Despite the gloom of losing one of the region's biggest employers, 2005 has been the year for enterprise in the West Midlands, a small business expert has said.

Professor David Walker from the University of Birmingham Business School - who has studied SMEs in the region and particularly those in the A38 technology corridor - said small firms were winning through against a depressed consumer market and the decline of some manufacturing.

"Despite the MG Rover situation 2005 has been quite good for small business," Professor Walker said.

"There has been a lot of predictions of doom and gloom but many smaller companies have diversified, and averted many of the predicted problems."

Professor Walker said this had resulted in many firms moving out of the trap of Pareto's Law - where 80 per of income comes from 20 per cent of customers.

"I think many firms have learnt that trying to survive with just one core customer is dangerous," he said.

"Many are trying to alleviate this by offering new products or entering different industries."

Phil Cleary, chairman of the Shropshire Employer Forum and managing director of Telford-based Smartwater, praised the Department of Trade and Industry's Manufacturing Advisory Service, for helping with this process.

"For Smartwater it has been a real shot in the arm," Mr Cleary said.

"Their advisers are excellent and have helped us take new products to market. It would be great to see similar schemes in 2006."

However, James Watkins, executive director of the West Midlands Business Council, said many West Midlands small businesses could be threatened by the uncertainty surrounding the future of RAF Cosford.

"There a thousands of businesses in the supply chain for the air base and it is fundamental to the region's SMEs that the base stays in the West Midlands."

Professor Walker said many small businesses still claimed form-filling and red tape were preventing them from developing long-term plans and diversifying.

A significant minority also suffered from the rise in the minimum wage which came into force in October he added.

Mike Cherry, West Midlands policy chairman for the Federation for Small Business, agreed.

He said: "Regulation and red tape is weighing us down, and I sincerely hope that this time the Government will take

action. The minimum wage is also beginning affect certain regions and sectors, and I would urge the Government to take account of these very genuine concerns when continuing to impose inflation busting increases."

This year has also seen changes to employment tribunals making small firms jittery.

Professor Walker said many small businesses feared increased liability.

"The fact that businesses can now be liable for a pay out of up to £50,000 in tribunals has scared many," he said.

Mr Cleary agreed changes had a significant impact on small companies over 2005.

"I don't have a problem with heavy fines, if a company is convicted. However, the system seems very heavily weighted in favour of the employee," he said.

"I believe tribunals have an important role to play but, because they are public events, unscrupulous employ-ees can use them to hold innocent firms to ransom.

"Negative publicity in local papers can be extremely damaging for small businesses and often they will cave in to threats rather than go through the tribunal process.

"The Government had an opportunity this year to redress the balance, but it has only disappointed."

However, it has been a strong year for the region's small exporters, Mr Watkins said, pointing out that the WMBC had identified 6,000 potential exporters in the region this year.

Professor Walker agreed. He said: "Small business have benefited from the strength of the pound and the realisation that they don't have to be big to export.

"West Midlands SMEs are also making inroads into the new European states."