SME Collaboration for retrofit supply chains – for Localising Prosperity

Introduction and aims

The aim of this project was to develop a model which could be used by SMEs to work together and in doing so, enable them to gain market share from remotely-owned corporations, achieve greater local economic growth and social inclusion. This followed on from contacts we made with a number of SMEs in the housing retrofit sector during MCED1.

These SMEs identified a number of limiting factors which prevented them from being able to compete fairly and generate positive social outcomes. These included public procurement conditions, inappropriate support services controlled by central government, the cost of acquiring information that was relevant to many of them (e.g. suppliers who provide value for money and act to support the local economy) and the need for a stronger voice for local SMEs to counter that of large national and multinational companies.

Learning from business collaboration across the world

One of the learning points from MCED1 was the success of more comprehensive and locally controlled bodies to support the growth and development of local businesses. In America and Canada these tended to be third sector organisations while in Spain and Italy they were formally structured networks of co-operatives. The Spanish success story is dominated by the Mondragon Co-op which now has almost 100,000 employees and provides all of its own business development support including finance and its own University. The Italian model is much more diverse with networks of small workers co-ops owning large cooperative companies (banking, insurance, food, construction). A number of these networks have turnovers well in excess of £1bn. The individual co-ops are also required to put a percentage of their surpluses into a fund to support the further development of co-ops. In compensation the co-ops pay a slightly lower rate of VAT.

For SMEs operating in the retrofit sector in the UK, the Italian model seemed particularly inspirational. Our SME contacts in the sector were already working together informally, but found that these arrangements did not enable them to compete in terms of bidding for larger public sector contracts where issues such as turnover and capacity were only considered in terms of the largest individual partner rather than the collective: this led to them being excluded from shortlists.  This issue was further exacerbated by the changes introduced by Birmingham City Council to develop its ‘Birmingham Energy Savers’ retrofit programme.

Birmingham Energy Savers

Following discussions with City Financiers, Birmingham City Council decided that in future it would have to raise money through the attraction of capital investment which subsequently determined the structure of the delivery model. This led to the appointment of large organisation with an international credit rating to manage the approach and subcontract to smaller local firms. In return, the Council (as an organisation trusted by the public) would promote that company to its citizens. The same company opened negotiations with many of the other public sector bodies across the West Midlands on the basis of using the same contract that they had with Birmingham, but later withdrew from these negotiations. The companies that LWM have engaged with within the sector argue that this approach has not worked in terms of creating opportunities for local companies to access sustainable work, nor indeed of generating demand for retrofit in Birmingham.  Indeed, a freedom of information request to Birmingham City Council shows just 24 retrofit measures have been installed as a result of the Council’s new arrangements.

The SME collaboration for retrofit project

This was the background against which LWM developed the SME collaboration project. The aim was to explore the development of an alternative model which would be driven by local SMEs to increase formal cooperation between them in order to enable them to win and deliver business more effectively and in doing so, generate local employment and boost the local economy.

A SME collaboration group was developed. This group developed a basic proposition which was presented to a wider group of 18 relevant businesses and three other interested parties. There was unanimous support from this group for developing a new organisation to improve joint working and co-ordination.  A subgroup, representing five businesses (three retrofit companies, one ‘green’ engineer, one building materials supplier[1] and one housing association with a trading arm that improves owner-occupied homes) with support from LWM, was set up to progress the collaboration and have met seven times during the last year. Members of this group between them sit on three LEPS while another of the companies is leading on developing the green economy strategy for a further LEP.

The initial target market is individual owner occupiers. This is perceived as a potentially very large market that requires work to be done locally; it also requires properties and owners to be treated as individuals, provided with expert advice that can be trusted and to have a comprehensive package of support available to them. Individual SMEs are more able to provide the individually tailored support than larger companies but often cannot provide the full range of works required.

At the heart of this model for its first target market would be individuals who would work with the owner to get them the most appropriate deal that can be provide for them through the network and then support them in managing the process. These will be newly created jobs partly funded by additional work but it is also intended to seek funding from LEPs for some initial posts.

This group has agreed a charter for businesses joining the group and a basic business model (attached as Appendix 1.) As well as supporting the businesses it also commits them to supporting the local economy, and addressing social exclusion – something of which the involved businesses are fully supportive.

Contacts and discussions have also been held with Preston Council who have a programme to help develop local co-ops, and with Unifca, an Italian construction sector network of co-ops with over 1bn Euros turnover.

We discussed this specific proposal when we met with our LEP contacts (see 2.2.4 above). Discussions are now ongoing with Stewart Towe about potential bids for LEP funding to develop some of this work.

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