The size structure of UK industry - Business Environment

When looking at the size of firms it is important to define the terms used in official data. The firm, or ‘enterprise’, is the organisation as a whole, and it might be comprised of several units or ‘establishments’. Small firms like the corner shop will mostly be enterprises with only one establishment. Large firms like Sainsbury’s will have many establishments as they have branches in most towns.

Many different ways are there to measure the size of firms. Among them some common measures used are turnover, the value of output, the capital employed or the level of employment. Such measurement is beset by problems, not least the difficulty of defining the small firm, as will be seen later. The three measures mentioned above might give conflicting pictures, as an industry which is becoming increasingly mechanized will probably have rising levels of average capital employed and output but falling average levels of employment. Table shows the ‘top ten’ companies in the United Kingdom using two of these measures and it illustrates the point that different measures of the size of a firm will give different rankings.

Some of these names will be familiar to the reader while others are less so. Compass Group plc, for example, is a food service organisation which provides catering and support services to its clients.

The most common measure of size used is the level of employment. Table shows the size structure of units in all industries by the number of employees in the United Kingdom in 2003. The table shows that smaller firms predominate in terms of numbers, with 98.5 per cent of firms employing fewer than 100 employees. In terms of employment, however, these firms account for only 34.2 per cent of the total level of employment in manufacturing. At the other end of the scale establishments with over 500 employees account for only 0.4 per cent of the total number but 53.8 per cent of total employment. The pattern of size structure varies across industries and over time. In the last 20 years there seems to have been an increase in the importance of small firms and a decline in the importance of large firms in their contribution to employment. In 1980 establishments with fewer than 200 employees accounted for 31.9 per cent of total employment and establishments with more than 500 employees accounted for 49.8 per cent. The comparable figures from Table are 39.3 per cent and 53.8 per cent. Even the short period of time from 1991 to 2000 saw a shift in the importance of small firms. There was an increase of 188 968 in the number of units employing fewer than 20 people, while there was a decrease of 13 332 in the number of units employing more than 20 employees. A similar pattern emerges with employment, with an increase in employment of 313 800 in the smaller units and a decrease in employment of 882800 in the larger units.

Many of the large companies listed in Table operate in more than one country and are therefore multinationals. An enterprise operating in several countries but managed from one (home) country. Generally, any company or group that derives a quarter of its revenue from operations outside of its home country is considered a multinational corporation. A multinational corporation often has a long supply chain that may, for example, require the acquisition of raw materials in one country, a product's manufacture in a second country, and its retail sale in a third country. A multinational often globally manages its operations from a main office in its home country.

Size structure of uk industry


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