The structure of Wales' business base, dominated by micro-businesses, is playing a significant role in shaping the country's productivity challenge.
The nature of the Welsh economy means many firms are focused on short-term survival rather than long-term performance and this limits opportunities to improve productivity, according to business and policy leaders who took part in a roundtable hosted by Business News Wales and the Wales Productivity Forum.
With the vast majority of businesses employing only a small number of people, decision-making is often concentrated on immediate operational priorities, including cashflow, staffing and securing the next contract.
Robert Lloyd Griffiths, chair of the Wales Productivity Forum and director for Wales of ICAEW, said most firms in Wales are micro-businesses, with owners focused on sustaining their business rather than measuring or improving productivity.
He said this can make it difficult to embed productivity as a priority, even where improvements could ease pressures on businesses over time.
The discussion highlighted how this structure shapes behaviour across the economy. In smaller firms, there is often limited capacity to invest in management development, new technology or process improvement, particularly where resources are already stretched.
This can also affect how businesses engage with external support. Programmes designed to improve productivity may not resonate where business owners are focused on immediate challenges rather than longer-term performance.
Rachel Lai, partner at Menzies LLP, said many company directors are primarily concerned with maintaining turnover, managing costs and ensuring profitability, with limited focus on wider economic measures.
Participants said that while this is a rational response to the pressures facing SMEs, it can contribute to slower progress on productivity at a national level.
There was also a view that management capability is a key factor. As businesses grow, the transition from technical expertise to leading teams and managing processes can expose gaps in skills, affecting efficiency and performance.
Rod Howells, executive director at BIC Innovation, said improving management practices can unlock productivity gains, particularly in smaller firms where relatively small changes can have a significant impact.
At the same time, participants highlighted the importance of recognising the strengths of Wales' business base. Micro-businesses play a central role in local economies, supporting employment and community activity.
However, without the scale or resources of larger organisations, they may require different types of support to invest in productivity improvements.
Access to finance, business space and advisory support were all identified as factors that can influence whether smaller firms are able to grow and improve performance.
There was also discussion of the need to make productivity more relevant to SMEs, with clearer links to outcomes such as profitability, resilience and business growth.
Participants said that framing productivity in practical terms – rather than as an abstract economic concept – could help encourage greater engagement among smaller firms.
Overall, the discussion pointed to the need for approaches that reflect the realities of Wales' business landscape, with targeted support to help micro-businesses move beyond day-to-day survival and invest in longer-term productivity.
The Wales Productivity Forum has a Wales Business Toolkit, designed to support businesses to measure their productivity, benchmark their performance and build a plan for productivity growth. Find the Toolkit here: https://www.productivity.ac.uk/regions-nations/wales-regional-forum/toolkit/
