Sunday, 12 June 2016

How the EU is more than access to scale in the single market for small business for the UK knowledge economy

A recent article stated that four percent of UK small businesses reach a turnover of greater than £1 million and more than 10 people after 10 years. The ability to manufacture product in the UK has been reported on many occasions and the fact that we export more services to Europe than product is not a surprise. Famous brands such as Rolls Royce and Bentley are German owned and Jaguar’s recent success has gone to TATA as the company’s owner.

Keeping with automotive brands Aston Martin is largely foreign owned and lack of investment has meant that the it has suffered in product development, showing that the brand it has is still strong enough to maintain its kudos. What the UK does not lack is world leading knowledge production, and this is not transferable to foreign entities

ARM Holdings plc has been a resounding success story of the UK leveraging its knowledge economy with the company being part of the smart mobile device revolution without having to invest in manufacturing facilities to build the chips on which its’ innovations sit on. Testament to this is the fact that Apple outsource their manufacturing to Taiwan owned Foxconn who have their facility in China. ARM are a model which can be applied to many UK businesses, especially small ones with good ideas, and their Cambridge location means world leading research continues to keep them ahead through ongoing innovations.

The USA has shown how hardware companies like Go-Pro and software like Facebook have taken B2C (business to consumer) have managed to compete and disrupt consumer markets. We feel this is unique to the USA and, to some extent, maybe repeated in India and China. India and China lack the knowledge history of the USA and, more importantly, the patent protection laws as these will incentivize a knowledge economy. Entrepreneurs in the UK, and non USA ones across the world, know of the mentality of the USA of having a riskier appetite to startups and new ideas. The considerable backing that is provided helps to accelerate the success of failure of an idea. We think there are deeper reasons as to why there is this sort of success in innovation in the USA, which will be seen in China and India.

Sovereignty for any nation is vitally important and history provides a legacy for future generations to look back on and assess their progression, however the world has changed and new frontiers are being created. SpaceX is a private company taking on NASA, one hundred plus year old company like Kodak disappeared after mobile phones took over photo taking and even tech giants like IBM have to pivot their business to remain relevant. These companies either succeeded or failed due to the completion of scale. The huge markets that are available to USA companies means that small businesses can become big and large companies can start new business divisions, their mainstay of income remains the same. Whether they are selling 100 units or 1000 units every business benefits from economies of scale, but in the UK we have a much smaller market and so costs of business are considerably higher at that higher scale. IT can be argued, and rightly so, that starting a business in the USA is more expensive as the costs of marketing to a bigger target audience is costlier. But when referring to transferring knowledge into a commercial opportunity the size of market is more valuable to a small business.

Small businesses need to have a uniqueness about them, which could be a Pizza shop in a special location to a new type of analytic that makes prediction sin retail. There is an ability to make hay while the sun shines when you have the head start but eventually others will come for your market in some form and outside factors (a parking restriction shows up outside that Pizza Shop). Distribution business models are now defunct as product companies reach their target audience online, especially when the product is simple or if the product companies fully understand and executes a digital transformation strategy.

In our strategy the EU is a vital component for our small business to achieve growth. Technology does not have any borders and past tax arrangements by Amazon and Skype show that the government is behind in anticipating how the industry can change policies. With closer ties with Europe (which is expressed by the EU government grant, Horizon 2020, for technology research) we want to use our digital transformation and ability to work across borders to be able to move quicker to execution. We are currently exporting to the Middle East and we have research collaboration activity with Japan and the USA, but we have not managed to achieve the same within Europe. It also appears that London is competing with Berlin, to name one example in Europe, whereas the USA now has industry focus within their national tech innovation centers. For instance, Boston has a focus on health and has attracted more pharmaceutical companies there. This joined up approach will probably start to happen in India and China. Europe’s diversity is also a great platform for knowledge development. European universities, collectively have the highest research capabilities and even currently house world leading intellectual property. It sadly may not be developed as a single nation may not make it commercially viable.

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