Posts Tagged ‘GE Capital’

Developing a Mittel-brand

posted by Matt Battersby

GE Capital (one of our clients) recently hosted a very successful event about midmarket businesses in the UK called ‘Leading From The Middle: The Untold Story of British Business’. The speeches (including one from Vince Cable) and panel discussions focused on how we can strengthen the UK’s mid-sized businesses that are currently providing much of the UK’s economic growth but still not performing to their full potential.

One interesting point raised was the impact of having no clear label or brand for mid-sized companies in the UK. This is unlike Germany where Mittelstand has become a globally recognised term for more than three million firms known for their family ownership, market niches and high-quality products. 

In the UK the closest term we have is SMEs (Small and Medium Enterprises) but this is much more associated with small or even micro businesses rather than the €20m-€1bn turnover companies in the midmarket.  We also have much clearer terms for larger businesses such as ‘multinational’ which again most of the population would recognise and be able to describe the characteristics of such a business.

Why do we not have a commonly accepted term for midmarket companies and does it matter?

One reason for the lack of a term may be that the whole notion of being ‘middle’ has little instantly apparent positive attributes. Whilst small may be beautiful and might is right, being middle is just, well, distinctly average. Add to this the slightly pejorative use of the term ‘Middle Britain’ and it’s perhaps unlikely that any use of the ‘middle’ label will catch on.

Another reason for the lack of a brand may be that midmarket firms themselves have a bit of an identity crisis. They seem much more likely to identify with their sector than their peers. A midmarket engineering firm, for example, is much more likely to think of itself as manufacturing business than a midmarket one.  The owner of a hairdresser, however, will likely readily identify him or herself as a running a small businesses. This may be one reason why there is a Federation of Small Businesses in the UK but not a Federation of Medium Businesses.

But these explanations assume that for a brand or label to successfully apply to a group of individual entities, the entities themselves need to at least recognise the label as applying to them and also want to identify themselves as such. This is clearly not the case as there are numerous examples of labels being applied to people or organisations that would not necessarily recognise the label as applying to them.

What I believe is clearer, is that a lack of a brand does make a difference for midmarket firms and creating one could bring benefits.

What’s your BRIC strategy?

Perhaps the most successful label to have been created in recent years has been BRIC, which was coined by Jim O’Neill from Goldman Sachs. In little over 10 years, the acronym for Brazil, Russia, India and China has not just defined a group of countries but a whole outlook on the global economy and politics. As Gillian Tett wrote in an article about origins and influence of the BRIC label, it “has become a near ubiquitous financial term, shaping how a generation of investors, financiers and policymakers view the emerging markets.”

Labels may often be too simplistic and downplay the differences between individual entities but they can be very powerful in focusing attention on the importance of the similarities. They not only reflect a current reality but can influence the future as well. How many companies have decided they needed a ‘BRIC strategy’ since the label was created?

Without a midmarket brand name, talking to or about companies as ‘midmarket businesses’ is unlikely to resonate as strongly as it could.  If companies do not think of themselves as a midmarket business, then providing midmarket initiatives, strategy or insights is unlikely to affect the change that is needed for them to compete even more effectively on the international stage.

 Creating a label

So what label or brand name might work for midmarket businesses? The CBI has clearly recognised the importance of creating one and have used terms such as ‘future champions’ and ‘Gazelles’. The advantage of these terms is they focus on common attributes of the midmarket firms rather than just their size. They are also positive labels which means firms themselves may be more willing to classify themselves as such.

Neither seems likely to become the universally recognised label though as most people would find it hard to identify what makes a ‘future champion’ or ‘Gazelle’ let alone apply it to companies they’ve heard of.

Made in Britain?

One thought is that more should be made of the ‘British’ brand. Many at the GE Capital event believed the ‘Made in Britain’ stamp still has significant value, particularly in developing markets and that perhaps UK businesses are too reticent in exploiting this. There may be a lot of truth in this but the term ‘British’ is unlikely to lead us to our midmarket brand name, not least because many firms, even in the midmarket, are foreign owned. Being British should likely form a key part of some business’s messaging but it is not the unifying label.

Given the increasing focus on midmarket business from the Government, CBI and the media, what is clear is that whoever can successfully coin a term for UK midmarket businesses is likely to make a name for themselves.

I’m afraid I am not that person (although I’m still trying). But perhaps there is a reason for that. Perhaps we aren’t ready for a midmarket brand name yet. As the term BRIC showed, labels only work when they group together common attributes and characteristics- when they define a pattern that people had not necessarily seen before but instantly recognise once they are made aware of it.

Perhaps the biggest problem is that too few midmarket firms are well known enough for there to be common attributes that the public would recognise. Labels work best when they group a certain type of person, country or companies that you know. Even midmarket companies themselves do not know many of their midmarket peers.

So yes let’s work towards creating Mittel-brand. But in the meantime, let’s also focus on creating the right environment for a name to be created organically. We can do this by better publicising midmarket firm success stories and building greater awareness amongst the public. Creating more opportunities for midmarket firms to network with their peers will also be important so they start to recognise how they are similar and share common interests. Who knows, once we can name more midmarket companies and they better know themselves, we may find that a label develops naturally and begins to change the way everyone thinks about this vital element of the British economy.

FPS’ Friday Fiver

posted by Edward Jones

Well, an eventful week to say the least. We in the FPS team have looked beyond the obvious to find five other things that have happened this week. Enjoy.

Moody clouds hover over USA ratings

Photograph: Ryan24

This week, Moody’s threatened to revise down the USA’s AAA credit rating. Back in April, Standard and Poor’s revised to negative the outlook on USA ratings, a monumental move given that this was the first time that the USA’s outlook was revised down since Pearl Harbour. As the USA’s Congress and President continue to grapple over debt negotiations, it is looking increasingly unlikely that they will be able to come to an agreement before the 2nd August, after which the USA would literally run out of money and not be able to match its debt commitments.

Elsewhere financial markets are getting increasingly jittery as this week Ireland became the third Eurozone country to be downgraded to junk status –Ba1 – alongside Greece and Portugal. This downward pressure continues to strengthen fears that Italy and Spain will soon follow suit. One wonders if any country will escape what feels like a tidal wave of downgrades.

Bonuses back in vogue?

Photograph: Sky

We read with interest this week Sports Direct’s average £44,000 payout to staff after hitting profit targets. Out of 18,000 employees, 2,200 staff qualify for the bonus. This is on the basis of their employment being permanent over the last 12 months, irrespective of their position. According to the Times (£) the scheme is the most generous in the retail sector.

The move offers an interesting parallel to bonuses paid in the banking sector and the justification offers hope to the City: “There is nothing more powerful… in terms of  getting everyone pulling together… we wanted them [the staff] to see everyone is going to benefit” said Sports Direct’s Chief Executive Dave Forsey. One wonders if the banks presented their bonus schemes with the same clarity and distributed the fruits of their labours more equitably, they might not receive so much stick. Does this move represent a shift in other sectors towards a model whereby staff are incentivised to deliver for their employer? We are all aware of the success of the John Lewis Partnership, Sports Direct’s scheme seems a very positive sign in a sector which has struggled of late and could offer a way forward in overcoming low staff morale.

The cost of living (longer)

How much does it cost to retire in the 21st century? If you’re talking purely about the level of income people should have, then the Joseph Rowntree Foundation reckon that around £15,000 should be sufficient. If however, you’re asking how much it costs the state for you to retire, that’s a very different question. The bad news is the cost is rising as we continue to live longer lives.

The OBR released its first Fiscal Sustainability Report this week which provides long-term projections on how much the government will have to spend on welfare and healthcare by 2060. The answer, in a nutshell, is a lot more. Spending on health is going to increase from 8.2% of GDP now, to nearly 10% in 2060 and the separate cost of long-term care is going to increase as well. At the same time, the amount spent on the state pension will increase by over 2% of GDP to 7.9%. Put the whole package together, and ‘age-related spending’ increases from 24.6% of our GDP to 27.3%.

So what can be done about the rising cost? One answer is to raise the retirement age and hence lessen the number of years people receive their state pension, though this is proving deeply unpopular. Another is to prepare the population better for old-age and try to keep them healthier in it, which is no easy thing. This still isn’t enough though – which is why the OBR suggested we will need to raise an additional £22bn in tax each year from 2016 onwards to stop national debt spiralling away. Not what consumers who believe their disposable incomes are already shrinking want to hear as The Economist notes today.

Baby Boom to Boomerang

Our parents were the baby boomers- tuition fee free, riding on the crest of 80’s affluence, buying up property and reproducing. Whilst we are the boomerangers saddled with the debt of our education and the country and forced to return to the nest that our parents bought.  Returning home post Uni would once have made you a failure or at least a social embarrassment for the parents having to hide a 30 year old console loving son in their annexe.  But now 1 in 4 graduates are returning home and frankly, who can blame them?

Photograph: Paul Barton/Corbis available at Guardian.co.uk

New findings from Endsleigh show that most rental prices in the UK have increased steadily in the last two years with the average rent now standing at £688 per month, rising to almost £1,372 in London where most grads head in search of that increasingly elusive goal ‘employment.’ Demand is also increasing in the rental market as more and more first-time buyers are finding themselves frozen out of the mortgage market due to tighter lending criteria and a lack of finance.  And this would probably account for why 41% of the three million adults living with their parents returned home to save money whilst three in ten cited that they were unable to pay mortgages.

The introduction of tuition fees of up to £9,000 a year from 2012 will increase the pressure on graduates even further, with the number returning to the family home likely to rise.

Hungry for Growth

Photograph: Reuters

This week, the GE Capital (client) team were hitting the phones to secure coverage of the first ever ‘SME Capex Barometer’, a survey of 1,000 small and medium sized businesses across Europe looking at how much they plan to invest in replacing equipment ranging from plant machinery to IT hardware to photocopiers.

In the UK, 92% of SMEs are planning to spend a staggering £74.9 billion in the coming year, although businesses in Germany and France were looking to invest even more.  Reflecting the challenges involved with pulling out of recession, businesses reported missing out on over £8bn of new businesses as a result of out-dated equipment.

As John Jenkins, CEO of GE Capital put it: “Despite popular belief, the appetite for investing in growth amongst UK SMEs is actually very strong, with many businesses having reached a tipping point where putting off investment is no longer possible without compromising their ability to create revenue”.