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The birth of the British Mittelstand

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UK companies with a £10m-£100m turnover (ie, mid-sized firms) represent less than one per cent of all UK businesses. Yet they contribute 22 per cent of UK private-sector income and 16 per cent of all UK jobs.

The CBI, in its important recent “Future Champions” report, called these businesses the “forgotten army” of UK business. While there may only be 10,000 of them, they have untapped growth potential that could inject £20bn of economic activity into the UK. Yet if asked to name one, most UK citizens would probably struggle.

It’s easy to see why they are relatively invisible. They tend not to be led by attention-seeking entrepreneurs. Most are privately, even family-owned, so their shares aren’t tradeable. When they do fall into the hands of the private equity community, they often fall below the radar of serious public scrutiny. Many are free-standing subsidiaries, whose independent performance goes unrecorded.

A small number of these mid-sized businesses (estimated by the National Endowment for Science, Technology & the Arts to be about six per cent) are seriously high-performers, accounting for 60 per cent of jobs created in this segment pre-recession.

Most, however, are far from stellar. Head of the CBI’s Future Champions project Emma Wild talks of “a long tail of underperformers”. Dig deep into Department for Business (BIS) statistics, and you’ll find that many mid-sized companies come from relatively mature sectors – food services, construction, agriculture, manufacturing. Such industries aren’t always as innovative or as export-focused as they could be.

Over the past few days, in a striking display of unity, the UK’s major business groups, led by CBI director-general John Cridland, have announced a series of measures to raise the profile, and boost the prospects of the British “Mittelstand”. The centrepiece is a trade mission to Turkey, hailed as “the first-ever UK Trade and Investment (UKTI) trade visit to focus exclusively on the opportunities for MSBs (mid-sized businesses) in an emerging market.”

Initiatives announced by the CBI, Institute of Directors, Institute for Family Business and Department for Business include:

  • £10m of UKTI support for mid-sized firms in targeting export markets;
  • Led by Local Enterprise Partnerships, help in improving export potential and leadership and management capability;
  • A taskforce on non-bank lending, led by Tim Breedon of Legal & General. The CBI has lobbied strongly that mid-sized companies should be able to issue corporate bonds more easily. It would also like to see an increase in corporate venturing, especially when large corporates have many mid-sized firms in their supply chains;
  • A new website to act as an information portal for mid-sized firms;
  • A directory of potential non-executive directors (NEDs); and
  • The Institute for Family Business will provide countrywide seminars focused on mid-sized business issues, including entrepreneurship, succession planning and professionalising the board.

If 2011 was the year of the start-up, with government ministers leaping at every opportunity to champion wannabe entrepreneurs, then 2012 is the year of the mid-sized firm. Caught between tight credit conditions, depressed consumer confidence and with a natural (often long-standing) conservative outlook, the leaders of these firms are often not instinctively aggressive. But, as the CBI’s Emma Wild says, “we really can’t afford for anything to be holding them back.”

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