The hi-tech industries, which generate 10% of UK GDP and 15% of UK trade, have been hit hard by the recession.
Fund providers have increasingly been, and continue to be, very selective about which businesses and R&D projects they support. Funders may toughen their approach as they decline to invest new money – which such progress industries rely on – without guaranteed returns or even seek to recover initial investments through the sale of the businesses they have lent to.
According to Intellect, the trade association for the UK technology industry: “SMEs tell us that investment funding is still an issue. Traditional sources of cash such as bank loans have been restricted or withdrawn and there is a shortage of venture capital funding. As a result, expansion, product development and other R&D activities are being held back.”
Few players in the sector have managed their cash reserves well and rarely allow themselves time to try to resolve their financial issues, in often ‘just in time’ pipelines. Where solutions are derived, these are often sales driven, which is usually the area of their business least under their control.
Matt Wild, Restructuring & Recovery Partner has worked on a number of technology company Administrations during 2009. Commenting on the sector, he says: “Concerns in 2010 are unlikely to lessen sufficiently. Future worries for the sector include limited access to funding, generally weak and volatile demand levels and a growing range of supply issues throughout the value chain.”
Intellect goes on to challenge the UK’s technology framework saying that certain segments of the industry are ‘at risk of being constrained unless a fit for purpose digital infrastructure and adequate support are brought forward’.
Challenges
Limited credit availability; funders toughening their approach and seeking ‘guarantees’ against returns; weak demand levels both domestically and internationally.
Opportunities
To focus on key business areas and core offerings; potential rewards for smarter sales and marketing drives; chance to review supply chain efficiencies and further reduce unnecessary costs.