THE IMPORTANT ROLE OF SMEs IN THE UK ECONOMY
Given the growing uncertainty about the future of the UK economy, it is worth examining the opinions of those small to medium sized employers (SMEs) that are responsible for much of the growth in jobs and prosperity over the last few years.
One of the best sources for this information is the annual Small Business Survey carried out by the UK Government, which was created nine years ago and surveyed over 15,000 UK small business owners and managers in 2018.
The results are fascinating and provide a useful barometer as to how the small business sector is growing despite some of economic issues that may be facing this country at a time when we will soon be leaving the European Union.
First of all, the study shows that 22% of SME employers employed more people in 2018 than a year previously. This compares with 64% who employed the same number and 13% who employed fewer people. The largest proportional job growth by firm size was for medium-sized businesses, which had increased employment by 40 per cent.
Interestingly, and despite portents of economic gloom from some commentators, the proportion of SMEs that are aiming to grow their business over the next three years has increased considerably from 62 per cent in 2017 to 71 per cent in 2018, with the majority of these being microbusinesses (employing less than ten people).
So while there is growth within the economy, it is clear that one of the most important changes that needs to happen is after Brexit is to have an increase in international business from SMEs, especially as only one in five British small firms engage in exporting as compared to an average of one in four across the European Union.
Unfortunately, there has been no increase in the number of SME employers exporting goods or services since 2017 and the percentage of SME employers exporting has been relatively stable for the last six years. Wales (14%) has the lowest proportion of exporters in any of the four home nations and by size category, only 18% of microbusinesses were exporters as compared to 34% of medium-sized businesses.
The study also shows that for the vast majority of exporting firms, international sales made up only a small proportion of their business with nearly two thirds stating that exports accounted for less than a quarter of turnover which suggests that more could be done to focus on getting existing exporters to grow their overseas business. However, the fact that only a third of exporters are ‘born globals’ i.e. they are trading internationally in their first year also indicates that business support could and should be examining the potential for start-ups to sell overseas from day one.
In terms of destinations, it is worth noting that 78% of SME employers who exported did so to European Union countries whilst 67% exported outside the EU (including to European Free trade Area countries such as Norway and Switzerland). Given the current negotiations over a trade deal with the USA, it is worth noting that 40% of SME exporters sell goods or services there.
But what will be the situation post-Brexit? According to the survey, over half of the current exporters plan to increase their level of exports over the next few years, particularly in manufacturing, retail and wholesale and administrative/support sectors although only 5 per cent of those SME employers currently not exporting plan to do so in the future.
This demonstrates that there needs to be a concerted effort by the UK government to improve this proportion, especially given that there is increased potential for exporting in high value sectors such as information and communication technology and professional/scientific services. Indeed, 17% of those SME employers not currently exporting and not planning to do so, said that they had goods or services suitable for export which suggests that targeted support should be a priority in the future for such firms.
Finally, for Wales, there is another interesting fact that emerges in that whilst 55% of Welsh SME employers buy from the rest of the UK, only 46% sell to customers in other UK nations, essentially creating an internal trade deficit. In contrast, 43% of English SMEs export to the rest of the UK with only 33% importing goods and services.
This clearly suggests that there are also considerable internal business opportunities that exist for Welsh companies to complement any exporting activity that may be developed and certainly there should be more effort from the Welsh Government in supporting our businesses to not only access overseas markets but potential customers across the UK as a whole.