What are the challenges facing SMEs?

27 October 2020

The UK’s SMEs are finding themselves having to negotiate both a huge drop in demand and weaker supply chains caused by the coronavirus pandemic, a new report has found.

The Manufacturing Growth Programme (MGP), a business support programme which aims to help SMEs, canvassed 289 small businesses, and 69% said orders had dropped due to the pandemic.

The worst affected sectors were furniture, software and general engineering.

Almost three-fifths (59%) of those surveyed said they were experiencing issues with their suppliers and nearly two-thirds had seen delivery times lengthen.

Two-fifths (40%) of respondents said they had seen an increase in costs including products, materials and services.

These issues, as well as trying to manage production levels with depleted workforces, has meant more than half of SME manufacturers have been forced to take on additional loans since March, said MGP.

Martin Coats, managing director for MGP, said: “The results raise important questions about resilience, both up and downstream for small manufacturers, particularly given the uncertainties in the economy.

“Everyone was aware of the drop in orders due to the national lockdown and global issues, but what hasn’t been so well documented is the production issues some companies are facing and how disruption is causing major issues with pricing, costs and delivery performance.”

Coats called on the government to look urgently at more targeted support for the supply chain to bring about a sustained recovery in manufacturing.

He added Brexit was contributing to the uncertainty, with nearly a quarter of respondents believing it would have a negative impact on their operations and 35% unsure of the impact. Just one in ten (11%) believed Brexit would have a positive effect on their businesses.

The responses reflected “a general malaise when it comes to discussing negotiations on the UK leaving”, he added.

Coats said that only 10% of respondents’ total sales was exported to the EU, which he said prompted the question of “whether the EU is as big a market for SMEs as we first thought”.

Almost three-fifths (57%) of respondents said they were engaged in some form of exporting, considerably up on the number revealed by a Department for Business, Energy and Industrial Strategy paper in 2018 that found only 20% of all UK SMEs export.

Coats added 21% of those surveyed increased orders during the pandemic and, of those, 62% had diversified into new markets while just over half had introduced new products.

“This shows the strength of our supply chain and the ability to innovate and this is what we need to encourage through specialist help, access to new technology and grant support to help them reach their potential,” he added.

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