Skills and the types of firms in the marketplace

Over the weekend several papers carried the launch of the Ownership Commission Report (March 2012); a useful analysis which calls into question the UK obsession with the PLC as the default ownership formula for business. There are several points raised that relate to skills.

Supply chains compete not companies

The Report builds the argument that the UK has disproportionately fewer co-operatives; consumer mutual; worker owned firms and State owned firms than elsewhere in Europe. Taking data from the top 1000 companies in each country; 35.9% of Germany’s companies are family owned against 10.9% in the UK; 12.1% are owned by the State versus 1.9% in the UK and, 18.4% foreign owned versus 22.9%. Family ownership is an interesting issue with over 60% of EU businesses and 25% of the top 100 businesses being family held.

The Report highlights that the global economy is a complex system with many interconnected organs. As The economist notes: Just as an ecosystem benefits from diversity, so the world is better off with a multitude of corporate forms. [Economist, August 19th, 2010].

The issue of ownership has a significant impact on some of the issues that the UK faces in terms of skills development. Germany has long recognised its Mittelstand of privately-owned, medium sized companies that are crucial to its competitiveness and the skills approach reflects this. Then, there is the North and South divide. As the Report makes plain: if policy-makers are concerned to ‘re-balance’ the UK economy away from the south east, and away from services and financial services, it is this British Mittelstand that will need nurturing in future. There is no point in waiting for the Multi-Nationals to set up shop in the North; better to build supply chains that can serve them with better quality goods; using sustainable resources and, through more responsive relationships. This means a drive on creating the environment for SMEs to thrive and prosper. As the well known Logistics expert Professor Martin Christopher makes plain: “these days supply chains compete not companies”.

The Report notes that Britain only trains 2,000 apprentices to level four each year; a vibrant British Mittelstand will require twenty or thirty times that amount. Major Multinationals do not employ a high enough percentage of the workforce and, outsource many manufacturing processes with a correspondingly low level of manufacturing positions. This is exacerbated by the high level of service industry jobs that is being highlighted as a weakness that needs urgent address. We have argued elsewhere on this Blog that industry led skills initiatives are more effective than outsourcing that task to “specialist” groups that serve shareholder driven short-termism rather than the long term stakeholder agenda. Having a mix in the type of firms on offer helps this process – one size does not fit all. Just look at our International competitors.

Again, the German SME is raised as an illustration of how best to approach global competition. Typically, Mittelstand companies concentrate on profitable niche markets – often in engineering – for which high quality and customer specific products are needed. “Don’t dance where the elephants play” characterises the strategy they adopt and this means that they will favour being an indispensable part of a wider supply chain rather than look to compete at the top table on their own – over 90% of German SMEs concentrate on business to business markets.

The auto industry across the EU is a case in point. These days around 80% of a car is manufactured away from the factory and this is because of the supply chain or network of suppliers that surrounds and feeds the assembly plant itself. In some industries the relationship with this supplier base is attritional – a short term race to the bottom price; whereas the long term approach is collaborative using systems like vendor managed inventory and working together from design to delivery. In India this is promoted by giving tax breaks to SMEs making it less tax efficient for the big players to be vertically integrated – do it all themselves.

In terms of focus this means working on niche products and services all along the supply chain with a corresponding need to develop corresponding skills capacity building strategies – with quality apprenticeships to the fore. The UK Energy sector is a case in point. On the Humber there is an opportunity to build the wind energy sector and this will be about building a supply chain of SMEs. How else can the industry as a whole tackle the need to reduce costs from end-to-end by a well documented 30 to 40%. To make this eco-system effective and efficient a clear skills capacity building strategy is needed and that means investment and, a shift to innovative skills development that simulation and simulator technologies can provide. As Einstein said – to continue to do the same things and expect a different result is a sign of madness. We can’t upgrade and future proof a workforce using the same approach that worked well in years gone by.

As this timely Report on the nature of the UK firm highlights the world is a diverse place and ownership of UK firms needs to reflect this. In terms of skills there is a need to find ways to make sure that SMEs can be equipped to become key partners in signficantly more global supply chains.

 

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