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They’re “the forgotten army of the British economy”, says the CBI’s Director-General, JOHN CRIDLAND. Yet the irony is that the ranks of the UK’s mid-sized companies are actually crowded with highly innovative businesses “that have the potential to inject between £20bn and £50bn into the economy by 2020”.
Unlocking the potential of these £10m-£100m turnover companies is the aim of the Future Champions analysis produced by the CBI with consultants McKinsey & Co. These battalions may represent less than 1% of UK businesses, it finds, but already generate more than a fifth of the country’s economic revenue and 16% of all jobs.
In fact though, says Cridland, the key challenge here isn’t innovation as such. It’s leveraging the innovative drive that already exists to generate greater growth. “The evidence shows that these companies are actually very innovative – a higher proportion than is true of either small or large companies.
“But what stands out is that, compared particularly to larger corporations, our mid-sized players are significantly less collaborative in their innovation. And they’re forfeiting serious business opportunities, as a result.”
He cites pharmaceuticals as one sector where rapidly changing patterns of innovation are now opening exciting collaborative opportunities. “For as long as I can remember, pharmaceutical firms have conducted their R&D in large bricks-and-mortar innovation centres. Now, rising costs are driving life sciences leaders to seek a far more collaborative external R&D supply chain. We’ve got to find mechanisms for making that collaboration work.
“Mid-sized companies need more incubating and nurturing to establish sophisticated growth strategies. We’re trying to pull together a ‘coalition of the willing’, people in key disciplines to work with them. Abroad, that means hand-holding into difficult export markets. At home, it means what I’d call ‘patient capital’ to fund long term strategies.”
He admires Germany’s Fraunhofer Institutes for their success in encouraging innovation and exports among high-value “Mittelstand” manufacturers, but counsels against inventing “a whole new set of institutions”. He’d prefer our own Technology Innovation Centres to gain momentum by learning from the German experience.
The pivotal arena in his mind, though, is funding. “Right now, that’s where so many of our mid-sized companies fall between the cracks. They’re more dependent on bank finance than either small or large companies. And quite ironically, they have fewer non-bank funding alternatives than small companies.
“The bond markets don’t reach them as they often do in other jurisdictions like the US. And parts of the mid-sized growth sector are not fully served by the excellence of British venture capital or private equity. You’ve got to fight very hard to get airtime for these companies.
“Many mid-sized businesses find they can only grow at that 10-year point through trade sales and mergers, just when the investment sums are getting quite considerable. “But, for our mid-sized firms,” Cridland concludes, “the key to innovation is collaboration. If we get this right, and if we can open up their funding options as well, this previously forgotten part of the business community could create new job opportunities across all regions of the country.
“Our vision is of a mid-sized sector that is internationally competitive, strong at exporting, innovative and growing. In other words, an indispensable part of the economy.”
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Longview Summer 2012, 20/07/2012