Change is needed at every stage of the process, say experts

Mar 4 2009 by Karen Dent, The Journal

Innovation, explanation and a greater slice of the North East’s public projects are what the region’s small businesses need to help them survive the recession. Karen Dent reports on the issues that small firms and support organisations want to see action on.

IF one job was lost from every small business in the North East, the cataclysmic redundancy figures that are being announced almost every week by large companies would appear insignificant by comparison.

Around 65% of the region’s private sector employment is in the SME sector but much of the focus on the UK’s problems is concentrated on big business. That is something that needs to change, according to BT’s regional director Chris Sayers.

“It’s almost an invisible impact of the economic downturn because it is almost at a personal level that it’s not being picked up and given the prominence that it needs,” he says.

Mr Sayers chaired a BT-organised meeting of SMEs and organisations including the CBI, North East Chamber of Commerce (NECC) and the Federation of Small Businesses (FSB) in Newcastle to discuss practical solutions for companies struggling to deal with the recession.

NECC chief executive James Ramsbotham said: “The big challenge for us is that we’ve actually had such a long period of growth that people have got into a certain way.

“If you put a frog into a bucket of water and heat that bucket of water up, as long as you do it gently, it will never get out until it’s boiled to death. If you drop a frog into a bucket of water that is only one degree different, it immediately leaps out and does something different.”

Small businesses are now being forced to make that leap. Mr Ramsbotham believes those that alter the way they work will emerge intact, rather than boiled alive, after the recession.

He said: “I was speaking to a motor retailer in Darlington two weeks ago and asking generally how things were. He said, ‘I’m now in exporting as well. I’ve got huge purchasing power because of my relationships with the people here and I’ve just sold 10,000 batteries to Germany and made a huge profit on them.’ Even the most unlikely of businesses can actually find that.”

But finding help to reinvent yourself is not always that easy, despite the stream of Government schemes being launched with the aim providing help.

Robin Bloom, regional chairman of the CBI, said: “At the moment we’ve got an initiative-itis coming out of Westminster and a lot of this is soundbite and it’s politics, and delivery is a million miles away.”

The banks also appear to have problems understanding Government initiatives.

Chris Alete, financial director at Newcastle architects _space, said: “I was reading about something called the enterprise finance guarantee – I was intrigued by this. Then I spoke to a few banks, four or five, and not one of them knew how this thing worked.

“And I said, ‘Hold on a second, you’re the guys who are supposed to be delivering it, but you don’t know how it works?’, and they said, ‘Well no, we haven’t been told’ and if they hadn’t been told, then me, the person on the ground who may want that support, how am I going to get it? I think that’s quite scary.”

Andy Brown from Business & Enterprise North East, which runs the region’s Business Link service, has experienced the same thing.

He said: “We’re talking to a lot of banks and hearing major disparity about the new Government schemes and whether they have taken them up.

“There is real confusion but there is a comprehensive sweep of packages of support within B&ENE for businesses. The signposting is a huge thing.”

When cash is king and the banks are less than helpful, clawing in money from clients can mean the difference between sinking or swimming.

In October, Lord Mandelson announced the Government would pay all suppliers within 10 days and urged other public-sector bodies to follow its lead.

The CBI’s Robin Bloom says it is worth discussing payment terms with large clients.

“If they are dealing with bigger companies, there may well be some latitude there and that could make a big difference very quickly,” he said.

“Certainly within the Nissan supply chain, if you talk to some of the larger component suppliers dealing with their subcontractors, they have been looking very carefully whether they can advance payments more quickly to keep them going.”

The FSB’s Martin McTague said: “When the big boys start to catch a cold, it gradually starts to creep down the supply chain and starts hurting.

“The impression I’m also getting is that some of the big institutions in the North East are not so much not spending but they are postponing decisions.

“That means that some of our members have not given up hope of getting this business but they can see it receding into the distance. That is putting them under more pressure.”

Winning more business locally is key. The NECC says that if the region’s local authorities spent just 1% more of their budgets in the North East, an extra 6,000 jobs would be created. However, there is confusion among some public- sector organisations over how much can be ring-fenced locally.

Mr McTague said: “It’s more about the individual officer or buyers, about what they can and can’t do. In many cases they have a lot more freedom that they realise.

“They are nervous, naturally in this climate, about losing their jobs over making decisions that could be critical in the future. They revert to the safest route, so that means big firms, probably from outside the region.”

BT’s Chris Sayers said: “Local authorities can actually stipulate that the supplier chain locally is used. We can actually direct where we see fit.”

It is an issue that has perhaps not been at the forefront during the boom years but Robin Bloom says thinking local first should now be at the top of the public-sector agenda.

“When it’s all been good for everybody, people haven’t looked at it too hard, but at the moment it’s actually scandalous,” he said.

“There are jobs being lost and not saved in this region because money is being spent elsewhere in the UK and frankly, it’s time it stopped. And it’s time people stood up and took a bit of responsibility for it.

“I am not advocating protectionism but we are not getting as a region our fair share of the public-sector spend as against what goes on elsewhere.”

James Ramsbotham agrees: “It is about asking for a fairer playing field because some of the research we’ve done suggests that we don’t get the fair slice of the cake in the North East.

“We do not want to go Fortress North East because if everyone else did fortress wherever, we would be the loser.”

Delegates urged the public sector to stop thinking that cheapest was always best and always provided the best value for money.

Chris Sayers recalled Buzz Aldrin being asked what he was thinking when he was landing the lunar lander on the Moon.

Aldrin admitted he was worried: “I was thinking that all of this has been bought in lowest cost tender.”

Local authorities can stipulate that the supplier chain locally is used ... direct where we see fit