Industrial strategy back on agenda but scale gap remains

Scotland excels at creating companies but scaling them is the harder task.

Scott Louden

As industrial strategy moves back to the centre of economic policy, leaders from across manufacturing, life sciences, finance and advisory space gathered to examine a persistent weakness.

Participants agreed that converting early innovation into businesses capable of sustained, international growth had to be addressed.

The discussion, held at Harper Macleod’s Glasgow offices in partnership with the British Business Bank, returned repeatedly to the scaling issue and what happens once companies move beyond proof of concept and approach meaningful revenue.

For Paul Sheerin, chief executive of Scottish Engineering, the biggest barrier is not trade policy or tariffs but skills.

“When you consider our biggest challenge, you can strip everything else back,” he said.

“The answer keeps coming back to skills. Engineering and manufacturing face immediate opportunities in grid infrastructure, transmission and defence.”

For smaller firms, long apprenticeship commitments carry heavy financial risk.

Jamie Burns, managing director of Ailsa Reliability Solutions, said his business currently supports three apprentices.

“For at least the first three to four years, there is very little return,” he said. “For a business of our size, that’s around £200,000 straight off the bottom line.”

Many SMEs, he added, simply cannot afford that exposure, even when they want to take a long-term view.

Direction and industrial focus

Beyond training structures, some questioned whether Scotland has sufficient strategic clarity.

Junaid Ashraf, co-founder of the Scottish Asian Business Chamber, said manufacturing and engineering must sit at the centre of industrial planning.

“We need to be honest about what we are actually good at,” he said. “Manufacturing and engineering should be central to that.”

Ashraf warned that apprenticeships and skills policy are too often driven by social outcomes alone rather than by a defined national agenda to build globally competitive industries.

The £25 million problem

If skills represent one structural constraint, later-stage capital represents another.

Michelle Ferguson OBE, Scotland director at the CBI, pointed to a recurring threshold. “We continue to see a real gap once businesses reach the £25 million-plus stage,” she said.

“In cities such as Manchester, she noted, companies can access larger pools of patient capital. In Scotland, the risk is that firms look elsewhere.

“That is exactly the stage where the risk is that businesses look to the US,” she said.

Matthew Baker, chief executive of life sciences firm Dxcover, echoed that experience.

Having raised around $24 million to date, he said the company now faces the challenge of securing the next tranche of growth capital.

“Our largest market is the United States,” he said. “To scale properly we need a further injection of growth capital.”

Comparisons with US funding rounds are stark, though not always straightforward.

David Milroy, partner at Maven Capital Partners, urged caution in drawing direct parallels.

“Raising money there is not easy,” he said. “But the decline in specialist investors in sectors like life sciences in the UK makes it harder to build strong syndicates.”

Jo Nisbet, corporate partner at Harper Macleod, argued that Scotland is not short of early support. The issue lies further along the pipeline.

“The difficulty is not the availability of funding at the front end, but what happens at the back end,” she said. “There simply haven’t been enough exits of scale.

Sarah Newbould, senior investment manager at the British Business Bank, said the institution’s five-year strategy is aligned with industrial priorities including advanced manufacturing and deep tech, with Glasgow identified as a key cluster.

“A core pillar of our strategy is taking more risk,” she said, including backing emerging fund managers and acting as early capital.

But she acknowledged that public capital alone cannot close the gap.

“Our role is to catalyse private investment,” she said.

Derek Shaw of Scottish Enterprise agreed that Scotland punches above its weight in spinouts and early-stage innovation.

He said: "The challenge, the opportunity, is to convert this strong foundation into a larger cohort of companies scaling and creating high-value jobs at the same rate as comparator economies.

"To achieve this, we need to provide support tailored to the needs of those businesses at each stage of their growth journey, strengthening product-market fit, improving market access and accelerating commercialisation."

Norrie Cook of The FSE Group said capability inside businesses often determines whether capital can be deployed effectively.

He said: “Trying to do everything yourself often costs more in missed opportunity,” he said.

Iain Burnside of DSL Finance added that many founders struggle simply to navigate the finance landscape. “Businesses need a clearer route map,” he said.

The roundtable agreed that Scotland has innovation, public backing and entrepreneurial ambition.

The next phase of the country’s economic evolution, however, will need sharper coordination that aligns skills systems, patient capital and leadership capability to support companies as they cross the mid-market threshold.

The £25m Scale Barrier

Across the roundtable, one figure surfaced repeatedly: £25 million.

At that point, businesses typically move beyond early venture funding but have not yet reached the size that attracts institutional-scale capital.

Michelle Ferguson of the CBI described it as the stage where “the risk is that businesses look to the US”.

For growing firms, funding needs become more substantial and more patient. Revenue is established but not yet large enough to absorb aggressive leverage. Boards must evolve, reporting systems mature and international expansion accelerate.

Matthew Baker of Dxcover said that while early backing had been strong, raising larger growth rounds required deeper capital pools and greater investor confidence.

David Milroy of Maven Capital Partners noted that the UK has seen a decline in specialist investors, making it harder to form strong syndicates. Without sector expertise, larger overseas investors may hesitate.

The result is a structural tension where Scotland generates innovative companies but lacks the density of later-stage capital required to scale them rapidly.

Public institutions can help de-risk that stage, but long-term solutions depend on building deeper private capital markets and delivering exits that recycle investment back into the ecosystem.

Without that, the pipeline narrows precisely when growth should accelerate.

Five Barriers to Industrial Scale

Skills mismatch

Training systems remain geared towards large employers, while most manufacturers are SMEs.

Apprenticeship cost burden

Long commitments and upfront costs deter smaller firms from investing.

Later-stage capital gap

Funding thins once companies exceed £25 million in revenue.

Leadership capability

Scaling requires experienced boards, finance depth and commercial expertise.

Exit constraints

Too few large exits limit capital recycling and investor confidence.

Industrial strategy alone will not solve these constraints.

Alignment between policy, capital and capability will determine whether Scotland converts innovation into sustained industrial growth.

Roundtable participants:

- Derek Shaw, director of entrepreneurship & investment, Scottish Enterprise

- Sarah Newbould, senior investment manager, British Business Bank

- Iain Burnside, chief executive officer, DSL Finance

- Jamie Burns, managing director, Ailsa Reliability Solutions

- Junaid Ashraf, co-founder Scottish Asian Business Chamber

- Matthew Baker, chief executive officer, Dxcover

- Michelle Ferguson OBE, Scotland director, CBI

- Nick Challoner, CEO, Ingenza

- Norrie Cook, head of fund Scotland, The FSE Group

- Paul Sheerin, chief executive, Scottish Engineering

- David Milroy, partner, Maven Capital Partners

- Jo Nisbet, corporate partner, Harper Macleod