Regardless of which definitions are used to analyse the UK landscape for SMEs, we find that medium enterprises account for a substantial chunk of the performance of the UK economy.
Employee numbers
Using a more contemporary size definition of medium enterprise used by the SBS in 2004 covering organisations with between 50 and 500 employees, SBS data shows that this segment of the economy represents just under three-quarters of one percent of all enterprises in the UK but employs nearly 15% of the workforce, and contributes over 21% of annual turnover.
Size of turnover
What the SBS data excludes quite deliberately from its remit are any companies that may be small or medium sized on their own, but which belong to any grouping of larger companies, for example, subsidiaries of larger enterprises.
The 2005 ICAEW / BDO Stoy Hayward study sought to take some of these into account as the challenges facing medium organisations in this category are often shared by other medium organisations, particularly when it comes to growth plans, ability to recruit key staff, raising finance, and dealing with regulation.
As a result, the 2005 ICAEW / BDO Stoy Hayward study finds that 6% of UK companies have annual revenues between £10m and £250 m, and employ 30% of the nation’s workforce, and nearly 20% of all corporate profits.
This data indicates that medium organisations have a significant contribution to the economic performance of the country as a whole. However, the issues and challenges they face are different from those faced by small and large organisations. In the n ext chapter, we explore the comparative performance of small, medium and large organisations.
Comparative performance of medium enterprise
For the purposes of this report, a special analysis of the ICAEW’s 2005 Enterprise survey was conducted to determine the performance of medium businesses relative to small and large companies.
Sampling the population
The Enterprise Survey is an annual survey conducted by the ICAEW among its members. In 2005, there were responses from 1214 chartered accountants working in business.
For this report, all companies have been analysed according to the size of their annual turnover. Those with an annual turnover of less than £5.7m have been categorised as ‘small’ businesses. Those with a turnover of £5.7m - £99.9m have been categorized as ‘medium-sized’ companies, whilst any with a turnover in excess of £99.9m have been categorised as ‘large’. In total there were 480 responses from small companies, 508 from medium-sized companies, and 212 from large companies.
Given the focus of this report on medium-sized enterprises, such businesses have also been examined within two further categories. Smaller medium-sized businesses with a turnover of £5.7m - £22.8m have been classed as ‘medium I’ businesses whilst those with a turnover of £22.9m - £99.9m have been categorised as ‘medium II’. There were 308 medium I companies in the sample compared to 200 medium II businesses.
Growth comparisons, by size
Medium organisations are different from small and large organisations in their corporate expectations regarding growth and growth strategies– the following facts drawn from the Enterprise 2005 survey demonstrate some of those differences.
UK companies bullish about growth
The majority of businesses (75%) have grown over the past two years. Overall, differences by size of firm are not great, with 71% of small firms having grown at all over the last 2 years compared with 76% of all medium sized firms and 78% of the largest firms. Medium II businesses were the most likely to have grown at all (80%), although in all but one case (medium II growth cf. growth of small business) this was not significantly higher.
69% of those companies in the 2005 survey were planning to grow by 6% or more per annum, including 16% planning to grow in excess of 30% per annum, classified as High Growth Businesses (HGBs).
• Medium-sized businesses were significantly more likely to be HGBs, than their larger counterparts (12% versus 6%). Medium I and medium II businesses were equally likely (12% and 13%) to have been HGBs, although smaller businesses were the most likely to fall into this category (23%)
• The majority of medium-sized businesses expect moderate growth in the next two years. Just over a quarter (27%) expect to grow by 6-10%, a fifth (19%) expect to grow by 3-5% whilst one in seven (14%) expect to grow by 11-15%.
Strategies for growth
Improved sales (66%), marketing (47%), and the launch of new products (48%) are seen as they key drivers to growth across surveyed companies of all sizes.
• Of those companies that did achieve growth in the past two years, medium-sized companies are slightly more likely than both small and large companies to have done so through improving their sales and widening their customer base; 64% had grown through the use of this strategy compared to 58% of small companies and 51% of large companies.
• In order to grow the business, smaller companies were more likely than medium-sized companies to have focused on marketing (42% cf. 33%) whilst large companies were more likely than medium-sized companies to have restructured in order to improve their efficiency (42% cf. 30%)
• Medium II companies planning to grow over the next two years are most likely to be focusing on expanding their customer base and improving sales (76% intend to do so compared to 61% of large companies, 64% of small companies and 68% of medium I companies). Medium I companies on the other hand are the most likely to be intending to develop new products or ventures (55% intend to do so compared to an average of 48%)
• Medium-sized companies are more likely than both large and small counterparts to be planning on improving their products or production facilities (36% compared to 25% of small businesses and 31% of large companies). As was the case with past growth, medium II and large businesses are planning on being less reliant on improving their marketing (38% amongst both groups plan to do so compared to 55% of small companies and 47% of medium I companies)
As can be seen from the figures, medium businesses are different from small and large organisations. If they resemble another cohort, it is likelier to be large organisations, rather than small ones. To merge small and medium enterprises into a single category, such as SME, is inappropriate. The next chapter of this report explores the main challenges facing medium organisations which could be addressed by policy actions.
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