Director of Centre for SMEs says medium-sized firms need more than just a bank
A leading expert on the UK's small and medium sized companies has welcomed Vince Cable's £2bn British Business Bank, but warns that finance alone is not enough if the UK's growing firms are to match the success of Germany's Mittelstand.
Professor Stephen Roper, director of the Centre for SMEs at Warwick Business School, is the co-author of a wide-ranging report sponsored by GE Capital called Leading from the Middle: The Untold Story of British Business, in which he compared UK mid-market businesses to Germany's Mittelstand.
And although he feels the proposed Business Bank is a welcome step closer to the kind of Government backing necessary for UK businesses, Professor Roper feels this is a long term project and the money needs to be backed with expert advice.
"The proposed business bank is very welcome and should make a significant difference to UK SMEs in the longer-term," said Professor Roper, who is also professor of enterprise at Warwick Business School, which is part of the University of Warwick. "But it won't do much to kick-start the economy in the short-term. This is a long-term solution and I think it will be two years or more before any new funding gets to companies.
"Implementing this proposal will be crucial to its success. The Government is proposing to use challenger banks to reach SMEs and these banks will need to develop new capacity to deal with this type of business-facing activity. So, I don't think we will see any impact from the business bank in this parliament."
And Professor Roper argues mid-market businesses should also be included in the coverage of the business bank.
Professor Roper said: "Our recent research suggests some of the strengths of the UK mid-market. These 21,000 companies had increased their employment in recent years while larger firms had lost around 700,000 jobs during the recession. A business bank which helped these UK firms to match the growth of their German counterparts could generate an additional 240,000 additional jobs over 5 years."
So Mr Cable's bank is a step in the right direction but Professor Roper argues more is needed.
"It should be intelligent finance," said Professor Roper. "Finance alone is not so much of a problem for mid-market firms, it is more the small firms of 50 to 100 employees who are in need of the money. The mid-market firms need expertise to go with the money. When a venture capitalist backs a company they don't just provide money, but management and strategic support as well. Medium-sized firms need help identifying the markets where they can use this extra finance and developing the product services that go with them.
"My study found that mid-market firms have done tremendously well to keep the country afloat during the recession, but they lag behind their European counterparts, particularly Germany in terms of global exporting. Out of France, Italy, Germany and the UK, the UK came last in terms of percentage of revenue from outside the EU, with just 17 per cent. For Germany it is 25 per cent and Italy 30 per cent.
"For that to improve the Government needs to adopt a holistic approach, providing value added services. My report discovered mid-market companies are being held by a skills shortage among the workforce and a lack of investment in research and development.
"These areas need addressing by the Government if their noble investment in a bank for small and medium-sized companies is to work in the long run."