The big challenge for small business

BY NEIL EISBERG

Small and medium-sized enterprises (SMEs) are the backbone of any economy. These companies, usually defined as employing fewer than 250 people and (according to EU) with an annual turnover not exceeding €50m, make up the vast majority of all businesses.

Across Europe there are 23m small businesses that between them create around 75m jobs. They account for over 99% of all businesses in the EU and are the drivers of innovation and economic growth, coming up with new ideas and new business models. Certainly, many fail but they are replaced with new startups with new ideas and new entrepreneurs keen to make their mark.

This is as true in the chemicals sector as any other.

Some 96% of all European chemical companies are SMEs, providing 37% of all jobs and generating 30% of sales.

Industry group Cefic estimates there are 17,093 so-called micro enterprises operating in the EU chemical industry, each having less than 10 employees. These provide 3.8% of employment and generate nearly 2% of total EU chemical sales.

And what is true for the European chemical industry is equally applicable to the US and UK chemical industries. In the US, for example, small and medium-sized companies account for more than 50% of the American Chemistry Council’s membership.

Not only are these companies generating profits and employment (and tax revenues) they are also – at least potentially – the industry titans of tomorrow. But they need much more help, in particular to scale up. And here is the big problem.

SCI recently ran a survey of SME’s operating in the UK science sector and found they are facing a number of challenges, despite their importance in terms of their contribution to innovation and overall industry revenues. (For more information about the survey, turn to page 9).

The survey found that while UK chemicals SMEs have high ambitions for their futures, significant factors stand in their way.

While over half the companies surveyed are looking to double in size within five years, they are struggling to find the staff, relevant infrastructure to support scaleup and appropriate forms of funding, for example, to grow their revenues and profits and provide the investment needed to fund R&D in the pursuit of innovation.

There are a lot of funding sources available but only some, like R&D tax credits and funding from Innovate UK, seem to be on the radar of most SMEs – more specialised or focused funding like that available through the Horizon programme or the Northern Powerhouse Investment Fund needs to be better publicised. And the perennial problems surrounding the availability and application of venture capital outside the US environment need to be discussed and overcome.

The financial support that SMEs are seeking should not be beyond the realms of possibility even in these straitened times.

While funding is a major issue, perhaps most concerning is the suggestion that over 60% of respondents believe they will be looking outside the UK for manufacturing capacity in the next 20 years.

In addition, almost half of the more mature businesses said they would most likely list their companies outside of the UK, if appropriate. This is an approach that some larger organisations are currently taking and warning sounds are already being heard about this trend.

At a time when the government is talking up the UK as a key location for inward investment, to have domestic companies voicing concerns about operating in the UK is likely to send the wrong signals to potential investors.

Creating innovative science-based businesses is key to the future growth of the UK economy and the creation of well-paying highly skilled jobs. It is also quite possible that solutions to some of the biggest societal challenges will be found by these pioneering SMEs, and it’s also vital that these businesses are provided with the infrastructure to allow them to grow. That might come in all shapes and sizes from access to pilot plants and specialised equipment through to business and regulatory support.

The chemical industry in the UK is a major generator of exports and has an enviable reputation for its innovation. Unfortunately, any look back into the history of science-based innovation will show how great ideas that began in the UK have too often had to look elsewhere to achieve commercial success. Now is the time to reverse that trend.