It’s no secret that Scotland’s economy has long been dominated by small and medium-sized enterprises (SMEs). But it was reinforced by the latest figures from the Scottish Government, which show they account for 99.3% of private sector businesses – an astonishing statistic by any measure.
Perhaps more surprising is that, despite representing nearly all private organisations in the country, SMEs account for just over half of employment (54.9%) and 41.5% of turnover.
The figures lay bare a challenge: Scotland has the ability to generate small companies – which is something to be proud of – but its track record in helping them develop is less enviable.
Of course, there are some notable success stories of small Scottish companies scaling – BrewDog and Skyscanner are just two of the household names to emerge over the past few years. Nevertheless, it’s clear that more needs to be done if we are to help a greater proportion of the SME community reach that next stage of growth.
For years, economic policy has been characterised by bringing big-name companies to Scotland – in other words, attracting inward investment. In some cases, that has been good news. Hundreds, if not thousands of jobs have been created in Glasgow alone by banks and financial service companies locating or moving back-office functions to the city.
Yet, in manufacturing the effect has been more ephemeral. Silicon Glen was established with great intentions, only for operations to be displaced or jobs cut. In fact, it is not uncommon to meet people in the tech and manufacturing sectors who have been made redundant several times following the inwards investment cycle throughout their careers.
That experience underlines why a change in thinking is necessary. Developing a cohesive network of larger companies – born from SMEs – can create a rooted source of high-value employment in Scotland, which can only be positive for the economy.
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A critical part of achieving this will be supporting SMEs’ growth. As it stands, the risks involved in taking a company higher up the value chain often creates a glass ceiling for small businesses. Understandably, entrepreneurs can be reluctant to take on this challenge, which ultimately stunts their business’ growth.
The public sector could have the answer, however. It can and should incentivise SMEs to take the next step, by implementing measures that encourage small businesses to think differently about how they operate and look for new ways to scale. Indeed, we’re already seeing some of how that could take shape from the Scottish Government’s CivTech programme, which aims to drive innovation in the public sector.
Another way in which this can happen is by promoting opportunities for SMEs to work together – encouraging them to develop consortiums that deliver more than the sum of their parts. This can be done by favouring more innovative models for the delivery of public services, or even by reducing the minimum turnover required of businesses that bid for contracts.
The knock-on effect is where it can make a significant difference to the entire economy. Encouraging new ways of doing business could motivate large private organisations to follow suit, opening up opportunities for the SME community. Likewise, it would endow smaller businesses with the skills, experience, and behaviours to bid for larger pieces of work in export markets.
Scotland is in a great place to do this. The preponderance of SMEs across a range of sectors, the size of the economy, and its track record of invention provide a solid foundation on which to build. We are already seeing how innovative new models might work: for example, the CENSIS-backed ‘Mirage’ project has brought together a host of organisations to collaborate on the production of materials that will help each of them in their respective markets.
There is significant latent potential within Scotland’s SMEs – in too many cases, it is going unrealised. To help them scale, we need to empower them economically and move them higher up the value chain by carving out different ways of delivering services. This could have a highly positive effect on the entire economy – and the public sector is the place to start.