The Contribution of Small Business Enterprises in the UK Economy

Abstract

It is believed that the whole economy of the United Kingdom is to a larger extent supported by these small and medium sized enterprises as they form majority of businesses. There is substantial evidence that the United Kingdom’s economy is largely supported by small and medium sized enterprises’ performance which implies that improving the small and medium sized enterprises performance will have a substantially positive effect on entire United Kingdom’s economy and that of its citizens. Therefore the small businesses need to be appreciated and supported by the government, stake holders and private investors or/and organizations. The UK’s government has been called upon to work closely with this sector and with other independent business practitioners who work and struggle to deliver business support to Small and medium sized enterprises.

The purpose of this essay therefore, is to highlight the contributions of the Small and medium sized enterprises/businesses in the United Kingdom’s economy.

The contribution of Small Businesses to the UK Economy

The Small and medium sized enterprises (SMEs) are the main foundation of the United Kingdom’s economy by generating more value and making a significant and critical contributions to the economy, its performance and productivity.

The Small and medium sized enterprises are the main backbone of Britain’s economy. It is said that Napoleon once remarked that the British is ‘a nation of shopkeepers’. This is said to be right because Britain is a nation of small and medium sized enterprises. Perhaps the most dominant characteristic of small businesses in the United Kingdom is the numerical dominance of businesses thereby absorbing more employees. It accounts for over 4 million extra jobs that are created by new small businesses that start in the United Kingdom.

The department for Business in United Kingdom, Enterprise & Regulatory Reform’s Enterprise Directorate Analytical Unit, in 2007, the United Kingdom’s economy about is 99% Small and medium sized enterprises so that out of a total of 4.8m United Kingdom’s businesses, less than 1% were large corporations by the year 2007. United Kingdom’s Small and medium sized enterprises employing one person or more, employed 14.23m people out of a working population of approximately 30 million by the same year.

Julian Rowe in 2007, states that the United Kingdom’s turnover and Gross Domestic Product (GDP) United Kingdom’s Small and medium sized enterprises account for 1.48trillion sterling Pounds. However, large United Kingdom’s Corporations dominate the skyline, its news and its economy. By the same year, 2007, Business news daily was full of stories about British Petroleum, Barclays, British Gas, and the United Kingdom’s Government. There was and still is a very strong political focus on the United Kingdom’s Public sector which is responsible for up to 1/3rd of United Kingdom’s economy.

As a result, the United Kingdom’s Small and medium sized enterprises sector is overlooked and considered fragmented and quite often ignored yet it is precisely this sector that provides the vital and fertile environment from where the following day’s large corporations will finally emerge.

Among Small and medium sized enterprises, it is often believed that a thin straight narrow incision of the sector is the one that outperforms all the other sectors of the economy including the large United Kingdom’s corporations. In reference to BERR statistics for 2007, this sector, Small and medium sized enterprises, employs about 4.4% yet it contributes about 5.6% of total United Kingdom’s GDP showing a great and impressive productivity. It is believed that majority of the school leavers who can’t find white collar jobs will either enter in small businesses as proprietors or as employees. Many of the immigrants to the United Kingdom especially from Africa are employed in the small businesses like the Hotels, Restaurants, manufacturing farms, among other sections entered into by small business people.

However, it is an irony that some business owners try to project and expand an idea that they could be bigger than they really are thereby trying to deny that they are small businesses or ventures. In as much as many people might say that bigger is not any better, other people’s attitudes and actions always determine as to whether we really are as we believe or not. This explains why most immigrants to the United Kingdom deny to their people beck in their countries that they are working in small businesses or ventures. Even then, they contribute a great deal in the development of the countries both the United Kingdom and their countries of origin as they send money back home as support or as investment.

However this is also true for the ALL Small and medium sized enterprise sectors with the preceding Small and medium sized enterprises.

Better still, there are small and medium sized enterprises from 20-49 employees who have employed a greater workforce of about 6.3% and therefore a greater benefit to the United Kingdom’s economy and still manage to produce an impressive 8% of UK GDP. In fact ALL Small and medium sized enterprises outperform the large United Kingdom’s Corporations in terms of productivity despite having very minimal resources

In as much as this essay solely outlines the strengths of Small and medium sized enterprises, it does not undervalue the role of large United Kingdom’s corporations but attempts to highlight the magnificent contribution of the small and medium sized enterprises to the United Kingdom’s economy without much resources of a large corporation.

There are a number of contributions and advantages of small enterprises in any economy. In light of the United Kingdom’s economy, the small businesses have among others, the following advantages.

First, small businesses are usually better and have a lot of substance and content. This content is about the products that are preferred by the customers and those that sale more. Also the business owners respond to their customers and provide more personalized services. This is because the business people are always in contact with their customers hence providing individual attention to each one of them. The customers require tender care and treatment because they are the assets of any business that has any intentions of expanding or sustaining themselves in the market. Also these small and medium sized enterprises can easily specialize and prosper in a smaller market niches which would be impractical for a bigger company. This mainly because these business people can easily stick to a single product thus specialising in it or some products thereby ensuring that their customers are able to get what they like or rather ensure that products that are availed into a given market are those that meet each and every customer.

In addition, with small businesses, efficiency is not optional to achieve. To waste resources can very easily ruin a small business. Therefore efficiency is very necessary and by being efficient, small businesses will quite often tend to be more productive. Efficiency can range from ensuring that the business incurs less expenses as opposed to its revenue or ensuring that some processes that can be done at the same time are carried out simultaneously thereby saving time and money that go into catering for them. it Individualized attention will always lead the business people to understand the best procedures to their customers thereby doing away with wastages hence ensuring more efficiency.

The advantages are very many in the sense that they provide larger employment opportunities to the people in the United Kingdom as compared to other sector of the economy. It is argued that majority of the employees accounting to about 70% in the United Kingdom are employees in small businesses while some of them are self employed in their small and medium sized businesses. By the year 2005, over 19 million persons were employed by small and medium sized businesses which represented about 59% of the employed workforce. Out of these, slightly over 80% of the employees are employed in firms with less than 50 people, and about 23% are mainly sole traders. In terms of small and medium sized enterprise numbers, about 1% of them employ more than 50 people at a go, and sole traders make contributes up to 64% of the total small and medium sized employments.

It has been said that the small businesses together with the medium sized companies contributes an impressive 8% to the United Kingdom’s total GDP (Steve Chittenden, 2008). This mainly because it is this sector that has or rather enjoys majority of currency circulation within the economy. In addition, indirectly, by providing employment opportunities to the people in the United Kingdom by the small businesses, more development is ensured and wide spread. This is because it is assumed that many people are naturally inclined towards saving and investing in other sectors of the economy. Therefore, as they earn their salaries, a larger proportion of the employees will invest part of their earnings in other sectors or in small businesses thereby ensuring that the money is evenly distributed in the whole economy.

On the other hand, the United Kingdom’s government will get more tax in form of Pay As You Earn and from other indirect and direct taxes. For instance, the government earns revenue from taxing products in form of Value Added tax and other taxes that are always included in many consumer products.

According to Steve Chittenden (2008), small businesses also do implement methods that increase their efficiency and productivity in general. He argues that advances in areas such as small and efficient manufacturing, modular tooling and work cells, communication, automation, and information technology help them to level the playing field for many small businesses. Collaboration can be accomplished more with video conferencing and the Interne at a low cost.

They are also more intensive in the economy and more innovative. This is mainly because many business people will want to differentiate their products or service delivery to its customers which triggers the innovativeness. However, the small businesses in relatively remote areas are less innovative but they form the minority as compared to the innovative ones.

However, with all the aforesaid advantages of small businesses, In spite of all the challenges and the opportunities for small business, they have never been any better. There are a number of challenges to the businesses. For instance, the largest proportion of business people (16.2 per cent) cites competition as the greatest obstacle to the success of the business. This competition originated from other bigger companies that are well established and operates on large scale production thereby ensuring that they reap back larger economies of scale in their operations. Another source of competition is other small businesses that are desperate to sale at a lower price as long as they don’t sale at a loss. This is as a result of many small businesses that may stretch the market. This is followed by government regulations which are cited as 14.5% of businesses. Other challenge that follows is the economy and the economic associated breakdowns which are cited as accounting to up to 12%. Around 10% of the business people, views cash flow as the greatest obstacle while a similar proportion cites taxation as an added challenge which needs to be addressed. Another group of business people that represents a small proportion sees staff recruitment as the greatest obstacle accounting to about 6.4% of the problems facing small business people followed about 4.1 per cent saying that availability or cost of premises is a problem. A small section cites transport issues while others cites shortage of managerial expertise and lack of broadband access (John & Jennifer, 2003)

In conclusion, there is substantial evidence that the United Kingdom’s economy is supported by small and medium sized enterprises performance and that improving their performance will have more substantially a positive effect on entire United Kingdom’s economy. Chittenden (2003) calls on the United Kingdom Government to work closely with the small and medium sized enterprises and most importantly with independent business advisors allied to small businesses and practitioners who work at the tirelessly in their daily struggle to deliver critical business support to small and medium sized enterprises.

To small and medium sized enterprise owners and senior business managers, the advice is that, in order to improve the performance in the ever changing and challenging marketplace one need people close to him/her, inspiring him/her, guiding him/her, empowering him/her, and supporting him/her to build a more consistent, reliable, stable and viable days to come. This people that are needed includes the government and all its agencies to recognize and identify the small and medium sized enterprises’ enormous contribution to the economy of the country in general and to individuals themselves are reward them accordingly or give them the best attention that it deserves.

Matt Thomas, editor of Startups.co.uk quoted on Crimson Business Ltd, 23/08/07, the prospering start-ups that sole traders and many small business owners have at their disposal or give to the society and the economy in general are providing a much-needed shot and help in the arm for the United Kingdom’s economy and most importantly, they are proving that starting one’s own business is becoming a viable career and option for school leavers, single mothers, city bankers, immigrants and retired couples in the United Kingdom’s economy.

References

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Cadens, A. (2009). How to Make Serious Money With a Really Small Business. Retrieved on July 28, 2009,

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