Medium-sized businesses are the UK’s “forgotten army”, too long overlooked by government but with the potential to inject between £20bn and £50bn into the economy by 2020, according to the CBI.

Firms with a turnover of between £10 million and £100 million represent less than 1% of businesses but generate 22% of economic revenue and 16% of all jobs.

The UK’s leading business group is today (Monday) publishing a major new report, called Future Champions: unlocking growth in the UK’s medium-sized businesses, using new analysis conducted with the help of McKinsey & Company.

The CBI is calling for a broader range of finance to be made available to medium-sized businesses (MSBs). With banks’ lending constrained, these firms can no longer rely solely on bank lending for long-term growth capital to invest in their companies.

Business owners and managers will be crucial to unlocking MSBs’ true potential, and the CBI makes a series of recommendations for building their capabilities and inspiring them to strive for even greater growth.

John Cridland, CBI Director-General, said:

“Medium-sized businesses are truly a forgotten army, and now is the time to unlock their potential.

“We should be championing, nurturing and encouraging our medium-sized firms so that more of them grow and create jobs. For too long these companies, which could inject tens of billions of pounds into our economy, have fallen under the radar of policymakers.

“I want the UK to have its own version of the German “Mittelstand” – a backbone of medium-sized firms which export, innovate and generate growth. These future champions would help the UK weather unexpected economic shocks, and act as a new engine for growth.

“To achieve extra growth, medium-sized firms must have access to new kinds of finance. This means opening UK bond markets to medium-sized businesses, encouraging use of venture capital, and making it easier for large companies to invest in medium ones, possibly in their supply chains.”

The contribution MSBs make to the UK economy is much smaller than in France and Germany, where they contribute a greater share of total revenue and generate a significantly higher proportion of jobs. The main reason for this is that, while some MSBs perform extremely well – the “gazelles” – others are lagging behind.

However, many MSBs operate in sectors with high productivity growth. And if MSBs had been able to raise their productivity between 2002 and 2007 as much as large firms operating in the same sectors, their annual rate of productivity growth would have been one per cent higher than the largefirms.

Figures provided to the CBI by NESTA reveal that just 6% of MSBs create 60% of all the new jobs created by the sector. If more firms could reach their potential to grow, this could help achieve an extra £20bn to £50bn by 2020, a major boost to the UK’s GDP.

MSBs could play a crucial role in rebalancing the economy, and create new jobs in areas most affected by public spending cuts. In the North East, where unemployment reached 11.3% in the three months to August 2011, MSBs already account for about 20% of all jobs. Mid-sized firms also represent 30% of the UK’s manufacturing base.

A map is attached showing how MSBs account for a higher proportion of economic activity in regions with higher unemployment.

Financing future champions
The CBI wants the Government to make bond markets more accessible to MSBs in the UK. It is calling for it to work with the financial services industry to enable more MSBs to issue bonds and use new products based on MSB bonds to attract new investors.

The Government could then kick-start demand through credit easing, using public money to back these bonds.

The report calls for MSBs to be able to access a broader range of capital release equity. There are already new initiatives such as the Business Growth Fund, but the CBI suggests re-instating a Corporate Venturing Incentive to encourage large firms to invest in medium ones, and making equity investments tax deductible so that they are on a par with debt investments.

Entrepreneurs’ Relief should also be restructured to incentivise longer-term investments, according to the report, withthe threshold for qualifying for the relief brought to below the current 5%.The scope of the R&D tax credit should be widened to include all aspects of design to help encourage even more innovation amongst MSBs.

Growing future champions
To build up the capabilities of MSBs which have very low or declining growth rates, the CBI proposes that:

• The CBI and the Department for Business encourage large firms to work with MSBs in their supply chain to share best practice and increase levels of leadership, innovation, exports, recruitment and financing.
• The CBI brings firms together to share experiences of management challenges, financing options and exporting to help them plan for growth by learning from other MSBs and industry experts.
• The Department for Business and trade bodies identify sectors which would benefit from surveys of management skills, working with specialists such as the British Quality Foundation to establish a cost effective method of helping MSBs identify ways to improve capability.

To encourage more MSBs to export their products and services, UK Trade & Investment (UKTI) should proactively target medium-sized firms, suggesting sources of advice and providing insights into international competition. The CBI would also like to see more MSBs included on international trade delegations.

Engaging future champions
MSBs have traditionally lacked channels of dialogue with government. Just one member of the Prime Minister’s Business Advisory Council is currently an MSB, and Government policy usually focuses on the very large firms or the very smallest.

The CBI is urging the Government to recruit more MSBs to the Prime Minister’s Business Advisory Council, and to ensure its policy initiatives cater for MSBs.

Please note: Information in this blog post is content property of Business Credit Management UK (www.creditman.co.uk) and the full original article can be found by clicking here.

As protests against financial power sweep the world this week, science may have confirmed the protesters’ worst fears. An analysis of the relationships between 43,000 transnational corporations has identified a relatively small group of companies, mainly banks, with disproportionate power over the global economy.

The study’s assumptions have attracted some criticism, but complex systems analysts contacted by New Scientist say it is a unique effort to untangle control in the global economy. Pushing the analysis further, they say, could help to identify ways of making global capitalism more stable.

The idea that a few bankers control a large chunk of the global economy might not seem like news to New York’s Occupy Wall Street movement and protesters elsewhere. But the study, by a trio of complex systems theorists at the Swiss Federal Institute of Technology in Zurich, is the first to go beyond ideology to empirically identify such a network of power. It combines the mathematics long used to model natural systems with comprehensive corporate data to map ownership among the world’s transnational corporations (TNCs).

“Reality is so complex, we must move away from dogma, whether it’s conspiracy theories or free-market,” says James Glattfelder. “Our analysis is reality-based.”

Previous studies have found that a few TNCs own large chunks of the world’s economy, but they included only a limited number of companies and omitted indirect ownerships, so could not say how this affected the global economy – whether it made it more or less stable, for instance.

The Zurich team can. From Orbis 2007, a database listing 37 million companies and investors worldwide, they pulled out all 43,060 TNCs and the share ownerships linking them. Then they constructed a model of which companies controlled others through shareholding networks, coupled with each company’s operating revenues, to map the structure of economic power.

The work, to be published in PLoS One, revealed a core of 1318 companies with interlocking ownerships (see image). Each of the 1318 had ties to two or more other companies, and on average they were connected to 20. What’s more, although they represented 20 per cent of global operating revenues, the 1318 appeared to collectively own through their shares the majority of the world’s large blue chip and manufacturing firms – the “real” economy – representing a further 60 per cent of global revenues.

When the team further untangled the web of ownership, it found much of it tracked back to a “super-entity” of 147 even more tightly knit companies – all of their ownership was held by other members of the super-entity – that controlled 40 per cent of the total wealth in the network. “In effect, less than 1 per cent of the companies were able to control 40 per cent of the entire network,” says Glattfelder. Most were financial institutions. The top 20 included Barclays Bank, JPMorgan Chase & Co, and The Goldman Sachs Group.

John Driffill of the University of London, a macroeconomics expert, says the value of the analysis is not just to see if a small number of people controls the global economy, but rather its insights into economic stability.

Concentration of power is not good or bad in itself, says the Zurich team, but the core’s tight interconnections could be. As the world learned in 2008, such networks are unstable. “If one [company] suffers distress,” says Glattfelder, “this propagates.”

“It’s disconcerting to see how connected things really are,” agrees George Sugihara of the Scripps Institution of Oceanography in La Jolla, California, a complex systems expert who has advised Deutsche Bank.

Yaneer Bar-Yam, head of the New England Complex Systems Institute (NECSI), warns that the analysis assumes ownership equates to control, which is not always true. Most company shares are held by fund managers who may or may not control what the companies they part-own actually do. The impact of this on the system’s behaviour, he says, requires more analysis.

Crucially, by identifying the architecture of global economic power, the analysis could help make it more stable. By finding the vulnerable aspects of the system, economists can suggest measures to prevent future collapses spreading through the entire economy. Glattfelder says we may need global anti-trust rules, which now exist only at national level, to limit over-connection among TNCs. Sugihara says the analysis suggests one possible solution: firms should be taxed for excess interconnectivity to discourage this risk.

One thing won’t chime with some of the protesters’ claims: the super-entity is unlikely to be the intentional result of a conspiracy to rule the world. “Such structures are common in nature,” says Sugihara.

Newcomers to any network connect preferentially to highly connected members. TNCs buy shares in each other for business reasons, not for world domination. If connectedness clusters, so does wealth, says Dan Braha of NECSI: in similar models, money flows towards the most highly connected members. The Zurich study, says Sugihara, “is strong evidence that simple rules governing TNCs give rise spontaneously to highly connected groups”. Or as Braha puts it: “The Occupy Wall Street claim that 1 per cent of people have most of the wealth reflects a logical phase of the self-organising economy.”

So, the super-entity may not result from conspiracy. The real question, says the Zurich team, is whether it can exert concerted political power. Driffill feels 147 is too many to sustain collusion. Braha suspects they will compete in the market but act together on common interests. Resisting changes to the network structure may be one such common interest.

When this article was first posted, the comment in the final sentence of the paragraph beginning “Crucially, by identifying the architecture of global economic power…” was misattributed.

The top 50 of the 147 superconnected companies

1. Barclays plc
2. Capital Group Companies Inc
3. FMR Corporation
4. AXA
5. State Street Corporation
6. JP Morgan Chase & Co
7. Legal & General Group plc
8. Vanguard Group Inc
9. UBS AG
10. Merrill Lynch & Co Inc
11. Wellington Management Co LLP
12. Deutsche Bank AG
13. Franklin Resources Inc
14. Credit Suisse Group
15. Walton Enterprises LLC
16. Bank of New York Mellon Corp
17. Natixis
18. Goldman Sachs Group Inc
19. T Rowe Price Group Inc
20. Legg Mason Inc
21. Morgan Stanley
22. Mitsubishi UFJ Financial Group Inc
23. Northern Trust Corporation
24. Société Générale
25. Bank of America Corporation
26. Lloyds TSB Group plc
27. Invesco plc
28. Allianz SE 29. TIAA
30. Old Mutual Public Limited Company
31. Aviva plc
32. Schroders plc
33. Dodge & Cox
34. Lehman Brothers Holdings Inc*
35. Sun Life Financial Inc
36. Standard Life plc
37. CNCE
38. Nomura Holdings Inc
39. The Depository Trust Company
40. Massachusetts Mutual Life Insurance
41. ING Groep NV
42. Brandes Investment Partners LP
43. Unicredito Italiano SPA
44. Deposit Insurance Corporation of Japan
45. Vereniging Aegon
46. BNP Paribas
47. Affiliated Managers Group Inc
48. Resona Holdings Inc
49. Capital Group International Inc
50. China Petrochemical Group Company

* Lehman still existed in the 2007 dataset used

Please note: Information in this blog post is content property of New Scientist (http://www.newscientist.com/) and the full original article can be found by clicking here.

Former Celtic striker John Hartson has revealed that he is being hounded by creditors over more than £300,000 of gambling debts.

Despite having signed up to an Individual Voluntary Agreement, the ex-football star has claimed that people are still “hassling” him for cash.

The 36-year-old father of four told a National Newspaper: “Some people just can’t let it go and they are still hassling me. They are still offering me the opportunity to bet, trying to make a way into my friendship. I don’t want to go down that road again.”

The former Wales International, who has survived a battle with testicular cancer, said bookmakers are still hounding him in an attempt to get him to start gambling again, despite being signed up to an IVA.

He confessed that he previously owed up to £400,000 as a result of his betting addiction.

The IVA agreement John Hartson has entered into will see him repaying 12p of every pound of the remaining debts owed. He now lives off a self-imposed £250-a-week budget.

Having previously played for Arsenal and West Ham as well as Celtic, the former footballer has now had his pension taken away to pay off creditors.

He continued, “I’ve paid back as much as I can of my debt. I cannot physically afford to repay any more. At one point I owed between three and four hundred grand. “I have done my best to pay back what I can because I have never knocked anyone in my life. I’m a good guy. I was struggling with an illness: gambling.”

Please note: Information in this blog post is content property of Business Credit Management UK (www.creditman.co.uk) and the full original article can be found by clicking here.

The Institute of Credit Management (ICM) and the Minister of State for Business and Enterprise Mark Prisk have published their monthly ‘tip’ for small businesses to better manage their cashflow.

“Have a system for resolving disputed invoices promptly, especially if a customer is using a small query to withhold a large payment.”

The cashflow ‘tips’ are derived from the series of Managing Cashflow Guides published by the ICM for BIS that have to date been downloaded more than 245,000 times.

For further information, log on to http://www.creditmanagement.org.uk/bisguides.htm

A targeted VAT cut and a National Insurance Contributions (NICs) holiday must be introduced for small firms as small business confidence fell to -9.3 due to the pressure of weak demand and rising costs, according to the Federation of Small Businesses (FSB) ‘Voice of Small Business’ Index.

The Index – which has been a good predictor of the path GDP will take – fell by 9.6 points from +0.3 to -9.3 in the third quarter as more businesses lost confidence in the economy. This news comes just weeks after GDP was revised downwards to 0.1 per cent in the second quarter and ahead of third quarter figures due next week.

And, in more gloomy news, figures last week showed unemployment reached 2.57 million and youth unemployment almost reach the one million barrier. A balance of six per cent more businesses surveyed by the FSB think that they will lay people off in the coming three months, pointing to a further increase in unemployment by the end of the year.

The FSB has long called for the current NICs holiday to be extended to existing businesses across the UK that have fewer than four employees and that employ up to the three more staff.

One in 10 businesses (11%) said that extending the NICs holiday would be an incentive to take on staff, according to recent FSB research. The current NICs holiday is only open to new start ups and has not had the take-up that the Government expected it to, with only 7,000 businesses using it. By extending it, the Government has the opportunity to put more people in a job which in turn would boost the tax base and money to the treasury.

Consumer demand is also a large barrier to economic growth and so the FSB has called for a targeted and time specific VAT cut to encourage people to spend in these areas. The FSB is urging the Government to follow the lead of other EU countries and cut VAT in the construction and tourism sectors to five per cent for a year to help give the economy a real boost.

In addition, a NICs holiday would also offset increasing cost pressures on firms. More than three quarters of the firms surveyed said that their costs had increased in the quarter, mainly due to rising commodity prices as more than half of respondents (57%) cite rising energy costs, and 49 per cent increase in the cost of raw materials as the reason.

John Walker, National Chairman, Federation of Small Businesses, said:

“As businesses come to terms with the double whammy of falling revenues and rising costs, it is no wonder that they’re losing confidence, and unfortunately, as their overheads increase one way to control it is to lay off staff.

“It is the first time since we started the Index that we have seen more people believe that they’re going to lay off staff than take them on. This has to show the Government that a more robust plan for growth is needed.

“Moreover, this is the first time that we have seen confidence in all regions of the UK in negative territory. We urge the Chancellor to look closely at our NICs holiday proposals and bring this forward in his Autumn Statement. We fear that without it, the recovery will falter once more.”

Please note: Information in this blog post is content property of Business Credit Management UK (www.creditman.co.uk) and the full original article can be found by clicking here.

According to the latest Business Failures figures from leading business information provider, Equifax, the hard economic conditions are continuing to take their toll on UK businesses.

The Equifax Quarter 3 Business Failures Report shows a 20.3% Year on Year increase in companies going under and a 7.8% increase Quarter on Quarter. With a total of 7,994 businesses failing in Q3 2011, this is the highest number of failures for more than 12 months and is not far short of the peak in numbers seen in Quarter 2 2009 (8874).

Key Numbers

• 20.3% increase in businesses failing in Quarter 3 2011 compared to the same period in 2010
• 7.8% increase in failures for Quarter 3 2011 compared to Quarter 2 2011
• East Midlands is the only region to see a drop in the number of businesses failing Year on Year
• Wales sees the biggest Year on Year increase in companies failing
• The Principality also sees the biggest rise in failures Quarter on Quarter
• Retail is the sector hardest hit Year on Year with a 41.8% increase
• Numbers of businesses failing in the Transport & Communications sector drops both Year on Year and Quarter on Quarter

“This new Report continues the disappointing trend we saw start in the Summer”, said Mark Nuttall, Director, Equifax Commercial & SME. “The reality is that businesses are continuing to find it much harder to keep their heads above water as the economy fails to pick-up. The failures in the Retail sector in particular reflect the lack of consumer confidence being reported from the High Street.

The Regional Picture

According to the latest figures from Equifax, the East of England appears to be the most resilient region across the country this year, with a Quarter on Quarter drop in failures of 10%. Close neighbour, East Midlands also showed a fall in businesses going under – 4.5% – when compared to the same period in 2010.

But businesses in other parts of the country are finding it harder to survive. Wales recorded the greatest Year on Year increase in failures in Quarter 3 at 37.1%, closely followed by Scotland with a 34.1% increase in failures. However, Equifax points out that the numbers affected in these regions are relatively small when compared with other areas of the country where the overall numbers are much larger.

Perhaps more significant is the 30.4% increase in failures Year on Year for London where the numbers are much bigger. Businesses in the South East also appear to be facing a continuing struggle with a 27% rise in failures Year on Year.

Retail heads the Sectors for increase in failures

In the key business sectors of the UK economy, Retail continues to be hit hardest with a 41.8% increase Year on Year in failures. The Construction industry is also finding conditions challenging with a 22.6% rise in companies going under.

The Transport & Communications sector, however, is showing some resilience with a 5.4% drop in failures for Quarter 3 compared to Quarter 2 this year.

“It’s not surprising that more businesses are finding it too difficult to survive” concluded Mark Nuttall. “That’s why those businesses that have survived so far need to continue operating best practice and harnessing the power of the latest risk management solutions to minimise the threat of bad debt and secure the future of their business.

“The importance of monitoring existing customer performance cannot be over-stated to ensure businesses weather the unpredictable conditions that exist at the moment.”

It should be noted that the definition of a business failure in the Equifax report is any business with a winding up order, or in liquidation – NOT those in administration, receivership, and company voluntary arrangements.

Please note: Information in this blog post is content property of Business Credit Management UK (www.creditman.co.uk) and the full original article can be found by clicking here.

Richard Threlfall, KPMG’s UK head of infrastructure, building and construction comments on the latest construction output figures by the Office for National Statistics:

“The latest construction output figures are yet more evidence that the green shoots of recovery are withering; particularly worrying is the near 25% fall in private industrial new work. It’s clear that sustainable recovery needs to be driven by private sector investment and this big drop shows the lack of confidence across the industry.

Without a foreseeable uptick in the coming quarter the impact on the construction market is expected to be sharp and prolonged. However, there is some small comfort in the 3.3% lift in private new housing – new house starts are probably the Government’s quickest way of injecting short-term growth.”

Please note: Information in this blog post is content property of Business Credit Management UK (www.creditman.co.uk) and the full original article can be found by clicking here.

Profit warnings from UK quoted companies dropped significantly in the third quarter of 2011; but diminished expectations, rather than economic improvement is behind much of the fall, according to Ernst & Young’s latest Profit Warnings data.

UK quoted companies – Main Market and AIM listed – issued 51 profit warnings in Q3 2011, 11% more than the same quarter of 2010 (46 warnings) and 28% fewer than were issued in Q2 2011 (64 warnings).

Alan Hudson, head of Ernst & Young’s UK restructuring practice, says, “Undoubtedly, part of the drop is due to limited growth in the UK economy which, when combined with operational efficiencies, is helping companies to meet profit expectations. However, it is also true that these profit expectations have been scaled back significantly over the summer, hit by escalating fears of a double dip.”

Retailers share their pain with construction
The FTSE sectors with the highest number of profit warnings this quarter were General Retailers and Media with six, and Software & Computer Services and Construction & Materials with five.

UK retailers face their biggest test since 2008. Quoted Retailers have already issued more profit warnings in the first nine months of 2011, than in the whole of 2010 and 2009 combined, and will be approaching Christmas with more than the usual mixture of hope and trepidation. Keeping a tight rein on stock and cash levels will be vital in the lead up to Christmas and the December quarter rent day.

Hudson comments, “As we move into the vital final quarter, profit will come second to cash flow concerns for those retailers who have already dug deep into their reserves to put stock on the shelves and pay the rent. Some are clearly running on empty and desperately need tills to start ringing quickly.
“Some in the sector are clearly up against it as competition and pricing intensifies and the consumer remains cautious. Retail insolvency usually peaks in January, but there is danger that we might see further retailers fail in the final months of 2011 as they run out of cash.”

Construction & Materials was the FTSE sector with the highest proportion of companies warning this quarter, with 15% of companies warning in Q3 and 24% in the year-to-date.
“The long construction pipeline has delayed the impact of the slowdown and austerity in the sector, but cracks are now starting to show. The pain is focused mainly at the small to medium end, where there is less of a buffer against contract loss,” Hudson adds.

US recovery and eurozone crisis adds uncertainty
The economic outlook at the start of 2011 appeared to be improving, but there is clear potential for the UK’s economic situation to turn ugly again. Domestic growth is weakening, whilst a waning US recovery and the escalating eurozone debt crisis present a further threat to both capital and growth. Not least because governments and central banks have far less firepower than in 2008.

Keith McGregor, EMEIA restructuring partner at Ernst & Young comments, “With the largest domestic GDP contributors ex-growth and its biggest trading partners spluttering, the UK economy needs the private sector to invest the cash it has kept on the sidelines for the past three years. But in the face of such uncertainty, there is a danger that businesses continue to hold back and, unless confidence returns, the UK economy could stall for some time to come.”

Volatility turns forecasting into a guessing game
There is still some debate as to whether analyst profit downgrades have gone far enough in some sectors. Commodity pricing pressures appear to have eased, but the impact of currency movements still make for an extremely volatile and unpredictable environment.

But the biggest risk in terms of demand and currency volatility comes from the eurozone where the endgame is still impossible to predict.
McGregor concludes, “Given the increasing economic worries at home and abroad, many UK quoted companies have been exceptionally cautious in their recent outlook statements. This means a tough 2011 and an austerity Christmas is priced in for most quoted UK companies and even a flat final quarter could result in a only a modest year-on-year rise in profit warnings.

“However, events could easily overtake forecasts, especially for those heavily exposed to the beleaguered peripheral economies of the eurozone and those serving the consumer, where confidence rests on a knife-edge.

Please note: Information in this blog post is content property of Business Credit Management UK (www.creditman.co.uk) and the full original article can be found by clickinghere.