Welsh firms in ‘grow slow’ mode, annual SME survey shows

Welsh firms in ‘grow slow’ mode, annual SME survey shows

• Welsh smaller firms behind the rest of the UK on many metrics of growth
• Country’s low start-up rate compounded by slower growth among new and more established firms
• ERC analysis suggests areas with lower enterprise rates could be more vulnerable to economic shock from Brexit

Wales’ small and medium-sized enterprises are growing more slowly than their counterparts in the rest of the UK, according to an annual health-check of UK SMEs.

The UK Local Growth Dashboard 2018, published by the Enterprise Research Centre, paints a stark picture of the nation’s varied growth geography among SMEs, which account for 99% of UK companies.

Wales’ rate of new start-ups of 31 per 10,000 population is significantly below the UK average of 50 per 10,000. And of firms that survive their early years, Welsh companies are slow to grow: just 1.5% reach turnover of £1m+ in their first three years against a UK average of 1.9%.

For established firms ‘stepping up’ from a turnover of £1m-£2m to £3m+ in three years, the picture is similar, with Wales’ rate of 5.9% is below the UK average of 7.2%.

Productivity growth over the 2014-17 period – where faster turnover growth than employment indicates an increase – was also relatively subdued in Wales, with 7.4% of firms achieving this against a UK average of 8.4%.

Other key findings from the report show that:

• Northern Ireland has some of the UK’s fastest-growing and most productive firms. Outer Belfast and Eastern NI have the highest proportion of companies reaching their ‘first million’ within three years of start-up (3.3%). This is striking given NI’s comparatively high reliance on the public sector.
• Northern Ireland also came top of the productivity rankings, with 11% of job-creating firms growing turnover faster than employment over the 2014-17 period (UK average 8.4%). The ‘Northern Powerhouse’ region also performed strongly on this measure, led by Greater Manchester and Greater Leeds.
• Larger OECD-defined high-growth firms (average growth in employment of 20% or more over a three-year period and having at least 10 employees) are concentrated in a southern triangle bounded by Cambridge, Bristol and Brighton.
• Start-up rates are highest in London and the wider South of England, with hotspots in the Midlands and North. Wales, Scotland and Northern Ireland show much lower start-up rates than England.
• Coastal and rural parts of England in general show lower rates of business growth on most metrics compared to urban areas.

The UK’s 5.7m SMEs constitute over 99% of businesses, employing more than 16m people and have a combined annual turnover of £1.9trn, 51% of all private sector output.

The ERC is the UK’s leading source of independent research on the growth of SMEs.

Professor Mark Hart, Deputy Director of the ERC, said:

“Our findings show a complex geography which challenges some of the preconceptions about the ‘hotspots’ of business growth across the UK.

“What’s clear is that there are pockets of SME dynamism right across the country and it’s not as simplistic as either a North-South or urban-rural split. That being said, it’s also true that firms in some parts of the country face more of a struggle to scale up and grow their productivity.

“The challenge now for policymakers is to learn the lessons of what’s working at local level so that we spread best practice right across the country.

“This is especially important as the UK prepares for Brexit to help mitigate any shock to local economies.”