The SME Drag Effect in the West Midlands Economy

Yoruk, Deniz E. and Gilman, M. (2021) The SME Drag Effect in the West Midlands Economy. Project Report. CEIG Website.

CEIG_SME drag effect report 1.pdf - Published Version

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Our main objective is to highlight that deeper and targeted investigation of the development and growth of SMEs in particular regions might facilitate policy development that drives SME growth. With this in mind, we have produced three reports, of which this is the first.

This report focuses on the key economic data on the West Midlands in the last twenty years with the main objective of providing an analysis of the SME economy in the West Midlands with a particular focus on the Greater Birmingham and Solihull Local Enterprise Partnership (GBSLEP) and Black Country Local Enterprise Partnership (BCLEP).

Our findings show that in the last five years whilst the West Midlands’ was experiencing prospering economic growth prospects the SME part of the economy was experiencing a ‘drag effect’ .

Our analysis highlights a flourishing West Midlands economy since the 2008 Global Financial Crisis (GFC). However, a detailed look at the SME data displays an intensifying low set of productivity levels in the region’s SME economy indicating that the West Midlands economy does not necessarily operate at its full potential.

Despite the improving productivity levels in the West Midlands since 2012, the productivity levels of GBSLEP lagged significantly behind the West Midlands productivity levels until 2016. Oscillations in the productivity levels of BCLEP has been commonplace since 2008 GFC.

We postulate the differences in the productivity patterns of GBSLEP and BCLEP might be due to the changes in their industrial structure, in the characteristics of SMEs and in the targeted SME policies:

• A regional productivity analysis by ONS (2018a) substantiates the West Midlands being the only region with an SME drag effect due to a contrasting relationship between industry structure and firm productivity. The changes to the industry structure positively affect the region’s productivity levels, yet it is not large enough to compensate for the effect of the low average firm productivity levels.

• We observe a deepening productivity problem in micro and small enterprises in the West Midlands more than any other firm category.

• The West Midlands’ share of HGFs is below the UK average and fluctuating from year to year without ensuring a steady impact on productivity. The share of HGFs in GBSLEP and BCLEP continues to fall as opposed to a recovery, as would be expected from the targeted policies these firms received.

We recommend that reducing the SME drag effect on the West Midlands economy can be achieved by shifting attention to SMEs that grow 5-20% annually and/or over the three years.

Item Type: Monograph (Project Report)
1 March 2021Published
Subjects: CAH15 - social sciences > CAH15-02 - economics > CAH15-02-01 - economics
CAH17 - business and management > CAH17-01 - business and management > CAH17-01-02 - business studies
Divisions: Faculty of Business, Law and Social Sciences > Birmingham City Business School
Depositing User: Deniz Yoruk
Date Deposited: 03 Dec 2021 10:56
Last Modified: 22 Mar 2023 11:48

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