As other countries reap the benefits of home-grown UK talent, the CMA is committed to cracking the UK’s scale-up challenge, writes Sarah Cardell
Investment is crucial to economic growth and prosperity. But what role does competition play in relation to that investment? Does tougher competition spur firms to invest more, or does it scare off the largest players? New analysis from our Microeconomics Unit suggests the answer is nuanced.
But these initial findings matter, because they start to show how competition can be a powerful catalyst for investment – if we understand how its effects vary across the business life-cycle.
Start-ups live or die through access to finance, so competitive capital markets are critical. More funding sources mean more ventures get backing. And these startups inject dynamism into markets that forces incumbents to invest in innovation or be overtaken.
For scale-ups, venture capital is vital. But heavy-handed regulation can discourage investment, shrinking the pool of capital and leaving founders with fewer options and worse terms from the remaining funders. Securing the capital needed for global scaling becomes harder – perhaps helping to explain, along with challenges like risk appetite and talent, why the UK excels in early-stage funding yet struggles to scale firms to global success.
For mature firms, the issue is less about funding and more about fair competition in the markets they buy from and sell into. The evidence suggests powerful companies do invest but more so when that power comes from real strengths, like scale or innovation. Where it’s built on anti-competitive behaviour, the effect is more likely to be negative, stifling dynamism and leading to wasted capital.
Finally, global superstars. For these firms, trade matters but the effects are mixed. While exporters usually invest more and pressure from cheaper imports can spark innovation, it can also squeeze margins and hold investment back. Foreign direct investment tends to boost jobs and raise productivity at home, and cross-border mergers may lead to more investment in innovation – but perhaps more in the buyer’s country than the seller’s. Large firms may dominate R&D spend, but smaller challengers often drive disruptive breakthroughs which trigger new waves of investment.
Let’s keep Britain’s scale-ups at home
This has real implications for Britain’s industrial strategy – especially in priority sectors, from defence to digital. Harnessing competition could mean more innovative start-ups get funded, more scale-ups achieve global reach and more mature firms invest in genuine capabilities rather than blocking rivals. In sectors where the UK aims to lead globally, these dynamics could determine whether we nurture world-beating companies or inadvertently hold them back.
We’ll be talking to investors, businesses, policymakers and academics over the coming months to dig deeper into these findings. We particularly want to help crack the scale-up challenge, helping the UK produce firms which strengthen our economic resilience and global influence.
There may be specific sector barriers to tackle. Like public procurement – a £385bn opportunity for scale-ups, but where rules often favour incumbents over new entrants. Unlocking economy-wide enablers, like data and interoperability (often controlled by the largest firms), is a potentially huge opportunity. In the past, we’ve supported collaboration between businesses where it serves nationally important goals, like innovation and net zero. But we know firms worry about falling foul of the law – so we are exploring where more clarity can enable positive collaboration to unlock scaling. Finally, mergers may help firms achieve global scale, but is there more that could be done so that the benefits of that scale are delivered in the UK, rather than elsewhere?
We’ll be exploring these questions over the coming months. The answers could help maximise the value of competition and investment in the UK and unlock opportunities for British scale-ups to become globally consequential firms.
Sarah Cardell is chief executive of the Competition and Markets Authority