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SMEs under stress

Updated Monday, 15th June 2009

Paul Mason gives his take on why there is often a lack of planning for unexpected events by SMEs, what financial solutions are available, why it is important to keep companies afloat in the early days of a recession and how the UK's workforce has transformed over the last 30 years.

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Why does a lack of planning in order to manage unexpected events appear to bedevil smaller UK companies?

If you look at the problem of planning for things like recessions, the problem managements have in small to medium companies is that, as in these two cases, they're managers, their teams are small and they’re concentrated, in terms of expertise, on the operations side, so both of these companies are run by people who are experts at the industrial process. Even a big company facing something like a recession or a downturn will go to consultancy. They will certainly go to outside advisers to try and get an idea of what's going to happen to their markets.

The second problem, and it bedevils these companies in tier two of the car industry, is they don't really know ultimately who many of their customers are. They actually just don’t know, they can’t predict, and for a small company, lacking depth, strategic management expertise, to face that problem, it’s a recipe for just constant surprises.

To what extent do the companies examined in the programme engage and benefit from regional government agencies and their programmes?

Well, what we’re seeing now is that the exit strategy for Burke Ltd is going to be a bank loan, a big upfront payment by the directors themselves and then they hope some help from what they call the DTI, what is the BERR, the Government, the former DTI. They're going to the insolvency scheme in the West Midlands, which they're not running insolvent, but they're going to go to that scheme and hopefully get some money – I believe it’s £80,000 – for redundancy costs. So that’s how it’s helped them. I asked them about Advantage West Midlands, but that would be mainly on the development side, the business development side. Actually the expertise in a small company like Burke on business development lies in Burke; it doesn’t lie in Advantage West Midlands.

Do smaller companies do enough to develop transferable and on the job skills?

The general problem with SMEs is that they don’t develop a skills strategy and they allow what skills there are to become atrophied and quite niche. But look at the problem, for a company like this, at Burke there's a guy working a machine, highly specialised, who came to the company when the company bought the machine. That’s how untransferable, in the strict sense, those skills are. But what are they supposed to do? Does the press company, Bruderer, which is German, do they provide ready trained people? No, they don’t.

I think the skills in a press focused operation, where you are designing machine tools, making them, fitting them to the press and constantly honing the process to make it more efficient, and to respond to customer demand, that the skills really are transferable throughout the entire process. The setter, the press operative, the machine tool designer, all understand what they do, but the roles are very strictly defined. You can move from one to the other, and that’s the traditional path, from operative to setter, ultimately you can become a skilled engineer, but they're not that interchangeable.

That's just the way things have been in British factories and, as you can see from the film, the fabric of that factory, Wilde and Burke, some of that stuff was there in the 1950s.

Are there opportunities for customers and suppliers to merge with the companies examined in the programme to sustain supply chains and maintain demand and employment?

I don’t think it’s a question that one layer of the supply chain merges with the next one. What's happening in the auto industry, and always has happened, is basically a company goes bust, its rivals go in and pick out the best machines and the best workers and bring them in.

There are machines on the factory floor, both at Burke and Wilde, that have been recently bought during the recession and, presumably, some skills will come with that as well. So I think the consolidation process, in this lower tier of the automotive industry, is very much about the weakest go to the wall. You know that the big auto manufacturers have discouraged vertical integration, both at the top level of the supply chain and even here. They like this atomised mix of small widget makers, they like it. So how are they going to do vertical integration?

What is the David Blanchflower solution?

The Blanchflower solution, which is supported by the unions, are of wage subsidies to support firms on short time. It's something that I think would have helped both these companies. In the end Wilde had to go to the Government for the Enterprise Guarantee Scheme to underwrite a £1m loan, that’s a lot of money. I don't know how much a wage subsidy scheme would have cost the taxpayer but we don’t know how much the tax payer is going to shell out on that loan because we don’t know, ultimately, whether they’ll pay it back. So wage subsidies, clearly, would help this layer of the manufacturing industry. It would have been a help. And I don’t think it’s something like delaying the inevitable because these companies were profitable on the old model.

Until the signals come back down the supply chain in the automotive industry about what the new balance is, I mean how do we know, for example, how GM is going to end up? It’s pointless to believe that the first signal of crisis that hammered these two companies was a market signal of, you know, efficiency or inefficiency because it was too big a drop to be that. What I'm trying to say is that we will know further down the line what the new shape of the car industry is then. And then, of course, weakest go to the wall, most inefficient go to the wall. The problem is if you try and discern those signals in the early phase of the crisis, before GM has decided which factories it closes, it’s not efficient, and there is an argument for wage subsidies to keep people going.

The argument for wage subsidies is just the same argument for enterprise guarantee loans. It’s just delay the impact until you know what the new shape of the industry is. Because you could lose capacity, and if you lose capacity in a recession, you don’t come back.

What have you learned from making the programme?

The overarching impression, from both factories, during this long period that I've followed them is this. 30 years ago, as a student, I worked in a very similar operation; I was a press operator. And what I've observed is that, although the machines look exactly the same and that the general ambience of the factory almost feels like a 1950's sitcom. The skills and the flexibility of the workforce are completely different.

The British workforce has transformed itself in 30 years in a way that politicians wanted it to. They’ve become more flexible. The job categories overlap. Women don’t any more play a completely rigid and marginalised role. The workplace culture is far more fluid. Whereas facing the recession of the early ‘80s that rigid workforce ultimately broke and was thrown on the dole in big numbers.

This workforce, in the 2000s, has bent and it’s been flexible, and the form of the bending has been short-term working and high flexibility about wages, and they’ve stayed in work, so far, six months down the line. I have to say to my surprise, in the case of one of these companies, they're still going. And that’s down to the workforce.

Well that’s just my opinion, what do you think, join in the debate with the Open University.

The programme accompanying this video extra transmitted on Tuesday 16th June on BBC Two, 2009.

 

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