SME Growth and Financial Contribution to the UK Economy

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What makes an entrepreneur?
Task 2 - Report

Executive Summary
Generally, people choose to work in an organization and the security of the job makes them
satisfied along with solving financial demands. But here are people who think in a different way
and make a new way for making their own business. This is not an easy task, as it needs
dedication, a different pattern of thinking and timely move with the market demand. These gives
freedom from working on some other’s command and generate a self created profit and start own
organization, which gives employment scope to many other people.
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Table of Contents
Introduction......................................................................................................................................3
a. Concept of an SME......................................................................................................................3
Evaluation of the growth and financial contribution of micro, small and medium private
organisations to the UK Economy based on the last 5 years...........................................................4
b. Examine the role of SME’s and analyse how they contribute to the national economy. Your
analysis must contrast the following:..............................................................................................5
A) Compare the impact of SME’s for two UK regions...............................................................5
B) Compare the impact of SME’s for the UK utilising two different industries (for example,
retail and construction).................................................................................................................5
C) Compare the impact of SME’s for two EU countries.............................................................6
Conclusion.......................................................................................................................................6
References........................................................................................................................................7
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Introduction
In the practice of entrepreneurship, a person starts his own business by taking risks and follows
his own idea. The type of business varies greatly based on the possible opportunities, the desire
of the person, the personal or educational background etc. There are certain important
characteristics that helps a person the necessary qualities of an entrepreneur such as visionary
qualities, patience and strive for excellence. The unique idea of a business gives the assurance of
success which needs good marketing strategy also. But before all, the condition of the country,
its economics and other circumstantial facilities are also important. In this report, these essential
conditions which are related with the SME sector of UK have been discussed along with their
background, competitive condition among industries, area and position in the EU.
a. Concept of an SME
As the other countries of the world, in Europe also, there are many people associated with small
and medium scale enterprises which are commonly called as SME. To be a SME there are
certain criteria to follow. The number of employees ranges from 1- 250 and the annual turnover
is within €50 million (Oladipupo and Obazee, 2016). The SME is mainly divided into three
categories, which are micro, small and medium. This categorization is done based on the number
of employees, annual turnover and their respective balance sheet. The micro scale
entrepreneurship has less than 10 employees with an annual turnover of less than € 2 m. The
small scale industry has less than 50 employees and an annual turnover less than € 10 m. The last
medium size SME has less than 250 employees and an annual turnover less than € 50 m.
recently; a rapid growth has been seen in SME sector.
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Evaluation of the growth and financial contribution of micro, small and medium private
organisations to the UK Economy based on the last 5 years
The latest available report on the SMEs in UK is of 2018. As per the report, there are
approximately 5.6 million SME, which when compared with the report of the previous year
(2017), showed a 0.5% decrease in private sector business but an increase of 2% in employee
number (Brunswicker and Vanhaverbeke, 2015). This also indicated that the number of SMEs
has been decreased by 1%, which is making pave for the increment of large organizations by 2%.
When considering only SMEs, the maximum are small or medium sized businesses and the
statistics show that approximately 99.3% are these types. SMEs have given 16.3 million
employments to the UK people along with an annual turnover of £2.0 trillion in UK economy,
which signifies the importance of this industry. Though this sector was growing consistently, but
recently a decline has been seen between 2017 and 2018 and the number of falling or shut down
business is approximately 27000 (Kenourgios et al., 2019). In last 5 years the number of non
employing business has been decreased but number of employing business increased. The
number of companies has been 31000 showing a growth of 2%, whereas sole proprietorship and
normal partnership business faced a decline of 1% and 2% (Pop, 2018). Not only these, but there
are many political and economic factors that play a significant part in this regard, these are:
Political: The political condition of UK is controlled by parliamentary action, which is also
having a strong influence of the traditional monarchy system. UK follows a traditional way of
fair practices which helps the business to grow. Stable government gives extra assurance for the
SMEs to develop. The UK government is split into small local and national structure for
administrative purposes (Cowling et al., 2015). The government is proactive and helps the SMEs
for any immediate actions needed to be taken. A non-biased structure of operation and rigid
constitution ensures justice practice for smooth business operations. Recently the exit of the UK
from European Union and some cases of corruption has been created a temporary turbulence but
the industry is looking forward to overcome them.
Economic: UK has always enjoyed being a strong economic power than the rest of European
countries. World basis, UK has the 5th highest GDP and second in Europe. The population of UK
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gives the assurance of a great market, as the economic condition is also stable and expandable
income range is high for the commoners. UK has the facility of diverse economic sectors
including private and public sectors (Lai et al., 2015). Foreign investments are also evident in the
open market of UK. The only existing problems are recent recession, from which the country is
recovering and increased expenses on immigration issue.
b. Examine the role of SME’s and analyse how they contribute to the national economy.
Your analysis must contrast the following:
A) Compare the impact of SME’s for two UK regions
As the administrative structure of the UK is divided into small sectors, so the number of business
per h4ead differs as per the area. According to the business report of 2018, there are 1059
business for every 10000 residents. In London, there are 1563 business per 10000 people, which
varies to 927 in North West (Hussain et al., 2018). In North East, there are 545 enterprises,
which are directed by only 140 entrepreneurs making 3% change annually. Among them 544 are
SMEs. In London, the 1095 SMEs are being directed by 239 entrepreneurs making 3% change
annually.
B) Compare the impact of SME’s for the UK utilising two different industries (for example,
retail and construction)
According to the 2018 report, there are 4.2 billion businesses in the service industry of UK.
Retail sector is involved in 10% of these businesses and holds eh third position. This sector has
given 34% annual turnover and 19% employment spread in 556 retail houses. On the other hand,
construction business is confined within 992 companies and holds 17% of the total business map
(Brown et al., 2019) This sector has generated only 8% employment and 8% annual turnover
indicating self employed work practice in this sector.
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C) Compare the impact of SME’s for two EU countries
There are a total of 27 European countries in European Union and UK and Austria are the major
potential countries of these. Austria has shown 68.7% employment in SMEs and the UK has
shown 53.5% employment in this sector. Austria has added 62% value and UK added 51.8%
value. In the UK, there are total 17.5% micro, 16% small and 16.8% medium business which
gather around 19.0%, 8.4% and 7.8% economic value. For Austria there are total 25.6% micro,
24.1% small and 19.1% medium business which gather around 18.7%, 20.6% and 22.6%
economic value. The share of unpaid employment in total employment in the non-financial
business sector is 2.6% for UK and 11.0% for Austria (Gravier et al., 2018). The share of the
number of active enterprises with zero employees in the UK was the lowest among all EU
countries, making only 11.6%, whereas, Austria had 51.7%.
Conclusion
This informative report gives an overview of the economic structure of SMEs in UK territory
and their importance in the economy of the UK. There are different reasons of flourishing and
decline of the business, which should be taken care of the government to make better
opportunities for these young aspirant entrepreneurs so that more people become interested in
this and help to build the economy stronger and create scope of employment.
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References
Brown, R., Liñares-Zegarra, J. and Wilson, J.O., 2019. Sticking it on plastic: credit card finance
and small and medium-sized enterprises in the UK. Regional Studies, 53(5), pp.630-643.
Brunswicker, S. and Vanhaverbeke, W., 2015. Open innovation in small and medium‐sized
enterprises (SMEs): External knowledge sourcing strategies and internal organizational
facilitators. Journal of Small Business Management, 53(4), pp.1241-1263.
Cowling, M., Liu, W., Ledger, A. and Zhang, N., 2015. What really happens to small and
medium-sized enterprises in a global economic recession? UK evidence on sales and job
dynamics. International Small Business Journal, 33(5), pp.488-513.
Gravier, M.J., Hawkins, T.G. and Randall, W.S., 2018. Socio-economic sourcing: Benefits of
small business set-asides in public procurement. Journal of Public Procurement, 18 (3).
Hussain, J., Salia, S. and Karim, A., 2018. Is knowledge that powerful? Financial literacy and
access to finance: An analysis of enterprises in the UK. Journal of Small Business and Enterprise
Development, 25(6), pp.985-1003.
Kenourgios, D., Savvakis, G.A. and Papageorgiou, T., 2019. The capital structure dynamics of
European listed SMEs. Journal of Small Business & Entrepreneurship, pp.1-18.
Lai, Y., Saridakis, G. and Blackburn, R., 2015. Job Stress in the United Kingdom: Are Small and
Medium‐Sized Enterprises and Large Enterprises Different?. Stress and Health, 31(3), pp.222-
235.
Oladipupo, A.O. and Obazee, U., 2016. Tax knowledge, penalties and tax compliance in small
and medium scale enterprises in Nigeria. iBusiness, 8(01), p.1.
Pop, A.M., 2018. The Evolution of the Romanian SMEs after Romania’s Integration in the
European Union Structures. Modelling the New Europe. An On-line Journal, (27), pp.148-159.
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