East Anglia: UK’s ‘Mittelstand’ outpaces European rivals

Amanda Nunn of the CBI.

Amanda Nunn of the CBI. - Credit: Archant

Economists have long admired Germany’s powerful mid-sector businesses known as the Mittelstand. BEN WOODS takes a closer look at research that suggests UK companies are now getting closer to matching their performance.

Medium-sized businesses (MSBs) across the east of England are helping to fuel a growth upsurge that will see the UK economy narrow the gap on Germany’s much-admired Mittelstand, research has found.

The UK’s MSBs are on course to edge ahead of their European counterparts by growing 6.1% and creating 326,000 jobs in the next 12 months, according to a study by finance provider GE Capital.

The expansion compares to 4.8% growth and 150,000 new jobs forecasted for Germany over the same period, while MSBs in France are set to expand by 3.4% and Italy 3.8%.

MSBs – defined as businesses with a turnover of £15million to £800m – are expected to hit high growth rates by bringing more offshore services back to the UK and accelerating recruitment following an increase in sales.

And part of this growth is set to come from MSBs in the eastern region, which are predicted to boost revenues by 8% this year – the second highest growth rate expected across all UK regions.

But business leaders fear that this could be stymied if moves are not made to overhaul the tax system that is causing MSB’s cash-flow, management times and export potential to suffer.

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Amanda Nunn, inset below, assistant director of CBI East of England, said: “As confidence in the economy continues to take hold, mid-market firms across the East of England are growing and are playing a key role in creating new jobs. Whilst this is true of all sectors there are certain businesses who are ahead of the curve, particularly those within the food and drink sector and those who are exporting overseas.

“This is a really positive step forwards and an obviously marked difference to where we were in the region 12 months ago but we need to make sure we don’t lose momentum. We need to address the skills gaps and overcoming concerns around cost pressures that impact on business confidence.”

The Leading from Middle Report – spearheaded by Professor Stephen Roper of Warwick Business School – is based on interviews with 1,000 mid-market boardrooms across the UK and over 4,000 across Europe. It found that 48% of UK MSBs want to expand into new markets in the next three years compared to 40% in Germany.

Meanwhile, 78% of MSBs in the east grew their revenues in the last year, while 66% feel confident about their prospects of doing business.

What’s more, 56% are looking to increase the number of apprentices they recruit as 55% expect to enter new markets in the next five years.

But despite an uplift in the east, the national data points to a persisting divide between the North and South of the country when it comes to MSB performance.

Prof Roper added: “Overall UK mid-markets are happy with the current business environment, but notable regional differences persist with businesses in the South generally growing faster than those in the North.

“This may, in part, be explained by a stronger focus on export markets in the South. Mid-market companies in the North also have more negative perceptions of transport and broadband infrastructure.

Greater export support and infrastructure investments in these areas could help to redress the growth imbalance.”

Ilaria del Beato, chief executive of GE Capital UK, said: “The success of the mid-market is crucial for the UK economy. Just 1.7% of all businesses provide over one third of private sector GDP, revenues and employment. Yet whilst the mid-market is thinking bigger, it still has critical challenges to overcome, particularly as the competition for talent becomes much tougher, more so than regulation, keeping costs down, and access to finance.”