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SMEs are urged to help UK ‘trade its way to growth’

10 November 2011

It would be cynical to suggest that the timing of the launch of the government’s 'Financial Fitness' small business growth campaign had anything to do with the CBI's SME Quarterly Trends survey, published in the same week. The rather downbeat CBI forecast for this sector of the UK economy might have provided uncomfortable reading for the Prime Minister and Business Secretary but, while it has been beset by all manner of complex issues, the policy to rejuvenate UK manufacturing is not exactly new. And given the strictures imposed by cost-cutting in all areas of the economy, this latest initiative - to inject £95m from the Regional Growth Fund into small business - though modest, is to be warmly welcomed.

Indeed, the general reaction has been favourable. Forum of Private Business senior policy adviser, Alex Jackman said any help for businesses to maximise their chance of getting a ‘yes’ from their bank manager is clearly welcome news for SMEs. It sends out a positive message that government understands enterprise is the key to getting the economy back on track. Mr Jackman does, however, call for greater collaboration between banks and businesses and a return to what he refers to as 'proper relationship banking'. “This would help ease the punitive risk criteria lending we have seen in recent years, and subsequently bring down lending costs,” he adds. But small business is growing increasingly frustrated by the attitudes and practices of the big banks.

Some 26 per cent of respondents to a recent FPB survey said they were seeking out alternative financial products, with 21 per cent of these interested in obtaining them from outside the main high street lenders and just seven per cent from mainstream banks. Mr Jackman says the falling demand from small firms does not mean there is a lack of need for affordable funding. "It reflects just how alienated entrepreneurs are by the restrictive risk criteria and steep costs being imposed by mainstream lenders, " he suggests. "As a result, there are increasing signs business owners are looking elsewhere."

Ethical trading
Meanwhile, in his address to the SME growth package launch audience, the Prime Minister turned to broader horizons, urging small businesses to play their part in the UK’s effort to trade its way to growth by seeking business opportunities overseas. In his speech, he highlighted the apparent concerns about the Bribery Act, which SMEs perceive as a minefield that has to be negotiated on the route to successful overseas trading ventures. Mr Cameron’s view is, we’ve got it, now let’s make an advantage of it. Increasing the number of SMEs that sell overseas by 100,000 has the potential to add £30bn to the UK economy.

The Prime Minister recommends that UK companies use ethical trading to create competitive advantage overseas. Indeed, a report published last week by law firm DMH Stallard confirms that UK manufacturers are increasingly focused on operating ethically and transparently to be more competitive and to adopt this stance as a means of winning business.

The ‘Ethics and Compliance’ report – based on in-depth interviews with senior executives from UK-based multinationals and SMEs – points to a future characterised by the rigorous application of boardroom governance, the signing of ‘Honour Codes’ by employees and an increasing focus on upholding corporate values and principles.

DMH Stallard manufacturing adviser and report co-author, David Seall says: “As high profile companies count the cost of shabby governance - not just in reputation and brand damage but in stock market value and lost deals – many people are asking… ‘where next for UK business?’”

This research shows that with growing public perception of corrupt and dishonest behaviour by leading organisations, manufacturers operating internationally fully appreciate that calamitous headlines mean that business standards for all companies have never been under such intense scrutiny. According to Mr Seall, companies are now viewing ethical trading as a key competitive advantage in overseas markets.

But while multinationals have the muscle to effect change, says Mr Seall, smaller companies are really struggling to grow beyond Europe and the US because they say they consistently bump up against corrupt behaviour. The report lifts the lid into what’s happening inside the boardrooms of UK manufacturers when it comes to trading by the rules in a challenging global marketplace. Here are some of its key findings:

• There’s a renewed sense that operating ethically and with transparency can offer a competitive advantage through clarity of values and the so-called ‘triple bottom line effect’ – the impact of taking care of people, the environment and profitability

• UK-based manufacturers now operate under the most rigorous ethical business code of any country in the world – including the US – and many have transformed policies and procedures root and branch, flowing down the requirements to their supply chains

• Codes of conduct are embedded in organisations, with many staff being asked to sign an ‘Honour Code’ covering ethical behaviour, while being given access to 24/7 whistle blowing help lines

• SMEs say they need help from government and/or larger contractors to trade successfully beyond the EU and the US. Currently many are wary of exporting to some BRIC (Brazil, Russia, India, China) and CIVETS (Columbia, Indonesia, Vietnam, Egypt, Turkey and South Africa) countries because of what some describe as endemic bribery and corruption. This is proving to be a huge barrier for some SMEs and a real issue for UK export potential at a time of financial turmoil in the Eurozone. UK exports to BRIC nations represent just 5% of total exports; the UK’s combined trade with India and China is still less than with the Republic of Ireland)

• ‘Off-set’ – the practice of placing sub-contract work overseas as part of a larger deal with a foreign country is still acknowledged to be a pre-requisite for winning business by many manufacturers

DMH Stallard partner and report co-author, Simon Bellm says that while some interviewees did express the opinion that the UK was trying to out-do the whole world in ethical trading, the vast majority preferred to do business in a way that matched their principles. Notably in the way they delivered their contracts and the way they interact with local communities.

“As we looked at it more closely, it became increasingly clear that the issue is not just about organisations reacting to ever increasing media coverage of corrupt and dishonest behaviour,” says Mr Bellm. “It’s about how companies define their business values, communicate them and uphold them, and how companies - particularly manufacturing and engineering businesses - meet the challenges of foreign trade.”

DMH Stallard’s report, which includes a ten-point guide to embracing ethical trading, can be downloaded here.

Les Hunt
Editor

Reader comments:

From Mr Derek Rose:

As a Director of an SME the main thing which could help growth would be for the Government owned banks to restore lending to pre-criss levels, instead of restricting SME's to the extent that shrinking the business or finding other forms of funding.

From Mr Chris Jacob:

The government action outlined is a complete waste of money and of time, which is in short supply.

To government needs to put money back into the economy on a wide front. The best and quickest way is to reduce VAT back to 12.5% and to reduce duty on fuel, to price petrol/diesel down to the 110p/litre level.

Increasing VAT to 20% was a big mistake, everybody can mentally work out how much 20% of a price is and those of our customers who can not claim VAT back are deeply resentful that they are being asked to pay 20% on top of income that has already been taxed. The increase is leading to tax avoidance ( cash payments with no VAT ) which is putting responsible companies in an impossible competitive position and of course leads to a  loss of tax revenue to the government.

 





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