From a structural standpoint, the UK mid-market closely resembles that of Germany, consisting of firms with revenue between £15m to £800m and employs 500 people, similar in size to its German counterpart.
But where is the UK’s “Mittelstand” and can it compete with the likes of Germany?
The German Mittelstand has long been heralded as the drive behind the country’s economic success. However, British SMEs play as big a role to the economy as they do in Germany. In fact, in 2014, there were 5.2m businesses in the UK, over 99 per cent of which were SMEs.
GE Capital CEO Ilaria del Beato believes that “with the recognition and attention afforded to it in Germany, the Mittelstand has evolved into an elite group of companies that power the German machine. There is no doubt that the UK mid-market can and should perform a similar role and will, if we foster and support them in the manner they deserve.”
But she warns that “despite standing outside of the Eurozone and, in theory, an
onlooker to the developing crisis that has engulfed it for the past two years, the UK economy has been far from immune to the effects of Europe’s struggles. As the continent’s third largest economy, it has, in fact, suffered worse than both France and Germany, the Eurozone’s largest economies.”
However, the UK mid-market enterprises (MME) employs more people than any of the equivalent MME across France, Italy and even Germany. In fact, this number, 10.9m people, is almost as many as the French and Italian mid-market combined (11.7m).
In a ‘Leading from the Middle‘ report, it stated: “The mid-market across the EU-4 is, for example, heavily geared towards manufacturing. Across the four markets, manufacturing represents one third of mid-market GDP output whilst representing only a quarter of total private sector GDP across the EU-4.
“The UK is similarly overweight in manufacturing, although this is less pronounced than in Germany and Italy. In addition, mid-market companies contribute proportionally more GDP and employment outside of London than large businesses, with 71 per cent of mid-market jobs being based outside of London and the South East.
“This significance is particularly relevant because of the way UK mid-market companies behave. Mid-market companies have the scale and the appetite to export and operate globally, but also remain closely knit to their local communities. In the UK mid-market, almost 70 per cent of suppliers come from the domestic economy whilst more than 50 per cent of companies don’t outsource – more than in all EU-4 markets.”
As the study suggested, the UK’s manufacturing sector accounts for the highest percentage of the mid-market’s contribution to economic value. But, unlike Germany and Italy, other sectors generate nearly as much economic activity. The wholesale and retail industry accounts for 16 per cent of the mid-market’s contribution to GDP.
Read more about the Mittelstand:
- Prime Minister David Cameron lifts lid on scheme to create Britain’s Mittelstand
- The birth of the British Mittelstand
- 5 reasons Germany’s Mittelstand outshines Britain’s mid-sized firms
The problem is, however, that UK productivity is lower than in Germany, with revenue per employee of £154,000. The report even suggested that the UK mid-market was the least productive of the EU-4.
The UK also stays behind in exports.
“One of the recurring themes in the EU-4 mid-market firms has been ‘think global, act local’,” said del Beato. “Mid-market companies operate close to their local economies but think on a global scale, searching for opportunities to expand their business through exports. UK mid-market firms, however, are struggling to adopt this mantra. Only 17 per cent of their revenues are generated outside of the EU, significantly below the 25 per cent to 30 per cent range for their counterparts in Germany, Italy and France.”
But according to HSBC, we may already be emulating the “Mittlestad”.
While Germany may have more mid-market enterprises, the UK generates a turnover of more than £33m, but less than £325m. And they also make up 17.2 per cent of economic activity, compared to Germany’s 13.2 per cent.
An HSBC report, ‘The Vital Role of Mid-Market Enterprises’, found that while France’s mid-market section accounted for the least amount of GDP, the UK topped the chart at 39 per cent.
“Among the characteristics that unite them are the advantages offered by their scale – they tend to be more productive than small businesses, while also being more nimble and innovative than the largest firms,” said HSBC UK corporate banking boss Amanda Murphy.
“UK mid-sized businesses are truly the backbone of the British economy, supporting millions of jobs and making a vital contribution to economic performance. The Brittelstand is among the leaders globally in terms of the support it provides the domestic economy – all too often, this contribution has been underestimated, if not hidden.
“MME businesses display huge diversity across the country, from longstanding family manufacturing firms to retail chains to dynamic R&D companies. But among the characteristics that unite them are the advantages offered by their scale – they tend to be more productive than small businesses, while also being more nimble and innovative than the largest firms. For that reason, it’s vital that all of us – from banks to [the] government – do more to understand and meet the specific needs of the sector.”
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