In Britain small companies are often sold on to bigger firms. In Germany they tend to do things differently...
May 25th, 2014
Why should Germany have 10 times more medium-sized enterprises than the UK?
The former BT boss Lord Livingston, who now serves at the UK’s Trade and Investment minister, is understandably delighted about the deal announced last week by Chinook Sciences, the Nottingham-based clean technology specialist. Chinook’s £300m contract to build a waste-driven energy plant in the UAE is the first large export deal for a medium-sized British company since Lord Livingston unveiled specialist support for these businesses earlier this year.
The minister is entitled to claim some of the credit. After all, Chinook won the contract after it was introduced to Bee’ah, the Middle Eastern waste management company, by UK Trade & Industry. And the jobs that the deal is set to create underline the potential of medium-sized businesses as engines that can drive the economy. It will generate more than 800 employment opportunities at Chinook itself and in its wider supply chain.
However, we need more Chinooks. It’s good news that business start-ups are hitting record numbers in Britain, but the statistics suggest one in three of these firms is likely to fail within three years of launch. And it will be many years before the successful ones are in a position to create jobs on the scale of this deal.
UKTI’s export initiative could be a valuable opportunity for existing medium-sized businesses, but Britain does not have enough of these companies. UKTI itself puts the number of businesses that might qualify for its help at around 9,000 – by contrast, the famed Mittelstand strata of medium-sized German companies consists of more than 100,000 businesses.
Why should Germany have 10 times more medium-sized enterprises than the UK? One reason is that policymakers and businesses in Germany have long understood the value of export sales – as their consistent balance of trade surpluses have demonstrated. Moreover, these businesses have a global outlook – around 45 per cent of their export sales now come from non-European Union markets, including growing revenues in high-growth areas such as East Asia.
German economic policy has often prioritised the Mittelstand. While Britain has for many years seen start-up and micro businesses as the ventures to support – whether through tax incentives or more direct help – Germany has focused its efforts further up the chain, seen as most likely to succeed.
There is nothing to stop the UK shifting emphasis. But while it’s simple enough to change policy, it is harder to tackle attitudes and mindsets. In this country, people tend to build businesses in order to sell them on. Germany’s Mittelstand companies are largely still owned by their founding families.
The contrast matters because it is intrinsic to the way businesses are run. Within German enterprises, ownership, control and exposure to risk are held in the same place. In the UK, there is more likely to be a separation of ownership and control – or at least for the business to be working towards that separation. As a result, British businesses are less likely to be focused on the long-term, they tend to be less conservative and there is a looser relationship between management and workforce.
The cumulative effect has been that Britain has fewer high-growth medium sized companies – either because businesses with the potential to become such enterprises fail, or because they’re subsumed into larger organisations.
Tackling that problem with initiatives such as UKTI’s export support will help at the margins, particularly for those medium-sized businesses that we do have. But creating many more of them will require a cultural change. And that’s a much bigger challenge.
More over-65s run their own businesses
As the population ages, record numbers of older people are running their own businesses, statistics show. Research by the accountancy firm Wilkins Kennedy reveals that more than a third of self-employed workers are over the state retirement age of 65.
Adam Anstey, a partner at Wilkins Kennedy, said the increasing number of older self-employed people, who account for 37 per cent of the total self-employed, reflected the conditions of the past five years. “The idea of retiring at 65 is no longer the norm,” he said. “The credit crunch has meant that most people will now have to work past the traditional age of retirement.”
Wilkins Kennedy’s research also reveals that more than one in 10 company directors in Britain – 574,000 in total – is over 65.
Mr Anstey said older workers “have the wealth of experience and skills necessary to help grow and develop the companies they work for …They have worked through four boom and busts before.”
Automated ad booking firm raises £30m
The Israeli online advertising business Marimedia has completed a £30m placing and will begin trading on the Alternative Investment Market on Wednesday. It will have an initial market capitalisation of £95m.
Marimedia was launched seven years ago. It specialises in technologies that facilitate online advertising sales. It will use the cash to fund acquisitions and product development, and has plans for new offices in the UK and the US.
It operates in an increasingly important part of the online ad sales market, with technologies that automate the booking of space.
“Advertisers are looking to optimise their spending through complex buying criteria and that needs technology,” said Jonathan Barrett, an analyst at N+1 Singer, the house broker. “Publishers are looking to optimise revenues generated via electronic trading that can find the advertiser willing to pay the most.”