central south report 25 Innovate or die?


Significant economic and political uncertainty remains globally, and many businesses still face a challenging future, but the case studies within the report demonstrate how new opportunities can be found in the changing economic landscape. The watchword for all businesses appears to be innovation, with overall R&D spend up across the year and many businesses diversifying and finding new routes to market as they invest in opportunities for growth. The cost of investing in innovation during a recession is lower than in boom times: labour and new assets can be acquired more cheaply; firms’ internal resources can be redirected, and R&D budgets are normally the last be cut.


Companies are now thinking more broadly about how they use their and other people’s resources to innovate. Collaboration is key – collaborating with universities, suppliers and customers provides the opportunity to spread risk, combine resources and share costs. This is reflected in the growing success of Collaborate2Innovate, a local annual event dedicated to building profitable partnerships between organisations in the region and of which BDO was a founding partner.


The case studies within the report demonstrate how new opportunities can be found in the changing economic landscape. The watchword for all businesses appears to be innovation


Although the UK has an excellent record of innovation and a tax system that provides some very favourable tax reliefs for both SMEs and larger corporates, there are questions over whether these reliefs will continue and skills gaps are appearing that are likely to hinder UK-based innovation. In one of the Report’s case studies, Hamworthy plc finds that whilst the UK does have the technical skills base the company needs, it would willingly spend even more on innovation here if further government incentives were available.


Other companies are looking towards emerging markets, not simply to reduce costs but also to match innovation with the eventual markets for their new products.


Malcolm Thixton, lead partner at BDO LLP Southampton, comments: “Despite the economic outlook remaining uncertain, we are getting the sense that confidence is returning, and companies are emerging from recent challenges to focus on innovation and growth particularly in export sales.“


Making the most of what you have


The Top 150 companies include a number of privately-owned businesses. Whilst they have all felt the pinch of recession, the results from many of them suggest that by adopting the right strategies and really focusing on growing


THE BUSINESS MAGAZINE – SOLENT & SOUTH CENTRAL – APRIL 2011 www.businessmag.co.uk


revenue or cutting costs, it is possible to increase profits even in tough times.


Capital expenditure is important for privately owned businesses as they need to focus on long-term strategy as well as getting through the current downturn. However, access to funding is a significant issue with banks continuing to restrict their lending and make borrowing hurdles higher. M& A activity is minimal and management buyouts uncommon at the moment, partly due to restrictions on access to finance but also the result of businesses needing to focus internally and ensuring their controls and processes are tight.


Owner-managed motor dealer group, Heritage Automotive, which had another successful year in 2010, took this a step further. The management team believed that whilst expense control was and remains important, there were opportunities for the business to make more of the resources it had. They initiated a bespoke performance management and inspirational leadership training programme to give the line managers the tools to manage more effectively and as a result deliver better results for the business. This strategy worked well, results held up and the training helped further embed the culture of the business within the workforce.


’Despite the economic outlook remaining uncertain, we are getting the sense that confidence is returning, and companies are emerging from recent challenges to focus on innovation and growth particularly in export sales’


Be bold but cautious


With the UK and Europe becoming increasingly challenging business environments, many companies are looking further afield to expand their businesses and meet growth forecasts. Despite a drop last year, overseas still represents


more than 50% of the Group’s turnover and we would expect this to grow year on year.


Eyes have been turning to the BRIC markets of Brazil, Russia, India and China to generate more sales. Whilst China still tops the list on most companies’ expansion plans, India is a close second. But looking at trend data, other more surprising names are beginning to appear such as Romania, Mexico, Nigeria, the Philippines and Vietnam. Growth in Indonesia is predicted to be 7% this year alone.


Being aware of and responsive to cultural differences is one of the key learning messages of businesses that have already expanded overseas


Entering new markets is not necessarily an easy option or one to be taken lightly. Consistent quality and IP protection continue to be challenges, along with foreign ownership restrictions, trade barriers and corruption but none of the challenges are considered insurmountable according to BDO’s research.


Being aware of and responsive to cultural differences is one of the key learning messages of businesses that have already expanded overseas. ACW Technology is the largest privately-owned electronics manufacturer in the UK and set up a manufacturing plant in southern China five years ago. Its alertness to local custom and culture has helped it get the best out of local staff, while heading the operation with a British manager has ensured quality control and copyright protection and allowed ACW to successfully replicate its manufacturing processes and provide back- up and technical support from the UK when needed.


Continued overleaf ...


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40