Scottish firms creating jobs but struggling to scale up

Scotland’s small to medium sized enterprises (SMEs) are creating jobs faster than almost every other part of the UK – but many are struggling to scale up quickly, according to new research.

The findings have been revealed by the Enterprise Research Centre in its annual UK Local Growth Dashboard. ERC, a consortium of leading university business schools, is the leading UK research authority on the drivers behind private sector firm growth.

The Dashboard shows that 13.2 per cent of Scots firms grew staff numbers by 20 per cent or more per year over three years (2012-15), compared to a UK-wide average of 12.3 per cent.

In total, Scottish companies created just over 46,000 net new private sector jobs in 2014-15 alone.

But when it comes to reaching the milestone of £1 million turnover, Scottish firms fall behind. Of start-ups in 2012 with first-year revenues of less than £500,000, just 1 per cent of Scottish companies hit their first million by 2015, compared to 1.8 per cent for the UK as a whole - and as high as 4.4 per cent of firms in Belfast.

For those firms taking the next step, growing from £1-£2 million to £3 million-plus turnover in three years, it’s a more complex story – with North East Scotland, centred on Aberdeen, having the highest rate in the whole of the UK in the 2012-15 period at 11.5% of firms in that bracket.

Meanwhile, when it comes to start-ups, Scotland’s rate of 33.3 new firms per 10,000 people in 2015 was ahead of Wales (30.1) and Northern Ireland (20.6), but below England’s rate of 48.6 (UK average = 45.7).

The Dashboard provides the most comprehensive picture of growth among small to medium sized enterprises (SMEs), which make up 99 per cent of all UK firms. Its key findings were unveiled at ERC’s third annual State of Small Business Britainconference held at The Shard in London. This year’s conference focused on the importance of boosting inclusive growth and productivity nationwide in the wake of the Brexit vote.

Professor Mark Hart, Deputy Director of ERC, said: “What we see in the Growth Dashboard is that firm growth and job creation is spread right across the UK and is not limited to a few cities or regions.

“Nor is it restricted to certain types of ‘fashionable’ high-growth firms – there’s a complex growth pipeline of companies in every corner of the country that have different support needs based on their individual ambitions.

“This is incredibly important to understand if we’re going to create an industrial strategy that capitalises on the strengths we already have without over-focusing on star firms, or regions labelled as ‘powerhouses’.”

Commenting on the impact the vote to leave the European Union would have on SMEs, Prof Hart added: “While the Brexit vote has created uncertainty for SMEs, our research shows that the most innovative firms find ways to grow despite shocks to the economy – chiefly by focusing on their productivity and looking to export markets to provide new opportunities.

“That’s not to say everything will be plain sailing, though. In particular, we need to ensure a business-friendly approach to skilled migration because we know that many firms struggle to plug skills gaps in specialised sectors like engineering.

“The Growth Dashboard shows us that we have broad-based growth across the UK. The challenge now is for the government to make the terms of our disengagement and future relationship with the EU clear so that entrepreneurs have a stable framework for further expansion.”