APPENDIX 24
Memorandum submitted by the Federation
of Small Businesses
1. INTRODUCTION
The FSB is the United Kingdom's (UK) leading
non-party political lobbying group for small businesses. The FSB
exists to promote and protect the interests of all who own and/or
manage their own businesses. With over 200,000 members, the FSB
is the largest organisation representing small and medium-sized
businesses in the UK. We welcome the opportunity to contribute
written evidence to the Committee's inquiry into the future of
manufacturing in the UK.
The FSB's most recent survey of its membership,
entitled "Lifting the Barriers to Growth 2006" demonstrates
that 11.2% of FSB members are in the manufacturing industry. The
spread of our manufacturing members around the UK ranges from
9% each from the South East, South West and London, to 15% from
the East Midlands and 18% from the West Midlands. This demonstrates
that the Midlands retains its position as a traditional and historic
manufacturing base in the UK.
However, the number of manufacturers in our
membership has eroded over the past six years that we have conducted
the Barriers to Growth survey—from 12.2% in 2000 to 11.2%
in 2006. In real terms, because the organisation has grown significantly
over the past six years, that means a loss of 150 manufacturing
members. The lack of growth amongst small business manufacturers
is a major concern for us.
2. GENERAL COMMENTS
ON UK SMALL
BUSINESS MANUFACTURING
The FSB conducted a short survey of its manufacturing
members in early 2006 to ascertain concerns about the industry.
The number of responses was 160, so although not statistically
robust, gives a strong indication and anecdotal evidence about
the industry amongst small businesses.
The most significant findings were:
Most of the FSB's manufacturing members are
therefore micro businesses, employing under 10 people.
Proportion of turnover = exports?
Just 22% of all our members trade across borders.
Where does your main competition come from?
Other parts of the UK: 57%
South America (one person)
Republic of Ireland (one person)
What has happened to your sales in the last
12 months?
What has happened to your profit?
It has stayed the same—21%
In the last 12 months, what has happened to
staff numbers?
In the next 12 months, what do you expect
to happen?
Sales to stay the same—28%
What factors/costs have influenced your business
in the last three years?
Currency fluctuations—14%
Difficulty finding staff (manual)—25%
Difficulty finding staff (graduate)—14%
Transport/infrastructure—10%
Customers closing down—25%
Lack of demand for the product—16%
Difficulty in obtaining planning permission—8%
Environmental legislation—22%
Competition from abroad—35%
Employment legislation—31%
Have you any intention of moving outside the
UK?
Have you used government financial business
support?
If yes, what business support have you used?
10%—devolved areas support
Are you aware of the R&D tax credit?
Analysis
In spite of a reduction of manufacturing members
as noted above, the survey results show that of those questioned,
40% have experienced a sales increase over the past year. However,
profits have decreased for 46% of members surveyed. 62% of members
expect their sales to increase in the next year—demonstrating
some optimism in the sector.
High energy and transport costs are the most
frequent selections in terms of cost to business (40% and 45%
respectively) followed by competition and business rates (both
35%).
Perhaps the most striking result in the survey
is the lack of knowledge about R&D tax credits. 65% of those
questioned did not know about tax credits. This represents a large
knowledge gap for small businesses, particularly as 80% of R&D
comes from the manufacturing sector and innovation is a core business
principle for many small businesses in this area.
3. MARKETING
UK PLC
The challenge of globalisation is significant
for UK plc. In addition, that challenge is particularly difficult
for small businesses. 78% of small businesses serve local markets
(markets within a 50-mile radius). 22% of small businesses export
to EU markets, 11% in non-EU Member States and 18% in the rest
of the world.
Although the Cox Report outlined the attractiveness
of the UK in terms of foreign direct investment (FDI), we have
concerns that multinational businesses are moving away from the
UK—the proposed closure of the Peugeot factory in Ryton
is just one example of this.
However, small businesses do benefit from interaction
with UKTI. We have strong anecdotal evidence to suggest that the
"Meet the Buyers" events run by UKTI help small businesses
when researching the export market. This is a good service and
should be maintained in spite of the re-structuring of UKTI. In
addition, it is a service that should be more widely publicised
amongst the small business manufacturing community.
Increased emphasis on the benefits of online
trading could be a means of encouraging small businesses to market
their products overseas. Just 18% of FSB members sell online and
this total has remained static since the question was first posed
to members in 2004. This is worrying. Small business manufacturers
need to leverage the benefits of e-business in order to widen
their markets and compete.
4. PUBLIC PROCUREMENT
The FSB has campaigned to increase the total
of small business representation in accessing public sector contracts.
This is a general objective and not one that is confined to the
manufacturing sector.
Barriers to Growth 2006 revealed a healthy participation
by small businesses in public sector procurement—24% of
members supply local authorities directly. However, manufacturing
members are more likely to supply the Ministry of Defence both
directly (3.7% of all members) and indirectly (6.8% of all members)
than any other industry sector.
We are aware that with regards to other EU member
states, the UK is the third-largest awarder of public sector contracts
to small and medium sized enterprises—5,854 contracts in
2001, and we are aware that this total has increased significantly.
However, France and Germany are significantly ahead in terms of
public procurement with SMEs (19,894 contracts awarded in Germany).
In addition, the policy of breaking up contracts into smaller
lots (running counter to the emphasis on aggregation in the UK)
is well-developed again in France and Germany, with 93% of German
public authorities and 98% of French public authorities consider
breaking up contracts.[49]
5. SKILLS SHORTAGES
Seven million people of working age in the UK
lack basic skills. In the manufacturing-specific survey mentioned
above, 25% stated that a significant problem over the past three
years was recruiting manual staff—this is in comparison
to 14% with a significant problem recruiting the right graduates.
However, the FSB feels that basic skills should not be the single
focus of Government. Skills shortages need to be dealt with by
better communication between businesses and educators. Sector
Skills Councils need a fair distribution of small business representatives
to sit on them as the skills needs of big businesses are completely
different. A small business cannot afford to send employees on
literacy and numeracy courses and need to be able to employ the
right people. The brokerage system should ensure that training
courses are appropriate, tailor-made, local and practical in terms
of timing and at a reasonable cost to meet a small business need.
This will enable employees to perform in their job effectively.
Level 3 (intermediate) and level 4 (higher skills)
should be the focus of the upcoming Leitch Review, to be published
later in the year. The UK lags behind its major competitors France,
Germany and the USA in intermediate and higher skills, and the
kind of technical skills required for the manufacturing industry.
Employers should contribute the majority of funding to the higher
end but Government should pay for basic and the majority of intermediate
skills—the skills required for a manual job in the manufacturing
industry would fall into this bracket.
6. CONCLUDING
REMARKS
There is a significant level of anxiety amongst
small manufacturers in the UK. The loss of business to small manufacturers
is evident. Of the surveyed manufacturers (as mentioned above),
46% had experienced a profit decrease in the past year. In addition,
the cost of undertaking business is perceived to be increasing
in the manufacturing industry. 63% cited the cost of raw materials
in the UK as a significant problem, 45% cited transport costs
and 40%, energy costs. The costs involved in undertaking business
in the UK do not help the UK to maintain the competitive edge
that is badly needed as we enter into an increasingly global age.
The government needs to encourage emphasis on
small business manufacturers that wish to grow—not simply
concentrating efforts on hi-tech gazelle businesses that, whilst
important, do not contribute as much to UK GDP and the workforce
as the emphasis on them and grants available for this type of
business would belie.
29 September 2006
49 http://ec.europa.eu/enterprise/entrepreneurship/craft/craft-studies/documents/public-procurement-summary.pdfsearch=
%22public%20procurement%20in%20france%20of%20smes%22 and www.handwerk.de/bauauftrage Back
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