For most of the general public, the only exposure to the manufacturing industry they receive is through news reports, normally involving a government minister standing in a high-vis jacket on the shopfloor of a major manufacturer. They would be forgiven, therefore, for thinking that UK industry consists of a handful of huge, global organisations and not a lot else.
The reality is, though, that small companies are the lifeblood of the UK economy. According to government statistics from 2017, over 99% of all businesses are classified as SMEs (small to medium-sized enterprises) – those that employ fewer than 250 people. These small companies employ a combined 16.1 million people, across all sectors, compared to just 10.5 million in larger companies. They also have a larger contribution to the nation’s economy: £1.9bn vs £1.8bn.
A higher risk threshold
The benefits that SMEs bring don’t end there, however. In the manufacturing sector in particular, small companies are a hotbed of innovation. One such company is North Shields-based Elfab Ltd, who manufacture pressure relief systems, and were the winners of MM’s SME Innovators Award at last year’s Manufacturing Champions Awards (http://bit.ly/2FALSYA).
The company’s managing director, Anika Ephraim, says that their size (they employ just 67 people) hasn’t held them back – and that’s true of SMEs in general. “From a wider perspective, the image of SMEs is that because they’re smaller, they won’t make the investment needed to deliver high-quality products,” she says. “In reality, though, SMEs will often have an appetite for risk that larger companies might not have.”
Kieron Salter, managing director of KWSP, a high-value manufacturing firm specialising in the motorsport, sports performance and additive manufacturing industries, agrees. “Smaller companies have a very different risk profile in terms of how they are prepared to challenge existing technology,” he explains. “We attract the large OEMs to deal with and talk about how they can use a company like us to implement some of their ideas. They don’t have an infrastructure that allows them to take a risk and be brave. We’re not stupid, but we can be a lot more agile with our risks.”
Salter looks at the launch of a mainstream vehicle and one of KWSP’s high-performance racing cars. “We can take one
of our cars to a track knowing it may still need a lot of work,” he says. “The level of risk we can take is different to a company like Ford when they launch a car to a global audience – they can’t afford to have any reliability or quality issues, so need to be very risk-averse. On the other hand, we can afford to constantly experiment to make the car lighter, faster and stronger.”
Another secret to the success of both companies is a strong customer focus. For Elfab, any innovation the company introduces will be borne out of the needs of the customer. “Innovation is in every department of the company, but unless it’s geared towards a specific need for the customer it just becomes innovation for innovation’s sake,” says the company’s business development director, Russell Trotter. “We have to stay very close to our customers, because their challenges become the seeds of our innovation.”
This innovation will come at a cost, of course, but Ephraim is adamant that even smaller companies have to spend money to get ahead.
“No company has a bottomless pit, so everyone can only make the investments they feel will benefit their business,” she says. “Don’t be scared to spend money, just make sure you spend it in the right place for your company. Any good business will want to look to the long-term, and you can’t do that without investment.”
Stop, collaborate and listen
While clever investment will help with keeping the business ticking over, the most successful SMEs will look to team up with others and share expertise. This is the case for both KWSP and Elfab, who have harnessed the knowledge and experience of others in different ways. Elfab is part of Halma plc, a global group of around 45 life-saving technology companies. “If we need to leverage the technologies of another Halma member, we can do,” explains Trotter. “We can talk to and collaborate with any company in the group – one may be an expert in what we need. It also gives us access to other markets. If, say, one of the members is working in gas detection, and we wanted to integrate that into one of our products, we can work together with them and provide a fully integrated solution.”
Trotter emphasises, however, that Elfab remain independent. “We are fully autonomous, so we live or die by our own decisions,” he says. “This structure means we can retain the benefits of being a nimble, entrepreneurial organisation.”
KWSP, by contrast, have had to rely on the expertise of the companies in the so-called ‘Motorsport Valley’ around their base in Bracknell. This has not always been the case in the cut-throat industry of motorsport, says Salter. “When I first started in the industry, nobody wanted to share their ideas as they all thought they had a competitive advantage over the rest,” he explains. “That has a negative impact, as it discourages collaboration and, in turn, innovation. Nowadays, though, as many SMEs have very bespoke skills, they are more open to working with other companies.
“Those companies that have been the most successful are those that have been able to work together the best.”
Support is available, but hidden by red tape
Government is often accused of ignoring smaller companies, instead buttering up the ‘big boys’ – look at the deal Nissan’s Sunderland plant was given to keep the company in the UK post-Brexit. However, there is some support available for SMEs, as long as they know where to look. “We have to be fairly in tune with what’s going on around us,” says Ephraim. “Keeping our finger on the pulse is important, and largely possible because smaller companies like us are so agile.”
Salter, however, says more needs to be done, especially when it comes to research and development, which is what SMEs excel in. “Government are finally beginning to realise the power SMEs can wield,” he explains. “The way Innovate UK’s funding is currently structured, however, makes it hard for smaller companies to see any success. The recent Industrial Strategy has brought vast funding pots for R&D, but it needs to filter down to SMEs easier. We have to go through so much red tape to get it. If government could take some of that money and gift it to smaller companies without having to deal with the bureaucracy, it would provide a huge benefit.”
This model already exists in the EU’s Horizon 2020 project (http://bit.ly/1hQg9ys). Through this, a company applying for funding gets the first year of funding up-front. Innovate UK’s model means the first round of funding isn’t given until after the first quarter of work has been undertaken. This, says Salter, can cause major headaches for SMEs struggling with the age-old problems of cash flow. “The funding model as it stands is the reverse of what it needs to be.”
The value SMEs bring to the UK’s manufacturing industry is immense, and government is finally beginning to cotton on. Indeed, as Ephraim concludes: “Even the biggest companies started out as small ones, so in terms of the value SMEs can bring, it’s not just about what they’re doing today, it’s the potential they can bring to the country tomorrow.
“The fact there are so many SMEs out there means the UK economy as a whole will benefit from their diversity, in terms of the skills, business opportunities and technological developments they bring. The more varied our SMEs can be, the less reliant we as a nation will be on one sector to keep the economy going in the years to come.”