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Contribution of SMEs to the UK Economy in Terms of Employment
SME stands for small or medium sized enterprises. Munro D. (2013) touches upon the distinctive requirements a company needs to be defined as one, for example, a company can only be categorized as an SME in the UK if the amount of staff working for them is below 250, and the total amount received from the Statement of Financial Position (SOFP) is less than or equal to £34 million (The FSE Group, 2018). SMEs are looked at as a key part of the economic structure in developed countries such as the UK with reporting that small businesses accounted for 99.3% of organizations in the private sector in 2017. Also, they go into more detail about the total employment in SMEs being 16.1 million (ANON. 2018) which highlights the fact that more than half of employment in the private sector is coming from SMEs. These statistics indicate how SMEs create many jobs, although the quality of the job isn’t taken into account. Hackman and Oldham’s (1976, p. 250) job characteristics model explores the relationship of the quality of the job and tasks the employee is given and how this might affect their motivation at work. This theory helps the reader to understand how important financial and non-financial factors are in relation to the quality of job given. However, it doesn’t go into further detail to specify whether larger organizations are the ones handing out these ‘quality jobs’, or if these types of jobs are coming from SMEs. Nevertheless, many researchers have noted that access to capital for owners of SMEs is very limited. This means that it might be more difficult for SMEs to provide quality jobs which could be one barrier which is inhibiting their development.
In the first couple years of trading, SMEs would be looking at survival as their main corporate objective with their being no genuine impact being made on the economy if they were to not focus on surviving and go bankrupt after a year with all these jobs already being created. The Office for National Statistics (Scruton et al., 2018) does not support the idea of a low survival rate for SMEs as its discoveries show that 60.5% of SMEs created in 2011 have survived at least three years. This evidence indicates that SMEs can create very important jobs. The findings included small firms that are both innovative and non-innovative. Although, it doesn’t state which type of firm contributes more in creating jobs. Many writers argue that high growth innovative firms are in the lead in terms of job creation due to the fact that they’ll need to employ more workers with it being easier to create new ideas, processes and enter niche markets with more employees being involved in the decision-making process. This highlights how the managers and directors of SMEs should be taking a more democratic leadership approach. However, this could potentially slow down the decision-making process which ultimately gives you less room for error. Furthermore, not every high growth firm in the SME sector has to be innovative with different markets having different needs, and many markets being unsaturated making it easier for the smallest of companies to enter.
A well-developed SME sector can positively affect economic growth and increase GDP with SMEs adding £473 billion to the UK economy (ANON, 2018). All things considered, as well as the economic benefits that SMEs bring, they are also responsible in giving back to society with many having a high corporate social responsibility (CSR) status is at a respectable level. This means that they voluntarily interlink the social concerns they might have into their business operations with their employees, for example, SMEs have given a chance for low skilled workers to develop their skills by the way of training and skills development with recent surveys showing that 55% of SME employers arranging funded training or development for staff in the 2016 (Longitudinal Small Business Survey Year 2, 2016). They also help their employee’s access to public sector needs such as health care which is important as it suggests that they are looking into helping to fix real life issues going on today, such as the fluctuating employment and poverty rate with many people being in the category of relative low income and as many as 4.6 million people were experiencing ‘persistent poverty’ (ANON, 2018), although, in recent years, this has started to decline in and around the aftermath of the recession with increases in employment also starting to occur.
Even though SMEs can be very successful, the biggest types still may not be able to contribute as much to employment the same way larger organizations do. However, in recent years, statistics show this may not be the case for much longer. A simple survey conducted by the Academy for Chief Executives (2018) which was gathered as recently as September 2018 highlighted that the main issue involving the success of UK SMEs at this moment of time is ‘people’ who are a key part of the marketing mix. They concluded that there were many different problems that these businesses were facing in regards to people, for example, in order for the business to grow both organically and externally they would have to look at recruiting the right individual for the job which might need them to check if they have the appropriate qualifications. The latest Aldermore Future Attitudes report reveals that 67% of SMEs find it difficult to hire qualified staff members or keep existing talent in their companies. The evidence indicates that SMEs may not be able to offer certain roles which larger organization will due to the fact that they put a large amount of emphasis on creating ‘quality’ jobs as this will benefit them in the long term with retaining and developing a workforce saving costs and time in the long term.
It is common business knowledge that SMEs have many opportunities to grow; however, the actual challenge they face is financing these opportunities which are coming their way. This is because it is currently difficult for smaller firms to gain access to finance with SMEs usually being met with higher interest rates in comparison to larger organizations due to a shortage of assets in order to secure loans. These financial problems they face can impact the amount in which they contribute to employment in the future as these firms may start to focus their strategies on other areas rather than training and developing employees. As a result, this could lead to a higher labor turnover.
To conclude, it is evident that SMEs are very important to the UK economy in terms of employment. But then again, many researchers have come to an agreement that this hasn’t always been the case with statistics from the financial crisis going against the idea that SMEs create significant new jobs. This could possibly change again in the near future with the Bank of England warning that a no-deal Brexit could trigger an even worse recession than the last financial crisis (BBC News, 2018), which could possibly impact both the poverty and employment rate negatively like it did during the last recession. Nevertheless, the findings presented in this essay highlight that it is looking very positive as of this moment right now in regards to job creation with SMEs having a different variety of jobs available as they’re able to grow so much due to the conditions of different markets, some very competitive, but others being unsaturated.
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