Keeping it in the family: the role of SMEs in the UK engineering sector

The industrial sectors with the largest number of SMEs were construction (17%), professional, scientific and technical activities (14%), and wholesale and retail trade and repairs (10%). In addition, almost a third of SME turnover was spread across three sectors: construction (12%), professional, scientific and technical (11%) and manufacturing (9%). Engineering therefore accounts for a high proportion of both SME employment and turnover.

SMEs: the driver of the UK economy

As the above statistics suggest, SMEs are vital to the UK’s economy: in fact, they account for three-fifths of employment and around half of turnover in the UK private sector. In 2022, total employment in SMEs was 16.4 million (61% of the total), whilst turnover was estimated at £2.1 trillion (51%).

Even in hard times, such as during the recent COVID-19 pandemic and the impact of Brexit, SMEs, and particularly family businesses, have remained strong. A 2020 study by Oxford Economics showed that the 4.8 million family firms in the UK made up 85.9% of all private sector businesses and employed 13.9 million workers, more than half of all private sector employment. And, in 2021, a KPMG study revealed that family businesses laid off fewer people globally during the pandemic (8.6%) than other companies (10.2%).

Engineering in the UK: a hotbed of innovation

Research by the Royal Academy of Engineering has revealed the importance of the engineering sector to the UK economy: engineering generates up to an estimated £645 billion gross value added (GVA) annually, equivalent to 32% of the country’s economic output. The UK has 729,000 engineering businesses, a total of 13% of all UK businesses, and over a quarter of all UK workers are employed in the engineering sector.

The importance of engineering is reflected in the UK government’s allocation of research funding: the national innovation agency Innovate UK, for example, recently awarded £1 million in funding to three SMEs for the development of battery technologies. Additionally, the Engineering and Physical Sciences Research Council (EPSRC) offers a number of funding opportunities, as well as investing £7 million in a project to develop state-of-the-art tidal stream turbines, as part of the UK’s target to reach Net Zero by 2050. Meanwhile, companies in Hampshire and Scotland are developing pioneering robotics solutions for the food industry.

War, pandemic and energy prices: the issues facing SMEs

The COVID-19 pandemic hit many small businesses particularly hard. In the UK, this economic blow was compounded by the impact of the UK leaving the European Union, which resulted in higher costs for exporting goods, as well as difficulties in recruiting staff. According to a British Chambers of Commerce survey in 2022, 56% of firms reported difficulties adapting to the new rules for trading goods, while around 44% also reported challenges in obtaining visas for their staff.

The conflict in Ukraine has also substantially impacted SMEs, notably in high energy prices (which were already rising prior to the conflict) and the disruption of supply chains, both of which are more difficult for SMEs to overcome than for larger enterprises. These effects are, of course, also felt by consumers, with the result that they may choose to spend their limited resources on goods which are priced much lower than SMEs can afford to offer.

A recent survey by Lloyds Banking Group indicates that the economic situation for SMEs is still challenging. Rising inflation and a tight labour market are taking their toll, with 82% of respondents saying that the cost of living was impacting them negatively, and 53% reporting forced price increases. However, as we’ve seen, family businesses – frequently viewed as the “typical” form of SME – can often be remarkably resilient.

Family businesses in the engineering sector: challenges and opportunities 

Many of the UK’s successful engineering SMEs, such as Tong Engineering (which, despite its size, now exports to over 30 countries worldwide) and H E Simm, are family-owned businesses. There are clear advantages in being a family-owned and family-run business: these include having stronger ties with a local community and being able to determine your own corporate ethos. PWC’s Family Business Survey 2023 found that, globally, family businesses are trusted more than others. 

While family businesses are sometimes viewed as traditional and risk-averse, the example companies above suggest otherwise. Competition, particularly from the Asian market, means that family businesses recognise the need to adapt quickly and optimise their business processes. These companies see opportunity in adversity: as Don Robins, managing director of Printwaste Recycling & Shredding in Cheltenham, says: “The big thing about the economic change we’re going through at the moment and what I’ve seen before is being able to prepare for the opportunities that may come out of it.”

Standing firm when the going gets tough

SMEs, and particularly family businesses, remain the backbone of the UK’s economy. Despite the challenges of recent years, there are early signs of recovery – and opportunities such as meeting the UK’s Net Zero target are particularly attractive to SMEs in the engineering sector. While we can still expect a rocky road ahead, family businesses have a track record of sticking together in tough times, and are well-placed to face the future with a positive mindset.