A call for support for the mid-market

| September 4, 2017

As a research assistant at Global Access Partners, I have dedicated the last nine months to studying, researching and better understanding the midsize business sector here in Australia. Being an International Business and Management student with my roots in the Netherlands, I have always taken the government support of the midsize sector for granted – as European trade is such a big part of the Dutch GDP.

I discovered that the regulatory system has major implications on business performance and thus this blog is not only written to give you some insight into the key highlights of GAPs research, but also to suggest potential measures of support for the sector which, until now, has been largely disengaged from the policy process.

Let’s start with the raw facts to give you an indication of the size and importance of this business sector. Medium-sized businesses in Australia – 51,027 companies with 20-199 employees – comprise one of the nation’s best-performing sectors. They employ almost 2.5 million people and generate over $717.3 billion in annual revenue, working across all the major industry sectors. The most successful of these innovative businesses – the top-performing midsize companies with a turnover between $10 million and $250 million – account for half of the sector’s total workforce and three quarters of its cumulative revenue. A substantial proportion of these businesses are family-owned.

Although these businesses contribute almost a quarter of Australia’s wealth, medium-sized enterprises are seen as the middle children of the economy – not large enough to be seen as influential stakeholders of government, but too big to benefit from the incentives and support afforded to smaller companies.

Numerous policy measures at the federal and state government level are aimed at fostering business development, particularly with regards to small businesses. Thus growth in the number of small businesses is often explicitly targeted in government policies. On the flip side, large corporations are able to foster growth by using their size as leverage to obtain capital, attract talent and deal with green and red tape.

At the cornerstone of a mid-sized business success is its ability to innovate and grow. Every midsize business was once a small business, but its ability to scale-up progressively by creating new jobs, meeting customer demand for new products and services, and continuing to innovate its offerings and systems, has driven it to new heights. Certainly, innovation is a key driver of start-ups, but to become prosperous, a start-up must grow and research has shown that more than 95 per cent of them fail. And when such a business does reach the level of a successful midsize business, new economics and barriers come into play.

According to the latest data from the Australian Bureau of Statistics, medium-sized businesses face a number of barriers to innovation, such as a lack of additional funding, lack of access to talent and red tape. I believe this is where the Australian Government can play a key role in supporting and engaging these businesses to overcome these barriers and strive to reach new levels of growth.

Creating a supportive policy framework focusing on medium-sized enterprises would go a long way to help the sector grow and flourish.

Learning from international best practice such as Germany’s Mittelstand and other European nations could also be beneficial.

A simple example would be how Germany has managed to limit red tape by introducing the “one in, one out“ rule. This rule was introduced to permanently restrict the rise in compliance costs. It basically means that regulatory burdens now have to be offset by equivalent regulatory relief elsewhere within a year. Since the introduction of the instrument in Germany, the current compliance costs for business have been reduced by €958 million.

The key focus here is to find solutions for the barriers to innovation and growth that medium-sized enterprises face, but also to have a more coherent, dynamic and resilient mid-sized business sector.

It is my hope that more research will encourage our government to take action by exploring ways to minimise these barriers and take example from Europe, where medium-sized enterprises increased to 30 per cent of Europe’s business revenue due to new government support and policies.

Let’s seize this opportunity together!