Draft Literature Review

Introduction Small and medium sized enterprises (SMEs) are a vital part of the British economy. In 2013, there were a recorded 4.9 million businesses in the UK of which over 99 per cent were small to medium sized enterprises. SMEs provide 59 per cent of private sector jobs and are responsible for 49 percent of private sector turnover. The performance of SMEs therefore has a major impact on the performance of the wider economy.

According to the Department for Innovation, Business and Skills (BIS), in the current economic climate, business growth is most likely to come from SMEs. It is therefore encouraging that the last three years have seen the highest level of company start-ups since the last recession with over 450,000 new businesses registered. The EU Performance Review (European Commission, 2013) describes the UK as having a very competitive environment for SMEs compared to other member states. The EC further predicts that the future outlook is positive with an expected rise in the number of SMEs, employment and value-added.

New small businesses however can have a precarious existence and many do not survive their first year and only a minority remain trading five years after their creation and, even though the sector makes up 99 per cent of all business, SMEs account for only 12 per cent of total UK exports.

The precarious existence of small businesses has given rise to much interest from governments, academia and professional bodies. It has been reported that the major significance difference between small and large companies is the 'likelihood of death'. In view of the fact therefore that SMEs are such an important part of the economy, efforts to ensure and support their durability and growth are vital to the UK economy. For a number of years governments tended to focus on start-up businesses but over the past three years, the emphasis has shifted equally to existing SMEs. As such, BIS has been involved in much research and support initiatives, including the Small Business Survey, Employment Trends and the analysis of factors affecting high growth. Funding from Government and the EU has also been available to support certain start-up business initiatives or to help existing SMEs grow. At a regional level, county councils and local authorities have focused on economic development and have provided support to businesses in their areas. These initiatives have included the provision of expert advice, accommodation and signposting for entry to new markets. As time passes, it is obviously important to evaluate whether the support offered is yielding results. It may also be the case that certain small businesses are yet to access such support.

One of the principal objectives of this research project therefore is to identify a framework that can be used by Essex County Council to enhance the provision of its support for economic development and measure the success (or otherwise) of these initiatives. Another key objective is to understand the factors that contribute to High Growth in small businesses on the assumption that common themes will become prevalent. The Literature Review therefore divides into the following areas.

. Definitions of SME (to enable the target businesses to be identified) . Identifying SMEs within a Region . The Measurement of Growth . Factors that Influence Growth . Transferability of Growth Factors . The Role of Innovation . Frameworks for Support

It is hoped that through a thorough review of the existing literature on these areas, together with the methodology proposed and undertaken later on the research project, that the objectives of the research project can be met which would have a significant bearing on business development locally and, in turn, nationally and internationally if the framework can apply elsewhere.

Definition of Small to Medium Sized Business (SME) While there is growing focus on the importance of the SME sector there is one fundamental problem with it. That problem is that, even the UK government does not have a single definition of what a small or medium enterprise is. For the purpose of Research and Development Tax Relief Her Majesty's Revenue and Customs (HMRC) defines an SME as a business with not more than 500 employees and an annual turnover not exceeding £100 million (HMRC, 2007). Other UK government departments however do not use this definition.

For the purposes of collecting statistics, BIS defines SMEs as companies with less than 250 employees (BIS, 2015). For accounting purposes, Companies House defines a small business as employing less than 50 people and a turnover under £6.5 million and a medium business as less than 250 employees and a turnover under £25.9 million. Further complications arise within other parts of the UK government that use the EU definitions of a SME as follows: . Micro Business = less than 10 employees & turnover under £2 million . Small Business = less than 50 employees & turnover under £10 million . Medium Business = Less than 250 employees & turnover under £50 million Depending on which definition is used a SME could have anywhere between 50 and 500 employees and a turnover between £6.5 million and £50 million. Arriving at an acceptable and easily understood definition is important, not only for the research project, but for understanding the cohort of businesses that should be included in future initiatives and economic development. The most common and widely understood definition currently in use by county councils and local authorities is companies that employ no more than 250 employees. Since the aim of this project is to focus on SME, the recommended definition is between 11 - 250. That is not to say that micro businesses are not important to the economy but in order to focus on companies where growth can be measured, it is likely that they will be larger than micro businesses????