threats facing UK businesses

UK Enterprise Survey Report 2008 Providing a unique annual picture of the opportunities and threats facing UK businesses

Welcome to the 2008 UK Enterprise Survey report The ICAEW annual Enterprise Survey, now in its twelfth year, draws upon the expertise of our members working at the heart of business. Respondents are mainly chief financial officers, finance directors, or other directors, in businesses of all sizes, from FTSE 100 companies to micro entities. The survey provides a unique annual picture of the opportunities and challenges facing UK businesses. In 2008, for the first time, the survey includes the views of chartered accountants working in three other key regions continental EU, the Far East* and the US. This enables us to make global comparisons in our findings. This year s survey looks into the impact of the turbulence in financial markets the credit crunch, changes in global commodity prices and the effects of changes in consumer demand together with major exchange rate movements. In particular, we examine the impact on businesses growth plans and on their plans for continued expansion into overseas markets. Our report suggests that the credit crunch will continue to affect the global economy late into 2009 and possibly beyond. However, this will be influenced by the scale of the response from both investors and financial authorities to the September 2008 market instability. The 2008 report contains important messages for UK government. Our analysis indicates that the credit crunch still has considerable sectoral bias in the UK. Many areas of the economy are experiencing acute difficulties in business planning and shifting emphasis from investment to paying down debts. However, many UK businesses are still planning to grow and expand overseas, although their plans have been moderated compared with our pre-credit crunch survey in 2007. Across the economy, lack of access to finance remains a significant issue for UK business growth, and preserving cash flow has become an even greater priority. Perhaps the finding which will most concern the UK government is that the majority of respondents consider the UK regulatory and taxation environment not to be business friendly. The message might also apply to the continental EU, which reports similar findings. This contrasts with the position in the US and the Far East, where two-thirds of US respondents and approaching 90 of those in the Far East believe that the regulatory and taxation environment in their countries is business friendly. Michael D M Izza Chief Executive * For the purposes 2 Welcome UK Enterprise Survey Report 2008 of this report we have grouped Hong Kong, Singapore and Malaysia under the broad term Far East.

KEY FINDINGS AT A glance ECONOMIC ISSUES Nearly two-thirds of UK businesses say that the credit crunch has had a negative effect on their organisation one in five very negative. Those in Construction & Housing, Real Estate & Property Services and Banking, Financial Services & Insurance have been the most strongly affected. Most of those affected say that the credit crunch has increased borrowing costs, reduced revenue growth and made forward planning more difficult. Most businesses affected believe that the credit crunch will last until at least the latter part of 2009 or 2010. Most UK businesses expect the turbulence in financial markets, changes in global commodity prices and changes in consumer demand to impact negatively on their business this year, with medium-sized businesses particularly pessimistic about their effect. GROWTH In spite of the credit crunch, more than 8 in 10 UK businesses are still planning turnover growth over the next two years, although growth targets are a little lower than in 2007. One in three respondents are looking for annual growth rates in excess of 10, with 11 targeting over 30 p.a. Micro businesses have more ambitious growth targets than in 2007, but others, particularly small and medium businesses, have reduced turnover growth plans. Increasing profitability remains the key financial objective, but more are looking to increase cash balances and pay down debt. Competition is by far the strongest barrier to growth (59 critical/strong), but many feel they are held back by regulation (38), lack of leadership (33) and technical skills (38) and the cost of labour (34). GLOBALISATION Nearly two-thirds of respondent companies have at least one of the three attributes of globalised engagement customers, operations or outsourcing outside the UK a small increase since 2007. Respondents remain positive about the impact of continuing globalisation on their business: 42 view it positively (down marginally from 44 in 2007). Banking, Financial Services & Insurance and IT & Communications are the most positive sectors on globalisation, Manufacturing & Engineering remains the sector most conscious of the risks. In an increasingly global marketplace, many UK businesses are looking to develop and enhance their product offering and extend their global trading footprint. Administrative, regulatory and legal considerations are considered the main barriers to international expansion by UK businesses. REGULATION 53 of UK businesses say that the regulatory and taxation environment in the UK is not business-friendly. The total cost to UK businesses of implementing new legislation is estimated at up to 11.3bn. The cost to micro and small businesses has increased significantly since the 2007 survey and they carry an increasingly heavy share of the burden. Employment legislation, employment tax and business tax changes are seen as the main hindrances to the operation and development of UK businesses, with employment tax most often singled out as the greatest cost. Disciplinary, dismissal and grievance procedures are considered the most burdensome aspect of employment legislation. Many UK businesses say that their global engagement has been affected by exchange rate movements and changes in raw material costs. Just over half (51) of UK businesses have plans to enter new markets or expand market share outside the UK, although the focus tends to be nearer home this year, in the EU and Middle East. UK Enterprise Survey Report 2008 Key Findings

CONTENTS EXECUTIVE SUMMARY 5 Economic issues 9 Impact of financial market instability 9 Impact of economic events on businesses in 2008 14 A global perspective 17 Growth 19 Business growth 19 Business objectives 23 Barriers to business growth 24 A global perspective 27 Globalisation 29 Global engagement 29 The impact of globalisation 32 Strategy for global markets 34 Barriers to international expansion 36 Economic influences on global engagement 37 Where businesses are focused outside the UK 38 A global perspective 41 Regulation The regulatory and taxation environment 43 The burden of employment legislation 47 The cost of implementing new legislation 50 A global perspective 53 TECHNICAL APPENDIX 54 Acknowledgements 55 Contents UK Enterprise Survey Report 2008

EXECUTIVE SUMMARY The Institute s twelfth annual Enterprise Survey continues to provide a revealing and authoritative commentary on the way in which UK businesses are responding to changes in the UK and global business environments, with the credit crunch having a major impact in the 12 months since our last report. Big changes to the global economy in the last 12 months The 12 months since the 2007 Enterprise Survey have seen a period of turbulence within global markets that has had a major impact on all quarters of corporate Britain. The opportunities and challenges of increasing globalisation that were so much a theme of last year s report have themselves been challenged by the combination of events of the past year. In particular: rising oil prices have increased costs of transportation and travel increases in other commodity prices have affected the cost of goods increased inflation in developing countries and changes in exchange rates have affected the economics of global trade. Perhaps the greatest impact on businesses around the world, however, has been the turbulence in world financial markets known generally as the credit crunch. The IMPACT OF the credit crunch Most UK businesses have been adversely affected by the credit crunch The 2007 Enterprise Survey was undertaken shortly before the phrase credit crunch became commonplace. Yet, even then, we reported on the steps that UK businesses were taking to counteract the impact of higher interest rates, with many cutting operating costs, reducing working capital requirements, refinancing into lower cost debt and reducing capital expenditure. But even these measures may not have prepared them for the full effects of the subsequent unusual turbulence in global financial markets. Close to two-thirds of UK businesses in the 2008 survey say that the credit crunch has had a negative effect on their organisation, and one in five that this has been very negative. Although micro businesses have perhaps been slightly more shielded, this impact has been felt across the range, from the smallest to the largest organisations. It has impacted on businesses in all sectors of the economy, but, perhaps not surprisingly, it has been felt most strongly in the Construction & Housing, Real Estate and Property Services and Financial Services sectors. Significant effects of the credit crunch Among the widespread effects of the credit crunch, a majority of businesses affected say that it has: increased short- and long-term borrowing costs reduced revenue growth, and made forward planning more difficult. This has resulted in: reduced capital investment increased difficulty in financing acquisitions increased difficulty in financing day-to-day operations, and reductions in planned staffing levels. However, a few do recognise some compensating opportunities in weakened competition, in sales and acquisitions opportunities and the availability of suitably skilled staff. UK businesses do not predict a quick recovery Our respondents feel that there is no quick fix, with most UK businesses affected anticipating that the effects of the credit crunch will be felt well into 2009 or 2010, if not later. Most say that their business will be adversely affected in 2008 by the triple whammy of the turbulence in financial markets, changes in global commodity prices and changes in consumer demand, with medium-sized businesses more pessimistic than others. UK Enterprise Survey Report 2008 Executive Summary

business growth plans Most UK businesses are still planning to grow turnover in the next two years In spite of the undoubted impact of the credit crunch, the 2008 Enterprise Survey still shows most businesses have similar growth plans to those reported over the last few years. However, there has been some slight moderation of aspirations: 84 plan to grow annual turnover for the next two years, down from 90 last year; 32 are planning increases of more than 10, down from 40 last year. Small and medium-sized businesses are the most likely to have trimmed back their plans for turnover growth. New businesses in particular have reduced plans for future growth: only one in five businesses set up in the past three years have annual growth plans of more than 30, compared with more than half saying this in the 2007 survey. Targets remain relatively consistent compared with last year in many of the service sectors IT & Communications, Financial Services, Business Services, Other Services and Health & Education. On the other hand, there has been a decided cut-back in turnover growth targets for those in Construction & Housing and Real Estate & Property Services especially, and also in Retail, Hotels & Catering and Primary Industries. While increasing profitability remains the key business objective for UK businesses, the current economic constraints mean that more businesses than a year ago are looking to increase cash balances and pay down debt. Barriers to growth However, as they survive the credit crunch, businesses planning growth face a number of other barriers, of which competition remains the strongest, cited by 59 of UK businesses as a critical or strong barrier to their growth. Other particular concerns include the burden of regulatory changes and enforcement (38), the lack of necessary leadership talent (33) and technical skills (38) and the cost of labour (34). globalisation UK businesses continue to embrace globalisation, despite the changing economic environment We have shown in previous surveys how UK businesses have embraced globalisation, and this was a particular theme of the 2007 Enterprise Survey. It continues to be the case in this year s survey, with nearly two-thirds having customers, operations or outsourcing outside the UK, with increasing engagement at all levels, and more than 40 still seeing increasing globalisation as a positive influence on their business. The level of global engagement clearly correlates with the size of the business, with larger businesses more globally engaged. But it also relates to the sector in which it operates: those in Manufacturing & Engineering, Financial Services and Other Services are more likely to have horizons beyond the UK, whereas some sectors are more naturally UK-focused notably, Construction & Housing and Real Estate & Property Services. There are regional differences too, with businesses in London and Scotland showing the highest levels of global engagement. UK businesses are less positive on the impact of globalisation compared to other regions Chartered accountants working in the overseas regions are more positive about the advantages of increasing globalisation just over 60 of those in the rest of the EU and in the US and over 80 of those in the Far East believe that it will impact positively on their business over the next five years compared with 42 of UK respondents. UK businesses globally engaged plan to expand activities further In the face of strong global competition, many UK businesses principally those which already have some level of global engagement have plans to develop and enhance their product offering and extend their global trading footprint over the next five years. Just over half (51) of all businesses identify regions or countries outside the UK where they plan to enter or increase market share a small increase on the proportion shown in the 2007 survey. Barriers to trading in export markets However, their expansion plans in other markets may be constrained by perceived barriers, such as administrative, regulatory and legal issues, cited by 48 of respondents as a critical or strong barrier, the political environment (43) and the existence of effective legal systems regarding commercial agreements (44). Human resource issues are also a potential barrier, especially in some sectors. The availability of local management is a barrier for 44 overall, but the strongest barrier for those in Property (56) and Retail (47) businesses. The skills of the local workforce is a barrier for 37 overall but mentioned by a majority (52) of those in Health & Education. Executive Summary UK Enterprise Survey Report 2008

But other factors also impact international trade As well as these constraints, however, many UK businesses say that exchange rate movements and changes in raw material costs have had a significant effect on their global pattern of suppliers, the international markets they target and the location of their global operations. While many continue to recognise and grasp the opportunities offered by the developing economies in the Far East, economic constraints may have contributed to a stronger focus on established markets and those closer to home. The proportion of businesses having customers outside the UK has increased slightly this year, relative to the 2007 survey, with the small increases seen in the established and newer EU countries and the Americas. The proportion looking to expand into or increase share in overseas markets is also higher this year, but with the main increases being planned in the newer and established EU countries and the Middle East, with less having plans to expand in Hong Kong. regulation The majority of businesses believe that the UK regulatory and taxation environment is not business-friendly In previous Enterprise Survey reports, we have shown that UK businesses are concerned with the burden of regulation and the costs of implementation. In the present survey, fewer than half (45) describe the UK regulatory and taxation environment as being business-friendly. This suggests that this is a disadvantage to them on the global stage two-thirds of US businesses and approaching 90 of those in the Far East in our parallel survey described their home environments as business-friendly. Employment legislation and tax top list of hindrances on business A majority of UK businesses say that employment legislation, employment tax and business tax changes are a hindrance to the operation and development of their business, with employment tax representing the greatest cost to their business. Medium-sized businesses, which have perhaps reached a critical mass but may have less expertise and resource, tend to find these aspects of the business more burdensome than smaller or larger businesses. Relative to their global counterparts in the rest of the EU, the US and Far East, UK businesses feel more burdened by employment legislation, business tax changes, health & safety regulation, environment law and planning regulations. Disciplinary, dismissal and grievance procedures most difficult for businesses In terms of the difficulty in ensuring compliance and the administrative time they take, disciplinary, dismissal and grievance procedures are seen as the most burdensome aspect of employment law (cited by 43 of respondents as an area presenting particular difficulty in ensuring compliance), particularly for medium and large businesses. Payroll and pension issues (38) and redundancy issues (36) are also seen as particularly difficult and time-consuming. The cost of new legislation The costs of implementing new legislation are high. The 2008 Enterprise Survey estimates that it could be up to 11.3bn a 1.1bn increase on the 2007 figure. As the largest constituent in the business base, much of this cost falls on the micro businesses so vital to the economy s health and it is these businesses in particular that estimate significantly higher costs of implementing new legislation this year. The 2008 ICAEW Enterprise Survey At the heart of the economy, the Institute s members are engaged in running and advising businesses of all sizes and in all business sectors, and so are ideally placed to view, report and influence the changes that are taking place and the response of UK business. That is why the Enterprise Survey has become such an important monitor of the health of corporate UK. The results of the survey also allow us to track key trends across the years in areas such as growth aspirations, globalisation and regulation. However, this year in particular, they help us to understand the impact of the credit crunch, how UK businesses are dealing with the issues and how it has affected their plans and aspirations. In order to place the response of UK businesses in a global context, we have also undertaken a parallel survey (The Global Enterprise Survey Report 2008) which provides a snapshot of the views of Institute members in key markets, elsewhere in the EU, in the US and in the Far East (specifically in Hong Kong, Malaysia and Singapore). This report contains some highlights from this survey, which helps us to see how UK businesses compare with their counterparts in other major economic regions on issues such as globalisation and dealing with the credit crunch. UK Enterprise Survey Report 2008 Executive Summary

65 of UK businesses adversely affected by turbulence in global financial markets.

Economic Issues The 2008 Enterprise Survey has been conducted against a background of growing turbulence in world financial markets. In this first section, we look at some of the current economic issues facing UK businesses. To what extent have UK businesses been affected by the upheavals of the past year the credit crunch, increased commodity and fuel prices and the anticipated changes in consumer demand as well as exchange rate fluctuations? How has it affected their ability to operate and develop, and what opportunities has it opened up? Do they see it as a short-term correction or will it continue for some time to come? IMPACT OF FINANCIAL MARKET INSTABILITY Most UK businesses have been adversely affected by the credit crunch The majority of UK businesses (65) say that the unusual turbulence in global financial markets since late 2007 has had a negative effect on their organisation, and one in five (20) that it has had a very negative effect. Only 5 claim a positive effect of the credit crunch. The remainder say that it has had no effect (18) or has been neither positive nor negative (10). A fairly similar pattern is shown across all sizes of business (see chart 1). Micro businesses are a little more likely to say that it has had no effect, or a neutral effect, on their business, perhaps shielded in part by lower overheads and financing requirements. Small businesses are a little more polarised in their views slightly more of them note a positive effect, but, conversely, more than average have seen a very negative impact (28, against 20 overall). CHART 1 q CHART 1: EFFECT OF THE CREDIT CRUNCH BY SIZE OF BUSINESS 80 70 65 66 69 67 67 60 56 50 40 30 20 28 35 23 30 27 28 Positive 10 0 5 All (1,020) 11 8 5 4 1 Micro (155) Small (161) Medium (163) Large (190) Very large (351) Neutral / none Negative UK Enterprise Survey Report 2008 Economic Issues 9

With the credit crunch stemming initially from problems in the sub-prime mortgage market (albeit in the US), it is those operating in propertyrelated sectors and the lenders who have seen the immediate impact on their business, with manpower cut-backs, reductions in profitability and high profile failures. The three industry sectors especially likely to report negative effects from financial market turbulence are, perhaps not surprisingly therefore, Construction & Housing, Real Estate & Property Services and Financial Services (see chart 2): more than one in three businesses in each of these sectors say that it has had a very negative effect on their organisation. Elsewhere in this survey (see chart 12), we see that, although the Financial Services sector remains fairly positive about its prospects, it is the Construction and Property sectors that have seen a sharp correction in their growth outlook. In line with this, it does tend to be those businesses that have been adversely affected by the credit crunch that are not anticipating turnover growth in the next two years or have low growth expectations. At the other end of the scale, those in the Primary Industries are the least likely to have been affected by the credit crunch only a minority say that it has impacted negatively on their organisation and they are the most likely to note positive effects (15). The other sector that is less likely to feel that it has been adversely affected is Business Services, with only just over half reporting negative and 12 positive effects. CHART 2 q CHART 2: BUSINESSES SEEING A NEGATIVE EFFECT OF the CREDIT CRUNCH BY INDUSTRY SECTOR ALL BUSINESSES 65 Construction / Housing* 81 Real Estate / Property Financial Services* 78 77 Retail / Hotels / Catering Other Services* Manufacturing / Engineering 63 65 67 Health / Education Transport / Distribution* IT / Communications 60 59 59 Business services / Accounting 52 Primary Industries* See technical appendix for sector base sizes 39 0 20 40 60 80 100 *Sample base <100 The effects of the credit crunch are particularly sector-based and there is some degree of consistency across many of the main sectors, and so it is not surprising that there are limited differences in response in the regions. Businesses in Scotland and the West Midlands are slightly more likely than those in other regions to report negative effects from the credit crunch (both over 70), with more than twothirds also giving this response in Northern, North West and Wales. UK businesses find forward planning more difficult Nearly three-quarters (72) of UK businesses that have been affected by the turbulence in global financial markets (close to 60 of all businesses) say that it has increased the difficulty they have in planning ahead (see chart 3). But the more direct impact that it has had on their business is on their cash position a majority say that it has increased the costs of both short- (64) and long-term borrowing (53) and reduced revenue growth (64). Hence, we see elsewhere in this survey (see Growth section) an increased number of businesses citing objectives to increase cash balances or pay down debt. The effect of this, for many UK businesses, is to reduce their ability to invest in capital expenditure (45 of those affected), to finance acquisition (44) or to finance day-to-day operations (39). More than one in three businesses say they have been forced to reduce planned staffing levels (37). 10 Economic Issues UK Enterprise Survey Report 2008

Nevertheless, we saw previously that a few businesses do perceive that the credit crunch has had an overall positive effect on their organisation. Certainly, there are some positive outcomes reported. In particular, while elsewhere most see competition in the marketplace as a major barrier to growth (see chart 15), just over half (51) of those businesses affected by the credit crunch agree that it has weakened their competitors although whether this has opened up many more opportunities for them is maybe less clear in an uncertain environment: fewer than one in five (18) say that it has increased sales opportunities. On the positive side too, nearly one in three (32) say that the credit crunch has increased opportunities to acquire businesses although rather more say that they are less able to finance acquisitions and one in six (16) that it has increased the availability of staff with skills they require although, again, more than twice this number have been forced to reduce planned staffing levels. CHART 3 q CHART 3: Effects of the credit crunch on uk organisations More difficult to plan ahead 72 Higher short-term borrowing cost Reduced revenue growth 64 64 Higher long-term borrowing cost Weakened competitors 51 53 Less able to invest in capital Less able to finance acquisition 45 44 Less able to finance operations Lower planned staff levels 37 39 More opportunity for acquisition More sales opportunities More staff with skills needed 16 18 32 Negative Positive 0 20 40 60 80 100 Base: All businesses affected by the credit crunch: 826 All of these issues and opportunities are found across all sizes of organisation (see chart 4), although their focus may vary a little. Very large businesses are more concerned than others by the costs of borrowing, whereas medium and large organisations are more likely to report reduced revenue growth, and small businesses a reduced ability to finance day-to-day operations. Of some concern for future employment in the UK is the fact that very large businesses are the most likely to look to reduce staffing levels. Although it is the large organisations that are more likely to perceive the weakening of their competitors, they are the least likely to say that they have experienced resulting sales opportunities. Indeed, it is some of the smaller businesses that may look to grasp other opportunities. Small businesses are slightly more likely than others to see increased opportunities for acquisitions and the increased availability of staff with the skills they require albeit hampered by their reduced ability to finance dayto-day operations. Micro businesses are more likely than others to have experienced sales opportunities arising from the credit crunch, perhaps benefiting from their lower overheads and an ability to respond quickly to market changes. CHART 4 u UK Enterprise Survey Report 2008 Economic Issues 11

CHART 4: Effects of the credit crunch on uk organisations By size of business All Co.s Micro Small Medium Large Very Large (826) (118) (135) (132) (147) (295) Increased difficulty of planning ahead 72 68 74 75 76 68 Increased cost of short-term borrowing 64 59 61 65 63 68 Reduced revenue growth 64 60 60 72 70 61 Increased cost of long-term borrowing 53 41 52 48 51 63 Weakened competitors 51 45 50 44 59 53 Reduced ability to invest in capital 45 42 45 37 48 48 Reduced ability to finance acquisition 44 29 47 40 49 46 Reduced ability to finance day-to-day operations 39 37 49 35 44 35 Reduced planned staffing levels 37 15 36 42 41 43 Increased opportunities to acquire businesses 32 31 38 30 30 32 Increased sales opportunities 18 31 16 16 14 16 Increased availability of staff with skills required 16 9 22 15 13 17 Base: All businesses affected by the credit crunch: 826 (Light orange shaded squares represent those where figure is 6 points or more above average) Again, the impact of these factors is largely sectorled: those sectors most likely to have been negatively impacted by the credit crunch (see chart 2) are more likely to have experienced the effects discussed here Real Estate & Property Services, Financial Services and Construction & Housing (see chart 5). The Real Estate & Property Services sector is particularly likely to have experienced the difficulties outlined. Clearly, with a falling property market, their financial position has been strongly affected this is the sector most likely to identify increased borrowing costs and a reduced ability to invest in capital, to finance acquisitions and to finance day-to-day operations. Highlighting the dichotomy of the credit crunch, it is also the sector most likely to have seen increased opportunities to acquire businesses. While it too has experienced most of the negatives of the credit crunch, with a number of high profile failures, businesses in the Financial Services sector are the most likely to see opportunities in weakened competition, as well as the increased availability of suitably-skilled staff. Businesses in the two sectors least likely to perceive an overall negative effect from the credit crunch Primary Industries and Business Services (see chart 2) are also below average in reporting all of the negative effects identified here. Indeed, those in Business Services are much more likely than those in any other sector to see increased sales opportunities (38), perhaps derived in part at least from the fall-out of the credit crunch. CHART 5 u Businesses in the Construction & Housing sector are the most likely to report reduced revenue growth, the difficulty of planning ahead and reduction in planned staffing levels. However, they are second only to Financial Services in seeing increased availability of suitably-skilled staff. 12 Economic Issues UK Enterprise Survey Report 2008

CHART 5: Effects of the credit crunch on UK organisations by industry sector All Co.s (826) Primary (22) Manuf. & Eng g (113) Construction (57) Property (120) Retail & Hotels (112) Transport (38) IT & Comms (51) Finance (77) Bus. Servs (87) Other servs (43) Health & Educ. (107) Increased difficulty of planning ahead 72 60 63 88 83 79 76 52 82 58 70 65 Increased cost of short-term borrowing 64 62 62 53 85 68 71 47 75 52 57 55 Reduced revenue growth 64 33 58 86 75 73 61 67 77 53 68 41 Increased cost of long-term borrowing 53 43 49 53 71 51 57 35 67 43 39 55 Weakened competitors 51 38 46 64 65 50 42 31 75 39 55 40 Reduced ability to invest in capital 45 38 37 46 64 47 51 42 51 28 32 45 Reduced ability to finance acquisition 44 31 30 44 67 43 51 30 59 31 35 42 Reduced ability to finance day-to-day operations 39 39 41 39 58 33 46 27 47 28 23 34 Reduced planned staffing levels 37 15 37 55 44 40 33 36 49 35 33 21 Increased opportunities to acquire businesses 32 37 25 30 52 31 25 24 38 29 40 20 Increased sales opportunities 18 11 14 9 16 19 9 20 18 38 16 14 Increased availability of staff with skills required 16 7 10 32 27 9 12 8 33 10 16 7 Base: All businesses affected by the credit crunch: 826 (Light orange shaded squares represent those where sector figure is 10 points or more above average) Most UK businesses affected anticipate a further one to two years of financial market instability Those businesses that have been affected by the credit crunch are most likely to anticipate that its impact will continue to affect their organisation for at least another one to two years ie, into the latter part of 2009 or 2010 (see chart 6). Only one in five expect a shorter term effect, with few (4) seeing an end during 2008 although those who say that the impact of the credit crunch on their organisation has been positive or neutral are more likely to anticipate an early end, one in three expecting its effects to last no more than a year. A less optimistic one in four of those businesses affected (23) think that the effects will last for more than two years. CHART 6 u UK Enterprise Survey Report 2008 Economic Issues 13

CHART 6: HOW LONG THE IMPACT OF THE CREDIT CRUNCH IS EXPECTED TO affect uk ORGANISATIONs Less than 6 months, 4 6 months - 1 year, 16 1-2 years, 51 Over 2 years, 23 Don't know, 6 Base: All businesses affected by the credit crunch: 826 This view is fairly consistent across the sample, although those micro businesses affected are more likely to anticipate a longer tail than others (one in three expect it to continue impacting on their organisation for more than two years). Perhaps not surprisingly, within the industry sectors, those in Real Estate & Property Services are a little more likely to see the instability continuing for longer (again, one in three for more than two years). IMPACT OF ECONOMIC EVENTS ON BUSINESSES IN 2008 Most UK businesses expect the turbulence in financial markets, changes in global commodity prices and changes in consumer demand to impact negatively on their business in 2008 The media has said a lot about the combination of economic factors that has caused something of a check in world markets in 2008. Just over 70 of UK businesses say that the turbulence in financial markets will have a negative impact overall on their business in 2008, and more than half believe this of the changes in global commodity prices (59) and changes in consumer demand (56). Yet this triple whammy is not all over 40 believe that changes in exchange rates will also have a negative impact. Very few perceive any positives in these events, although around one in 10 do see some positive effects from changes in consumer demand and in exchange rates (see chart 7). CHART 7 u 14 Economic Issues UK Enterprise Survey Report 2008

CHART 7: PERCEIVED IMPACT OF ECONOMIC EVENTS ON OWN BUSINESS DURING 2008 20 10 0 2 4 2 3 3 7 2 7-10 -20-30 -40-50 -60-70 -80 46 25 Turbulence in financial markets 34 25 Changes in global commodity prices 35 21 Changes in consumer demand 29 12 Changes in exchange rates Significantly positive Marginally positive Marginally negative Significantly negative These four major strands of global economic change have affected all sizes of business. However, it tends to be the medium-sized businesses that are most likely to report the negative effects of turbulence in world markets, changes in global commodity prices and changes in consumer demand (see chart 8). Perhaps reflecting the greater representation of Retail and high incidence of Manufacturing businesses in this size band in this survey, both sectors having been adversely affected by economic events (see below). Changes in exchange rates are a little more likely to be viewed as a negative influence by small businesses and, perhaps not surprisingly, by those businesses that are globally engaged (49 say it will have a negative impact on their business in 2008, compared with only 28 of those with no global engagement). CHART 8 q CHART 8: EFFECTS OF ECONOMIC EVENTS on UK ORGANISATIONS BY SIZE OF BUSINESS All Co.s Micro Small Medium Large Very Large (1,020) (155) (161) (163) (190) (351) Turbulence in financial markets: Positive 6 9 12 3 3 5 Negative 71 68 65 80 67 73 Changes in global commodity prices: Positive 5 3 5 2 4 8 Negative 59 48 55 65 62 60 Changes in consumer demand: Positive 9 10 8 10 9 10 Negative 56 55 53 62 59 52 Changes in exchange rates: Positive 8 2 7 11 5 12 Negative 41 31 49 44 46 39 Base: All respondants: 1,020 (Light orange shaded squares represent those where figure is 6 points or more above average) UK Enterprise Survey Report 2008 Economic Issues 15

Again, responses tend to reflect the nature of the various industry sectors. As we saw earlier (see chart 2), the sectors in which organisations were most likely to say that the credit crunch since late 2007 had had a negative effect on their organisation were Construction & Housing, Real Estate & Property Services and Financial Services. The first two sectors are particularly likely to anticipate that the turbulence in financial markets will have a negative impact overall on their business during 2008 (in excess of 80 do), reflecting their view that the market s instability will continue to affect their organisation for some time to come (see chart 9). On the other hand, the Financial Services sector is perhaps rather less negative one in seven organisations in this sector think that its impact on their business in 2008 will be a positive one (equalled only by Business Services). It tends to be similar sectors that are the more negative about the impact of these economic events. The Retail, Hotels & Catering and Transport & Distribution sectors are particularly negative about the impact on their business in 2008 of changes in global commodity prices (along with Construction & Housing and Manufacturing & Engineering), consumer demand (along with Construction & Housing) and exchange rates (along with Manufacturing & Engineering). In contrast, we saw earlier that those businesses in Primary Industries are the least likely to have been affected by the credit crunch, and, in fact, nearly one in three businesses in this sector (31) believe that the changes in global commodity prices will have a positive effect on their particular businesses in 2008. CHART 9 q CHART 9: Effects of economic events on UK organisations by industry sector All Co.s (1,020) Primary (31) Manuf. & Eng g (148) Construction (64) Property (137) Retail & Hotels (135) Transport (48) IT & Comms (62) Finance (86) Bus. Servs (116) Other servs (55) Health & Educ. (138) Turbulence in financial markets: Positive 6 5 3 1 6 1-5 15 15 7 3 Negative 71 50 65 83 81 77 79 71 74 62 56 68 Changes in global commodity prices: Positive 5 31 4 1 5 2 5 7 15 3 3 - Negative 59 58 77 75 52 80 72 45 31 39 58 51 Changes in consumer demand: Positive 9 12 5 3 7 14 8 9 12 17 10 7 Negative 56 39 53 73 64 76 70 55 47 40 56 40 Changes in exchange rates: Positive 9 4 14 3 2 9 7 9 15 7 8 10 Negative 41 43 51 31 36 57 53 39 34 31 44 35 (Light orange shaded squares represent those where sector figure is 10 points or more above average) 16 Economic Issues UK Enterprise Survey Report 2008

A GLOBAL PERSPECTIVE There is no doubt that the turbulence in financial markets has affected businesses in markets around the world. Our parallel survey of chartered accountants working in key global regions the rest of the EU, US and Far East (Hong Kong, Malaysia and Singapore) shows that all have similar experiences. Around 60 in each market say that the credit crunch has had a negative effect on their organisation. Most report a similar impact in terms of difficulty in planning, increased costs of borrowing and reduced revenue growth. If anything, businesses in the US and Far East are more likely to have reduced their planned staffing levels, although they are also more ready than their counterparts in the UK and Europe to recognise some of the opportunities that have appeared. Most of those affected expect the current instability to impact on their organisations for another one to two years although those in the Far East are more optimistic for an earlier recovery (40 within the next year, compared with just under 20 in the UK). Businesses in other regions outside the UK are less pessimistic than those in the UK about the impact that the turbulence in financial markets and changes in global commodity prices will have on their business during 2008. UK Enterprise Survey Report 2008 Economic Issues 17

83 of UK businesses still looking for annual turnover growth.

GROWTH Against the background of the issues raised in the preceding section, following a year of growing economic uncertainty, how are UK businesses facing the future? In an increasingly global and competitive marketplace, they need to have a growth strategy in place in order to survive and thrive. Small and medium businesses in particular are the lifeblood of the economy and drivers of productivity improvements and increased competition. How have their growth plans altered since the 2007 survey? What are their plans and what do they see as the principal barriers they face in seeking to grow? business growth In spite of current economic uncertainty, more than 8 in 10 businesses still have plans to grow turnover in the next two years Even in the present difficult economic environment, UK businesses still plan to grow 83 say that their business objective is to grow turnover in the next two years, with as many as one in nine targeting growth of more than 30 a year (see chart 10). Although this is marginally lower, it is not greatly different to the targets reported over the past several surveys. In fact, for many businesses, turnover growth targets are still high, with one in three (down from 40 last year) aiming for annual turnover growth in excess of 10 including 11 looking for more than 30 per annum. Among those planning to grow the business, the average growth targeted is 12.4 per annum (down from 13.4 last year). Across the sample as a whole (excluding those planning to exit their business), the average growth target is 10.6, down from 12.2 last year. CHART 10 q CHART 10: planned turnover growth for the next two years CHART 15: Planned turnover growth for the next two years Over 30 p.a. 16-30 p.a. 11-15 p.a. 6-10 p.a. Up to 5 p.a. Stay the same size Downsize Sell / transfer business Not answered 1 1 1 1 1 Base: All respondents: 2007: 1,000, 2008: 1,020 4 8 9 10 11 12 13 13 14 0 5 10 15 20 25 30 23 25 26 28 2008 survey 2007 survey UK Enterprise Survey Report 2008 Growth 19

In line with the findings from previous surveys, it is apparent that micro and small businesses lead the growth in the UK economy. They generally have higher growth targets and are the most likely to set targets above 30 per annum nearly one in five still have such a target, compared with fewer than 1 in 10 of the larger businesses (see chart 11). Just over one in five micro businesses (22) have set a target of over 30 turnover growth, which shows no decrease from the 2007 survey, and the proportion planning growth of 6+ is actually higher than reported in 2007 (60, up from 52), while all of the other business sizes show a decrease especially small (52, down from 74) and medium businesses (55, down from 77). Those micro businesses which say that they are looking to grow turnover over the next two years are planning for growth of 16.7 per annum on average, compared with 14.3 among small, 10.7 medium, 13.4 large and 10.4 very large businesses. On the other hand, although many are looking for high rates of growth, it is apparent that some smaller businesses are content to remain small nearly a quarter of micro and small businesses have no plans for growth in the next two years (compared with between 11 and 17 for other size bands). Smaller companies tend to be the more recently established businesses. There are signs that, in the present economic climate, the newest companies are starting off with slightly more modest ambitions than was reported last year. In 2007, more than half of those businesses established in the previous three years expected to grow by more than 30 per annum over the next two years, whereas that has fallen to less than a quarter (22) in the 2008 survey. CHART 11 q CHART 11: planned turnover growth by size of business 100 90 80 76 76 88 83 89 70 60 50 60 52 55 59 62 40 30 20 10 0 22 16 7 11 6 Any growth Growth of 6+ Growth of 30+ Micro (155) Small (161) Medium (163) Large (190) Very large (351) IT & Communications remains one of the more buoyant sectors, with 90 of businesses targeting some level of growth (compared with 100 in 2007) and an aboveaverage proportion of these planning high growth (see chart 12). However, in common with UK businesses as a whole, it has slightly more modest expectations this year (66 planning 6+ growth, compared with 79 last year). Other service sectors have held up relatively well and have similar expectations to those seen last year notably Financial Services, Business Services and Other Services. Indeed, Business Services shows the highest proportion of businesses anticipating growth in excess of 30 and the highest average projected growth rate among those planning to grow (16.2). One other sector which is slightly more positive about its growth prospects than last year is Health & Education, perhaps prompted by government spending in these areas. 20 Growth UK Enterprise Survey Report 2008

In contrast, some sectors in this year s survey are decidedly less positive about growth prospects. These include the Construction & Housing and Real Estate & Property Services sectors. Buoyed last year by rising property prices, new housing targets and the 2012 Olympics development, hopes have been dented this year by the credit crunch, the falling housing market and a declining commercial property market: the proportion planning for growth of 6+ has fallen from 75 in 2007 to 47 this year in the Construction sector, and from 73 to 50 in Property. Other sectors that have seen a fall in optimism are Retail, Hotels & Catering (62 to 48) and Primary Industries (60 to 52). It is notable that it is some of the more UK-focused sectors Construction, Property and Retail that have lower growth expectations this year, while the sectors with firmer growth plans tend to be the more globallyorientated such as Manufacturing and Financial Services. As a result, it is the globally engaged businesses that show the higher growth expectations for the next two years: 89 plan turnover growth, 64 in excess of 6, contrasting with 74 and 48 respectively among those businesses not globally engaged. CHART 12 q CHART 12: planned turnover growth by industry sector Primary* 9 52 84 Manuf. & Eng'g 4 64 88 Construction* 4 47 70 Property 12 50 74 Retail & Hotels 6 48 84 Transport* 12 55 89 IT & Comms* 17 66 90 Financial* 11 66 86 Bus. Services 22 64 82 Other Services* Health & Educ. See technical appendix for sector base size 11 14 0 10 20 30 40 50 60 70 80 90 100 59 64 87 89 *Sample base <100 Any growth Growth of 6+ Growth of 30+ UK Enterprise Survey Report 2008 Growth 21

There is less of a North-South divide this year than we saw last year clearly, pressures on business are being felt throughout the country. In 2007, London and the South East were the regions with the highest proportion of businesses planning for growth of 6+. This year, it is Northern, Wales and East England, all of which appear to have largely maintained their growth aspirations. In contrast, relative to last year, the regions which most seem to be feeling the crunch, with reduced growth expectations, are the East Midlands (only 45 planning for 6+ growth, down from 59 last year) and the South East (58, from 73). Expectations are also relatively modest in the North West and Yorkshire & Humber (see chart 13). CHART 13 q CHART 13: planned turnover growth by region Scotland* 8 61 84 Northern* 9 66 88 North West 8 54 81 Yorkshire & Humber* 9 57 83 Wales* 13 66 78 East England 16 66 85 East Midlands* 14 45 75 West Midlands* 6 53 85 London 13 63 89 South East South West* See technical appendix for region base size 9 14 0 10 20 30 40 50 60 70 80 90 100 58 63 84 90 *Sample base <100 Any growth Growth of 6+ Growth of 30+ 22 Growth UK Enterprise Survey Report 2008

BUSINESS OBJECTIVES Increasing profitability remains the key business objective for UK businesses but more are looking to increase cash balances and pay down debt Increasing profitability remains the one key business objective over the next two years for half of UK businesses (50, down marginally from 52 in 2007) (see chart 14). However, although the second most often cited key objective is the need to increase rewards for shareholders or owners (20), this is a little less to the fore this year (22 in 2007). This is likely to be a reflection of the current economic environment, with more importance placed on the need to increase cash balances (9 to 12) and pay down debt (6 to 8) as the key business objective, enabling businesses to increase liquidity and reduce borrowings in an environment where financing has become more difficult and there is more caution for future prospects. Indeed, three-quarters (74) of businesses say that increasing cash balances is one of their business objectives, up seven percentage points on 2007. Improving IT systems, while generally not seen as the single key objective, is also prominent among the other objectives of UK businesses, identified by 70 of respondents. This is relatively unchanged since 2007 (71), whereas there has been a reduction in the proportions of businesses which include investment in non-it related equipment or staff development (2008 65, 2007 70) and increased management rewards (2008 51, 2007 56) within their business objectives, again suggesting a degree of belt-tightening. CHART 14 q CHART 14: business objectives over the next two years 92 Increase profitability 50 81 Increase shareholder reward 20 74 Increase cash balances 12 70 Improve IT systems 3 65 Invest in non-it equipment / staff 3 51 Increase management rewards 1 45 Pay down debt 8 0 10 20 30 40 50 60 70 80 90 100 All objectives Key objective While increasing profitability is a principal business objective for all types and sizes of business, it is only cited as the key objective by a minority of micro (36) and small (47) businesses. These businesses tend to place more emphasis than others on improving their cash position increasing cash balances and paying down debt (these two together 31 for micro and 24 for small businesses as their key objective, compared with 17 average for larger size bands) and increasing management rewards (an objective for 65 of micro and 61 of small, compared with 45 average for larger size bands). As last year, all of these objectives were cited more frequently by those businesses looking for high turnover growth (especially 30+). The highest growth companies were especially likely to include increasing management rewards within their business objectives, suggesting high incentivisation to meet targets. It is notable, too, that increasing cash balances and paying down debt are more likely to be objectives for those businesses which are not planning growth, have no global engagement, and which may feel under increasing economic pressure in the current environment. On the other hand, increasing profitability is particularly likely to be mentioned as the key objective by medium, large and very large businesses. It is also the larger businesses in particular which are looking to increase investment, both in IT systems and in non-it related equipment and staff development. UK Enterprise Survey Report 2008 Growth 23

BARRIERS TO BUSINESS GROWTH Competition is the strongest barrier to growth faced by UK businesses, but many feel they are held back by regulation, lack of necessary leadership and technical skills, and the cost of labour Nearly all businesses agree that competition in the marketplace presents them with a barrier to their growth (91, up from 82 in 2007), and well over half (59, up from 54) consider this a critical or strong barrier (see chart 15). However, many also feel that they are constrained by regulatory changes and enforcement, by the availability of specialist and technical skills and exceptional leadership talent, by the cost of labour and by product and service quality issues all mentioned as a critical or strong barrier by one in three or more. Among the other barriers identified in the survey, funding/access to finance assumes a higher profile this year (29 consider it a critical or strong barrier, up from 17 in 2007) with increased percentages of businesses of all sizes citing funding as a (critical/strong) barrier to growth and the percentage of very large businesses identifying it increasing from 15 in 2007 to 32 in 2008. At the time of last year s survey, finance was still relatively plentiful, but a subsequent year of credit uncertainty has lifted funding above basic employee skills (18) and business taxation (19) as a significant barrier to growth. While addressing skills shortages has been high on the Government s agenda, compared to last year, fewer organisations identify basic employee skills as a particular barrier (22 down to 18 critical/strong). Their concern remains on shortages of specialist/ technical skills (38) and availability of exceptional leadership talent (33), and with the cost of labour (34) and staff retention (30). CHART 15 q CHART 15: Main barriers to future growth Competition in marketplace Regulatory change / enforcement Availability of specialist / tech skills Cost of labour Availability of leadership talent Product / service quality issues Staff retention Funding / access to finance Availability of management skills Transport issues Level of business taxation Basic employee skills Cost of premises in location 14 20 19 18 0 10 20 30 40 50 60 70 80 90 100 Based on scale: Critical, strong, moderate, not at all 27 30 29 34 33 32 38 38 54 53 57 59 63 66 71 71 71 70 75 74 78 91 Critical / strong Moderate or stronger As we have seen previously, the relative importance of these barriers does depend to some degree on the size and stage of development of the business and their magnitude tends to grow with the business. As a businesse grows, it becomes more difficult to maintain the levels of percentage turnover growth that were achieved in a business early years, and, as we have already seen, turnover growth targets tend to be lower for the larger businesses, partially reflecting increased competition. Competition is the greatest barrier to growth for all sizes of business, but it is felt particularly acutely by the large and very large businesses, operating in a wider and increasingly global marketplace (75 critical/ strong) (see chart 16). The largest businesses are also particularly likely to feel that they are constrained by regulatory changes and enforcement (44) and by the human resource issues that affect their competitiveness in the markets in which they are operating the availability of exceptional leadership talent (46), of 24 Growth UK Enterprise Survey Report 2008

specialist and technical skills (46) and of general management skills (34), and, more generally, the cost of labour (40). Some barriers also affect businesses more as they strive to grow. Small businesses, in particular, are likely to highlight staff retention as an issue (38). We have seen in other research that smaller businesses may find it difficult to hold on to their best staff when there is pressure on staff costs and when competing with the employment packages that the larger businesses are able to offer. Once again, we also see the burden of the level of overall business taxation that micro businesses feel they are operating under as they try to grow their business in times of economic uncertainty: nearly one in three (30) regard this as a critical or strong barrier, nearly double the level seen last year (16). CHART 16 q CHART 16: Main barriers to future growth by size of business Critical or strong barriers to growth All Co.s Micro Small Medium Large Very Large (1,020) (155) (161) (163) (190) (351) Competition in marketplace 59 38 50 49 65 75 Regulatory changes / enforcement 38 34 33 34 37 44 Specialist / technical skills 38 20 33 39 42 46 Cost of labour 34 17 34 35 35 40 Leadership talent 33 15 28 30 29 46 Product / service quality 32 22 36 30 35 35 Staff retention 30 14 38 28 33 35 Funding / access to finance 29 26 34 23 26 32 Management skills 27 13 26 24 27 34 Transport issues 20 11 19 27 21 21 Level of business taxation 19 30 24 19 17 13 Basic skills of employees 18 17 19 15 18 19 Cost of premises 14 17 16 13 16 11 (Light green shaded squares represent those 6 points or more above average) As we reported last year, in an increasingly outwardlooking and global marketplace, globally engaged businesses are more likely than others to see their growth hindered by competition (a critical/strong barrier for 64, compared to 50 of those businesses not globally engaged) and by the availability of the specialist and technical skills (45 vs. 25) and exceptional leadership talent (38 vs. 24) that may help to give them a competitive advantage. Further, we also see again that it tends to be shortages of specialist and technical skills and of leadership talent which are more likely to be holding back the businesses trying to grow. They are more likely than those with no growth plans to mention the availability of specialist and technical skills (39 vs 31 as a critical/strong barrier), leadership talent (35 vs 21) and management skills (28 vs 19), while those with the highest growth aspirations also feel more hindered by the basic skills of employees (28). In contrast, those with no growth expectations are more likely than others to feel constrained by factors over which they have less control notably, funding (35), business taxation (26) and transport issues (23). UK Enterprise Survey Report 2008 Growth 25

The nature and magnitude of the barriers UK businesses face are also a function of the business sector in which they work (see chart 17). Only in two sectors is competition in the marketplace not the most frequently mentioned barrier. In one of these sectors, Primary Industries (55), businesses are more likely to mention the lack of specialist and technical skills (59) and regulatory changes and enforcement (58). The two other sectors particularly affected by regulatory changes and enforcement, where a majority of businesses mention it as a critical or strong barrier, are Financial Services (51) and Health & Education (53). The lack of specialist and technical skills is also a particular issue for the IT & Communications sector (56). The other sector where competition may not be seen as the principal barrier is Real Estate & Property Services (50), which gives marginally greater prominence to funding and the availability of finance (51). It is also the sector most likely to see the overall level of business taxation as a particular barrier to growth (34). The other property-related sector, Construction & Housing, is the sector most likely to identify transport issues (39) and the availability of exceptional leadership talent (44) as particular barriers it faces. CHART 17q CHART 17: Main barriers to future growth by industry sector Critical or strong barriers to growth All Co.s (1,020) Primary (31) Manuf. & Eng g (148) Construction (64) Property (137) Retail & Hotels (135) Transport (48) IT & Comms (62) Finance (86) Bus. Servs (116) Other servs (55) Health & Educ. (138) Competition in marketplace 59 55 61 65 50 68 67 66 66 47 60 57 Regulatory changes / enforcement 38 58 41 30 35 30 31 29 51 32 23 53 Specialist / technical skills 38 59 47 41 20 23 31 56 47 35 36 44 Cost of labour 34 24 35 40 29 37 32 24 26 28 41 43 Leadership talent 33 40 29 44 26 32 38 33 43 27 34 36 Product / service quality 32 30 41 33 18 30 32 28 33 30 44 39 Staff retention 30 32 32 36 24 34 14 22 37 28 34 34 Funding / access to finance 29 22 18 25 51 23 40 23 43 12 19 38 Management skills 27 27 30 34 24 21 35 30 32 15 25 31 Transport issues 20 29 31 39 6 34 32 12 7 18 13 12 Level of business taxation 19 28 18 21 34 24 11 13 16 14 9 12 Basic skills of employees 18 19 19 16 18 13 20 12 23 19 16 20 Cost of premises 14 13 11 14 19 23 12 8 8 10 15 12 (Light green shaded squares represent those where sector figure is 10 points or more above average) Compared with industry sector, there are fewer marked regional differences. The availability of specialist and technical skills is mentioned as a critical or strong barrier to growth by a majority of Scottish businesses (52). It is also a particular issue for businesses in East England, along with the cost of labour nearly half (47) consider each to be critical or strong. Unsurprisingly, transport issues tend to be associated more with regions further away from the South East Scotland (28), Northern (31), North West (28) and South West (29). 26 Growth UK Enterprise Survey Report 2008

A GLOBAL PERSPECTIVE In respect of their growth aspirations, UK businesses are lagging a little behind those represented in our parallel survey of chartered accountants working in other key global economic regions. Around 90 of those in the rest of the EU and the US and as many as 96 of those in the Far East (Hong Kong, Malaysia and Singapore) are targeting turnover growth over the next two years, compared with 84 in the UK. At the same time, among those planning growth, targets are higher elsewhere: as much as 14.7 on average among our neighbours in the rest of the EU, compared with 12.5 in the UK. Increasing profitability is the key business objective for businesses in all regions. However, businesses in the US and the Far East appear to be less concerned than those in the UK or the rest of the EU with the need to increase cash balances or pay down debt. They place more emphasis on increasing rewards for shareholders or owners and management. Competition in the marketplace is the principal barrier to growth for businesses in all locations. Those businesses in the Far East, and particularly Malaysia/ Singapore, are more likely to identify significant barriers to their growth, especially in the human resource area a majority regard the availability of exceptional leadership talent and of specialist and technical skills as a critical or strong barrier, and close to half say this of the availability of general management skills and staff retention. Those in the UK and the rest of the EU place slightly more emphasis than those in the US or Far East on transport issues and on business taxation, the latter perhaps suggesting a more favourable fiscal environment for enterprise away from Europe. UK Enterprise Survey Report 2008 Growth 27

64 of UK businesses have customers, operations or outsource outside the UK.

GLOBALISATION The rapid growth of developing economies such as China and India to a global scale and the significant impact of the newer EU countries on the European stage are strong indications of the continuing globalisation of world markets, providing both threats and opportunities for UK industry. Are UK businesses responding sufficiently, do they see it as an opportunity or as a threat, and what strategies do they have for dealing with globalisation? Are they UKfocused or looking to a broader horizon? What are the barriers that might be constraining international expansion? Which export markets are they currently engaged in and where is their focus for the future? How have changing economic circumstances affected their activities and aspirations? GLOBAL ENGAGEMENT UK companies are more globally engaged in 2008 than 2007 UK businesses continue to expand their geographical footprint in order to compete and thrive in today s increasingly global marketplace. Nearly two-thirds of businesses (64) included in this year s survey have some horizons beyond the UK market reflecting continued openness to global engagement. Global engagement is defined here as businesses having customers, running operations, or outsourcing outside the UK. On all three key components of global engagement the percentages of respondents engaged in these activities have increased relative to the 2007 survey, suggesting that UK businesses may be more enthusiastically embracing globalisation. The combined effect is to show an increase on the overall relative figure compared with the 2007 survey (61 to 64) (see chart 18). CHART 18 q CHART 18: global engagement by uk companies Any global engagement Customers outside UK 59 56 64 61 Run operations outside UK Outsource outside UK Base: All respondents: 2007: 1,000, 2008: 1,020 24 35 39 47 0 10 20 30 40 50 60 70 80 90 100 2008 survey 2007 survey UK Enterprise Survey Report 2008 Globalisation 29

Not surprisingly, for many small businesses and those just starting out, much of the focus is naturally on the home market little more than a third (36) of micro businesses (0-9 employees) have any form of global engagement (see chart 19). But a global perspective clearly becomes more important to the development and success of businesses as they become larger thus, it is not surprising that most (85) of the very large businesses (over 1,000 employees) are globallyengaged. This also interrelates with the stage of development of the business, with fewer than half (44) of those established in the past three years being globallyengaged, compared with more than three-quarters (76) of the old-established businesses (over 60 years). CHART 19 q CHART 19: global engagement by size of business 100 90 80 85 78 80 70 60 50 40 30 20 10 36 52 63 59 31 48 59 54 19 14 35 47 12 24 20 35 56 Micro (155) Small (161) Medium (163) Large (190) 0 Very large (351) Global engagement Customers abroad Operations abroad Outsource abroad Global engagement is not just a factor of the size of business, of course, but also relates naturally to the sector in which it is operating (see chart 20). Those sectors that are the most globally focused again include, as last year, Manufacturing & Engineering (87), Financial Services (84) and IT & Communications (80), along with Other Services (83). This contrasts with those businesses in Construction & Housing (31) and Real Estate & Property Services (36), which have a more natural focus on their home market, with only a minority globally-engaged. CHART 20 u 30 Globalisation UK Enterprise Survey Report 2008

CHART 20: global engagement by sector ALL BUSINESSES 64 Manufacturing / Engineering 87 Financial Services Other Services 84 83 IT / Communications Primary Industries 80 79 Transport / Distribution 75 Business Services / Accounting Retail / Hotels / Catering 61 63 Health / Education 51 Real Estate / Property 36 Construction / Housing See technical appendix for sector base sizes 31 0 20 40 60 80 100 However, previous reports have suggested that global engagement is also influenced by UK region, which may come partly through proximity to traditional overseas markets and trade routes, the prevalence of outward looking industry sectors or simply business outlook and attitude. Although having less Manufacturing & Engineering industry (the most globally-engaged sector), those in London particularly (80) and the South East (66) are again more likely to be globallyengaged than those in the rest of England and Wales (see chart 21). Although businesses in Scotland show a lower level global engagement in this survey (71) than they did in 2007, they remain second only to London within UK regions. In the present survey, businesses in Wales again show the lowest level of global engagement (48), with Yorkshire & Humber (52), East England (53) and the North West (59) also all below 60. CHART 21 q CHART 21: global engagement by region ALL BUSINESSES 64 London 80 Scotland 71 South East 66 Northern South West East Midlands West Midlands North West 63 62 61 61 59 East England Yorkshire & Humber 53 52 See technical appendix for region base sizes Wales 48 0 20 40 60 80 100 UK Enterprise Survey Report 2008 Globalisation 31

THE IMPACT OF GLOBALISATION Even in turbulent world markets, UK businesses remain positive about the impact of continued globalisation on their business UK businesses general attitude to globalisation remains unabated in the face of difficult world economic conditions. They continue to see more opportunities than threats in the continuing globalisation of markets. A substantial number of UK businesses (42) believe that it will have a positive impact on their business over the next five years including one in six (17) who think it will have a strong positive impact. Against this, only 11 believe it will have any negative impact. The remainder think that it will have no impact or that any impact will be neither positive nor negative (see chart 22). Overall, this represents only a marginally less positive picture than last year 2 fewer are positive than in last year s survey and 1 more are negative still somewhat better than in 2006. Well over half of businesses that are globallyengaged see continued globalisation as having a positive impact on their business Perhaps not surprisingly, it is those businesses that have some level of global engagement which believe that they have most to gain from continued globalisation. Somewhat more than half of this group (59) think that the impact will be positive. In fact, the more ways in which they are engaged outside the UK, the more positive they are: 60 of those with export customers, 66 of those operating abroad and 63 of those outsourcing outside the UK see globalisation as a positive force. In contrast, those with no present global engagement are relatively unmoved little more than one in five (24) think that it will have any impact on their business. As before, this response tends to be influenced in particular by the very large companies, which, as we have seen earlier, are more likely to be globally-engaged in a number of aspects of their business. Thus, as many as 60 of the very large businesses view continued globalisation positively. Below this level, the smaller and medium-sized businesses tend to anticipate less impact, although we would note that small businesses (10-49 employees) are the one group which is more positive than last year (35, compared with 27 in 2007). In contrast, it is perhaps the medium-sized businesses (50-249 employees) which feel comparatively less positive this year (only a 6 net difference between 23 positive and 17 negative this year, against net 20 when 34 were positive and 14 negative in 2007), although some of this difference may be attributable to some variation in the mix of sectors within medium-sized businesses in this survey. CHART 22 q CHART 22: anticipated impact of globalisation All businesses 2008 (1,020) All businesses 2007 (1,000) 11 10 42 44 All businesses 2006 (1,104) 2008 key audiences: 17 40 Globally engaged (652) 12 59 No global engagement (368) 11 13 Micro (155) 10 30 Small (161) 12 35 Medium (163) 17 23 Large (190) 14 40 Positive Bases: As shown Very large (351) 8 60-30 -20-10 0 10 20 30 40 50 60 70 Negative 32 Globalisation UK Enterprise Survey Report 2008

While it does tend to be those industry sectors that have the higher levels of global engagement which are the most positive, this is not universally the case. A majority of businesses in the more globally focused Financial Services (net 61) and IT & Communications (net 42) sectors look on globalisation in a positive way although the latter sector less so than in 2007 (net 72) as well as half of those in Primary Industries (net 37). However, views in the Manufacturing & Engineering sector (net 18) are once again more polarised, with just over one in five (22) seeing the continued globalisation of markets as a negative force for their businesses (see chart 23). CHART 23 q CHART 23: anticipated impact of globalisation by sector ALL BUSINESSES 11 42 Financial Services 3 64 IT / Communications 15 57 Primary Industries 13 50 Health / Education 6 47 Transport / Distribution 15 45 Business Services / Accounting 10 45 Other Services 7 44 Manufacturing / Engineering 22 40 Retail / Hotels / Catering Real Estate / Property 12 9 30 36 Positive Construction / Housing 8 17 Negative See technical appendix for sector base sizes -30-20 -10 0 10 20 30 40 50 60 70 Regionally, businesses in Greater London are far and away the most positive about the benefits of continued globalisation (net 63), and show a sizeable increase in this respect since last year (2007 net 48) of course, there is a large Financial Services presence in this region (see chart 24). There is less of a North-South divide this year than last, with the North of England the only other region where half of businesses take a positive view (compared with 40 positive in 2007). The businesses most likely to feel less positive about globalisation are again those in Wales (net 5), with one in five believing that continued globalisation will have a negative impact on their business. Scottish businesses strongly positive last year (2007 net 45) are largely undecided this year (net 22), with just under one in three positive, against just over half last year (and only 40 expressing a view either way, compared with 63 last year). CHART 24 q CHART 24: anticipated impact of globalisation by region ALL BUSINESSES 11 42 London 3 66 Northern 9 50 South East West Midlands 17 15 41 40 East England 7 38 Yorkshire & Humber 12 38 East Midlands 9 37 South West 11 34 North West Scotland 15 9 31 34 Positive Wales 21 26 Negative See technical appendix for region base sizes -30-20 -10 0 10 20 30 40 50 60 70 UK Enterprise Survey Report 2008 Globalisation 33

STRATEGY FOR GLOBAL MARKETS In the face of increasing global competition, many UK businesses are seeking to develop and enhance their product offering and extend their global trading footprint Over the next five years, facing increasing global competition, many UK businesses are looking to enhance their product offering to compete more effectively in world markets: half (50) say that they plan to increase or start the provision of higher value added products or services, and one in three (32) the adaptation of products or services to markets in other countries (see chart 25). Other key strategies include market expansion more than a third (39) plan to increase the number of countries we sell to and one in four (25) plan acquisitions in other countries to enhance our market presence. A third element within the strategic mix is to move aspects of the business process offshore: around one in five plan to increase or start the share of our business functions that take place in other countries eg, internal accountancy or sales order processing (22) or outsourcing of business activities eg, manufacturing or component supply to companies in other countries (17). However, in relatively few instances is this a new strategy or activity. Those businesses planning such actions are generally those who are already globallyengaged both generally and specifically. Thus, for example, nearly all of those planning to increase the number of countries sold to already have export customers (92), and most of those planning to increase outsourcing already outsource outside the UK (85). CHART 25 q CHART 25: planned actions over the next five years Higher value-added products / services 50 57 Number of countries sold to 39 58 Adapt products to overseas markets 32 48 Acquisitions to enhance market presence 25 36 Share of business functions outside UK Outsourcing activities outside UK 17 22 25 33 0 10 20 30 40 50 60 70 80 90 100 planning to increase or start All businesses (1,020) Globally engaged (652) The businesses that are generally positive about the impact of globalisation on their business are also those most likely to be planning the strategies outlined here, in order to grasp the opportunities offered (see chart 26). This is particularly the case in respect of extending sales to new export markets (66) and adapting products and services to other markets (59). CHART 26 u 34 Globalisation UK Enterprise Survey Report 2008

CHART 26: planned actions over the next five years planning to increase or start: All businesses (1,020) Impact of globalisation: Positive Negative (428) (114) Provision of higher value added products or services 50 59 52 Number of countries we sell to 39 66 35 Adaptation of products or services to markets in other countries 32 59 23 Acquisitions in other countries to enhance our market presence 25 41 20 Share of business functions that take place in other countries 22 37 19 Outsourcing of business activities to companies in other countries 17 26 19 Along with this, it is perhaps not surprising that it is the largest businesses which tend to have a much higher level of global engagement that are most likely to be planning all of these activities, and have the necessary resources and capabilities to manage them (see chart 27). CHART 27 q CHART 27: planned activities by size of business 80 70 60 50 40 30 42 38 50 50 59 36 35 37 53 26 26 28 49 42 29 41 28 Micro (155) Small (161) 20 10 0 Higher value-added products 15 Number of countries sold to 14 Adapt products to other markets 12 14 6 Acquisitions 9 6 12 18 Business functions outside UK 5 8 13 16 Outsourcing activities Medium (163) Large (190) Very large (351) In line with other findings, the industry sectors most likely to be planning these sorts of strategic activities are the Primary Industries, Manufacturing & Engineering, Financial Services and IT & Communications. Businesses in London are particularly likely to be planning to increase the number of countries sold to, to adapt products and services to other markets and to make strategic acquisitions outside the UK. UK Enterprise Survey Report 2008 Globalisation 35

BARRIERS TO INTERNATIONAL EXPANSION Administrative, regulatory and legal considerations are considered main barriers to international expansion by UK businesses Those UK businesses that have operations or activities in other countries, or that have considered, are considering or are likely to consider them cite administrative, regulatory or legal issues as the strongest barrier to trading in a particular country. Nearly 90 consider this as something of a barrier, and nearly half as a critical (14) or strong (34) barrier. Interrelated with this, other principal barriers include the existence of effective legal systems regarding commercial agreements (44 critical/strong) and the political environment (43) (see chart 28). Human resource issues provide other key barriers to international expansion, with the availability of local management (44), skills of the local workforce (37) and local staff recruitment and retention (35) the others of the top six barriers identified. Nevertheless, around one in three also deem corruption (35), information on markets and competition (34) and availability of internal resources (33) to be a critical or strong barrier. CHART 28 q CHART 28: main barriers to international expansion Administrative / regulatory / legal issues 48 88 Availability of local management 44 81 Effective legal systems 44 78 Political environment 43 81 Local workforce skills Local staff recruitment / retention 35 37 80 79 Corruption 35 70 Information on markets / competition Availability of internal resources 34 33 77 77 Language issues Cultural differences 24 23 0 10 20 30 40 50 60 70 80 90 100 Base: All with / considering international expansion: 559 70 76 Critical / strong Moderate or stronger While most key segments tend to see much the same principal barriers, there are a few exceptions of note (although these should be treated with some caution because the base sizes for those with or considering international expansion are necessarily more limited see below). The availability of local management is seen as the most critical barrier for those which might be expected to depend heavily on such control at a local level, notably those in Real Estate & Property Services (55) and Retail, Hotels & Catering (62). On the other hand, it is more likely to be the skills of the local workforce that are seen as one of the main barriers for those in Construction & Housing (15) and Health & Education (69). Those in Primary Industries (24) are particularly likely to see the political environment of a country as a barrier (72 rate this as critical or strong ), and this is also a particular issue for those in Construction & Housing (15). 36 Globalisation UK Enterprise Survey Report 2008

ECONOMIC INFLUENCES ON GLOBAL ENGAGEMENT Businesses global footprint has been affected by exchange rate movements and changes in raw material costs Many UK businesses admit that their global activities and plans have been affected by recent economic factors such as exchange rate movements and changes in raw material costs. Around 40 of all businesses say that both of these factors have had some effect on their global pattern of suppliers, and also that exchange rate movements have affected the international markets they are targeting. Further, around 40 of those currently with operations or activities outside the UK say that both factors have affected the location of their global operations (see chart 29). In many cases, the effects have been quite marked: around a quarter of all businesses say that changes in raw material costs have had a significant effect on their global pattern of suppliers (rated in the top half of a six-point scale). Approximately one in five say this of the effects that exchange rate movements have had on their global pattern of suppliers, the international markets they target, and (for those with operations outside the UK) the location of global operations. CHART 29 q CHART 29: impact of economic factors on global activity Effect of exchange rate movements on: Global pattern of suppliers 21 40 International markets targeted 21 38 Location of global operations* 19 45 Effect of changes in raw material costs on: Global pattern of suppliers 25 41 International markets targeted Location of global operations* 13 14 28 37 Significant (3-5) Some (1-5) (*All with operations outside UK: 467) Based on a scale of effect (0 = not at all, 5 = a great deal) 0 10 20 30 40 50 It has tended to be the medium-sized businesses that have felt the effects of exchange rate movements and changes in raw material costs the most (27 say that exchange rate movements have significantly affected their global supply pattern, compared with 21 on average. Of those UK businesses with overseas activities, 29 say that exchange rate movements and 27 say changing raw material costs have significantly affected the location of global operations, compared with 19 and 14 on average). Their businesses have perhaps reached the size where they have more international involvement, but without the resources or experience of the larger businesses. affected their global pattern of suppliers and around 40 that exchange rate movements have significantly affected both their global pattern of suppliers and the international markets they target (42). Primary Industries have also had their global pattern of suppliers particularly impacted by changing raw material costs 53 rating it in the top half of the scale (base: 31). The Retail, Hotels & Catering sector has also been affected more than most across the board, particularly in respect of the impact of both exchange rate movements and changes in raw material costs on their global pattern of suppliers and (for those who have them) location of global operations. It is also the UK s Manufacturing & Engineering base that has been affected more than any other sector by these constraints more than half (57) say that changes in raw material costs have significantly UK Enterprise Survey Report 2008 Globalisation 37

WHERE BUSINESSES ARE FOCUSED OUTSIDE THE UK Well over half of businesses have customers outside the UK Well over half (59) of all of these UK businesses have customers abroad, and this is weighted particularly to the larger enterprises (see charts 18 and 19) 78 of the very large businesses have customers abroad, compared to less than half this proportion (31) of micro businesses. Those businesses in Manufacturing & Engineering (85), Financial Services (79), Primary Industries (77) and Other Services (73) are the most likely to have overseas customers, contrasting with only 24 of those in Construction & Housing and one in three (31) of those in Real Estate & Property Services. And, by region, it is most likely to be those in London (76), Scotland (71), Northern (63), and the South East (62) which have overseas customers and least likely to be those in Wales (42), Yorkshire & Humber (46) and East of England (49). The focus of overseas trading for UK businesses remains in the EU and US Those businesses with customers overseas still tend to be focused close to home just over half of all businesses in our sample (51) have customers in the established 15-country EU bloc. The newer EU countries (joining since 2004) and the US are also key markets, with more than one in three (39 and 37 respectively) having customers in these regions (see chart 30). CHART 30 q CHART 30: Where UK businesses have customers EU 15 51 Newer EU countries 39 US 37 Middle East Other Far East Australia Canada China 28 27 27 26 26 India Central / South America Hong Kong Africa 24 23 22 22 Japan 20 0 10 20 30 40 50 60 This pattern remains very similar to that reported on in 2007. However, it is the European markets that have shown slight growth (the EU 15 and newer EU countries up two and three percentage points respectively), followed by those in the Americas (US and Central/ South America each up three and Canada up two percentage points). In spite of continued emphasis on the business opportunities in the key Asian markets, apparent increases suggested last year appear to have levelled off this year, although there is a two percentage point increase in businesses having customers in China, which may be stimulated further by this year s Olympic Games. As we have seen above, very large businesses and those in Manufacturing & Engineering, Financial Services, Primary Industries and Other Services are the most likely to have customers outside the UK. It is not surprising, therefore, that these are the businesses most likely to have attracted customers in almost all of these markets. Likewise, those businesses in London are the most likely to have customers in all of these markets (in nearly every case, 40+), although those from Northern England and Scotland are also strong in several, notably the US and Canada. 38 Globalisation UK Enterprise Survey Report 2008

Nearly half of UK businesses have operations outside the UK 47 of those businesses within our survey say that they run operations outside the UK. As chart 19, earlier, shows, this is predominantly the very large companies more than three-quarters of them have operations abroad. Again, it is the more globally-engaged sectors Primary Industries (74), Financial Services (71) and Manufacturing & Engineering (64) where businesses are more likely to have operations outside the UK. The more UK-focused sectors particularly Construction & Housing (23) are least likely to do so. By region, it is, once again, those businesses in London (69) and the South East (52) which are most likely to have operations overseas, those in Wales (28) and East England (34) least likely. The most popular locations for overseas operations are still the established 15 EU countries and the US, although there is quite wide penetration into the newer EU countries, China, other Far East/South East Asia, Canada, India and Australia (see chart 31). Again, relative to last year s survey, this suggests small increases in the established and newer EU countries (up by three and two percentage points respectively), the US and Canada (up by four and three points respectively) and China (up by two points). CHART 31 q CHART 31: Where UK businesses have operations and outsource EU 15 10 30 US 6 25 Newer EU countries 8 19 China 7 16 Other Far East 6 16 Canada 3 15 India 14 13 Australia 2 14 Hong Kong 2 13 Middle East 3 12 Central / South America 2 12 Africa Japan 2 1 10 10 Operations Outsource 0 5 10 15 20 25 30 35 40 Just over a third of these businesses say that they outsource outside the UK 35 of businesses say that they outsource outside the UK, whether in an administrative or commercial capacity. Again, this is predominantly the very large companies, 56 of which say they outsource abroad (see chart 19). Outsourcing again tends to be focused on similar sectors Financial Services (57 outsourcing outside the UK), Manufacturing & Engineering (53), IT & Communications (48) and Primary Industries (46). By region, those businesses in London (42), South East (39) and East Midlands (39) are most likely to outsource outside the UK, those in Wales (21) and Yorkshire & Humber (26) least likely. As last year, India is still seen as the most popular country to outsource to (13) particularly for those businesses in IT & Communications (33), Financial Services (31) and Primary Industries (27), perhaps partly reflecting the huge growth of service and call centres on the sub-continent over recent years (see chart 31). UK Enterprise Survey Report 2008 Globalisation 39

Over half plan to expand into or increase market share in countries outside the UK, with a particular focus on Europe When discussing their strategy for dealing with globalisation, just under 40 of businesses said that they plan to increase the number of countries they sell to over the next five years while many also revealed plans to increase their share through product improvement or acquisitions (see chart 25). Overall, just over half of all businesses (51) say that their business plans to expand into or increase market share in regions outside the UK. Again, this is a particular feature of the larger companies strategy a majority (68) of very large businesses have expansion plans outside the UK, compared with 54 of large, 47 of medium, 43 of small and 25 of micro businesses. The focus for overseas expansion is still very much on the key markets we have seen earlier the original 15 EU countries, the 12 newer EU countries and the US although pushing these hard are China, the Middle East, India and Other Far East/South East Asia, confirming the importance of these fast-growing economies within the global marketplace (see chart 32). However, it may be that, in times of economic uncertainty, many businesses are focusing their attention on those markets nearer to home. Thus, relative to last year s survey, there is some increase in the proportions citing expansion in the established EU and newer EU countries (both up three points), and, to a lesser extent, the Middle East (up two points), with the main loser being Hong Kong (down four points). Australia, Canada and Japan are all down by two points. CHART 32 q Overseas expansion is particularly likely to be a target of those in Manufacturing & Engineering (76), Primary Industries (68), Other Services (65) and Financial Services (64), and, regionally, those in London (68), South East (53), Scotland (53) and Northern (52). CHART 32: Where UK businesses plan to enter or grow EU 15 35 Newer EU countries 29 US 22 China Middle East India 20 20 20 Other Far East 19 Australia Central / South America 15 15 Canada 13 Africa Japan 12 12 Hong Kong 11 Worldwide 3 0 5 10 15 20 25 30 35 40 The top priorities tend to be broadly similar across most industry sectors. However, it is particularly those businesses in Manufacturing & Engineering which are the most likely to be targeting most of these markets, with around double the average proportion including China (41), India (36), Other Far East/South East Asia (37) and Hong Kong (21). Primary Industries, IT & Communications, Financial Services and Other Services also tend to be above average across most regions. London businesses are generally to the fore in planning expansion in almost all of these regions, although businesses in Scotland are marginally more likely to be planning expansion in the established 15 EU countries. 40 Globalisation UK Enterprise Survey Report 2008

A GLOBAL PERSPECTIVE In our parallel survey of chartered accountants working in key overseas regions the rest of the EU, US and the Far East (Hong Kong, Malaysia and Singapore) just over 90 of businesses are globallyengaged. This does not necessarily mean that UK businesses are falling behind their global competitors, but is likely to reflect the nature of companies in these regions employing chartered accountants. However, the findings do suggest that UK businesses are perhaps less receptive to the opportunities offered by globalisation. In the UK, we have seen here that just over 40 of businesses expect it to impact positively on their own business over the next five years, although just under 60 of those globallyengaged express this view. In contrast, over 60 of those in the rest of the EU and the US are positive and over 80 of those in the Far East. UK businesses also fall behind their international counterparts in most of the strategies that might be adopted for dealing with increasing globalisation. Even among globally-engaged UK companies, fewer than 60 plan to increase the number of countries they sell to, contrasting with around twothirds of other EU and Far Eastern globally-engaged companies. Far Eastern companies in particular are much more proactive in adapting products and services to other markets (52) and seeking acquisitions to enhance their market presence (51). All this is in spite of the fact that businesses in these other regions who have or are considering operations outside their own countries generally perceive the barriers to international expansion to be greater. Nearly 60 of those in the Far East, for example, see the political environment of a country or the existence of effective legal systems regarding commercial agreements to be critical or strong barriers, compared to just under 45 giving this response in the UK. Businesses in these other regions outside of the UK also appear to have been affected more by exchange rate movements and changes in raw material costs in respect of their global pattern of suppliers, the international markets they target and the location of global operations. Around half of Far Eastern companies, for example, say that exchange rate movements have significantly affected their global pattern of suppliers and the international markets they are targeting, compared with fewer than a quarter saying this in the UK. This may suggest that UK businesses are less vulnerable to such movements although it may also suggest that they have been slower to respond to world trends, and the longer term effect on their business will be greater. UK Enterprise Survey Report 2008 Globalisation 41

53 of UK businesses say UK regulatory and taxation environment is not business-friendly.

Regulation UK businesses need a supportive environment if they are to survive the present turbulence in financial markets and thrive in a competitive global marketplace. Do they consider the regulatory and taxation environment in the UK to be supportive? Which aspects of regulation and tax most hinder their growth? Previous surveys suggest that employment legislation is a burden, but which aspects of it do they find most difficult and time-consuming to implement? Where do businesses see the greatest costs of implementing new legislation? And, importantly, what is the cost to UK business of compliance with new regulation? THE REGULATORY AND TAXATION ENVIRONMENT The majority of businesses believe that the UK regulatory and taxation environment is not business-friendly A favourable business environment is vital to the well-being and growth of businesses, and, in previous surveys, UK businesses have commented on the perceived regulatory and taxation burdens under which they operate. Just over half (53) of businesses in the present survey say that the regulatory and taxation environment in the UK is not ( not very or not at all ) business-friendly. The remainder generally consider it fairly business-friendly only 4 say it is very business-friendly (see chart 33). However, perceptions do depend to an extent on the size of the business. The micro businesses so important to the economy s growth clearly find the going tougher, with more than two-thirds of them (70) saying that the environment is not very or not at all business-friendly. At the other extreme, the majority of very large businesses likely to be more established and to have the necessary resources and expertise (and perhaps more experience of other national regimes) consider the UK s environment to be (very or fairly) business-friendly (55). CHART 33 q CHART 33: how business-friendly is the uk s regulatory and taxation environment 60 3 40 20 4 41 2 27 7 37 5 33 4 40 52 0-20 37 43 38 39 40 32 Very -40-60 16 27 17 22 15 10 Fairly Not very -80 All co.s (1,020) Micro (155) Small (161) Medium (163) Large (190) Very large (351) Not at all UK Enterprise Survey Report 2008 Regulation 43

Businesses that have been adversely affected by the credit crunch are more likely to feel that the environment has not been as supportive as they might like nearly 60 of them say that the regulatory and taxation regime is not business-friendly, compared with little more than 40 of those that consider the credit crunch to have had a positive effect on their business. This is quite likely to be interrelated with the sectors in which they work. The more negative sectors are Real Estate & Property Services, Retail, Hotels & Catering and Transport & Distribution in each case, over 60 of businesses regard the regulatory and taxation environment to be not business-friendly. In contrast, a small majority of those in IT & Communications, Financial Services and Health & Education rate it as (very or fairly) business-friendly. It may be of particular interest to businesses in England and Wales that Scotland is the only region in which a majority of participants (63) say that the regulatory and taxation environment is (very or fairly) businessfriendly. In contrast, fewer than 40 give this response among businesses in Yorkshire & Humber (36), East (33) and West Midlands (38) and the South West (39). Employment legislation, employment tax and business tax changes are seen as the main hindrances to the operation and development of UK businesses More than half of respondents in UK businesses say that they consider employment legislation (57), employment tax (56) and business tax changes (55) to be a hindrance to the operation and development of their business (see chart 34), and many consider them to be a major hindrance (17, 12 and 12 respectively). Other regulatory and taxation factors considered to be a significant hindrance are health & safety regulation (49), environment law (43) and planning regulations (42), all mentioned by more than 40 of businesses although one in five do consider that health & safety regulation helps their operation and development. Governance and reporting requirements are less likely to be regarded as a hindrance between 30 and 40 say this of financial reporting requirements (38), corporate governance requirements (33) and corporate social responsibility reporting requirements (30) and, again, around one in six consider corporate governance requirements to be a help. CHART 34 q CHART 34: regulation and taxation factors help or hindrance? Employment legislation 57 12 Employment tax 56 6 Business tax changes 55 9 Health & safety regulation 49 20 Environment law 43 13 Planning regulations 42 4 Financial reporting requirements 38 13 Corporate governance requirements 33 16 Help CSR reporting requirements 30 13-70 -60-50 -40-30 -20-10 0 10 20 30 Hindrance Medium-sized businesses are particularly likely to see these regulatory and taxation factors as a hindrance (see chart 35) they have perhaps reached a size where these have more implications for the business but it may not have developed enough inhouse resource and expertise to handle them. In particular, around three-quarters of them see employment legislation and employment tax as a hindrance, and nearly two-thirds say this of health & safety regulation. The main exceptions relate to business tax changes, which micro businesses find more burdensome (68), and financial reporting requirements, which very large businesses in particular find more burdensome than other sized businesses (46), reflecting the greater number of publicly quoted companies required to comply with International Financial Reporting Standards. CHART 35 u 44 Regulation UK Enterprise Survey Report 2008

CHART 35: Regulation and taxation factors seen as a hindrance by size of business All Co.s Micro Small Medium Large Very Large (1,020) (155) (161) (163) (190) (351) Employment legislation 57 45 65 75 62 47 Employment tax 56 59 57 73 52 48 Business tax changes 55 68 57 59 50 50 Health & safety regulation 49 49 54 63 54 37 Environment law 43 39 46 57 47 36 Planning regulations 42 43 41 43 43 41 Financial reporting requirements 38 29 34 35 37 46 Corporate governance requirements 33 23 27 42 34 35 CSR reporting requirements 30 24 23 34 34 32 (Pink shaded squares represent those 6 points or more above average) Not surprisingly, various aspects of regulation and taxation affect different industries in different ways, and, reflecting the particular circumstances of the sector in which they work, some feel more overburdened than others. Notably, with the nature of their workforces, those in Construction & Housing, Retail, Hotels & Catering and Other Services are particularly likely to view employment legislation (between 69 and 75) and employment tax (between 65 and 69) as restrictive on their businesses, while, reflecting the nature of their operating environments, over 60 of respondents in Construction and Retail businesses also say this of health & safety regulation and environment law (see chart 40). Planning regulations are also seen as a particular hindrance by over 60 of those in property related sectors Construction & Housing again and Real Estate & Property Services with property businesses (68) more likely than others to feel they suffer from business tax changes. Among the other sector differences, it is the Financial Services sector that sees financial reporting requirements as a particular hindrance (54). CHART 36 q CHART 36: Regulation and taxation factors seen as a hindrance by industry sector All Co.s (1,020) Primary (31) Manuf. & Eng g (148) Construction (64) Property (137) Retail & Hotels (135) Transport (48) IT & Comms (62) Finance (86) Bus. Servs (116) Other servs (55) Health & Educ. (138) Employment legislation 57 49 53 69 43 73 65 60 48 55 75 47 Employment tax 56 46 52 69 52 69 57 59 52 53 65 45 Business tax changes 55 51 48 64 68 57 65 55 58 50 55 44 Health & safety regulation 49 42 46 68 42 62 48 45 30 43 54 55 Environment law 43 48 50 61 51 61 52 30 24 30 34 32 Planning regulations 42 46 38 71 62 47 54 32 26 26 28 37 Financial reporting requirements 38 39 40 44 36 31 39 36 54 28 49 36 Corporate governance requirements 33 22 37 38 31 41 32 28 39 26 41 23 CSR reporting requirements 30 21 35 39 24 33 32 27 30 29 30 28 (Pink shaded squares represent those where sector figure is 10 points or more above average) UK Enterprise Survey Report 2008 Regulation 45

Of these factors, employment tax is most often singled out as representing the greatest cost to UK businesses One in five UK businesses say that, of the aspects of regulation and taxation considered, employment tax represents the single greatest cost to their business in terms of finance and resources (see chart 37). This is followed by health & safety regulation (16) and employment legislation (15). More than 1 in 10 also cite business tax changes and planning regulations. Again, there are some differences in the cost impact on different sizes of business, with business tax changes and planning regulations more likely to be singled out by micro businesses, employment legislation by small businesses, employment tax and health & safety regulation by medium businesses and financial reporting requirements by the very large. CHART 37 q CHART 37: Regulation and taxation factors that represent greatest cost to business by size of business All Co.s Micro Small Medium Large Very Large (1,020) (155) (161) (163) (190) (351) Employment tax 20 23 21 28 20 16 Health & safety regulation 16 10 15 23 20 14 Employment legislation 15 7 22 19 21 11 Business tax changes 13 21 14 9 13 12 Planning regulations 10 19 12 5 7 10 Financial reporting requirements 9 6 4 5 8 16 Environment law 5 3 6 7 4 4 Corporate governance requirements 3 2 1 2 3 6 CSR reporting requirements 1 1 * 1 2 None / don t know 7 8 6 2 4 10 (* = less than 1. Pink shaded squares represent those 6 points or more above average) As highlighted above, these aspects of regulation and taxation impact differently on the various industry sectors, and this is reflected again in terms of the cost to these businesses in finance and resources (see chart 38). Thus, perhaps not surprisingly, nearly 40 of those in Real Estate & Property Services single out planning regulations as representing their greatest cost, and nearly 30 of those in Financial Services say this of financial reporting requirements. Health & safety regulation is highlighted as their greatest cost by businesses in Construction & Housing, Manufacturing & Engineering, Retail, Hotels & Catering and, to a lesser extent, Transport & Distribution, and employment tax by those in Business Services, Health & Education and Other Services. CHART 38 u 46 Regulation UK Enterprise Survey Report 2008

CHART 38: Regulation and taxation factors that represent greatest cost to business by industry sector All Co.s (1,020) Primary (31) Manuf. & Eng g (148) Construction (64) Property (137) Retail & Hotels (135) Transport (48) IT & Comms (62) Finance (86) Bus. Servs (116) Other servs (55) Health & Educ. (138) Employment tax 20 7 14 16 18 22 15 22 17 30 26 27 Health & safety regulation 16 23 29 31 7 25 21 5 2 6 12 17 Employment legislation 15 1 18 16 8 20 14 20 8 18 19 17 Business tax changes 13 23 9 8 16 13 14 16 19 21 11 7 Planning regulations 10 14 1 11 38 4 9 6 6 1 12 Financial reporting requirements 9 6 6 7 4 6 4 11 29 7 15 12 Environment law 5 13 10 3 5 7 9 4 3 Corporate governance requirements 3 6 4 3 1 5 4 11 4 4 1 CSR reporting requirements 1 1 1 3 1 3 2 None / don t know 7 6 9 2 5 1 6 11 12 4 13 8 (Pink shaded squares represent those where sector figure is 10 points or more above average) THE BURDEN OF EMPLOYMENT LEGISLATION Disciplinary, dismissal and grievance procedures are considered the most burdensome aspect of employment legislation Previous surveys in this series have shown employment legislation as a particular regulatory burden on UK businesses. This is confirmed in the present survey, with a majority describing it as a hindrance to the operation and development of their business (see chart 34). In order to explore this area further, in this survey we asked participants to consider a number of specific areas of employment law, and tell us how difficult they are for their business, both in terms of ensuring compliance and the time taken up in administration. Just over 40 of UK businesses say that disciplinary and dismissal procedures and grievance procedures are relatively difficult to ensure compliance and relatively administratively time-consuming (scored in the top half of a 0-5 scale). More than one in three also say this of payroll issues including pensions and redundancy issues including consultation with affected staff (see chart 39). Still significant, but a little less important overall just under one in three consider them relatively difficult to ensure compliance are the Information and Consultation of Employees Regulations (although these relate to businesses with more than 50 employees), employment tribunals and statutory sick pay and maternity/paternity pay. Although having a relatively high media profile, rather less difficulty or time is attributed to discrimination legislation (on the basis of gender, marital status, race, disability, sexual orientation, religion, beliefs or age), illegally employed individuals such as non-resident people, or National Minumum Wage Regulations although the latter may have more serious cost implications for some businesses. CHART 39 u UK Enterprise Survey Report 2008 Regulation 47

CHART 39: burden of particular areas of employment law Disciplinary / dismissal / grievance Information / Consultation of employees Statutory sick / maternity / paternity pay Payroll / pension issues Redundancy issues Employment tribunals Discrimination National Minimum Wage Illegally employed individuals 10 12 14 15 17 21 24 0 10 20 30 40 50 25 28 30 30 30 36 36 38 39 43 42 scoring each 3 5 on 0 5 scale Difficulty ensuring compliance Administratively time consuming Perceptions of the difficulty in ensuring compliance and how administratively time-consuming each of these aspects of employment law is largely tend to mirror each other. Generally, most are considered a little more difficult than time-consuming, with the main exception of payroll and pension issues, which are regarded as more time-consuming. The following charts therefore focus on the difficulty of ensuring compliance. Perhaps not surprisingly, the impact of most aspects of employment law tends to be limited for micro businesses but generally increases thereafter with the size of the organisation at least as far as the large businesses (see chart 40). Thus, the large businesses tend to be the most likely to consider a number of these areas difficult to ensure compliance, notably payroll and pension issues, employment tribunals and discrimination legislation. They are slightly less likely than medium businesses to consider disciplinary, dismissal and grievance procedures and Information and Consultation of Employees Regulations difficult to implement, but, with a larger number of employees, do find each more administratively time-consuming than do the medium businesses. The main exceptions to this are statutory sick, maternity and paternity pay, which appear be slightly more burdensome for small and medium businesses small businesses are perhaps more likely than the larger businesses to be affected by absence of key employees and redundancy issues, which tend to be seen as the most difficult and most time-consuming for the very large businesses. Otherwise, the very large businesses appear to find these employment law issues less burdensome than the large, perhaps again because they have more resources and expertise to deal with these aspects of their business. CHART 40 u 48 Regulation UK Enterprise Survey Report 2008

CHART 40: Areas of employment law regarded as more difficult to ensure compliance by size of business Showing scoring 3 5 on 0 5 scale All Co.s Micro Small Medium Large Very Large (1,020) (155) (161) (163) (190) (351) Disciplinary / dismissal / grievance procedures 43 23 46 57 51 40 Payroll and pension issues 38 21 33 39 47 41 Redundancy issues 36 14 38 41 38 42 Information / Consultation of employees 30 16 25 39 37 32 Employment tribunals 30 13 33 31 36 31 Statutory sick / maternity / paternity pay 30 20 35 37 34 26 Discrimination 21 9 19 20 30 23 National Minimum Wage 15 10 14 18 14 15 Illegally employed individuals 14 6 11 16 19 15 (Pink shaded squares represent those 6 points or more above average) Once again, there are some fairly marked differences between industry sectors in their response to employment law issues (see chart 41). Possibly reflecting the pattern above, with very large businesses often less impacted than the medium and large, the two sectors with the largest average business size Primary Industries and Financial Services are also less likely to find most of these areas burdensome than those in other sectors. In contrast, five of the next six industry sectors in terms of business size are typically above average in perceived difficulty in ensuring compliance with all or most of these aspects of employment law perhaps reflecting not just size but also the nature of the workforce those in Transport & Distribution, Other Services, Manufacturing & Engineering, Health & Education and Retail, Hotels & Catering. A majority of businesses in Manufacturing & Engineering find it particularly difficult to deal with payroll and pension issues (57) and nearly half with redundancy issues (49) issues that also impact particularly on the Transport & Distribution sector. Together with Retail, Hotels & Catering, Manufacturing & Engineering is also a sector particularly affected by the Information and Consultation of Employees legislation (40 of both). Other aspects of employment law that particularly impact on certain sectors include disciplinary, dismissal and grievance procedures in Construction & Housing (59) and Other Services (52); statutory sick, maternity and paternity pay (45) and discrimination legislation (32) in Health & Education; employment tribunals in Transport & Distribution (44); and National Minimum Wage Regulations in Retail, Hotels & Catering (33). CHART 41 u UK Enterprise Survey Report 2008 Regulation 49

CHART 41: Areas of employment law regarded as more difficult to ensure compliance by industry sector Manuf. Retail & IT & Bus. Other Health All Co.s Primary & Eng g Construction Property Hotels Transport Comms Finance Servs servs & Educ. (1,020) (31) (148) (64) (137) (135) (48) (62) (86) (116) (55) (138) Showing scoring 3 5 on 0 5 scale Disciplinary / dismissal / grievance procedures 43 24 48 59 32 47 45 37 30 37 52 52 Payroll and pension issues 38 42 57 37 28 34 48 26 32 30 37 40 Redundancy issues 36 20 49 40 29 27 46 36 31 26 52 42 Information / Consultation of Employees 30 19 40 37 19 40 35 21 22 24 34 34 Employment tribunals 30 21 35 31 25 35 44 23 19 26 30 33 Statutory sick / maternity / paternity pay 30 16 36 31 20 38 33 24 18 21 26 45 Discrimination 21 8 29 20 15 24 22 18 14 12 22 32 National Minimum Wage 15 5 15 6 9 33 21 6 5 10 12 20 Illegally employed individuals 14 7 14 12 13 16 23 10 8 10 18 20 (Pink shaded squares represent those where sector figure is 10 points or more above average) THE COST OF IMPLEMENTING NEW LEGISLATION The estimated financial cost to micro and small businesses of implementing new legislation has increased substantially this year 2007/8 saw a continuing programme of legislation that affects UK businesses to a greater or lesser extent, including changes to the National Minimum Wage regulations, increases to statutory holiday entitlement and changes to Information and Consultation with Employees regulations. The UK businesses in this year s survey estimate the average annual cost of implementing new legislation to be 221,960. This is an apparent decrease (22) on last year s estimate of 282,870 1. This naturally represents a wide spread, from 8 of businesses estimating the cost at under 1,000 p.a. to 7 estimating costs in excess of 500k p.a. This is obviously related largely to the size of the business, with the average cost to micro businesses estimated at just over 16k p.a., going up to 650k p.a. for the very large. Although the cost of implementation is naturally smaller for smaller businesses, they carry a relatively high burden of cost, both in relation to turnover and to number of employees. Based on participants estimates, the annual cost of implementing new legislation is over 2,900 per employee for micro businesses, falling to 134 per employee for the very large. However, this does represent a substantial increase in estimated costs of implementing new legislation for micro businesses in particular and also for small and large businesses (see chart 42), while medium-sized, particularly, and very large businesses estimate lower costs (per employee) than last year. The apparent fall in costs per employee for medium-sized businesses may again relate in part to some difference in sector mix and heavier representation of sectors with lower costs. CHART 42 u 1 Estimates are based on survey participants estimates of cost within broad bands from under 1,000 to over 500,000. We have calculated averages based on the mid-point of each band, and, as previously, counting under 1,000 as 500. Last year, over 500,000 was calculated as 750,000. However, we believed that this may underestimate costs, with many of those identifying costs of over 500,000 going on to say that it is in the millions, so this year we have taken a value for calculation of 2m, and recalculated last year s figures for this report. This necessarily provides estimates that must be treated as indicative of levels of spend rather than definitive costs. 50 Regulation UK Enterprise Survey Report 2008

CHART 42: Estimated cost of implementing new legislation 2008 Cost per company 000 Cost per employee Change in cost per employee vs 2007 () Total sample 222 123-13 Micro (Base: 155) 16 2,929 +62 Small (161) 22 748 +21 Medium (163) 28 188-31 Large (190) 172 314 +37 Very large (351) 650 134-12 Additionally the costs of implementing new legislation are also likely to depend to some extent on the business sector in which the organisation is working. In Financial Services, the estimated cost per company is 814,000, with Primary Industries some way behind at 624,000 (see chart 43). This is because these sectors have larger businesses. As last year, in terms of cost per employee, the estimated costs of implementing new legislation are highest in Financial Services ( 247), and this is followed by Primary Industries ( 171), IT & Communications ( 145) and Other Services ( 136). The lowest in this respect this year is Health & Education ( 54). While cost per employee is relatively stable or lower than last year in most sectors, the two exceptions to this are Transport & Distribution, where estimated costs are more than doubled, and Retail, Hotels & Catering, where they are up by just over a third. CHART 43 q CHART 43: Estimated cost of implementing new legislation 2008 by sector Cost per company 000 Cost per employee Change in cost per employee vs 2007 () Total sample 222 123-13 Financial Services 814 247 0 Primary Industries 624 171 +15 IT & Communications 316 145-15 Other Services 275 136-8 Manufacturing & Engineering 226 120-18 Transport & Distribution 266 113 +124 Real Estate & Property Services 91 96-21 Retail / Hotels / Catering 146 96 +35 Other Business Services 95 93-38 Construction & Housing 98 70-46 Health & Education 100 54-25 See technical appendix for sector base sizes UK Enterprise Survey Report 2008 Regulation 51

We should be careful in grossing this up to UK businesses as a whole, because we cannot necessarily assume that all businesses carry the same costs as those that employ ICAEW members, who form the base for this survey. In order to give some guidance on this, last year we also carried out a small parallel survey of senior financial decision-makers in SMEs with no ICAEW members. Although based on a more limited sample, so comparisons should be treated with a degree of caution, the findings of that survey clearly suggested that, within each size of business band, the estimated costs of implementing new legislation are significantly lower in those businesses not employing members, and we put forward a number of reasons and hypotheses in the 2007 report to explain this difference. In order to assess the total cost to UK businesses of implementing new legislation, we should therefore make some allowance for the fact that, among the smaller businesses, the proportion employing members is relatively small: the ICAEW estimates that members are employed in 1 of micro/small businesses and 15.5 of medium businesses. If we assume that the businesses in this year s sample are typical of all UK commercial businesses employing a chartered accountant, and that the costs to businesses not employing a chartered accountant are in line with the figures quoted in last year s non-member survey 2, then the total annual cost to business of implementing new legislation is estimated to be up to 11.3bn. Micro businesses naturally carry a large part of this cost, even though the costs per company are relatively low, since they account for 88 of UK commercial enterprises. Proportionally, they account for 70 of all enterprises expenditure on implementing new legislation (see chart 44). Re-weighting the survey data to national proportions by size of business suggests that the average annual cost for each business of implementing new legislation is 7,451. CHART 44 q 2 Based on Office of National Statistics (ONS) data, number of VAT-based enterprises, 2006, minus those in the public sector = total of 1.5 million enterprises. Survey data is reweighted to correct proportions by size of business (number of employees). CHART 44: Estimated cost of implementing new legislation 2008 of all enterprises Cost of implementation m of total cost of implementation All enterprises 100 11,282 100 Micro (0-9 employees) 88.3 7,935 70 Small (10-49 employees) 9.5 783 7 Medium (50-249 employees) 1.7 498 4 Large (250-1,000 employees) 0.3 885 8 Very large (over 1,000 employees) 0.1 1,180 10 52 Regulation UK Enterprise Survey Report 2008

A GLOBAL PERSPECTIVE Businesses from the UK and, to some extent, the rest of the EU may be battling on a global stage with those from environments more supportive towards business. Fewer than half of businesses in the UK and the rest of the EU consider the regulatory and taxation environment under which they operate to be business-friendly. This contrasts with two-thirds of US businesses and approaching 90 of those in the Far East countries represented in our parallel global survey. Businesses in the UK are more likely than those in any of the other regions represented to consider that their operation and development are hindered by employment legislation, business tax changes, health & safety regulation, environment law, planning regulations and CSR reporting requirements. However, they are less likely than those in the US to feel that they are hindered by corporate governance requirements and financial reporting requirements. In contrast, businesses in the Far East, which see their regime as particularly supportive, are more likely to consider corporate governance and financial reporting requirements, health & safety regulation, employment legislation and business tax changes as a help to their operation and development rather than a hindrance. UK Enterprise Survey Report 2008 Regulation 53

TECHNICAL APPENDIX The purpose of the study was to look at the following issues that impact upon businesses in the UK today, and comment on any trends emerging in this twelfth survey in the series. The impact of the credit crunch and other factors affecting global business activity. Business growth objectives and barriers. The impact of globalisation on UK business. Regulatory issues and costs for business. In June and early July 2008, 1,020 telephone interviews were conducted with a cross-section of ICAEW members working within industry in the UK. Broad quotas were set to ensure sufficient response in key sub-cells by region, industry sector and size of business. In order to provide some global comparisons, for the first time, the main UK survey was supplemented by an international survey in which a similar interview was carried out with ICAEW members working within business in selected locations. 351 interviews were conducted, 100 in a spread of other EU countries, 101 in the US and 150 in the Far East (75 in Hong Kong and 75 in Malaysia and Singapore). The results of these interviews are referenced in this report and also outlined in greater detail in the Global Enterprise Survey Report 2008. The findings of the main UK Enterprise Survey were subsequently weighted by company size (number of employees), industry sector and region so as to represent the UK profile of businesses by value in the economy (Gross Value Added). All the data shown in the charts and referenced in the text reflects weighted totals. Weighted base sizes for main sub-groups of respondents shown on charts through this report are as follows: Size of organisation No. Industry sector No. Region No. Micro (0-9 employees) 155 Primary Industries & Energy 1 1 Scotland 83 Small (10-49) 161 Manufacturing & Engineering 148 Northern 1 Medium (50-249) 163 Construction & Housing north West 103 Large (250-1,000) 190 Real Estate & Property Services 137 Yorkshire & Humber 82 Very large (over 1,000) 1 Retail / Wholesale / Hotels / Catering 135 Wales 1 transport, Storage & Distribution 8 East England 103 it & Communications 2 East Midlands banking, Financial Services & Insurance 86 West Midlands 82 other Business Services & Accountancy 116 London 175 other Services south East 165 health & Education 138 South West 82 Data based on sub-samples of less than 100 should be treated with caution. 1 Primary Industries & Energy (referred to in the report as Primary Industries) comprises Agriculture & Fisheries and Energy, Water & Mining. 54 Technical Appendix UK Enterprise Survey Report 2008

Acknowledgements David Burton Associates The Enterprise Survey was managed by David Burton Associates (DBA), an independent market research consultancy. It brings an effective mix of personal service, a practical and pragmatic approach and a high level of professionalism to help clients meet their marketing needs. Its specialist focus is in the areas of corporate and stakeholder communication, business-tobusiness, financial and professional services and advertising/pr, in both UK and international markets. The company was established in 2004 by David Burton, who has more than 25 years board-level experience in UK agencies, has worked regularly with accounting firms and with the ICAEW, and also worked on the Enterprise Survey series in its earlier years. Telephone fieldwork was conducted by DBA s associate, Critical Research. ICAEW As a world-class professional accountancy body, The Institute of Chartered Accountants in England and Wales (ICAEW) provides leadership and practical support to over 130,000 members in more than 160 countries, working with governments, regulators and industry to maintain the highest standards. Our members provide financial knowledge and guidance based on the highest technical and ethical standards. They are trained to challenge people and organisations to think and act differently, to provide clarity and rigour, and so help create and sustain prosperity. The ICAEW ensures these skills are constantly developed, recognised and valued. Because of us, people can do business with confidence. UK Enterprise Survey Report 2008 Acknowledgements 55

For more information or to download a copy of the UK Enterprise Survey Report 2008 visit www.icaew.com/enterprise or T +44 (0)20 7920 8667 E enterprise@icaew.com REGIONAL UK ICAEW OFFICES East England Region T +44 (0)1223 257 873 E eastengland@icaew.com South West Region T +44 (0)117 344 5045 E southwest@icaew.com East Midlands Region T +44 (0)115 988 6062 E eastmidlands@icaew.com London Region T +44 (0)20 7920 8682 E london@icaew.com Scotland T/F +44 (0)1383 882 645 E Scotland@icaew.com Wales Business Centre T +44 (0)29 2050 4595 E wales@icaew.com To download a copy of the Global Enterprise Survey Report 2008 visit www.icaew.com/enterprise North West Region T +44 (0)1925 661 858 E northwest@icaew.com West Midlands Region T +44 (0)121 697 7002 E westmidlands@icaew.com Northern Region T +44 (0)191 206 4548 E northern@icaew.com Yorkshire & Humber Region T +44 (0)113 251 5669 E yorks-humber@icaew.com South East Region T +44 (0)1483 246 561 E southeast@icaew.com The Institute of Chartered Accountants in England and Wales Chartered Accountants Hall PO Box 433 Moorgate Place London EC2P 2BJ UK www.icaew.com