New GE Capital Research Highlights Economic Impact of the UK Mid-Market

LONDON--(BUSINESS WIRE)--The most comprehensive research to-date dedicated to defining and understanding mid-market companies is published today. Top-line findings from a new study “Leading from the Middle, the untold story of British Business” show mid-market firms represent just 1.37% of total UK companies, but contribute 32% of private sector GDP and more than one in three UK jobs.

“I recently visited Germany and was very impressed by the strength of their Mittelstand companies. I’m keen that we replicate their success and help our own mid-sized firms realise their potential.”

In addition, it was found that whilst large companies in the UK cut almost 700,000 jobs during the credit crunch, UK mid-market firms actually increased headcount by over 25,000.

The UK mid-market is found to be the second largest in Europe after Germany, with the EU-4 mid-market segment (Italy, Germany, the UK and France) combined equivalent to the 10^th largest global economy in GDP terms. The mid-market is a group of companies that are too large to be SMEs but smaller than those listed big businesses which much of the business news debate focuses around.

The full findings are to be discussed at the inaugural ‘Leading from the Middle’ national summit in London today.

Business Secretary Vince Cable, keynote speaker at the summit, said: "GE Capital's report is helpful in raising awareness about the capabilities among our mid-sized businesses and the impact they have on the economy.

"I recently visited Germany and was very impressed by the strength of their Mittelstand companies. I’m keen that we replicate their success and help our own mid-sized firms realise their potential.

"We have launched a mid-sized businesses campaign to provide practical support. We are also complementing this with other assistance such as the advanced manufacturing supply chain fund and helping firms to access non-bank finance.”

The research shows mid-market firms are significantly more resilient than small and large firms in terms of job creation and retention. Through the crisis years of 2007-10, mid-market firms were net creators of jobs across the EU-4, growing by over 190,000, whilst larger firms reduced jobs by almost 1.5 million. UK mid-market firms grew jobs by 26,000, whilst larger firms shed 692,000 jobs. German mid-market firms added over three times as many jobs as the UK however, whilst larger firms in Germany shed far fewer employees (120,200.)

Indeed, the research finds that German mid-market firms are the best performing segment across the EU-4 and across many indicators they even outperform large German firms. Thus, they are uniquely positioned to grow and in many ways offer a blueprint for the UK mid-market. For example, the research finds that if the UK mid-market had kept up with the performance of the German mid-market in growth terms from 2009 to today, this would have equated to an extra €46bn of sales for UK firms and 241,000 UK jobs.

Rich Laxer, CEO of GE Capital EMEA, said: “The mid-market is a real driver of UK economic growth and this research casts a spotlight on this powerful, highly targeted group of companies with strong growth potential, even in these challenging economic conditions. If they can overcome the challenges outlined in the study, there’s a major opportunity to replicate the success of the German Mittelstand.”

Additional key findings from the UK research show:

UK mid-market is defined as having €20m-€1b revenues and 150-3,000 employees
Only 15% of UK mid-market firms’ costs are outsourced – the lowest in the EU-4
69% of UK mid-market suppliers are either local or domestic – the highest in the EU-4
65% said they are able to access an affordable workforce, more than all other EU-4 MM firms combined
68% said they are able to effectively navigate and comply with regulation – the highest in the EU4 and more than UK large (56.3%) and small companies (61.8%)
55% agree they are able to access funding at an affordable cost of capital, more than all other EU4 combined
UK MMFs own 250k patents – more than large and small UK firms combined
26% of UK mid-market firms are focusing either on survival or maintaining company size – the highest in the EU (vs 14% in Germany)

A major concern outlined by the report is the inability of UK mid-market firms to increase revenues from new markets. Whilst this group has posted strong domestic growth – second only to the German mid-market segment – the UK mid-market lags behind German, Italian and French counterparts in increasing revenues to all markets other than North America.

In total, only 17% of UK mid-market revenues come from outside of the EU, the lowest across the EU4 by a significant margin, and almost half of that for Italian mid-market firms (30%). Additionally, 36% of these companies operate on a national basis – versus 22% of Germany companies. As a result, German firms are seeing a higher growth trajectory than those in the UK.

Professor Roper, Professor of Enterprise at Warwick Business School, and co-author of the UK report, said: “It’s encouraging to see more than two thirds of suppliers to UK mid-market firms are domestic or local, as it’s important to retain the value added this brings to the economy. However, we also need to encourage many of these firms to develop their global footprint to enable them to make the transition into the next phase of their growth.”

The inability to maximise potential growth opportunities from the fast-growing BRIC nations is also apparent in the research – only 15% of UK mid-market firms have grown revenues from China in the last five years, versus 25% and 23% in Germany and Italy respectively.

The research, carried out on a pan-European basis with four leading universities and backed by GE Capital, is based on a combination of multi-year business demography data spanning millions of individual firms across the four countries of France, Germany, Italy and the UK, combined with 1,600 in depth interviews with European business leaders.

~ENDS~

Notes to editors:

About UK mid-market government policy

Government aims to make the UK the best place in Europe to start, finance and grow a business. Last year it took a comprehensive look at the mid-size business sector and made a number of commitments to improve finance, capability and exports. For details see: www.bis.gov.uk/midsizereview

For supporting data: http://www.bis.gov.uk/analysis/statistics/mid-sized-businesses

About the authors

This report was co-authored by Professor Ashwin Malshe of ESSEC in partnership with Professor Stephen Roper of Warwick Business School.

Professor Ashwin Malshe, ESSEC Business School

Ashwin Malshe joined ESSEC Business School in 2011. He holds a PhD in marketing with special focus on finance and econometrics from SUNY-Binghamton, USA. His research is primarily concerned about understanding and measuring the impact of marketing strategy on financial market outcomes. Ashwin’s other research interests include business-to-business relationships, trade credit financing, and consumer behaviour.

Stephen Roper, Professor of Enterprise, Warwick Business School

Stephen Roper joined WBS in the Enterprise and Innovation Group and Centre for SMEs in January 2008. Prior to joining WBS, Stephen was Professor of Business Innovation at Aston Business School and before that he was Assistant Director of the Northern Ireland Economic Research Centre. Stephen holds a BA Hons in Economics from the University of Durham, an MPil in Economics from Oxford University and a PhD in Economics from LSE.

About the research: The research was conducted in three phases.

Phase One: We created distinct national ‘mid-market’ definitions through utilising existing business data from Bureau Van Dyke, Amadeus and Dun & Bradstreet on millions of individual firms across Italy, France, the UK and Germany. We mapped each European market through compiling data based on multiple factors, including number of companies, employment data & turnover. We then used inflection point analysis in each national market to pinpoint the segment of the economy that could be described as mid-market. Inflection points in each market emerged at comparable (but not identical) points as we move rightward on the firm size continuum.

Phase Two: We augmented the phase one research by conducting primary, attitudinal research among more than 1,600 CEOs/CFOs of European firms (roughly 400 per market) across four markets on key areas such as appetite to do business globally, growth performance and plans, innovation, talent retention and skills market, access to capital and challenges to growth.

Phase Three: We analysed and synthesized all the information gathered from the two earlier phases. Leading academics in each market reviewed the results of the statistical analysis, including binomial logistic regression, to identify the key behaviours and characteristics that define ‘Growth Champions’ — firms that achieved exceptional growth in the recent past and that are expected to continue on that growth trajectory.

About GE Capital in the UK

GE Capital is one of the leading commercial finance providers in the UK with major operations in asset-based lending, fleet, leasing and healthcare financial services. GE Capital has major offices in Bristol, Manchester, Sale and the London area and focuses on providing leasing and lending solutions, from working capital and investment finance through to fleet management and equipment leasing to mid-market customers. For more information, please visit www.gecapital.co.uk

About GE Capital

GE Capital offers consumers and businesses around the globe an array of financial products and services. For more information, visit www.gecapital.co.uk or follow company news via Twitter (@GECapital).

About GE

GE (NYSE:GE) works on things that matter. The best people and the best technologies taking on the toughest challenges. Finding solutions in energy, health and home, transportation and finance. For more information, visit ge.com