Member Article

Expanding into new sectors – diversifying to survive the economic slowdown

The success of SMEs is often dependent on their ability and resilience in the face of changing trading environments. Evidence reflects tough times – not least due to the uncertainty caused by Brexit. The UK has posted its weakest six months of growth since 2012, with the International Monetary Fund (IMF) cutting its growth forecast citing continued uncertainty as a key factor. It seems the current climate is demanding the business community to step up to the plate.

Rather than see such conditions as a risk there is merit in viewing them as an opportunity. What can you do to leverage advantage from the current conditions? What are your strengths? How can you maximise the worth of those strengths? One potential answer is by venturing beyond your traditional markets – diversification.

This difficult economic landscape means firms of all sizes, working across many different industries and sectors, are faced with the challenge of maximising profits while protecting their assets and improving operational efficiencies. Expanding into public sector work, and perhaps into other regions across the UK, presents a huge opportunity for businesses to not only maintain profitability, but also retain specialist workforces and investment in training.

Despite tightening budgets, UK public sector spending at the end of this fiscal year is expected to be over £784billion . This means companies with the right skill sets, experience and willingness to try, the potential to access a share of this spend can be a reality. A move like this could offer greater security and allows firms to be more competitive, flexible and able to maximise productivity.

Indeed there are numerous examples of businesses diversifying from their core client base into the public sector arena successfully. The North Sea Oil and Gas sector, largely based in Aberdeen, for instance has seen ancillary firms throughout the supply chain move into the public sector to satisfy the need to expand and protect profit margins. The likes of Health & Safety specialists and structural engineers have adapted their services and offerings to allow them to capitalise on public infrastructure growth and reduce the impact that the fluctuating oil price can have on their long term success.

The UK construction industry is another example of where this approach helps to add a level of security and create opportunities. The industry has seen notable improvement in recent years and a positive start to 2017 but there is absolutely no room for complacency. While the industry appears to be in a state of recovery, firms remain cautiously optimistic and perhaps tackle the desire to both expand and protect their assets. Worth £44billion to the economy, 40 per cent of the UK’s construction output is from the public sector and for firms not already exploiting public sector projects, this presents a massive opportunity. Those not bidding for public sector tenders or partnering with those that do are significantly limiting their prospects.

Confidence in public sector construction is growing. Our research reveals that in the last three years there have been significant pockets of growth in these contracts available in Yorkshire, East Midlands and the South West in particular with new City Deals and continued investment in the ‘Northern Powerhouse’ and ‘Midlands Engine’ likely to have played key roles. Continued investment means opportunities for private firms could expect to remain steady while private financing may falter.

Key learnings and this approach can be applied to many different industries where skills and services can be transferrable such as transport and IT. Of course, a move into the public sector brings new rules and regulations to abide by and challenges to overcome with the perception of bureaucracy discouraging firms from considering potential opportunities. These factors can often have a positive impact on the market however, removing barriers to SMEs and those new to the sector especially, creating a more competitive marketplace.

Transparency, efficiency, quality of supply chain and competitive pricing are just some of the issues concerning public sector buyers. It requires a culture shift – pricing isn’t up for negotiation, courting buyers is frowned upon and expensive marketing materials don’t count. Understanding the rules of engagement within the public sector are key to making a good first impression. There are firm regulations over communications, timeframes and even bid submission word counts which can be challenging at first. Those with responsibility for business development and winning contracts must have a good understanding of the approach in order to be successful.

If a local authority or public sector body was to publish a tender opportunity, would you be aware or know where to find all the relevant information? The concept of disciplined tendering processes can be difficult to understand and so the value of being signed up to a tender alerts service and knowing where to go for guidance and support on things like the Social Value Act and Sustainable Procurement proves vital. Knowing about opportunities and being able to react in time is key to successful bids.

Taking the first step and moving into a new sector has its risks, particularly when profit margins are already shrinking, but in the long term can pave the way towards increased new opportunities. Virgin first started with high street record stores, moved to air, and is now known for operating public transport rail franchises. Expanding into the public sector brings a chance to survive, grow and even flourish, whether you stay within the confines of your industry or not.

Procurement specialist, Millstream provides a public sector tender alerts service, Tenders Direct, to private sector organisations working across different industries.

This was posted in Bdaily's Members' News section by Penny Godfrey, General Manager, Millstream .