British medium-sized businesses have the potential to be a powerful engine of growth, injecting up to £50 billion (€57.6 billion) into the country’s economy by 2020. However, their ability to contribute to economic growth often goes unlocked as they are overlooked by government and financiers.
This is the main finding of a new report by the Confederation of British Industry, the UK’s biggest employers' organisation.
According to the study, which was conducted with McKinsey & Company, British firms with a turnover of between £10 million and £100 million represent less than 1% of the country’s businesses but generate 22% of economic revenue and 16% of all jobs.
The research also found that if MSBs could reach the same growth levels their larger counterparts were achieving, they would contribute an extra £20 billion to £50 billion to the UK’s economy by 2020, or 0.1% to 0.25% of GDP.
For example, the study said that, if between 2002 and 2007 MSBs had been able to reach the same productivity levels of larger companies operating in the same sector, their annual rate of productivity growth would have been 1% higher than the bigger firms.
An obstacle to MSBs’ growth is the lack of right managerial skills. Both larger and smaller businesses in the UK show better management capability than MSBs, says the report, and fellow MSBs in the US, Sweden, Canada and Germany outperform UK MSBs.
Family businesses have the same management capability of all businesses, the study said. However, those that are run by non-family members score slightly better than those that are run by the owner’s eldest son.
This may explain why MSBs in Germany, a country where only 10% of family firms are run by the eldest son, contribute more to the national economy than their British counterparts, 50% of which are run by the eldest son.
According to the report, however, the main obstacle to MSBs’ growth is that these firms often struggle to access capital to invest in their companies.
The British government needs to create a broader range of financial instruments that would allow MSBs to prosper, the CBI said.
"Medium-sized businesses are truly a forgotten army, and now is the time to unlock their potential,” CBI director John Cridland said in a statement.
“To achieve extra growth, medium-sized firms must have access to new kinds of finance. This means opening UK bond markets to medium-sized businesses, encouraging use of venture capital, and making it easier for large companies to invest in medium ones, possibly in their supply chains," he added.