11 April 2023
The vital role of SMEs in construction

More than 99% of the UK’s 5.7 million businesses are small or medium-sized enterprises. SMEs – defined as companies that have fewer than 250 employees – power the construction industry: the 300,000-strong band of construction SMEs are responsible for 16% of the UK’s total.

Many of these companies are thriving in a notoriously competitive sector. In tumultuous market conditions, however, construction SMEs are facing an increasingly challenging environment in which to do business. This post will consider some of the main challenges facing construction SMEs, as well as considering what can be done to overcome them.

Building… or business?

One of the main challenges that SMEs must contend with is a David-vs-Goliath-style competition with large companies. This can be especially relevant in an industry like construction, where long supply chains and complex contractual arrangements offer larger companies a major competitive advantage.

Unlike the largest businesses that have vast budgets for staff training and professional development, it can be harder for SMEs to commit time and money to extensive training programmes.

SMEs are often spread thin, delivering heavy workloads with lower staff numbers and resources. For many SME founders, their passion and knowledge are for the work they do, rather than for management of the “business” side of things. When going toe-to-toe with a global firm, it can seem like all the odds are stacked against SMEs – and even more so in the market conditions of the past three years.

Tough market making things harder

The COVID-19 pandemic had a bigger impact on SMEs in comparison to larger companies. Construction was one of the least affected industries, with building sites only forced to close for a limited time during the first lockdown in 2020. Even so, supply chain disruption and falling business confidence continue to pose a significant threat.

In difficult market conditions, SMEs can be especially vulnerable. Soaring inflation in the past year has harmed many SMEs and given additional advantage to larger companies. If SMEs fail, though, principal contractors and their clients fail too, which should give them the motivation to manage their SME supply chains fairly.

Juggling jobs and a million things more

Running a SME can feel like being a juggler. Alongside heavy workloads, SME bosses face other responsibilities, including keeping abreast of the latest technologies and innovations in the sector. On top of that, they are also faced with all manner of complicated business decisions.

In some cases, SMEs are overly focused on offering their services at the lowest price. This cuts into margins and initiates a “race to the bottom” whereby perceived value for money is all that matters. Although cost is a major factor, SMEs should stick to their strengths; rather than lowering prices, SMEs can market their services based around what sets them apart.

Of course, the difficulties faced by many SMEs go beyond workload and pricing. Certain structural arrangements make things harder for SMEs. In the context of rising costs and workforce shortages, as well as cash flow problems and issues regarding late payment, there are many things making doing business even harder right now.

So, what more can SMEs do?

In the face of adversity, SMEs have shown incredible resilience in the past three years, surviving and thriving in challenging market conditions. To continue doing so, companies need to play to their strengths; here are four ways that SMEs are thriving:

  1. Strength in numbers. SMEs can join local growth hubs, trade associations and membership organisations, as well as connecting with local universities.
  2. Training for free. Take advantage of free resources that offer employees the chance to enrol in online courses, for example FutureLearn.
  3. Closer working relationships. Prioritise working relationships between SMEs, principal contractors and clients that support every cog in the wheel and maintain open dialogue throughout the supply chain.
  4. Ask for help. Be more proactive to seek out the support you need – and don’t be afraid to speak up if something’s not right.