There is no denying that large firms in the UK are significant employers across all regions, including Wales. However, if we just accept this particular set of statistics on face value, then I believe we are in danger of forgetting the importance of new and small firms to support the recovery of the economy.
Last week the Wales Fast Growth 50 project demonstrated what the indigenous business population of Wales is capable of achieving, with our fastest growing firms generating more than half a billion pounds in turnover in 2008 and creating more than 4,000 jobs.
If we are to develop a successful economy, it is clear we need to encourage the likes of Corus, Admiral, Airbus and Ford to continue to develop their operations here in Wales.
However, it would be foolish in the extreme to use these statistics as the basis for ignoring the potential of thousands of Welsh companies that, with the right support, could grow and make a major contribution to wealth creation and jobs within this nation.
Comments
So many miners, that when mining went belly up we were left with generational unemployment.
Companies like Hotpoint and Dolgarog Aluminium being almost the sole non-public employers in the Conwy valley, leaving a whole county in poverty when they failed.
What would happen to the Flintshire and North Wales economy if BA Broughton -Chester failed?
Would the half billion subsidies pumped into that one company have been better spent by offering 500 North Wales SMEs £1 million support each, or 2,000 companies £0.25M each rather than gambling all on that one company that, in all honesty, owes no allegiance to Flintshire, Wales or the UK!
However surely with large businesses the key question is whether their presence indicates money/wealth coming into Wales...or being sucked out of Wales. Are they present through acquisition of small Wales tech companies or university spinouts? Because Wales offers skills unavailable elsewhere or has an otherwise attractive business environment? Because Wales is simply cheap or offers matched funding as though it is going out of fashion? Or simply to target profit from Welsh consumers? As stated it is ridiculous to think that a large number of Burger King branches/employees is an indication of a healthy innovative economy with the potential to grow and offer more jobs/wealth...
Dylan: do you have any insight into how employment with large businesses whose headquarters are outside Wales breaks down across R&D, manufacturing, retail, services etc?