12th March 2012
A recent article in The Economist countered the old ‘small is beautiful’ argument pointing out that, while true on some levels, small companies tend to fall down in two areas; profit and job creation. The article points to the high proportion of small companies, those with less than 50 employees, within the troubled Mediterranean economies.
We have a lot of small companies in the UK. The secondary glazing industry is dominated by small traders – two family members with bags of tools waiting for dad to pop his clogs so they can start fighting over who inherits the van. Even within the larger building services companies secondary glazing is often carried out by small autonomous business units employing contract labour.
The augment is that once a company has grown to 50 employees, and is turning over £10 million, it then benefits from economies of scale. Medium sized enterprises carry out formalised R&D and so remain competitive and most have financial controls that provide a degree of stability. They are also large enough to appear on the radar of government departments and industry lobby groups.
The recent migration of small companies from secondary glazing into solar energy – to take advantage of the boost feed in tariff subsidies gave the market – demonstrated how ‘small’, rather than being beautiful, is sometimes just plain mucky. A cowboy element, convincing householders they needed PV panels on North facing roofs, has damaged the industry – as will become apparent when the scramble for installations abates. But perhaps most damaging is the increased fragmentation of the renewable energy market itself. The sector is now not only divided along the lines of technology but also carved up into small chunks within the PV solar market itself. Instead of the emergence of two or three major manufacturer/installers the UK has a growing number of small operators rebadging imported white-labelled solar panels as their own products.
The fact that most of the lobbying for the continuation of the feed in tariff has been carried out by Friends of The Earth indicates few solar energy vendors have grown to the size where they can lobby the government effectively.
The German solar energy market, which saw a number of major companies, some of which manufacture the panels and support equipment imported by UK installers, emerging during the period when Germany’s feed in tariffs were being heavily subsidised. In the UK the feed in tariff subsidy for PV solar energy equipment is unlikely to produce the same world-class players.
Obviously at some point we will see a restructuring of the market – most likely when the feed in tariffs for PV are scaled back. Many small companies presently putting solar panels on the top of houses will return to putting conservatories on the sides of them. This in turn will exacerbate the over capacity in the secondary glazing industry. It would have been a lot easier to restructure these markets while they were expanding. This does not mean it is impossible to construct a large sustainable enterprise that crosses the boundaries between renewable energy and secondary glazing. All that is needed is a little innovation and realisation that it is possible, and logical, for the same company to work in both sectors at the same time.
Stay cosy and have a good week.