The Big Conversation: Helping SMEs succeed
Read time: 10 mins
The Big Conversation: Helping Britain Recover was a three-month series of roundtable discussions bringing together local businesses, policymakers, community leaders and experts from all regions and nations of the UK. This extract from the full report focusses on the support small to medium sized enterprises (SMEs) need to help them embrace opportunities and overcome barriers to growth.
The strength of the UK’s recovery will depend on the ability of the country’s small and medium sized enterprises to shake off the effects of lockdown and rekindle their entrepreneurial energies. SMEs account for three-fifths of employment and more than half of turnover in the private sector, but the impacts of the pandemic have been felt unequally across different sectors, business models and geographical locations.
Given the central importance of SMEs to the recovery, The Big Conversation heard from more than 900 people in every region and nation before gathering panels of policymakers, academics and campaigners in the East and West Midlands and Scotland to discuss specific challenges and solutions facing this critical sector.
Clear areas for policy focus emerged. There was a near-universal view that more was needed to build the skills of SMEs, both of their workforces and of their owners and managers. Help with sourcing and supporting apprentices was called for as was the importance of fostering a growth mindset to overcome the inherent reluctance of many SMEs to trade control of their business for external leadership and investment.
Clearer signposting of resources for SMEs and the creation of integrated growth hubs bringing together financial support alongside education and training were common themes. The potential of greater devolved political decision-making to ensure regional and local needs were better understood and reflected in policy was also mentioned. Underlying it all was a hunger for greater long-term regulatory and fiscal certainty in a time of change and political uncertainty.
There was a clear division between those for whom the pandemic has posed an existential threat, such as leisure, travel and the high street, those left relatively unaffected, such as agriculture, those forced to reimagine themselves, such as retail, and those which have flourished, such as healthcare.
The impact was also felt differently across the country and these conversations explored some of the reasons for the record low level of business confidence – which now stands at minus 18 per cent in the October Lloyds Bank Business Barometer, based on surveyed businesses’ views on both their own business prospects and optimism on the UK economy.
Despite that, across the events an underlying sense of optimism was apparent.
As Garry Clark of the Federation of Small Businesses put it, there was “positivity among the unavoidable gloom”.
Participants considered what businesses needed to turn that confidence into success. In the face of a crisis, adaptability was identified as a critical necessity. Yet coping with the crisis left many smaller businesses unable to consider longer-term challenges.
Andy Street, mayor of the West Midlands, said times of significant change always provided opportunities but measures were needed to help SMEs identify and consider them:
“If you’re running your own business and you’re dealing with the crisis of today, how do you find the brain space for looking for the opportunities in the future?”
Innovation through the pandemic
Many businesses have successfully changed the way in which they provide their products and services to their current customers. Stephen Lewis managing director, HFD Property Group described the acceleration into automation during the first lockdown:
“We’ve had to find new ways to do office based processes, like processing invoices and paying suppliers. We’ve had to automate but it’s been a positive outcome and we’re now looking at all our processes to automate as much as we can.”
These enforced productivity improvements could have long-lasting positive consequences, allowing staff to focus on more profitable activities. This idea was echoed by SMEs in the North East of England where companies described having to review and improve their processes for the longer-term, with increased productivity in a region that has struggled with a persistent productivity gap.
Automating existing processes was one response. Businesses said they were also looking at making better use of their assets, in particular data.
According to Mark Hart, professor of small business and entrepreneurship at Aston Business School, “businesses are sitting on millions of data points, and the technology is now there to allow them to understand the complex relationships between all of their moving parts, and make the changes that will create a high-performance workplace and deliver the biggest benefits.”
The pandemic meant businesses were faced with the sudden loss of their markets.
Christine Adeosun, founder of Eko Food Market Xpress, which supplies African cuisine and ingredients to the European hospitality sector, switched to social media when the trade shows she relied on to reach new customers stopped overnight, and turned to UK producers to source more homegrown supplies, cutting food miles and making products greener, broadening their appeal further.
The potential of digital channels and distribution proved to be a lifeline for many businesses and sectors in 2020. For retail firms, online ordering and delivery was now well-established.
Clive Vickers, owner of Halfpenny Green Wine Estates in South Staffordshire, saw online sales increase sevenfold during the first six months of the pandemic and expected that trend to continue.
The latest Lloyds Banking Group Digital Index found that GDP could grow by £85bn if small businesses in the UK adopted more digital practices. If businesses are to benefit from innovation and the digital economy they need a strong digital infrastructure.
Scaling up at pace
For some the pandemic revealed the challenge of scaling up fast enough to seize an opportunity. Medical specialist Omega Diagnostics, part of the UK consortium working to develop and manufacture COVID-19 tests, held an oversubscribed £11m fundraising during lockdown to invest in machinery to develop new products.
While it would support new capabilities in the future, they found the lead times for fully automated equipment were far too long, so they bought semi-automated equipment instead. For all businesses, access to finance was critical to allow them to invest in sudden growth or business model changes. Some found their supply chains contracted, leaving them struggling to scale up.
The resilience of modern, highly efficient supply chains in the face of unexpected external shocks emerged as a critical issue for SME recovery. Businesses need help to review and, if necessary, re-design supply chains that might be vulnerable, such as costly air links with China.
Better coordination of business support
Panellists recognised the difficulty of helping businesses consider medium and long-term issues when they were preoccupied by getting through the crisis.
Jane Martin of Scottish Enterprise described how better coordination could help businesses currently “in survival mode” turn their attention to the future.
This was also a recurring theme in the East Midlands, where Sajeeda Rose from the D2N2 Local Enterprise Partnership suggested that SMEs do not know where to turn to for support and advice: “what would really help is a wrap-around service… so an SME can be signposted and supported to access skills support, finance support, growth support and survival support all in one place”.
Integrating sources of support for SMEs in clearly signposted hubs linked to employment services should be considered as a means of accelerating the recovery.
Similar challenges were discussed in the West Midlands where Lily Alimi, researcher to Rachel Maclean, MP for Redditch, pointed out that many businesses were not aware of initiatives such as the Kickstart Scheme – which provides funding to create new job placements for young people on Universal Credit – and that improved and targeted communications would help to increase usage of the support available.
Chris White, from the Manufacturing Technology Centre near Coventry, proposed mandatory membership of local chambers of commerce as a means of improving coordination and better signposting of services.
This, he said, would also have the effect of putting a “massive booster behind the voice of business” and would be a means of increasing SMEs’ influence in the development of future policies.
Unlocking business investment
Given the scale of the challenges, there was support for stronger government action to set priorities and give direction. The Big Conversation heard consistent messages about the need for greater certainty on short-term issues surrounding the management of the pandemic, to give businesses confidence to invest.
Dan Rose-Bristow of the Torridon Resort in Wester Ross described how conflicting pandemic regulations and a lack of certainty made short-term decisions difficult: “How much I invest becomes very difficult because it’s such an uncertain picture.”
While the impact of the pandemic may have forced businesses to focus on short-term fixes to enable them to survive, participants said a more strategic and sustainable approach was needed if they were to thrive. Policy clarity from government on the recovery was considered essential to provide the medium to long-term environment business participants said they needed. Some proposals were specific:
the CBI in Scotland pressed the need for clear government support through a new National Commission for Economic Recovery. Tracy Black, regional director, CBI Scotland, said the scale of the crisis required national collaboration to ensure policy and planning are linked.
Unsurprisingly, Brexit came up as a consistent theme. Across the events, participants said clarity about the future UK-EU trading relationship was critical to be able to make investment decisions.
Successful agreement of a trade deal was widely recognised to be a pre-requisite for further initiatives – such as a data adequacy assessment to facilitate the cross-border data flows – that would help to reduce the barriers to trade and market access once the transition period comes to an end.
In the West Midlands, Ninder Johal, board member of the Black Country LEP, said mayors should be seeking greater devolved powers to ensure recoveries could be driven locally and regionally.
This reflected a wider view that locally elected representatives relied on so-called ‘megaphone diplomacy’ with Westminster and Whitehall to influence the direction of their local economy, in the absence of sufficient devolution of formal funding and powers.
Above all, recovery will require businesses to invest in growth opportunities. Without demand for their products and services SMEs will not flourish.
Professor George Feiger of Aston Business School pointed to the success of high value, high input sectors and clusters in the United States and Germany as evidence that success does not need to be built on cost competition. Rather, it required identifying sectors worth investing in.
“Businesses flourish and hire people when they have customers who want to buy things from them in increasing amounts – it comes from the market” he said.
“Sophisticated manufacturing depends on being part of a cluster, a cluster of related businesses supported by education and training, and sympathetic finance. We need a plan that identifies some sectors we’re going to consistently put money into.”
Business growth relies too on adapting to new opportunities, developing new skills and increasing scale and complexity. Not all businesses, particularly mid-sized ones, are able or willing to make that transition.
Helping them explore the trade-offs between growth and control was one way SMEs could be supported. George Feiger said: “our experience is that SMEs are very reluctant to share ownership and control and that is a key barrier to successful growth.”
Many companies have potential but lack skills in marketing, finance, human resources. A wider growth support policy directed by the Government to help new exporters understand and access trade finance, navigate regulation and develop networks would help build the recovery.
Katie Trout, of the Greater Birmingham and Solihull LEP, cited the importance of research and development budgets to ensure recovery was linked to productivity gains.
Mission critical skills
Alongside the need for new management skills, the ability to find people with the skills needed in the future came up repeatedly around the country. Andy Street described making sure businesses “refresh themselves” with new talent as “mission critical”.
Four out of five manufacturers say they are struggling to recruit skilled employees locally. A particular focus was access to apprenticeships and concerns that, with the average cost of an apprentice at £8,000 per annum, the economic downturn will lead businesses to reduce or eliminate participation in apprenticeship schemes.
The Resolution Foundation predicted that up to 45,000 18-24 year olds within the West Midlands could be left unemployed because of the pandemic. Tony Sartorius, chairman of Alucast, cautioned that another reason why companies may have fewer roles to offer was because workers were retiring later than before.
The ecosystem for apprenticeships should be reviewed to make it simpler for potential employers to understand what resources are available, how they might access sources of financial and other support and what benefits an apprentice could bring to their business.
In the Black Country only 41 per cent of businesses are aware of the Apprenticeship Levy. Kathryn Marshall, Lloyds Banking Group suggested there is a need for more “hand holding” mechanisms to help employers. Businesses unable to contemplate taking on apprentices because of cash-flow challenges arising from the immediate crisis should benefit from a sunset clause to the Apprenticeship Levy that would allow them to defer their benefits.
The benefits of the Apprenticeship Levy transfer scheme, which allows large employers to transfer a portion of their unused levy contribution to other businesses in their supply chain, was singled out as a valuable innovation that needed to be expanded by persuading more firms of its benefit – and increasing the amount available to be transferred.
Charlotte Horobin, membership director of Make UK, the representative body for manufacturers, called on Apprenticeship Levy funds to be ringfenced by the Exchequer to prevent them being diverted to other uses as the public finances come under strain.
Mandip Rai, from the Leicester and Leicestershire Enterprise Partnership, called for an accelerated release of the additional funding being made available to further education colleges as a way of boosting the capacity to address skills shortages.
This would need to be combined with greater collaboration between businesses and education and training providers, so that businesses can shape the curriculum of relevant courses to meet their needs.
The engine of the economy
Greater policy certainty from government, better integration and awareness of local resources, and access to a skilled workforce emerged from The Big Conversation as the priority areas for policy work to ensure SMEs remain the engine of the economy.
In turn there was a recognition that SMEs need help to overcome the barriers that at times lead them to avoid growth opportunities that require an openness to new ownership and management structures.
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