UK’s hidden champions beat European peers

Posted on 4 Jul 2013 by Tim Brown

Acclaimed research by Warwick Business School and GE Capital has revealed the strength of the UK’s ‘hidden champions’, companies below £800m turnover who have performed strongly compared with their European peers in 2012.

The Mittelstand: a widely misunderstood word, it originally described family-owned SMEs in German-speaking countries that punched above their weight in global markets. Today, many Mittelstand firms have been so successful they have outgrown the definition of SME, or even “M”, as annual turnovers exceed Eu1 billion. For a long time, the invisible ‘British middle’ have been cast in the shadow of these Teutonic world-leaders.

But the gap is closing.

GE Capital, for whom CEO Rich Laxer describes the mid-market as “absolutely core to what we do”, published its second annual research on mid-market companies in France, Germany, Italy and the UK.

It revealed that the UK mid-market (MM) is made up 28,000 companies, has 11.2 million employees and combined revenues of £2.2 trillion. The number of MMs is only 1.67% of the total number of companies In the UK, but they create over one third of GDP.

Stealing the show from the lauded Mittelstand, the proportion of UK MMs ‘growth champions’ that grew by more than 10% turnover in 2012 was 17%, while in Germany it was 13% and lower still in France and Italy.

Perhaps more surprisingly, on a league table of performance by region, throughout the four countries, the UK South outperformed the European MM pack, trumping both Germany North and Germany East by net growth recorded in last 12-months and net growth predicted in 2013. UK Central came fourth – interestingly just ahead of Italy South.

John Cridland, CBI director general
John Cridland, CBI Director General

The launch event for ‘Leading from the Middle 2013’ in London on Tuesday was a packed house, and fielded speakers including Sir Martin Sorrell, the CBI’s John Cridland and Sir Chris Hoy, who provided the motivational speaking to gee up the audience of businessmen.

It was not without controversy; one delegate, an investor in MM companies, told WBS’s Prof Steve Roper, the report’s architect, that while the UK may be growing, it cannot be compared to Germany in terms of size of the market, the company nor the family ownership. Prof Roper resisted the challenge, claiming that on all three measures, the UK MM group was not that different to Germany.  If this is true, the UK MM will have a much smaller manufacturing component than the German.

The event succeeded in raising the profile of companies that struggle to get a voice. The prevailing wisdom, in the manufacturing sector at least, is that this group – while shown to be essential to the UK economy – does not attract the government policies, the media attention nor – crucially – the best employee candidates, compared with big multinational firms. Even government policies designed for the “small” in SMEs seems to discriminate against the “Ms”. “When you reach the status of M, it costs more – your tax liabilities suddenly jump. We’ve just broken £21m and we’ve noticed it” said Brompton Bicycle MD Will Butler-Adams.

Now recognised, with the help of initiatives like the GE Capital research, the MMs face challenges to fulfil their potential. These include help with exports and accessing non-EU markets, were debated at the launch event. The common denominator for all MMs pursuing growth is access to talented people – both external management of high calibre and the brightest graduates and apprentices, who often answer the siren calls from global multinationals. Across Europe it is the same.

All four countries in the study rated keeping costs down was the biggest challenge (86%) and 73% said retaining talented employees was a challenge to growth.

More from Professor Steve Roper on the Leading from the Middle research can be found here:

and here: