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UK SMEs are neglected at the critical growth stage

Local enterprise partnerships not as effective as predecessor, say SMEs in new report. 

Initiatives aimed at helping the UK’s small and medium sized enterprises (SMEs) are failing at the critical growth stage of the business, with incentives loaded largely at the start-up and exit phases of a business’ development, says a new global report commissioned by ACCA and prepared by Delta Economics. 

The Growth Challenge report also revealed that SMEs saw major benefits in the ‘clusters’ of businesses in helping enterprises grow, such as the Old Street Roundabout tech hub in London. 

SMEs, however, pointed out that local enterprise partnerships had had not been as successful in defining their role or ensuring that money could be targeted effectively at entrepreneurs themselves, as their predecessors, regional development agencies, had begun to do before they were replaced in 2010. 

Manos Schizas, ACCA’s senior economic analyst, says: ‘There is no doubt that the UK is fertile ground for entrepreneurial activity. The UK leads the European Union’s top economies in terms of entrepreneurship, with a Total early-stage Entrepreneurial Activity (TEA) of 7.1% – a rate significantly higher than that of France and Germany. Recent initiatives, such as the British Business Bank and the New Enterprise Allowance are geared specifically to helping the UK’s large SME sector, which accounts for 99% of all businesses in the UK. 

‘Support and incentives are also there at the later stages of the SME cycle where the focus is on reinvestment or exit strategies, such as AIM and the Enterprise Investment Scheme to encourage angel investment. 

‘However, SMEs have pointed to a gap in support when it comes to that critical growth stage of the business development journey, when the enterprise is still in its infancy but past the “birth” phase. Particular concerns about this have arisen since the post- 2010 austerity measures have started to affect local, regional and national levels of funding. There was a general concern amongst UK SMEs in our research about the localisation of enterprise policy because local authorities, in particular, did not have a definite focus on business growth, and the lack of transparency in allocation of funding meant that there was some confusion as to whether or not resources were reaching entrepreneurs.’ 

Business clusters
The Growth Challenge research examined enterprise and SME development by interviewing respondents and reviewing the business support literature in nine countries – China, India, Nigeria, South Africa, Singapore, US, UK, Germany, France. A running theme in the research was the importance of business clusters to SMEs.   

Manos Schizas says: ‘In the UK and in other countries clusters were seen as a vital aspect of enterprise growth. SMEs that took part in our research pointed to different clusters – some that have evolved over time (such as Cambridge or Silicon Valley) and others, such as Munich, that have been strongly supported by enterprise policy. What was clear from interviews was that the effects of large numbers of start-ups alongside research institutions, a ready supply of highly qualified individuals with ideas, and of private support businesses (finance, legal and administrative) provide the networks and public and private sector support critical to growth businesses.’ 

‘The UK government, as well as governments in other markets, have the right intentions when it comes to fuelling SME growth. However, government initiatives should be based on the premise that enterprise development is an evolutionary, non-linear process. It doesn’t always follow that a successful start-up has the necessary know-how, finance or opportunities to grow further.’ 

Read the full ACCA report, The Growth Challenge.


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