How can medium-sized businesses help kick-start the economy?

Marketing Executive
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In recent articles alternative invoice factoring firm MarketInvoice has focused mostly on small businesses. This piece looks solely at the medium-sized business sector, an area that could hold the key for economic recovery.

Britain may be stuck in a double-dip recession, a fact that politicians, captains of industry and the media has never failed to remind us, however there are a small group of companies that are bucking the trend.

The CBI business lobby group has identified these firms as the type of company that Britain needs to get back on its feet. Nicknamed by the CBI as “gazelles”, they are mid-sized companies that are alert and move quickly.

According to a report on the sector by GE Capital (General Electric) only 1% of British firms are defined as medium-sized businesses – those with a turnover of between £20 million and £800 million. Although they represent only 1%, medium-sized businesses contribute more than 30% of GDP and employ more than a third of the British workforce.

An increasing number of experts believe finding more gazelles is crucial to kicking life back into the economy. “Most of the public debate has been about small companies or multinationals,” Vince Cable, the business secretary, told delegates at the CBI summit on medium-sized firms in June. “It’s the M [middle] bit which we’re here to talk about today.”

The GE report released at the same summit found that for every British “gazelle” with revenue growth of 10% or more, there were three “strugglers” not growing at all — or shrinking. Of the firms it surveyed, 26% said survival rather than growth was their defining strategy — almost double the number in Germany and more than in France and Italy.

It is still a very British foible to compare ourselves with the Germans, but as they seem to be propping-up the eurozone at the moment they are probably a good comparison. UK experts have studied the German economy in order to understand the country’s economic outperformance and attention has been drawn to the Mittelstand, a group of highly effective mid-market businesses that drive the economy.

According to the GE Report, if Britain’s mid-market had grown at the same rate as Germany’s since 2009, it would have created an extra 240,000 jobs — 200,000 of them outside London and southeast England — and generated more than £35 billion of increased revenues, boosting UK exports by almost 51%. The Government sees medium-sized businesses as key to its goal of improving export performance in emerging markets. The Government wants to build on the German model of boosting exports with the strategic approach of basing chambers of commerce in key high-growth markets.

Although it is all well and good to hypothesize, there still remains the large issue of business finance, whether it is bank lending or working capital to fund growth. An idea of a state-backed enterprise bank similar to Germany has been suggested. For example German KfW provides cheap loans to SMEs via regional commercial banks – 2010 €28.5 billion (£22.9 billion) in 2010 creating 66,000 jobs and 7,100 start-ups.

The Government definitely needs to help promote and encourage more business lending however alternative methods like invoice finance crowdfunding and peer-to-peer lending are becoming a more mainstream option to traditional bank finance. These new methods of funding will definitely help to ease the pressures on banks to lend.

Further Reading:

• GE Capital - Mid-market insight -


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