Concern Over the Economy is Driving SME Innovation
British entrepreneurs, by their very nature, show incredible strength, belief and creativity. In arguably the most challenging economy of the past 100 years, it has never been a more testing time for Small and Medium-sized Enterprises (SMEs) to put these attributes into practice; a volatile economic climate is forcing SMEs to put their cards on the table and show their courage and dynamism in order to achieve success.
UK SMEs are facing an unpredictable, diverse and volatile risk environment, with narrowing profit margins, tighter operating environments and uncertain revenue streams. In our latest survey of SMEs, the quarterly Zurich SME Risk Index revealed that 84% of the companies surveyed told us that they are concerned about the current economic climate, with three in five businesses (60%) not confident that the economy will improve over the next year.
After a double dip recession and given the current Eurozone debt crisis, bricks and mortar is not providing the stable investment it once did; the survey shows us that concern over the state of the economy is highest amongst those SMEs in the construction industry (93%), this is closely followed by manufacturing businesses (88%) and retailers (85%).
The pressure on these businesses to remain efficient and maintain a flexible (variable) operating cost base is quite tangible. It has culminated in over one in ten SMEs (13%) stating they have considered closing down their business in the last quarter. Interestingly, this is up from 11% in the quarter before and rises to a quarter (25%) for those in the construction industry (vs. 15% the quarter before). It’s no surprise that more than half of SMEs (53%) feel that the current business environment is more risky than this time last year.
The latest figures from Office of National Statistics (ONS) revealed that the unemployment rate fell by 50,000, showing that there is some overall growth in the economy. But while it’s clear there are signs of improvement, smaller businesses have a unique challenge, trying to balance keeping operating costs low whilst retaining staff, if possible, in order to find revenue growth. To put this into some perspective, 63% of SMEs said they were concerned about current revenue and income stream generation today, one in six (15%) SMEs have had to reduce staff numbers in the last financial quarter and over one in ten (12%) have had to reduce wages whilst maintaining staff numbers.
So, in this atmosphere of uncertainty and financial instability, how are SMEs trying to buck the trend? Encouragingly, they are fighting back with dynamic measures, focusing on web-based solutions and innovation to cut costs, which show a positive sense of ambition and desire for growth.
Our survey showed that over half (56%) have expanded business activity to target new customers. Moreover, 31% of respondents are seeking to diversify their business offering through methods such an expanded product range and services. When asked to list three opportunities for their business, 23% of respondents said web-trading, 22% business innovation such as teleworking, and 19% access and expansion to overseas markets and customers.
At Zurich, we’re committed to helping SMEs grow, working through professional insurance brokers to provide businesses the advice and cover needed to handle the risks and challenges they face now, as well as helping prepare for the ones they may encounter in the future. The fact that the majority of British SMEs have expanded their business activity to target new customers is reassuring.
It demonstrates their ability to adapt, even in the most extreme circumstances; they are taking forward their own measures and diversifying their business to navigate through this difficult climate. SME owners should continue to do this, while seeking expert independent risk advice where necessary. Although many SMEs are sceptical about the current economic climate, it is important they don’t lose confidence and keep demonstrating the creativity which is the lifeblood of the UK economy.
For more information on Zurich’s SME advice and cover, click here: www.zurich.co.uk
Author: Richard Coleman, Director of SME, Zurich Insurance