SMEs in the Midlands look to post-Brexit opportunities, but concerns over productivity and systems remain

  • Two thirds of SMEs in the Midlands want Government to prioritise new trade deals
  • Germany should be the priority EU member for new trade agreements
  • Half of SMEs in the Midlands will continue with planned capital investment in the next 12 months
  • But a fifth have put recruitment plans on hold
  • Close to half do not have the necessary management information to assess and plan for the impact of Brexit

Agreeing access to the EU Single Market and negotiating trade deals with non-EU countries should be the Government’s main priorities as it negotiates the UK’s exit from the European Union.

That’s according to a post-referendum survey of SMEs, conducted for PwC’s My Financepartner<http://www.pwc-myfinancepartner.co.uk> (MFp).

The online survey of a representative sample of 566 SMEs from across Britain (including 82 from the Midlands region) with an estimated combined turnover of over £5.7bn*, says trade deals and market access are more important than immigration targets, or environmental legislation and emission targets.

Two thirds (66%) of firms say Westminster should focus on agreeing continued access to the single market, while 62% also want trade deals to provide access to non-EU markets.

Germany would be the top priority EU market for 67% of SMEs with the next preferred export markets – France and Ireland – lagging well behind and favoured by only 5% and 3% respectively.

In the Midlands, the key findings were:

  • Two thirds (65%) of SMEs in the Midlands want government to prioritise new trade deals.
  • 66% of SMEs in the region think Germany should be the priority EU member for new trade agreements.
  • Half of SMEs (49%) in the Midlands will continue with planned capital investment in the next 12 months.
  • 43% of SMEs in the Midlands plan to continue to hire staff to support their growth, but a fifth (19%) have put plans on hold.
  • Close to half (44%) do not have the necessary management information to assess and plan for the impact of Brexit.

Across the UK, while SMEs see market access and trade as government priorities, only a fifth (21%) of respondents believed the UK Government should prioritise environmental legislation and emission targets, with 40% believing that setting immigration targets should be a government priority.

However, despite opting for trade over environment and immigration, only 38% of companies say they have a clear plan to drive their growth in the aftermath of the EU referendum outcome, with nearly half (46%) saying the government should focus on support for UK exporters looking to expand outside the EU.

And when it comes to growth, almost a third of all respondents (32%) said they intended to grow their workforce over the next 12 months.

Perhaps insulated by their size, medium sized businesses (45%) are more confident than smaller businesses (29%). Across the board however, a fifth (21%) plan to put recruitment on hold.

While opinions are mixed over strategy and recruitment, a similar picture emerges when it comes to productivity. Some 41% expect Brexit to increase their cost-base, while only 25% expect their prices to increase.

Unsurprisingly then, just under a quarter (24%) say they have the right level of management information (MI) to help them fully measure and predict the impact on their business.

Ruth Chapman, My Financepartner<http://www.pwc-myfinancepartner.co.uk> leader for PwC in the Midlands, says the absence of reliable or appropriate management information will not help SMEs make decisions that are right for them:

“What’s worrying here is that, while most companies have clear views about what they want in terms of market access and government priorities, when it comes to strategy, pricing and management information, there is much less confidence and certainty.

“Many of the businesses surveyed have contingency plans to grow their business and take advantage of the opportunities that leaving the EU will bring – and that’s welcome.

“However, the inability to pass costs on to your customers will squeeze margins and ultimately reduce productivity while the lack of genuine insight by internal management information systems could leave companies unable to make informed choices.

“The level of confidence in new opportunities in new post-EU markets is encouraging, but companies need to have the confidence in their data in order to make informed choices at pace.”

Looking behind the headlines the MFp survey found that maintaining access to the single market was particularly important for companies in Manufacturing (68%), Retail (62%) IT (74%) and Media (69%).

Generally, the bigger the company as measured by turnover, the greater the importance of retaining single market access.

Companies in London and the South East were particularly anxious to retain EU single market access post Brexit (74% and 72% respectively), as were 73% of Scottish SMEs. In the pro Brexit heartlands of the Midlands, however, only 53% saw this as a priority.

Turning to the adequacy of current MI systems and their ability to measure and predict the impact of Brexit on their business, just over half (52%) said their MI systems either lack sufficient detail or does not help them assess the impact.

Larger SMEs struggle most, the survey found, with 65% of businesses with between £1m – £9.9m annual turnover and 69% of those with annual revenues of £10m or more claimed that they don’t have the MI they need to predict and measure the impact of Brexit on their business.

Ruth Chapman, added:

“History has taught us that UK business is adaptable and innovative when confronted with new challenges and opportunities.

“It is precisely this adaptable spirit, combined with foresight and planning which will allow the businesses to weather the storm – and indeed thrive.

“However, as the survey results show, without a robust plan coupled with clear, accurate management information, SMEs may struggle to remain competitive.”

Looking to the regions, where SMEs represent the heart of communities it’s not surprising that their levels of optimism, for the most part, mirrors the voting patterns of the EU referendum itself.

In the Midlands, which voted to leave the EU, only 22% of SME decision makers surveyed believe their prices are likely to increase.

This confidence is also apparent when asked about their growth prospects, with 43% of Midlands SMEs claiming that they will continue to hire additional staff to support their growth in the next 12 months.

Businesses in London and Scotland however, are the most pessimistic about the future. In these pro EU heartlands, 41% of London businesses and 40% of Scottish businesses questioned said they are less likely to make capital investments into their businesses in the next 12 months.

SMEs in London and Scotland also believe their costs (54% and 48% respectively) and prices (27% and 36%) are also likely to rise as a direct result of the UK’s exit from the EU.

Ruth Chapman, concluded:

“Entrepreneurs’ ability to turn on a sixpence and make things happen is quite often a hallmark of their success. So, at times like this, the most important thing is to ‘keep calm and carry on’.
“Our survey paints a picture of SMEs largely united in urging Government to maintain the status-quo in terms of access to the single market, to open up new markets and to support companies as they realign export activities.

“However, the companies themselves are often uncertain of the most appropriate course of action to prepare for a UK outside the EU and much of that uncertainty stems from a lack of confidence in their own decision-making and management information systems.

“Now is the time for owner managers to pause and take stock of the situation, review the effectiveness of management information systems, and devise a well thought-through plan based on the specific risks and opportunities facing the business.

By doing so Britain’s SME owner managers will help to ensure that their business is ready to react no matter what changes Brexit brings.”

 

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