GE Capital’s latest in-depth analysis of the mid-market indicates that UK mid-market companies are now pivoting to growth and throwing off the shackles of the recession. The UK’s mid-market companies, defined as firms posting between £15m-£800m in revenues, make up 1.67 per cent of all UK companies and yet contribute a third of private sector GDP, sales and employment. These companies are now growing faster than their peers in Germany, France and Italy. The UK mid-market expects to grow at a pace of around 6.1 per cent in the coming 12 months, compared to 4.8 per cent in Germany. A similar story emerges for employment growth, with the UK set to grow its mid-market workforce by around 2.9 per cent, versus 1.8 per cent for Germany. If realised, this would equate to over £133 billion in revenue growth and around 326,000 new jobs in the UK.
But with new opportunities come new challenges. As mid-market firms seek to accelerate recruitment in response to increasing sales and capacity constraints, the knock-on effect is an emerging skills shortage, which must be overcome to ensure the longevity of the recovery. Since 2013, the research shows the main obstacles facing mid-market firms have shifted away from keeping costs down and a need to reduce overheads, towards challenges around talent and skills. The top four challenges facing UK mid-market companies over the next year are: attracting employees with the right set of skills, followed by attracting top managerial talent, retaining key/talented employees and finding talent with the right skills set in the local area. Skills shortages are cited as the top challenge by mid-market businesses in West Midlands, Eastern England and London, while wage pressures are a particular source of concern in the North West and East Midlands.
Skills and talent challenges are mirrored in Germany, which is forecasting lower growth than the UK. But it is clear that the UK falls significantly behind Germany on programmes designed to build the next generation of talented staff. If we look at apprenticeships – a key area in which skills shortages can be addressed over the longer term – we find that only 37 per cent of UK mid-market firms currently offer apprenticeship schemes, compared to 75 per cent of German mid-market firms. Likewise, only 33 per cent of UK mid-market firms are offering internships, versus almost two thirds (64 per cent) in Germany.
The research suggests the UK mid-market is performing well in the area of developing women business leaders. Women constitute 42 per cent of the senior management team in the UK mid-market: this compares to 40 per cent for Germany, 38 per cent for France and 34 per cent for Italy. The contrast is much starker when we compare the mid-market to the biggest companies in the UK: 42 per cent for the mid-market versus 20.7 per cent of all FTSE 100 directorships or 15.6 per cent of FTSE 250 boards. The top sectors for senior level women in UK mid-market firms are hospitality, IT and communications, real estate and finance and insurance. Myriad studies have shown that diversity is essential to a firm’s long-term success diverse boards are more effective than ‘identikit’ boards in delivering better decision-making – and companies with strong female representation at top management level perform better than those without. A diverse range of voices is essential to a free-thinking and growing business. The data suggests that large companies in the UK would do well to learn the lessons of the mid-market: the UK mid-market has forecast 6.1 per cent growth over 2014/15. Not all FTSE 100 businesses could say the same given topline growth was a mere 1 per cent in 2014.
It is clear that the UK will not be able to match the strength of Germany unless it invests more heavily in critical initiatives such as apprenticeships and internships and builds even greater diversity in its workforce. Currently, the UK is some way off Germany and its cultural affinity to business – embedded through family run companies passed down through generations and where for many future leaders, the apprenticeship starts at a very early age, often from within the family.
But if UK mid-market companies take real steps to address the skills issue we could see the emergence of an Anglo-German Mittelstand. Close to half (49 per cent) of UK mid-market firms are intending to increase the number of apprenticeships they offer, and 42 per cent say they are going to offer more internships. In addition, 42 per cent of firms are planning to increase spend on the training and development of existing staff with 40 per cent planning to increase spending on recruitment. Investment in these areas is essential to ensure that businesses can effectively pass down the accumulated knowledge which they have built over decades to the next generation of business leaders. Apprenticeships are now proven to deliver skilled staff who understand the business inside and out and who have a higher commitment to the overall objectives and goals of the company. According to Skills Training UK, 80 per cent of companies who invest in apprenticeships report a significant increase in employee retention, while 77 per cent of employers believe apprenticeships make them more competitive.
The UK mid-market is truly proving itself to be the engine of the European economy as it looks set to enter a period of rapid growth, however with the looming threat of an emerging skill shortage this growth could be hampered. There is a real opportunity to invest in and develop talent, while building a future workplace that is far more diverse than the past. These steps will assist to ensure the sustainability of Britain’s long term economic future and with it, that of the mid-market. Whilst a true Anglo-German Mittelstand may be some way off, promising signals are certainly in the air.
By Ilaria del Beato, Chief Executive Officer of GE Capital UK