High growth SMEs key to UK employment growth says Experian

• Experian identifies ‘champion’ SMEs – the 10% that create high-growth employment in the UK
• The Midlands and North East of England have some of the healthiest levels of future champions
• Report suggests champions exist across all sectors of th e economy, regardless of whether a sector is considered growth area

Nottingham – New analysis published today by Experian® reveals that out of all the jobs created by small and medium sized enterprises in the UK over the last 10 years, 4.4 million were created by fewer than 10 per cent of SMEs. According to Experian’s analysis, these ‘champion’ high-growth firms created two thirds of all the jobs within the SME community and identifying and nurturing potential champions holds the key to driving economic growth.

Against a backdrop where the Government is establishing Local Enterprise Partnerships, Growth Hubs and Regional Growth Funds, the analysis published today in Experian’s latest Insight Report identifies the characteristics of SME champions, where they are located in the UK, where future champions will emerge and how their numbers can be increased.

Experian’s extensive analysis – spanning the last decade and encompassing over 1.5 million private sector businesses – challenges current thinking about the level of emphasis placed on fast-growth sectors and regions. The report also provides groundbreaking insight on how to pinpoint the real drivers of future economic growth.

Key findings from ‘Tomorrow’s Champions: finding the small business engines for economic growth’, include:

Job creation – “Punching above their weight”

• Experian’s analysis shows that the 10 per cent of SMEs that become champions grow at more than 20 per cent a year for three years and more than double their weight in terms of contribution to all those employed in the SME sector.
• These champion firms over the last 10 years were situated across the UK, with particular high growth hotspots in Northumberland, Tyne and Wear, Manchester, Cornwall and South Wales.
• Of the remaining SME population, 20 per cent grow at a slower rate, while 30 per cent are ‘stable and able’ firms that remain the same size. Around 40 per cent of SMEs decline or cease trading.
• Analysis of 2003 to 2006, the last benign economic period before the downturn, shows that the slower growing firms created around 860,000 jobs, while SMEs that declined or ceased trading lost around 3.7 million jobs.
• Champions, however, created 1.6 million jobs reducing the net loss within the SME population to 1.2 million during 2003 and 2006 and underlining their importance to the economy.
• Start-ups added a further 2.7 million jobs, but of those start-ups that survive, the majority do not grow further, staying the same size.

The Midlands and the North – two incubators for future ‘champions’

• Although champions are spread across the UK, Experian’s analysis shows that large parts of the South, as well as East Anglia, have in the past seen an average or below average concentration of champion businesses.
• However, looking forward, Experian’s analysis shows that some of the least resilient areas of England such as the North East and the Midlands, have the healthiest levels of future champions in their midst. [See Figure 1 below]
• Employment levels in northern towns have traditionally been low and during a recession, when employment numbers fall further, many are pushed into starting up their own businesses or being more innovative in their current businesses.
• Large parts of Scotland and Wales are identified in Experian’s analysis as having fewer future champions. However, if the few future champions do reach their potential, they will stimulate businesses around them and play key role in the region.

Figure 1: Breakdown of area and potential champions

Survival of the fastest: the facts

• Experian’s research found that during the ten year period analysed, only 20 per cent of SMEs with the greatest potential to become champions actually fulfilled this potential.
• Between 2003 to 2006, around 34,000 businesses had the highest possible potential to become champions – based on business/employee profile, ability to export, location and many other factors – yet three years later fewer than one in five had gone on to deliver on this potential and achieve champion status.
• The fact that the 6,500 successful champions went on to create more than 260,000 of UK jobs emphasises the value in helping high potential champions overcome any barriers.

It is not all about growth industries

• Experian’s report suggests that focusing on sectors is one of the least productive ways to generate growth.
• Champions exist across all sectors of the economy, regardless of whether a sector is considered a growth area.
• Declining industries have future champions with the ability to reverse their decline if found and supported.
• For example, the building and construction, which is considered a struggling sector, has an above average number of future champions (8.2 per cent). If all these firms become champions, then they have the potential to increase jobs in this sector by 4.5 per cent.
• Furthermore, sectors with the highest proportion of future champions do not necessarily as a sector create the highest number of jobs. The agriculture, forestry and fishing sector, for example, has been identified as having the smallest number of future champions (5.8 per cent), but could see jobs grow by 6.2 per cent.

Charlotte Hogg, Managing Director of Experian UK & Ireland, said:
“All eyes are on private sector SMEs to drive growth, but encouraging them to take the risks associated with growth at a time when they are focussing on survival will be a challenge. Our analysis tells that less than 10 per cent of SMEs firms have created millions of jobs in the last decade. The challenge for Government is how to identify budding ‘champions’ and give them the support they need while still helping support the rest of the SME population who are the bedrock of the economy.

“Our research shows that support focus should not be on just sectors. For Government, it will be key to ensure that the new Local Enterprise Partnerships and Regional Growth Fund do not over emphasise the high tech or green sectors because champions can exist in all sectors.

“It is also not about regions. Some of the least resilient areas in the UK have some of the highest levels of potential champions – driven by a need to innovate.

“The key to driving rapid employment lies in the ability to identify potential champions – new and old – that share the same DNA as the 10 per cent that have fuelled employment over a ten year period. Our research shows that it absolutely matters who leads the business, and their experience, and it matters whether that business is linked with other high growth companies, and whether or not they have an international focus.”

ENDS

For more information, visit www.experianplc.com.

Contact:

Ms Serj Heera
PR Manager
0115 992 2773 / 07837 652169
serjeet.heera@uk.experian.com

Overview of methodology

Experian’s research into the UK’s fast growth champion businesses uses data from Companies House looking at businesses that have been trading since 2000 as well as field research conducted by directory based companies.

The research is focused on a universe of 1.5 million businesses where employment data was available. Non-limited businesses and large companies with more than 10,000 employees were not included.

Several consecutive three-year periods between 2000 and 2009 were examined. The characteristics of businesses that experienced high growth within any of the three year periods were identified and included in a model to help distinguish those that would go on to achieve high growth from the remainder.

About Experian

Experian is the leading global information services company, providing data and analytical tools to clients in more than 90 countries. The company helps businesses to manage credit risk, prevent fraud, target marketing offers and automate decision making. Experian also helps individuals to check their credit report and credit score, and protect against identity theft.

Experian plc is listed on the London Stock Exchange (EXPN) and is a constituent of the FTSE 100 index. Total revenue for the year ended 31 March 2010 was $3.9 billion. Experian employs approximately 15,000 people in 40 countries and has its corporate headquarters in Dublin, Ireland, with operational headquarters in Nottingham, UK; Costa Mesa, California; and São Paulo, Brazil.

For more information, visit www.experianplc.com.