General
23 Jul 2013

SMEs are recruiting and outsourcing but it is likely to be closer to home than abroad

The latest (Q2) Quarterly Survey of Small Business in Britain* from The Open University Business School (www.open.ac.uk/quarterly-survey) provides encouraging evidence on recent employment trends. The report’s editor Dr Richard Blundel says, ‘Our findings suggest that, despite continuing concerns over the state of the UK economy, many SMEs have been actively recruiting new staff. More than half of our respondents (53%) report that they have taken on at least one new member of staff in this period.’ The researchers also found that almost one third (31%) of the firms surveyed had taken on several new people since 2011.

The report, which is sponsored by The Open University, ACCA (the Association of Chartered Certified Accountants) and Barclays Bank, investigates the new jobs being created by Britain’s small and medium-sized firms. It also examines evidence for a growth in outsourcing by SMEs, in the form of contracted out services and agency workers. Among the report’s key findings was:

• Almost half of those SMEs who recruited new staff (47%) had taken on people to undertake core manufacturing or service delivery functions. The next most commonly-reported functions in recruitment terms were marketing and customer services (33%) and accounting, financial management or payroll (15%)

The main reason for recruiting new staff appeared to be to replace an employee who had left the business, but almost half (48%) of our online respondents said it was to cope with increased workload, while others were taking on new staff in order to pursue growth strategies.

• Outsourcing is quite rare among SMEs with almost four out of five respondents (79%) reporting that they have not contracted out services or employed agency workers for any tasks or functions in the last two years.

• Relatively larger SMEs are much more likely to outsource activities i.e. only 14% of firms in the smallest size band (less than £100,000 turnover) had engaged in outsourcing as compared to 33% in the largest size band (£5 million+).

• Outsourcing by SMEs is also overwhelmingly local, with 82% reporting that contractors were based in the same city or region, 21% in another part of the UK and only 5% identifying contractors based outside the UK.

Dr Blundel concluded that, ‘SME owners and managers have some difficult and important choices to make around employment and outsourcing. Our research has examined some of the issues they are grappling with as they make these decisions. For example, four factors seem to be especially important in deciding to keep activities in-house: the need to maintain managerial control over the activity; quality and reputation; organisational culture and staff commitment; and the need to protect proprietary knowledge.

‘There’s a very complex mix of factors involved in these decisions and the case is likely to alter over time in response to changing circumstances. However, the scope for outsourcing of certain activities, including many ‘back office’ functions, is likely to increase in the future due to technological innovations such as cloud computing.’

Commenting on the findings, Manos Schizas, Senior Economic Analyst at ACCA says: ‘News that 9% of small and medium sized business have taken on their first employee over the past two years is certainly welcome, and even more so because manufacturers appear to be the most active. This is evidence of the UK economy slowly rebalancing.

'Research has demonstrated that a competent finance function helps SMEs access finance more easily, grow faster and control risk. We therefore find it encouraging that about 8% of SMEs took on new finance staff over the last two years, though we’ve still got a long way to go until businesses have the in-house resources they need.’

Sue Hayes Managing Director of Barclays Business says: ‘This report shows how important SMEs are in creating local employment opportunities. Whilst many do not currently outsource they are creating jobs up and down across the UK for a wide variety of people.

‘SMEs are a vital ingredient in the future growth of the UK economy and it is important that we give them the help and support to take on the people they need to flourish over the coming years.’

The researchers also conducted more detailed interviews with a small group of SME owners and managers around the themes of job creation and contracting out. The full case studies are freely available to download on the Quarterly Survey website.

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