London, Asharq Al-Awsat – This week the headlines have been shouting that Britain stormed out of recession despite the slowdown in the global economy and the escalating crisis in the eurozone. Analysts point out that Britain has the best economic performance for five years, and that Britain now leads the way in Europe.
Research group Capital Economics said Great Britain was the strongest performing major economy in the world between July and September – and it will outstrip the rest of Europe until at least 2015. The latest forecasts from the International Monetary Fund also suggest Britain will be the strongest economy in Europe next year – although it will fail to keep up with the US.
It marks a significant turnaround for Britain which was among the first of the major economies to suffer a double-dip recession following the fragile recovery from the banking crash four years ago. And there are still a number of constraints that mean that the economy must continue to make a great effort to grow in the coming quarters.
A substantial part of the British economy consists of its world class small and medium sized enterprises (SMEs). Britain’s SMEs account for more of Britain’s national business turnover than the whole of the FTSE 100. Similarly in the Gulf region, SMEs have become the main drivers of job creation, growth and economic diversification. They have local roots and provide local jobs, but can also exploit the opportunities from globalisation.
Britain’s Office for National Statistics data states that 99.9 per cent of businesses in Great Britain are classed as SMEs. These SMEs employ over 60% of Britain’s workforce. There is an estimated 4.8 million businesses in Great Britain which employ 29.6 million people. SMEs employ around 17.5 million people and have a combined turnover on excess of £1,500 billion.
In Saudi Arabia, SMEs contribute 33 per cent to the country’s gross domestic product (GDP) and employ 25 per cent of its local workforce according to a Capita Group International (CGI) 2011 report. In the UAE, SMEs contribute 30 per cent to the country’s GDP and employ 86 per cent of its total workforce. The report indicates that SMEs contribute 35 per cent to 45 per cent to the global GDP and an estimated 40-60 per cent to global employment. SMEs employ 52 per cent of the US private sector workforce and they contribute 64 per cent and 44 per cent to the GDP of Spain and Austria, respectively. This shows that small firms in GCC are relatively inefficient. Their share of employment is far greater than their share of GDP.
Large businesses are necessary to preserve and maintain structure within the economy, but the Western economies realised decades ago that small and medium enterprises are really the main drivers of the economy. Mega corporations in many cases have increasingly lost their edge to smaller, nimbler organizations, which have evolved all over the Western landscape. The Middle East is now at a new turning point for SME’s to begin a grassroots revolution.
In the GCC, entrepreneurship and small business management education are very limited. Most of the universities do not offer more than one introductory course in their undergraduate business programmes and there are very few graduate and specialist programmes in this area. Business community involvement and institutional research are very limited. Many scholars argue that business schools cannot neglect entrepreneurship and small business management education in the 21st century. They assert that business schools, at the global level, need to devote serious attention to this area.
Since many GCC institutions have not yet developed the academic and business development expertise which more established regions of the world possess, this shortfall must be taken even more seriously. This can be rectified through an integrated effort by governments providing initiatives and education programmes; by the educational institutions adjusting their curricula and research; and the business community through its creation of business opportunities and training. Another valuable and practical way to procure entrepreneurship and small business management education is to buy into successful SMEs in other countries. As we know Britain is always open for business and has one of the most developed and thriving SME environments in the world.
Shortly before the news that Britain has come out of recession Sage Business Index revealed that, whilst on a global level, business owners’ confidence in eurozone local economies fell nearly five points, from 47.26 in March 2012 to 42.47 currently, in Britain, business owners’ confidence in their local market actually grew from 44.91 to 45.44. The study revealed that the majority of British business owners have introduced changes to meet the challenges of the current economic climate. Some 81 per cent of British business owners believe that they have successfully adapted – second only to businesses in Switzerland (85 per cent). There are lessons to be learned from this British experience and the best way to gain knowledge would be to buy into companies.
According to a survey of Britain’s SMEs the means to helping business growth could be through working with competitors. Interestingly, 30 per cent of British SMEs say that working with competitors would help their business grow most in the next 12 months, compared to just over a fifth (21 per cent) who feel that a resolution to the eurozone crisis would help.
This makes sense and should be explored even more widely. The GCC is keen to develop and promote SMEs. I would suggest that one way for companies from the GCC to improve their efficiency would be to invest in some of Britain’s successful SMEs and work together to develop mutual competence. This would help entrepreneurs from the Middle East to earn income while learning about running efficient SMEs. For Britain’s SMEs it could open new markets to them.
Britain is recognised as a world class place to launch new businesses and foreign investment is much simpler than in many countries.
The challenge of management development is equally shared by the global and GCC markets. Generally, SMEs are not managed as professionally as big firms. SME business owners and managers generally do not spend much money on self-development and human resource training. Leadership, communication, productivity and efficiency are all related to the extent to which managers and employees are educated and trained. A majority of SMEs in the GCC employ semi-skilled or even unskilled labourers with low wages and benefits. Training and development-minded business owners and managers are few, which in turn, reflects on the shortage of well-trained leaders and subordinates. Government initiatives designed to encourage startups to boost the growth of SMEs must emphasise the importance of management development. Efficiency in the future will become essential as global competition will relentlessly increase.
The connections between Britain and GCC countries are mature involving a high level of understanding and of trust. Taking positive steps towards a mutual development of SMEs is a positive and pragmatic way to reach a win-win outcome. Adopting best practice leads to success.
SMEs in Britain and the GCC should do more together.