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Supply Chain Bully

05/06/2019

Beware of supply chain bullying, it is the first step into the financial abyss.

It is no surprise that developed countries enjoying economic growth attribute most of their achievements to a flourishing SME sector.

In the UK, small businesses accounted for 99.3% of all private sector businesses at the start of 2018 and 99.9% were small or medium-sized (SMEs). Total employment in SMEs was 16.3 million, which accounts for 60% of all private sector employment in the UK.

The potential of SMEs to promote domestic-driven growth of new and existing industries and to strengthen the resilience of the economy in a competitive and challenging environment is inarguable.

So, given the data at hand and the correlation with economic stimulus, so, why do we still see a widespread lack of support from government and listed entities for the SME sector?

In the demise of Carillion, many ineffective and unethical practices have now come to light. One method employed by Carillion was to sign contracts, receive a large sum of money and then delay payments to subcontractors which allowed it to generate profits from holding that money. These down payments resulted in widespread neglect of key contractual requirements and initial figures suggest that Carillion owes roughly 2 billion GBP to suppliers and subcontractors. Many will not survive and the Carillion effect will ripple further than the 43,000 employees.

In the recent past I was approached to work with a Private Equity firm that is sadly no longer with us. As they flounced their behemothic AUM vs my irrelevant existence I kindly positioned that the terms did not support a coherent and well-reasoned delivery plan, all the risk sat with me and my firm. My reluctance to accept the terms that did not reflect the allocation of resource ultimately meant that I was (luckily!) unable to partner with the now defunct giant.

It reminded me of the story about Premier Foods, in mid-2014 they were criticised for asking suppliers to pay to tender and for rebates, coincidently the share price hit its historical low in October 2014…

Fast forward to present day, India is poised to become the fifth-largest economy overtaking the United Kingdom by 2019 (As per the IMF projection). India’s journey began as an agrarian nation, however, over the years the manufacturing and services sector has emerged. Today, its service sector is the fastest-growing sector in the world, contributing to more than 60% to its economy and accounting for 28% of employment.

Micro, small and medium enterprises are vital to India’s economy and growth. According to the World Bank, they account for more than 80 per cent of total industrial enterprises, employing an estimated 117 million people, and contributing to more than 40 per cent of manufacturing output and exports.

India seems to have immediately admonished the Supply chain bully and has wisely given its flourishing SME sector preferential treatment (Make in India initiative), eligibility for bank capital and access to government projects.

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