Mid-sized Aussie firms face barriers from their own lack of ambition: analysis

Melbourne Transport — Trucks carrying goods are seen in a traffic jam in outer Melbourne August 31, 2010. Reuters/Mick Tsikas

New analysis by the Department of Industry has found that medium-sized businesses are 10 times more likely to slip back to small business status to grow bigger. This is due to their own lack of ability and ambition, according to the paper.

Department of Industry chief economist Mark Cully has stated that medium-sized businesses face hindrances to growth from the market dominance of larger firms. He mentioned a research from the World Bank that shows Australia as seventh in the world when it comes to ease of starting businesses.

Compared to other nations, Australia has more businesses per head of population, with 310,000 new ones in 2015-16. The country ranks relatively high for the number of businesses that grow from small to medium-sized firms, defined by hiring between 10 and 200 people.

The 51,000 mid-sized firms translate to 1,700 per million people. This can be compared to an OECD average of 1,440 per million. But only a few manage to join the ranks of the 4,000 firms that employ over 200 employees. Just 1.8 percent of medium-sized firms were successful in making the transition between 2010 and 2014, while nearly 20 percent contracted to become small businesses again. Fourteen percent went out of business altogether.

Cully cited ANU researcher Adam Trigs’s study showing that the four largest businesses in each of the 461 Australian industries accounted for an average of 36 percent of revenue in their industry. He said it can be challenging for small and mid-sized businesses to follow the success of large players.

“An independent suburban supermarket is, to all intents and purposes, growth-constrained by the size of its local market, let alone not having the scale to adopt the sophisticated supply chain and operational logistics of the major supermarket chains,” The Australian quotes Cully as saying. He mentioned there is also an issue of management competence. “There is a refrain that they are too large to benefit from government support but not large enough to hold sway."

According to a recent ABS study of management capability, only a third of mid-sized firms have written strategic plans. Twenty percent are not tracking any aspect of their performance.

The study, funded by the Department of Industry, also found that just one in five embarked on high risk and high reward ventures. A third of principal managers had a university degree.