We recently surveyed 1,535 ICT and electronics companies in the West Midlands on their sales performance and outlook, effect of recession on their cash flow, international trade and sources of business advice.

The ICT and electronics SME company survey is undertaken on a regular basis to maintain a clear picture of the size, activities and demographics of the companies making up these two important sectors and the changes which have taken place over time.  The survey also highlights the concerns and challenges facing the region’s technology SMEs. 

Overview
As expected and consistent with previous surveys, the vast number of respondents managed small companies, with 53% of ICT businesses employing up to 4 people, in the next band 23% up to 10 and 13% up to 25 people.  Electronics companies seemed to be slightly larger overall, with 34% employing up to 4 people, 26% up to 10 and 14% up to 25. 

The geographic location of the ICT companies is focused around a southern arc of the West Midlands comprising Birmingham & Solihull, Coventry & Warwickshire and Hereford & Worcester) with 62% found in this area.  69% of electronics businesses are also concentrated in two of the three same southern arc areas of the West Midlands region, specifically Coventry & Warwickshire and Hereford & Worcester.

Encouragingly, 31% of ICT businesses generated revenue s of over half a million pounds or more in the last twelve months and a high percentage had been in businesses for more than 10 years (63%), whilst a doubling of the percentage of one-year old companies suggests a healthy increase in new start-up companies. 

A significant 53% of electronics businesses were also generating revenue of over half a million pounds or more over the last year, while over two thirds of the respondent companies have been operating for ten years or longer.

Sales performance
Despite the recession, West Midlands ICT and electronics companies remain positive about the outlook for their businesses. An encouraging 30% of ICT and 25% of electronics companies reported an increase in salesover the last six months.  However, on the downside, 32% of ICT companies and 21% of electronics companies reported a fall in sales over this same period, with customers’ cost cutting sited as the main reason for the decline.

The number of ICT businesses indicating that their problems were due to a significant number of customers ceasing trading was surprisingly high (22%), particularly when compared to the results for the electronics sector (3%), and may be due to ICT businesses generally having a bigger customer base and are therefore exposed to the risk of a greater number of them going into liquidation.

It is encouraging to see that in the electronics sector of those surveyed, only a very small proportion of companies have been affected by lower cost competition and none by the appearance of new products in their market.

Looking to the future, respondents were asked if they were expecting an increase in sales or a further fall during the next twelve months. Unsurprisingly in today’s conditions, the majority either had no clear view on this subject or expected no change: however, companies in the ICT sector appear markedly more optimistic than those in the electronics sector.

Cash flow issues
Respondents were asked whether the recession had made cash flow an issue for the business;  32% of businesses in the ICT sector confirmed that cash flow has become an issue and  23% of businesses in the electronics sector reported the same.

The majority of companies in both sectors manage their cash flow so well as to have experienced no additional problems due to the recession. It is noticeable that overall, by far the most important factor detrimental to cash flow is that of increasingly late payment by customers. In the case of ICT businesses, however, falling sales and bad debts are also significant factors.

Respondents were also asked to describe how their cash flow problems today compared with six months earlier. Only a small proportion reported that their problems are seriously worse. Overall, the electronics sector appears to faring better in terms of cash flow than the ICT sector.

International trade
In terms of international trade, 25% of the ICT businesses and 51% of the electronics businesses made direct overseas sales in the last two years.  

The top three bases on which ICT companies commenced exporting are as a direct result of direct enquiry from overseas (52%), referral from a UK customer (17%) and business network - suggested by a contact within network (8%).

In the electronics sector, a direct enquiry from overseas was by far the most significant basis for commencing exporting activities (87%). Both sectors indicated that the principal impetus for their export sales arose from a direct enquiry from overseas, the implication being that their customers had sought them out rather than that they had actively sought export markets by advertising or marketing.

Slightly disappointingly, it appears that for the majority the initial export opportunity defines the extent of their exporting activities, but for a minority it provides the catalyst for more significant exporting activities. Only a negligible minority in both sectors appear to have engaged in market research to seek out export opportunities. It may also be significant that a noticeable minority of ICT businesses received their stimulus to export through the recommendations of existing (UK-based) customers to associated businesses overseas, whether subsidiaries, parent companies or associates.

Sources of business advice

Companies were asked if they had sought advice from private sector and of those that had, an overwhelming 62% of ICT and 73% of electronics businesses turned to their accountants.   A surprisingly small proportion of respondents indicated that they had sought advice from another business person, which is lower than expected and would indicate a possible lack of networking between these businesses.

When asked about public sector support, amongst those companies that had used these services, Business Link was the preferred source of support with 70 % of ICT and 67% of electronics businesses using this service.   ICT businesses were more likely also to take advantage of the Regional Development Agency’s funded projects.

Amongst companies seeking advice on the internet, Business Link was again the most common choice. Also noticeable is the equally high proportion of ICT businesses which accessed the HM Revenues & Customs (HMRC) website, possibly seeking to take advantage of the opportunity to defer tax payments (under the recently introduced HMRC ‘Time to Pay’ scheme).

Conclusion
The survey indicates that in spite of the recession, the mood and outlook of ICT and electronics businesses does remain positive.    Many companies are taking advantage of international trade, but not seeking out opportunities.  They are waiting for the international business to come to them.  In addition, Business Link and accountants are seen as the place to gain support and advice.

The full report will be available to download from the ICT Cluster website www.wmictcluster.org in July, or to request a copy to be sent to you, email This e-mail address is being protected from spambots. You need JavaScript enabled to view it .