Member Article

Innovation seeking North East SMEs held back by location

A new survey by Lloyds Bank Commercial Banking has found that small firms in the region are planning a fresh wave of R&D investment in a bid to boost sales, but fear their location is holding them back.

Small businesses said their investment in innovation over the last five years had increased profits (50 per cent) and led directly to them securing new contracts (47 per cent).

The North East’s SMEs invested on average nine per cent of revenue on R&D over the last five years (Q9) which was responsible for 15 per cent of sales, meaning every £1 spent generated £1.69 of sales.

In total, over half (54 per cent) plan to raise external funding to support their innovation rather than working capital.

Three quarters (78 per cent) of firms polled said innovation was vital to their growth strategy.

Almost a third of firms (31 per cent) expect to increase their investment in new products and services over the next five years, while a further 63 per cent say they will do more if they can access the right funding.

In a further sign of growing business confidence, bosses at small firms in the North East expect annual sales to increase by eight per cent over the next two years driven by new innovation.

But despite the upbeat outlook, 59 per cent of small firms said their R&D plans were being held back, with 38 per cent finding their location is preventing them from accessing talent.

Last month, the CBI called on the government to prioritise innovation and science funding in the Comprehensive Spending Review, highlighting that the UK’s research and development spending is now the lowest amongst the G8. In September, the World Economic Forum’s global competitiveness index showed Britain had slipped to 10th place in the rankings, being overtaken by Sweden.

Leigh Taylor, area director, SME Banking in the North East, Lloyds Bank Commercial Banking said: “What we’re seeing is a growing determination amongst the North East’s small and medium sized firms to innovate in order to drive competitiveness and secure their long-term success.

“SMEs are ideally placed to lead this charge. They have the advantage of being closer to their customers and more internally flexible, which makes the process of listening to feedback and adapting products and services a shorter cycle.”

He added: “The scale of the challenge, however, is equally clear. Unless we provide access to the talent necessary to deliver that innovation, we run the risk of missing an enormous economic opportunity. That requires a concerted and collaborative effort on the part of the UK’s innovation ecosystem, with skills and funding being the killer ingredients. As a major supporter of small firms, we’re determined to play our part.”