‘Conversion gap’ holding back growth for 4,400 Scottish mid-market businesses - RBS report
“Scotland’s mid-market businesses are an essential component of our economy, but one that often falls between the cracks” – Kevin Havelock
Scotland’s mid-market businesses face a “conversion gap” that is holding back growth, a major study today claims.
Firms are calling for a more coordinated approach between the Scottish and UK governments and industry to unlock the barriers to growth following the publication of the new study by Royal Bank of Scotland and NatWest Group.
Titled “The Middle Speaks: narrowing the mid-market conversion gap through technology, talent and trade”, the report finds that mid-market businesses - defined as those with an annual turnover of £10 million to £100m and/or 50 to 500 employees - are often overlooked by support designed for smaller firms or large corporates.
Analysis in the research by the Scale Up Institute identifies some 4,400 Scottish mid-market businesses that collectively employ 644,000 people and have a collective annual turnover of £122 billion, reflecting the “immense contribution” that the mid-market makes to the Scottish economy. However, despite creating jobs, driving innovation, strengthening supply chains and supporting local communities across the country, the segment remains relatively underserved and not well understood, according to the findings.
The report argues that mid-market businesses represent one of Scotland’s greatest growth opportunities. However, for this opportunity to be unlocked those businesses need to be supported, especially in three key areas - tech, talent and trade - where they lag behind the specialist skills, leadership capability and organisational resources available to larger companies. Tackling what has been labelled a “conversion gap” is key to ensuring future growth, the study notes.
The report is the product of engagement with more than 200 mid-market businesses and members of the Mid-Market Growth Council.
Charandeep Singh, chief executive of the Scottish Chambers of Commerce, said: “Scotland’s mid-market firms are ambitious and showing a clear appetite to invest and grow. With 4,400 businesses supporting 644,000 jobs, there is a significant opportunity to turn that ambition into further investment, jobs and economic growth.
“The report’s focus on technology, talent and trade mirrors what we hear from members across Scotland. Firms need practical support to adopt AI and new technologies, access the skills they need and reach new markets at home and abroad.
“Chambers are already playing a practical role on these priorities, using our local networks and international connections to connect firms with the right support and opportunities. Working with Royal Bank of Scotland, we can increase that impact, particularly across technology, talent and trade, and support more mid-market businesses to invest, export and grow.”
Kevin Havelock, “mid-market champion” for Royal Bank of Scotland, said: “Scotland’s mid-market businesses are an essential component of our economy, but one that often falls between the cracks in policymaking when compared with small businesses and larger corporates.
“This report makes an important contribution on how government and industry can together equip them with the expertise to continue to innovate at home and successfully export to international markets. Throughout my engagement with Scottish mid-market businesses I am consistently impressed by their growth aspirations, they just need the right support in the right areas - like tech, talent and trade - to realise that ambition.”
Paul Thwaite, chief executive of NatWest Group, said: “Mid-market businesses already make a significant contribution to the UK economy. They are one of the UK’s greatest growth opportunities, but too many are held back because, despite having distinct needs, the segment is often overlooked.
“As the number one bank for mid-sized companies, we have the specialist expertise, local knowledge and financing capabilities to help mid-market customers address the challenges they are facing and reach their full potential as growth engines of our economy across every nation and region of the UK.”
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Among the report’s recommendations is a call to strengthen the capability of Scotland’s business networks to support the mid-market segment. It argues that mid-market firms should work with the Scottish government, existing innovation centres, universities, business-support communities and regional clusters to help mid-market leaders translate emerging technologies and skills into business growth.
The report demands that governments should reduce the administrative and regulatory burdens for mid-market firms looking to join export and skills programmes, enter supply chains and access growth finance, combined with stronger promotion of existing support available through organisations, such as the Scottish Chambers of Commerce.
Irene Graham, chief executive of the ScaleUp Institute, said: “The mid-market does not lack ideas or appetite - it lacks a system designed around the challenges firms face as they get bigger, become established, and continue their drive for growth. They still need the support to grow in accessing the expertise, skills and export services that can turn proven potential into sustained scale.”
A separate study last month by Royal Bank of Scotland identified more than 350 Scottish businesses as part of an “untapped innovation cohort” that could boost economic growth.
Publishing research into the UK’s innovation economy and access to public funding for high-growth companies, the bank said Scotland was home to 1,737 “innovative” businesses, 59 per cent (1,027) of whom are recipients of public funding and 367 classed as university spinouts. Only London had a higher number of university spinouts than Scotland of the UK’s regions and nations.
At 34.9 per cent, Scotland’s “untapped innovation cohort” - defined as those businesses that continue to trade but have failed to secure follow-on investment, achieve an exit or demonstrate a scale-up signal - is lower than the 38.1 per cent rate across the UK. However, this still represents 358 businesses, suggesting that there remains significant potential to generate additional growth from existing innovative businesses, RBS noted.
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