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UK business organisation seeks to build British “Mittelstand”

UK medium-sized businesses, many of which are family owned, need to be rebranded like the German Mittelstand so that their importance to the country’s economy is recognised, business leaders heard at an event in London this week.

Mittelstand companies are widely credited with pushing German economic growth in the post-War era, and, although there is no formal definition, family ownership is often a defining characteristic, although the term can be applied broadly to all SMEs.

Family businesses account for approximately 42% of German GDP, and 95% of the country’s firms are run by families or entrepreneurs. Some of the most well known include Bauer Media, BMW and Faber-Castell.

The Confederation of British Industry (CBI), which lobbies the government on behalf of almost 200,000 businesses, held its inaugural summit for medium-sized businesses on Monday.

Access to finance, support for exporters, and policies to address skills shortages, were points it said it would be lobbying government for on behalf of mid-market companies.

In a statement, director-general John Cridland said the importance of medium-sized businesses to the economy had been forgotten. “Despite making up less than 2% of all British companies, they generate almost a quarter of private sector GDP, and employ one in every six people.”

Cridland told the conference the CBI was on a “march to create a German Mittelstand”.

Antonio Horta Osorio, chief executive of Lloyds Bank, who also spoke at the conference, said medium-sized businesses as a group do not have the “brand recognition” they deserve, given their contribution to the UK economy.

Horta Osorio added that the UK could learn from countries like Germany how to champion mid-market companies, but said the UK had to find its own brand for the business group – unique to the country and its economy.

Also launched at the Monday event, was the organisation’s report, Future champions report: unlocking growth in the UK’s medium sized businesses, which revealed 82% of mid-market companies feel confident about growth in their companies in the next five years.

The survey questioned 200 executives at medium-sized companies, approximately half of which were family businesses.

Banks were the most popular source of external finance for medium-sized businesses, in the form of loans (accessed by 45% of medium sized businesses), leases (44%) and overdrafts (39%).

In contrast, 5% accessed finance through listed equity, and 4% through issued bonds and private placements. Eighteen per cent of businesses secured funding through private equity.

Head of enterprise policy at CBI Tom Thackray says family businesses are usually reticent to give up equity, which is often utilised by fast growth companies, such as tech firms. Thackray said there was room for both approaches by mid-market companies.

“If you look at the Mittelstand, they’re steady growth businesses, they’re not growing much more than 10% a year, even the fast growing ones, because they’re more looking at a 30-year time horizon,” Thackray said.

“Whereas you look at a small to medium-sized tech firm from the US, they’re looking to double their size in a year. They’re really different outlooks, but both are important. You need both the steady growers and the gazelles.”

When it came to succession, the CBI research found approximately half of executives thought there was a plan in place should they leave the company, but Thackray explained this figure was higher for family businesses. “That’s because that’s part of their reason for being.”

While they might be better prepared than their non-family counterparts, succession planning is consistently listed as an area of concern in family business research. A global survey released by PwC in October, revealed 80% of family businesses don’t have a robust succession plan in place.

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