The rise and fall of SME
How have industries changed over 20 years?
Small and medium-sized enterprises (SMEs) are the backbone of the economy, with 24.3 million people employed by UK SMEs in 2014. Over the last 20 years, there have been some monumental changes in the business world and those have of course affected different industries in different ways.
By looking at a range of industries, we are able to devise patterns and trends which could give us an insight into the world of SMEs as a whole, and how different enterprises handle situations differently. What impact did the recession have on the science industry, or Jamie Oliver have on the food industry?
What does this mean for SMEs in the UK?
In the last decade (2004-14) 3,057,820 businesses were born and 2,616,470 SMEs died – meaning that, on average, for roughly every 10 businesses that die, 12 were born in their place. This is particularly noteworthy as it means that more businesses are being set up across a variety of industries, and even more interesting is that the annual turnover from SMEs in the UK has increased 63.6% over the last 20 years. This means that annual turnover per SME has increased at an average rate of 2.07% per year, or £19,552 per enterprise per year.
Although many industries contributed to this overall figure, the construction industry saw ~12% faster than average growth in annual turnover per enterprise per year, or £23,163 per enterprise per year. This could, in part, be due to the growth of the industry over the last 20 years, with an average of 2,283 new enterprises being started per year. This seems to suggest that the construction industry as a whole is on the rise, but when we look at business birth and death rates we can see that growth is actually declining slightly now, with 131 businesses born in 2014, compared to 142 born in 2005 for every 100 that died.
In contrast to industries like construction, the food manufacturing SME population has shrunk at a rate of approximately 67 enterprises per year, over the last 20 years. This doesn’t seem to be anything to worry about for the moment, though, as revenue generated by food SMEs has increased by approximately 40% over the same period. This has meant that turnover per enterprise has grown at a rate of 2.4% per year (£67,671 per enterprise per year) which is higher than average.
Similar to the declining food manufacturing SME population, the Dotcom bubble burst had a detrimental impact on the growth of SMEs in the IT industry. Before then, the IT SME industry was growing at a rate of 18%, but when the bubble burst the number of IT SMEs shrank by 56% resulting in a loss of almost 59,000 enterprises. Thankfully, the industry is on the rise again, but at a much slower, steadier rate than before growing by 0.7% or an average of 333 SMEs per year. It isn’t all bad news, though, because since the bubble burst turnover per SME has increased by an incredible 251%.
The finance industry has also seen a slower than average growth, growing on average at a rate of 0.37% per year. Despite this, the number of finance businesses born each year has more than doubled, increasing from 905 births in 2004 to 2,070 in 2014 which could be a key factor in the 8% increase in employment by SMEs in the industry over the last 20 years.
With the rise in technology and where technology is going, it would be easy to assume that the consumer electronics industry is on the rise. However, this is actually not the case. Over the last 20 years, the consumer electronics SME population has contracted by a huge 46%. However, the revenue generated by each enterprise has increased 67% over the same period, meaning that each enterprise saw an increase in turnover by an average of £50,887.
The science industry also saw some major fluctuations in business survival rates, with science SMEs born in 2010 having seen the highest rate of attrition year-on-year (17.1%). This is more aggressive than any other year in any other industry and may partly explain why the turnover per science enterprise shrank 80% in 2010 before picking back up again. However, revenue generated by science SMEs in the UK has more than trebled in the last 20 years, increasing by £3,338m.
Overall, SMEs are on the rise, but different industries are in vastly different places in terms of start-up survival, employment rate and turnover. Businesses born in 2008 saw the lowest chance of surviving 5 years and these also experienced the most vicious rate of attrition, with around 14.8% failing each year, on average. However, since then things have steadied out a little bit, and the SME sector seems to be benefitting from it overall.
Further information about the research
To see the impact of changes over the last 20 years* we looked at some of the key industries in the UK to discover trends or cycles that these industries go through:
To see this information, we used a variety of sources and looked at data from as far back as 1994 right through to 2015 where it was possible. We looked at the following metrics for each industry to determine how they had changed over the years, and what could have caused these changes:
- Net Foreign Direct Investment
- Business Demography
- 2009 SME Survival Rate
- Average Hours Worked
- Turnover per Enterprise
- Business Survival Rates
*Due to the nature of the data, and the ways in which the industries have been reported on over the years, the data used does not always represent the same date range.