Small Talk: Britain's answer to Germany’s famed mid-market sector needs help

Angela Merkel speaks at a congress of German middle-sized industrial businesses sponsored by the German Federation of Industry (BDI) in 2007: the country's "Mittelstand" sector is vital to the economy (Getty)

Germany’s Mittelstand companies are renowned as commercial powerhouses – these medium-sized, often family-owned businesses have become symbols of German economic superiority. It may therefore come as a surprise to discover that the Mittelstand’s equivalent in the UK has grown so rapidly over the past five years that it’s now bigger and better than Germany’s.

That, in any case, is the claim of the accountancy firm BDO. It says Britain’s mid-market companies have collectively grown by 33 per cent since 2009 and are now earning revenues worth over €1.9 trillion (£1.4 trillion) a year. In Germany, meanwhile, companies of a similar size (BDO defines mid-market as firms with turnover between £10m and £300m a year) have grown just 12 per cent over the same period. Their annual turnover now stands at €1.78 trillion. Britain’s mid-market companies have the edge on other measures, too. They employ 9.3 million people compared with Germany’s 9.2 million, for example. We even have more companies of this size.

One area where Germany still has an advantage, however, is on government support. For years, the Mittelstand has prospered, in part at least, thanks to the assistance of German taxpayers, who have underwritten investment programmes and other supportive policies designed with the country’s medium-sized companies in mind. The success of the British mid-market in recent years, by contrast, has largely been in spite of government policy rather than because of it.

Simon Michaels, the managing partner of BDO, thinks this should not be allowed to continue. “While the UK’s mid-sized businesses are worth more than the Mittelstand for the time being, there is so much more we can do to cement our position,” he argues.

For BDO, the answer lies in a range of more supportive policies, including a temporary reduction in employers’ national insurance contributions for manufacturers, changes to government procurement policies that allow departments awarding contracts to consider supply chain employment benefits as well as cost, and VAT concessions.

There is much to be said for this manifesto. On VAT, for example, Ireland has led the way by allowing suppliers to exporting companies to zero-rate the goods and services supplied. In the manufacturing sector, meanwhile, lower energy costs have boosted businesses, but such is the slowdown in the eurozone economies that further help is needed if they are to get through the year ahead unscathed.

While BDO’s recommendations will resonate with mid-cap British companies, they shouldn’t hold their breath, for we have been here before. Last year, the CBI published a comprehensive study into how Britain’s tax system is failing medium-sized companies, alongside a series of recommendations for remedying the issues raised. Its pleas fell on deaf ears.

Why should that be? In part at least, the problem stems from one area of performance where German companies are still doing far better than British competitors: the cultivation of their image. Many of the Mittelstand companies are household names in their own country and held in high esteem. By contrast, Britain’s medium-sized companies are largely anonymous.

The result is that policymakers tend to overlook the mid market in the UK. They spend their time cosying up to big business or launching eye-catching initiatives aimed at start-ups and entrepreneurs, whose rags-to-riches stories are more likely to be celebrated in this country.

That is not to say that start-ups do not need support (though most people would prefer a bit less of the cosying up at the other end of the scale). But if you want economic success and prosperity for all, the mid market is where the action is at. The CBI reckons these companies account for a sixth of all jobs in the UK and a quarter of private-sector sales. BDO claims its plans would add about £1.3bn to the contribution that medium-sized companies are able to make to the UK’s GDP.

UK leads in alternative lending

Europe’s alternative finance sector could be worth €7bn (£5.2bn) by the end of this year, according to a report published today by the accountancy firm EY, with Britain leading the way.

Across Europe, niche financial providers ranging from peer-to-peer lenders to invoice finance specialists facilitated funding worth €4.65bn during 2014, much of it for small and medium-sized businesses, EY said. The industry as a whole has grown at an average rate of 146 per cent a year over the past three years.

The headline figures obscure the scale of Britain’s lead, however. EY said UK-based alternative finance providers had been responsible for 74.3 per cent of all such funding raised in Europe over the past three years – and despite the UK market’s relative maturity, it has continued to grow more quickly, with funding generation increasing at a rate of 168 per cent a year.

Clues to lack of female directors

Britain’s smallest companies are continuing to lag behind their larger counterparts on female representation on the board.

An analysis of Companies House records by the consultancy Procorre reveals that only just over a third of small and medium-sized enterprises have at least one women director.

Some 57 per cent of businesses with a turnover of more than £1bn a year have female representation on their boards, but the figure for companies with turnover of between £100,000 and £1m is just 35 per cent.

Sophie Sarrat, a relationship manager at Procorre, said: “Smaller companies realise they could gain a huge amount from conscious efforts to nurture more female talent. However, they often lack the resources and capacity that larger companies have to promote and develop women effectively, and their smaller boards allow less scope for diversity.”

Small business person of the week: Adam Sopher, Co-founder, Joe and Seph’s

“The name is a play on the name of my dad, Joseph, who has been the inspiration for this business. Most of the recipes for our amazing popcorn are his.

“We launched the company four years ago, almost by accident. My dad was always interested in food and after he retired, he spent his time playing around with recipes, including for popcorn, which he used to bring us back from business trips to the US. I was bored with my job and wanted to try something different, so we decided to see whether the popcorn would have any commercial appeal. We hired a stall at the Good Food Show, took some samples down there, and people just loved them.

“My background is in consultancy and I had spent years advising companies to analyse their markets very carefully, but we did the opposite. We launched the company straight away and within six months we were being stocked by Selfridges. Four years later, we’re in stores ranging from Harrods to Waitrose and we’re selling in 15 countries overseas, including the US.

“Growth has been rapid, but we started very small. You don’t need a huge budget to get a food business off the ground – you can even hire kitchens by the hour. My dad was doing the cooking and my mother and I were doing the packaging and deliveries. The business is quite a bit larger these days, but mum and dad are still closely involved.”