Against a backdrop where the Government is establishing Local Enterprise Partnerships, Growth Hubs and Regional Growth Funds, the analysis published in Experian’s latest Insight Report identifies the characteristics of SME champions, where they are located in the UK, where future champions will emerge and how their numbers can be increased.
The analysis – spanning the last decade and encompassing over 1.5 million private sector businesses – challenges current thinking about the level of emphasis placed on fast-growth sectors and regions. The report also provides groundbreaking insight on how to pinpoint the real drivers of future economic growth.
Job creation – “Punching above their weight”
Experian’s analysis shows that the 10 per cent of SMEs that become champions grow at more than 20 per cent a year for three years and more than double their weight in terms of contribution to all those employed in the SME sector.
These champion firms over the last 10 years were situated across the UK, with particular high growth hotspots in Northumberland, Tyne and Wear, Manchester, Cornwall and South Wales.
Of the remaining SME population, 20 per cent grow at a slower rate, while 30 per cent are ‘stable and able’ firms that remain the same size. Around 40 per cent of SMEs decline or cease trading.
Analysis of 2003 to 2006, the last benign economic period before the downturn, shows that the slower growing firms created around 860,000 jobs, while SMEs that declined or ceased trading lost around 3.7 million jobs.
Champions, however, created 1.6 million jobs reducing the net loss within the SME population to 1.2 million during 2003 and 2006 and underlining their importance to the economy.
Start-ups added a further 2.7 million jobs, but of those start-ups that survive, the majority do not grow further, staying the same size.
The Midlands and the North – two incubators for future ‘champions’
Although champions are spread across the UK, Experian’s analysis shows that large parts of the South, as well as East Anglia, have in the past seen an average or below average concentration of champion businesses.
However, looking forward, the analysis shows that some of the least resilient areas of England such as the North East and the Midlands, have the healthiest levels of future champions in their midst.
Employment levels in northern towns have traditionally been low and during a recession, when employment numbers fall further, many are pushed into starting up their own businesses or being more innovative in their current businesses.
Large parts of Scotland and Wales are identified as having fewer future champions. However, if the few future champions do reach their potential, they will stimulate businesses around them and play key role in the region.
Survival of the fastest: the facts
The research found that during the ten year period analysed, only 20 per cent of SMEs with the greatest potential to become champions actually fulfilled this potential.
Between 2003 to 2006, around 34,000 businesses had the highest possible potential to become champions – based on business/employee profile, ability to export, location and many other factors – yet three years later fewer than one in five had gone on to deliver on this potential and achieve champion status.
The fact that the 6,500 successful champions went on to create more than 260,000 of UK jobs emphasises the value in helping high potential champions overcome any barriers.
Charlotte Hogg, Managing Director of Experian UK & Ireland, said: “All eyes are on private sector SMEs to drive growth, but encouraging them to take the risks associated with growth at a time when they are focussing on survival will be a challenge.
Our analysis tells that less than 10 per cent of SMEs firms have created millions of jobs in the last decade. The challenge for Government is how to identify budding ‘champions’ and give them the support they need while still helping support the rest of the SME population who are the bedrock of the economy.