Small and Medium Enterprises (SMEs) in the UK Economy: A Report

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Executive summary
There is a definite economic importance of small and medium enterprise (SME) as more than
90% of SME”s accounts in the United Kingdom under the main industrial sector. The present
study presents an overview of the impact of small businesses in the market economy of the
United Kingdom. It reports the impact and influence of small business and attempts to provide
necessary and helpful suggestions to the clients in the business.
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Table of Contents
Introduction......................................................................................................................................3
a. Define the concept of an SME.................................................................................................3
Evaluate the growth and financial contribution of micro, small and medium private organizations
to the UK Economy.........................................................................................................................4
b. Examine the role of SMEs and analyze how they contribute to the national economy analysis 8
A) Compare the impact of SMEs for two UK regions....................................................................8
B) Compare the impact of SMEs for the UK utilizing two different industries..............................9
C) Compare the impact of SMEs for two EU countries................................................................10
Conclusion.....................................................................................................................................10
References......................................................................................................................................11
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Introduction
The study portrays the concept and meaning of small and medium enterprise along with its
growth and financial contribution to the UK’s economy. The role and importance of SME is
projected. On the part of a small business consultant in a start-up business, the study analyses the
impact of small and medium enterprises in the United Kingdom’s economy. The study also
evaluates the collision of SME for specified two different regions of the UK, two different
countries in the United Kingdom and also including two different kinds of industries namely the
retail and construction industry.
a. Define the concept of an SME
In the context of United Kingdom’s growing business, small and medium enterprises accounts
for the sector in the market industry which has employees less than 250 in numbers. The
statistics of recent years states that small and medium enterprise counts for more than 5.3 million
businesses in the entire region of UK. These sectors are non-subsidiary and independent firms.
The UK’s Company Act 2006 defines all those sectors as SMEs which has 50 to 250 numbers of
employees, 50 for small and 250 for medium scale firms and the turnover of profit for this sector
should not account for more than 3.36 million Euros.
The employment engines of the UK’s economy are the SME sector (Malesios et al., 2018). It
provides employment to almost 30 to 45% of the population which makes it a vital component in
the growth and development prospects of the nation’s economy.
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Evaluate the growth and financial contribution of micro, small and medium private
organizations to the UK Economy.
The micro, medium and small sectors in the United Kingdom are an important component of the
market economy and contributes a good amount to the nation’s gross domestic product (Storey,
2016). Reports reveal that there has been tremendous growth taking place in the UK from these
sectors. In 2015, there were 5.43 small, medium and private sector business which reported for
5.6 million in 2016. Loans, grants and other financial aid have helped grow these businesses in
contributing positively to the economy of the country.
In recent years, United Kingdom has come up with loans backed up by the government, start up
loans and various other sources of external funding which has helped more than 50% of UK”s
small, medium and private organization to take the benefits and foster its growth and
development in required sector. The figure below represents the growth of micro, small and
medium organizations with respect to the business, employment and turn-over of profit in the
recent three years. The pictorial representation shows how the growth in business results as high
as 96% for the micro sector enterprise, 4% for small sized enterprise and 1% for medium scale
firms. The growth prospects in the field of employment generation for the population of the
respective micro, small and medium enterprise accounts for 33%, 15% and 13% respectively.
And the profit turnover of the micro, small and medium sector counts for 21%, 15% and 15%.
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Figure 1: Growth of SME’s in the United Kingdom
Source: (Freel and Robson, 2017).
As of 2018, there are more than 5.6 million SME’s in the United Kingdom. The sector being so
large contributes a great amount in finances of the nation. The SME businesses eventually also
contribute to the growth and creation of innovation (Ayandibu and Houghton, 2017). Statistics
reveal that in more than 10 cities of United Kingdom, there has been a substantial increase in the
revenue it has generated since 2016. The financial contribution of SME sectors in UK is also
looked at from another way where it has generated enough employment for the population of the
economy which gradually resulted in the creation of wealth along with uplifting the general
economic conditions of the country with an overall increase in the quality and standard of living.
This accounts for political and economic contributions that the SME sector provides to the
economy of UK. The graph below represents the financial contributions of SME set up in 10
different cities in the UK for the year 2016.
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Figure 2: Financial contribution of SME’s in the United Kingdom
Source: (Ghaffarianhoseini et al., 2016).
Role of small firms and their contribution to the economy at local, regional, national and
international levels
The role of small firms in the business segment of United Kingdom is very important as it
provides economic and social stability to the nation at the same time. Their role is significant in
the field of creation and offering of different kinds of jobs to the entire population which
generates the disposable income on which other firms depend on.
The contribution of small firms at the local level caters to the need of the local community it is
operating and absorbs the local workers in and around its area generating wealth and welfare at
the same time. In the regional level, it improves the quality of living of the region and boosts the
overall growth of the region. In the national level, such small firm adds to bring about the
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production and employment generation along with its contribution to export of goods which are
very critical. In the international level, these firms drive the entire nation to move towards trade
internationally 2which helps the economy to grow and develop in global terms.
The importance of small businesses and business start-ups to the growth of the UK
economy
Small business and start up that has started taking place in the United Kingdom’s economy
reflects the backbone and strength of the nation. This is because ny the passage of time, the
number of population in UK demanding jobs is increasing and with the increase in work
population, the small business and start ups are playing a vital role in providing employment and
generating revenue out of it. These sectors are boosting the natural growth of the economy and
driving to create new market areas. UK’s such small business almost accounts for 99.3% of all
the private sectors put together. These new markets that have emerged employ the local workers
and bring in innovation in these communities which aids to restore the economic growth. The
startup provides the economy with unique and flexible offers and exceptional services at the
same time. For all these reasons, the government of UK has come up with plans that support
such businesses and help grow further.
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b. Examine the role of SMEs and analyze how they contribute to the national economy
analysis
A) Compare the impact of SMEs for two UK regions
The table given below draws information on the impact and differences in SMEs for two
different regions in the United Kingdom:
Aspects East Midlands West Midlands
Number of
Enterprise
There are 368 enterprises in this region
of the United Kingdom (Harrison and
Baldock, 2015).
There are a total of 448
enterprises in this region.
Number of
SMEs
The total number of SMEs stands for
367 in East Midland.
There are 448 SMEs in West
Midland of UK.
Number of
Employers
There are a total number of 93
employers in this region.
114 employers are situated in
this region.
Percentage
change on year
1% fall in the number of businesses has
been accounted for East Midland.
0% fall has been encountered in
the region of West Midland.
Per 10,000
resident adults
Out of every 10,000 residents situated in
the region of East Midland, there
are 951 businesses.
There are 1134 businesses out
of 10,000 residents living in the
region
Table 1: Comparison of the impact of SME for two different regions in UK
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B) Compare the impact of SMEs for the UK utilizing two different industries
Aspects Retail Construction
Number of
Businesses
The total number of businesses that
accounts for retail sector is 556 which
cover almost 10% of the entire
business
Construction accounts for 992 total
number of business, which holds
for 17% of it.
Employment Retail generates almost 19%
employment in the region of the
United Kingdom
Construction generates 8% of the
total employment in the United
Kingdom (Love and Roper, 2015).
Turnover of
profit
The turnover of the retail sector
accounts for 34% of the revenue.
The revenue generation is 8%.
Table 2: Comparison of the impact of SME utilizing two different industries in UK
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C) Compare the impact of SMEs for two EU countries
The two EU countries that have been considered to evaluate the impact of SMEs are namely
United Kingdom and France.
Contribution of SME to employment and value added in the United Kingdom stands for 53.5%
and 51.8% and for France it accounts for 63.2% and 54.5%.
In the United Kingdom, 17.5% are the micro enterprise, 19.75 are small and 16.3 are the medium
enterprises (Brouthers et al., 2015).
In France, there are 31.9% micro scale firms, 17.6 is the total number of small scale firms and
13.7% are the medium scale firms (Galbraith et al., 2017).
Conclusion
From the above study, it can be concluded that the United Kingdom is home to more than 50 %
of small and medium sector business which accounts for contributing largely in its finance and
growth sector. They hold an important place in the market economy of the UK. The study
presents the impact of SME in two different regions of the UK and two other countries of
European Union which helps the learner to draw the conclusion that there are differences of
SMEs in context to different areas of operation. The study also helps to understand the retail and
construction sector of the SME and the difference between them. The overall study aids in
providing a deep knowledge on the concept and meaning of small and medium enterprises based
out of United Kingdom.
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