The Role of SMEs in the UK Economy: Financial, Growth, and Impact

This report delves into the crucial role of Small and Medium-sized Enterprises (SMEs) within the UK economy, exploring their financial and growth contributions, and the impact of political and economic factors on their development. The report defines SMEs, highlighting their significance in fostering innovation, creating jobs, and generating revenue. It examines the influence of globalization, regulations, and access to capital on SME performance. Furthermore, the report analyzes the contributions of SMEs in various regions of the UK, including Greater London and South West England, and across diverse industries such as tourism and construction. It also provides a comparative analysis of SMEs in the Czech Republic and Austria, highlighting their economic significance and challenges. The report concludes by emphasizing the vital role of SMEs in driving economic growth, innovation, and employment within the UK and beyond.

Entrepreneurship and small
business management

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 2............................................................................................................................................1
Concept of SME & their financial & growth contribution to the UK economy along with
political and economic factors that impact on the development of country................................1
Role of SMEs and their contribution to the national economy...................................................3
CONCLUSION................................................................................................................................4
References........................................................................................................................................6

INTRODUCTION
Small business management can be defined as a procedure which entrepreneur use while
running their business. This study is going to cover and show importance of small and medium
size organizations in developing UK economy. These businesses perform several functions
which have financial & growth contribution to the UK economy. It also helps the country by
having financial and growth contribution and by bringing up innovation. It will also describe
positive and negative impacts of political and economic on SMEs performance and growth level
and development of the country as well. Lastly it will show contribution of small and medium
size enterprises on national economy, two regions of UK and on two different industries
businesses such as retail and construction (Van Reenen, 2016).
TASK 2
Concept of SME & their financial & growth contribution to the UK economy along with political
and economic factors that impact on the development of country
Concept of SMEs
Small and medium size enterprises refers all those companies whose employees number
fall below certain and decided criteria. Criteria of small and medium size enterprises depends
upon the country as who is defining. Its all depends on the size of the company, number of
employees, annual sales etc. According to the UK government, Small business includes those
businesses who have less than 50 employees and turnover under £10 million. Medium size
enterprises are those who consists of less than 250 employees and turnover falls under £50
million. Micro businesses includes less than 10 employees & turnover has under £2 million
(Concept of SMEs, 2018).
Financial and growth contribution
In the context of financial and growth contribution SME play a significant role. Start up
and small businesses positively contribute to the growth of innovation. Uber and AirBnB are
main examples of digital innovation. By 2025 it is estimated SMEs to contribute £241bn to the
economy as it is an increment of 19% from the £202bn contributed in 2016 (Financial
contribution of SMEs in UK, 2018). SMEs are called a major source of entrepreneurial skills,
employment and innovation. On the other hand these companies and their processes get affected
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due to globalization. It helps the UK economy by opening of new markets, creating jobs to
people by bringing fresh and innovation. It is estimated 5.2 billion businesses of the UK are
99.9% are SMEs in the year of 2014. It is also accounted that 60% of all private sector jobs & 47
% of revenue is generated by small and medium size enterprises of the UK. It is also stated that
in the UK there are about 5.47m SMEs and all are accounted over 99% of private sector
organizations & 60 percent of total UK private sector employment.
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Illustration 1: SMEs contribution
Sources: (Financial contribution of SMEs in UK, 2018)

Economic and political factors
There are several economic and political factors that impacts on the development and
growth of SMEs with positively and negatively. It is stated that excessive regulation is the
biggest barrier for small and medium size companies. Regulations and laws related to tax, fiscal
policies, employment legislations and environmental policy. In the context of judicial system
there are mainly 2 types of major problems such as corruption and unfair competition that have
negative impacts on the performance of SMEs. It can decrease sales and profitability of the
business. SMEs is also facing the problem of rising in the raw materials that results of the falling
pound. The Bank of England is raising rates to the next highest level since the financial crisis.
In the positive context, national and local government is contributing and encouraging
SMEs like UK trade investment that help these businesses in expanding their businesses. Access
to capital is also the main factor that help the companies in development and growth. It is also
focusing on adopting long-term education strategy in order to develop & build generation of
entrepreneurs. Government provide start up loans & government backed business loans and
grants that make them able to develop economic conditions (Barron, Hultén and Vanyushyn,
2015).
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Illustration 2: Contribution to employment
Sources: (Impacts of economic factors on SMEs, 2013)

Economic and political factors have negative impacts also on the performance of small
and medium size companies like effective cash flow shortfalls that can lead to debt, unnecessary
liability & giving equity in the business. High Inflation rates and instability in politics can also
impact on the companies in a negative manner. For example, UK is famous for tourism industry
and changes in the currency can decrease attraction of tourists and visitors that can have direct
impacts on the overall UK economy.
Role of SMEs and their contribution to the national economy.
Small and medium size enterprises help and play several roles in developing national
economy by providing employment opportunities. It helps the government in increasing
manufacturing industry & infrastructure by adopting policies that reduces several environmental
issues such as pollution, poverty etc.
Impacts of SMEs for 2 UK regions
Greater London: In the context of London, it has around 805,085 SMEs that makes up
99.8 % private sectors businesses of all London private sectors. It also provides 49.8% of all
London employment that makes up 47.7% of businesses turnover (Fernandes, Belo and Castela,
2016).
South West England: In the context of South West England SMEs has generated £2.8bn
of turnover growth in the last 3 years. There are mainly 2 types & category of businesses such as
13,286 nationwide and 937 are based in the South West. These combined businesses has
contributed in providing employment by creating 13,443 new jobs over the last 3 years. It is also
stated that around 86 combined businesses are generating £130m revenue growth (Impacts of
SMEs for South West England, 2019).
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Impacts of SMEs for 2 different industries
Tourism industry: Tourism industry of UK play a vital role in developing economy as
most of the contribution is of this industry. This tourism industry of UK helps businesses in
attracting large numbers of tourists and visitors. It focuses on some elements such as spending
per guest, high season ability etc. By developing trends in tourist products and services SMEs
improve and develop economy (Baldock, 2016). On the other hand this industry has to face
several problems due to different cultures, traditions, position and income level of the family and
level of education. Micro businesses with between 7-9 of all companies in UK is leading and
growing tourism sector which includes travel agency and hotel trade. Several companies who
depend on tourism have and follow the structure of a small business that reflects the priority of
customers.
Construction industry: It is stated that construction industry of UK contribute 7% of
GDP and also help in improving economic condition of UK. There are around 5.5 billion total
SMEs in which approximately 240,000 are construction services providers (Impacts of SMEs for
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Illustration 3: Impacts of SMEs in European regions
Sources:(Impacts of SMEs for European regions, 2019)

Construction industry, 2017). SMEs are known for their unique way of doing and operating
business. SMEs help this industry by improving their skills in technical field in order to bring
innovation in this industry. On the other hand this industry is challenging as well. Brexit is also
creating several problems to this industry and create barriers in the growth and development. For
solving these types of barriers and developing economic conditions all these businesses it uses a
framework that provides these businesses a greater forward visibility of pipelines of work in
order to gain an opportunity of becoming an essential part of supply chain.
Impacts of SMEs for 2 EU countries.
Czech republic: Czech republic is a country in central Europe Small and medium size
enterprises play a vital role in Czech economy. It is accounted that Czech SMEs contribute to
economic growth by bringing up innovation. There are total 99.83% businesses are small and
medium size that has value share added share of 55% and employment rate given by these
businesses are 60%v in the year of 2013 (Impacts of SMEs for Czech republic, 2015). It has to
face several issues also as SMEs is the restricted access to external financing due to lack of
capability to provide guarantee. It also creates problems for them to acquire loans under less
favourable conditions.
Austria: Austria is a country in Central Europe that comprise 9 federated states. This
country has more than 99% of all Austrian businesses, and they also help in providing
employment opportunities approximately 67% (Impacts of SMEs for Austria, 2010). There are
mainly retail, construction and wholesalers industries are famous. All these industries of Austria
has to face several problems due to economic crisis. SMEs do not have the highest access to
financial markets because it requires of high transaction and information cost, and they have the
main source of finance is bank loan. Economic crisis do not only impacts and shattered
confidence in the banks but also impacts on whole financial markets.
CONCLUSION
From the above study it has been summarized that small and medium size enterprises
played an important role in developing UK economy. It helped the UK economy by bringing
innovation and creativity of doing things and by providing employment to people. It has also
shown about some political and economic factors that have impacted on the performance and
growth level of small and medium size companies. Further it has also shown contribution of
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small and medium size organizations to the national economy, in 2 UK regions and 2 European
countries and 2 different sector industries.
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References
Books and Journals
Baldock, R., 2016. An assessment of the business impacts of the UK’s Enterprise Capital Funds.
Environment and Planning C: Government and Policy. 34(8). pp.1556-1581.
Barron, A., Hultén, P. and Vanyushyn, V., 2015. Country-of-origin effects on managers'
environmental scanning behaviours: evidence from the political crisis in the Eurozone.
Environment and Planning C: Government and Policy. 33(3). pp.601-619.
Fernandes, S., Belo, A. and Castela, G., 2016. Social network enterprise behaviors and patterns
in SMEs: Lessons from a Portuguese local community centered around the tourism
industry. Technology in Society. 44. pp.15-22.
Van Reenen, J., 2016. Brexit’s long-run effects on the UK economy. Brookings papers on
economic activity. pp.367-383.
Online
Concept of SMEs. 2018. [Online]. Available through:
<https://www.thecompanywarehouse.co.uk/blog/what-is-an-sme>
Financial contribution of SMEs in UK. 2018 [Online]. Available through:
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Impacts of economic factors on SMEs. 2013. [Online]. Available through:
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Impacts of SMEs for South West England. 2019. [Online]. Available through:
<https://www.businessleader.co.uk/sme-companies-in-south-west-see-2-8bn-turnover-
growth-in-last-three-years/63025/>
Impacts of SMEs for Construction industry. 2017. [Online]. Available through:
<https://www.scapegroup.co.uk/news/2017/smes-the-key-to-the-construction-sectors-
future>
Impacts of SMEs for Czech republic. 2015. [Online]. Available through:
<https://www.cjournal.cz/files/211.pdf>
Impacts of SMEs for Austria. 2010. [Online]. Available through:
<https://www.wifo.ac.at/jart/prj3/wifo/resources/person_dokument/person_dokument.ja
rt?publikationsid=39083&mime_type=application/pdf>
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Impacts of SMEs for European regions. 2019. [Online]. Available through:
<https://www.telegraph.co.uk/business/challenges/sme-key-challenges-2019/>
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