Mid-cap businesses in the past decade have shown particular growth hot spots in the North East and they need greater backing, says SARAH GREEN
IT’S positive indeed that this year’s Top 200 includes new categories. In terms of sectors to watch, one area often overlooked is companies with turnover of £25m to £500m.
Often referred to as mid-cap businesses, they make up the forgotten army in our economy. They can find themselves in something of a public policy gap, being too large to benefit from small business policies, but too small to win the attention FTSE firms do. It is these companies that have a significant amount to contribute to a re-balanced North East economy and hold one of the keys to long-term growth.
In terms of presence, there are plenty of mid-caps in the UK – around 10,000, employing a third of the private-sector workforce. What’s more, they were responsible for one in two of all private sector jobs created over the last 10 years.
In the North East, there is great potential to target mid-cap businesses. Experian did some research on champion SMEs – the 10% that grow at 20% a year for three years and more than double their weight in terms of contribution to all those employed in the SME sector.
So what indicates a business’s potential? It matters who leads the business and their experience and it matters whether that business is linked with other high-growth companies, and whether or not it has international focus. Size matters, as does age.
While these firms are spread around the UK, the last 10 years has shown particular growth hotspots in Northumberland and Tyne and Wear. Also, the North East showed the healthiest level of future champions.
What can we learn from this research? Identifying potential champions ahead of time means we can take a more systematic approach to targeting growing businesses. High growth businesses are in all sectors, so we must not focus only on green or hi-tech sectors.
Helping these sorts of companies thrive is going to require a number of things. First and foremost is better access to finance. Mid-caps are generally reliant on bank lending and only one in 10 use equity to raise capital. Most, too, are excluded from the wholesale corporate bond market.
Small mid-caps also get too little recognition in a tax system that favours smaller firms more – they have more taxes levied on them than any other size of business and need to make their voices heard on that.
Skills are an issue, not least the management and leadership skills specific to their size and growth rate. Here, sharing experiences can be critical. And they need support accessing international markets – to become exporters and help meet the demands of emerging economies across the planet.
Our mid-caps differ from those in Germany’s Mittelstand, where family-owned medium-size firms have long occupied lucrative worldwide market niches. Some British mid-caps export, but not on this scale.
They may have achieved moderate success in the past in the “home market” of the UK and the old EU, but many have yet to expand their horizons and asked where the growth opportunities are coming from today.
The UK is in a cycle of long-term decline as an exporter and our rate of decline is one of the fastest in the developed world, though the North East does buck this trend, with recent announcements that the value of exports has risen to a record high this year, with growth at twice the average UK rate.
Nurturing ambitious mid-caps will do most to contribute to a re-balanced UK economy, with boosts to business coming from different fields and different regions. In the months and years ahead, supporting mid-caps is where our jobs, our long-term growth prospects and so much of our innovation and drive will come from.
Sarah Green is North East regional director of the CBI.
