ROLE OF SME'S IN UK

The role of SME's in the economic future of the UK



The role of SME's in the economic future of the UK

Introduction

Small and medium enterprises (SMEs) are considered as the backbone of economic growth in all countries because they account for 80 percent of global economic growth. SMEs also contribute a substantial share of the manufactured exports of East Asia. In UK, the figure is 31 percent. In the newly developing or newly industrialized countries (NICs), SMEs typically employ the largest percentage of the workforce and are responsible for income generation opportunities (Chen, 2006, p.140).

Discussion

There has been an ever-increasing recognition that the small and medium enterprises (SMEs) are gaining a more and more important status in the national economy of UK. Many statistics also stressed the importance of SMEs in terms of their contribution to GDP, employment, and their economy prospect. On another side, the impression of people towards British manufacturing industry is quite the opposite and the manufacturing industry has been considered as being in recession for long. However, according to the 2005 Department of Trade and Industry statistics, manufacturing industry still accounts for 11.6% of the overall size of British industry (Chen, 2006, p.140).

Moreover, Finbarr (2008, p1379) pointed out that the future of British manufacturing industry will no longer depend on the low-waged job and cost deduction but on knowledge-intense and high-waged jobs, and innovative and scientific production. However, the transformation of British manufacturing industry into to a more innovative and knowledge-intensive industry entails the financial support much more than ever, if considering most knowledge-intensive business are also capital-intensive.Therefore, the study into the capital structure of British manufacturing industry is of utmost importance to the newly transformed the role of British manufacturing industry (Denis, 2003, p.705).

The issue regarding the determinants of capital structure has attracted a lot of attentions. Relevant researches initially looked into large quoted due to the more readily available data for large quoted companies. Along with the increasing availability of data, the research on the determinants of capital structure began to include SMEs in recent years and some of them are even industry-specific and firm-specific (Wald, 2007, p161). However, never a research before devoted to the capital structure of British manufacturing SMEs.

Moreover, the product category effects on capital structure are also seldom studied even in the researches about manufacturing industry whose product-related operation is of essential importance. As mentioned in the last paragraph, the transformation of British manufacturing industry into a more knowledge-intensive and capital-based industry will increase the financing volume and financing complexity of firms inside manufacturing industry. Given the importance and the research gaps stated, this research will investigate into the determinants of capital structure for British manufacturing SMEs and the likely product category effects on capital structure (Miles, 2004, p78).

Upper estimates suggest that SMEs account for 98.9 percent of the total number of businesses in UK and comprise 65.6, 63.3, 54 and 77.3 percent of gross industrial output value, sales revenues, total profits and employed people, ...