Tag Archives: SMEs

Planning for the digital economy

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The digital tech sector is the UK’s fastest growing sector.    Recent statistics show that it is growing as much as 50% faster than the wider economy.  In London alone, a new tech business starts up every hour.  Beyond London, digital tech clusters across the country are driving the economic resurgence of many cities and city regions.

The rapid growth of the sector means that its spatial footprint has become increasingly evident in towns and cities across the UK.  In May, the Royal Town Planning Institute (RTPI) published guidance on how town planning can respond to and guide the future development of the digital economy.  It makes recommendations for planners in two areas:

  • how to encourage the growth of the tech sector in their local area; and
  • how to make best use of the opportunities provided by the tech sector for the planning system

What is the tech sector?

The digital tech sector is increasingly diverse, and there is no straightforward definition.  The 2016 Tech Nation report identified 16 different sectors, some of which include:

There are currently around 58,000 active digital tech businesses in the UK.  It employs 1.64 million people, and job growth is more than double that of other sectors.  Roles are generally highly skilled and well paid, compared to other sectors.  Indeed, the average salary is 44% higher than the national average!

Location preferences

Digital tech, as a sector, thrives off well-planned spaces with access to good local infrastructure.  Tech firms and their employees tend to prefer easily accessible, walkable, multi-use districts. This results in the creation of ‘clusters’ of similar firms in central urban locations.

Clustering has a number of advantages for digital tech businesses – including easy access to large talent pools and the ability to network and exchange ideas face-to-face with local, likeminded businesses and employees – a key driver of innovation.

London, Manchester and the Greater South East have some of the largest digital tech clusters in the UK; however, the Tech Nation 2017 report mapped 30 significant clusters across the length and breadth of the UK – from Dundee to Exeter.

Facilitating the growth of the sector

The recent growth of the sector has already led to a number of economic policy responses, including the development of enterprise zones, innovation and business centres, and ‘innovation districts’.  The RTPI guidance also highlights a number of smaller-scale responses that can be utilised to attract and foster tech industry growth, including:

  • ‘de-risking sites’ by making sure that planning requirements are “practical, clear and known in advance of specific proposals coming forward”
  • using public money for assembling and servicing sites that are more challenging
  • the provision of Wi-Fi in specific locations
  • making districts pedestrian and cycling friendly
  • leveraging Public Private Partnership models to build digital infrastructure

In addition to these responses, the RTPI makes three recommendations for planners on how they can create an environment that is attractive to digital tech firms.

First, it suggests that planners should monitor the local economy to get a sense of what local growth industries are.  Policies can then be adapted to local economic conditions.  Some local authorities already do this using company registration data.  For example, Camden Borough Council use this data to inform a quarterly ‘Business and Employment Briefing’.  It covers a range of measures, including business size and type, employment in the borough, commercial property, unemployment, worklessness and qualifications.

In order to attract and assist the growth of the digital tech sector, it is important for local planning teams to have a proper understanding of the sectors’ spatial preferences.  This is particularly important when drawing up local plans.  Therefore, the second recommendation made by the RTPI is that local authorities should employ someone to engage with local tech firms to find out how planning could help to better facilitate their growth. The roles of The Dublin Commissioner for Startups and the Amsterdam Chief Technology Officer are potentially interesting models for this.

Third, the RTPI recommends ensuring that there is sufficient housing, office space and transport infrastructure to meet capacity.  These three elements are the “fundamental ingredients for an economically and socially successful city”.  Without them, no amount of other interventions will attract firms to an area.

The Tech Nation 2017 report found that 30% of digital tech community members cited their local transport infrastructure as a ‘business challenge’.  Tech London Advocates report similar concerns, whilst also highlighting the challenges posed by digital infrastructure: “It has become increasingly clear that a fundamental challenge facing tech companies in London is infrastructure. The tech sector has grown so fast that the provision of office space and digital connectivity is having to play catch up”.

The digitisation of planning

The growth of the digital tech sector not only creates jobs and generates wealth; it creates opportunities for improved efficiency in other sectors too.  In planning, digitisation can free up time and resources, and create new tools for planners to utilise.  From the adoption of  geographic information system (GIS) software for mapping, to experimental trials of 3D modelling software and virtual reality in plan making and community engagement, technology has and continues to present a number of opportunities to improve the planning system.

Beyond planning, innovations in the digital tech sector aid the creation of ‘smart cities’ – where information and communication technology (ICT) and ‘Internet of Things’ (IoT) technologies are integrated to manage cities’ assets, with the overall aim of improving efficiency.  Examples of potential usage vary considerably, from supporting people with disabilities or chronic illnesses, to the provision of real-time traffic data, controlling streetlights and monitoring environmental data.

As such, a final recommendation made by the RTPI is to make use of local firms’ skills and resources to address cities’ infrastructural challenges.

Addressing inequality

Despite the rapid growth of the digital tech sector and its contribution to job and wealth creation, there is an increasing recognition that the benefits created by the sector can be insular and often do not spill over to the local economy.

Indeed, studies have found that the higher the share of tech employment in a city, the more income inequality there is.  On this basis, the digital tech sector has been criticised for its potential to create a ‘two-tier economy’.  There are also concerns about the gentrifying effects of digital tech clusters on local areas.  In London, for example, tech growth has increased the cost of living in some parts of the city, displacing smaller firms and lower income families.  It also poses a potential threat to innovation as startups are priced out of successful digital tech clusters.

Clearly addressing these issues poses some significant challenges for policymakers.  Last year, the RTPI made a number of recommendations in this regard, including helping local people to develop the skills needed by local tech companies.

Successful planning

The digital tech sector has enormous potential to enhance economic growth.  Through its ability to create the optimal conditions for the digital tech sector to thrive, planning can help to encourage this growth.  Understanding local economic trends, consulting with digital tech businesses about their needs, and ensuring that local infrastructure has the capacity to meet these needs, are vital to successful planning for the digital tech sector.  At the same time, ensuring that this growth is sustainable and benefits wider society are key challenges for planners.

‘Workshop of the world’ … Is British manufacturing a thing of the past?

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Image of old industrial plant.

Image: Till Krech via Flickr under a Creative Commons Licence.

By Steven McGinty

In the 19th century, Britain was heralded as the ‘workshop of the world’, producing everything from locomotives to extraordinary handicrafts. By the 20th century, the United States was the predominant manufacturing power, but Britain had become a specialist in manufacturing.  In recent history, economic growth has been led by the service sector, particularly from financial services in the City of London.

This change in the economy has led to a lot of debate. In fact, this was cited as one of the main drivers of inequality by the Scottish Trades Union Congress (STUC) at a recent seminar I attended. However, does this mean Britain should return to its industrial roots, or should it focus on the provision of services, which has been seen as key to recent economic successes?

The Chancellor, George Osborne, certainly thinks there’s a place for manufacturing. In March 2014, he emphasised that his Budget was focused on boosting UK manufacturing and rebalancing the economy across the regions. The Budget included some high profiles measures, including the introduction of £7 billion of funding to cut energy bills for manufacturers, as well as compensation of £1 billion for energy intensive manufacturers.

A recent House of Commons Library statistical release provides some interesting insights into the UK manufacturing sector. It reports that economic output has decreased from 30% in the 1970s to 10% in 2012 and that manufacturing was badly affected during the recession, falling 14.5% between the first quarter of 2008 and the third quarter of 2009. The manufacturing workforce has also reduced from 5.6 million in 1982 to 2.6 million in 2014.

However, an Office for National Statistics (ONS) report provides some signs of optimism. It found that, since 1948, productivity in the manufacturing sector has increased gradually by 2.8% each year, compared to 1.4% in the service sector. The report suggests that the UK manufacturing sector has benefited more from information and communications technology (ICT) than the services sector and the more integrated global economy.

These factors have contributed to a shift from low-value manufacturing, where the focus was on low costs and low skilled workers, to high-value manufacturing, where workers provide value to the production process with their knowledge and expertise.

Interesting trends have also started to develop. For instance, Civitas has produced a report into ‘onshoring’ or ‘reshoring’, a practice that involves firms bringing back production that they had previously sent overseas. Firms are taking this approach for a number of reasons, some of which are related to the difficulties of offshoring such as language barriers, whereas others are looking more at the positives of domestic production, such as improved quality control, as well as an increase in a brand’s appeal by its connection to having products manufactured in countries such as the UK. Examples of onshoring including General Motors, who are currently investing £125 million in a domestic supply chain in the UK.

The report also highlighted that there are still barriers to onshoring. For example, less flexible workforces, although this is deemed to be changing in the United States as trade unions are becoming more flexible.

We have also seen the rise of ‘phoenix industries’. These are groups of firms that use similar technologies and have emerged in traditional industrial areas, typically developing sophisticated components for use in a range of industries. This idea was discussed in a recent article in the Cambridge Journal of Regions, Economy and Society. It focused on a case study of the West Midlands, an area which has been seen as the ‘heartland’ of the automotive industry.  The article emphasised the importance of Jaguar Land Rover (JLR), the niche/luxury car manufacturer, for providing opportunities for smaller more innovative companies in their supply chain. Yet, the article also highlights that getting access to funding is key for these companies to develop their prototypes. This lack of funding for small firms was identified as a weakness of the UK sector.

So, is British manufacturing a thing of the past? The answer is most likely no. However, the shape of the manufacturing industry and the role it has to play as part of the overall economy has still to be determined. This will depend on a number of factors including future government policy, particularly addressing issues such as access to capital and shortages of skills, as well as the overall global economy, most notably the ability of the Eurozone to recover from its current economic downturn.

 

 Further reading:

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Understanding science and innovation: key ingredients

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Female scientist in a lab.

Image from Flickr user Robert Couse-Baker, licensed for reuse under a Creative Commons License.

By Steven McGinty

“Innovation distinguishes between a leader and a follower” Steve Jobs

From penicillin to Dolly the sheep, the UK has always been at the forefront of scientific innovation. Last month, the Chancellor, George Osborne, gave a boost to the scientific community when he welcomed the idea of a National Institute for Materials Research and Innovation in the North of England. The Chancellor said that this would create new jobs and attract further investment, emphasising that the government are committed to the creation of a ‘Northern Powerhouse’.

This is just one example of how scientific innovation can be used to support economic development. Below I’ve identified some of the key ingredients to developing innovation, as well as providing several examples of good practice across the UK and Ireland.

Innovation infrastructure

The North West Business Leadership Team (NWBLT) report highlights the importance of having the infrastructure in place to support innovation. Crucially, it suggests that the ability to create partnerships between organisations and across business, government agencies, and academia, helps firms to gain a competitive advantage. For example, the Virtual Engineering Centre, a partnership between the Hartree Centre and the University of Liverpool, supports companies such as Jaguar Land Rover to improve their business performance through the adoption of the latest techniques and tools.

Business clusters, particularly digital clusters, have also proven to be important for driving innovation and increasing productivity. These clusters involve bringing together the right innovative people and providing them with access to the right resources in a small geographical area.

Some notable examples include Tech City in East London, which is a cluster of technology and creative firms, and Dublin’s Digital Hub, a project based in the Republic of Ireland, which contains a range of firms, focused around digital media and entrepreneurship. The clusters blend technology companies with organisations from other sectors, including retail, leisure and advertising.

They also play a key role in helping start-ups to develop. For instance, it’s been shown that the development of the nanotechnology industry has been related to a small number of scientific clusters across the world.

Start-ups and agile SMEs

Start-ups and SMEs are important for bringing new products, technologies and services onto the market.  Universities can play an important role in providing a wide variety of support to SMEs. Several programs already exist in universities across the UK, including the University of Leicester’s “SME Support to Growth” project, which offers advice on exporting internationally, and the University of Birmingham’s Accelerating Business-Knowledge Base Innovation Activity (ABIA) project, which provides varied and tailored support to SMEs working in science and technology in the West Midlands, including access to support from doctoral researchers.

Additionally, the University of Manchester has also been very successful in launching SMEs.  This includes Nanoco, a firm that develops and manufactures quantum dots and semiconductor nanoparticles that are used in a number of areas, such as bio-imaging and solar energy.

The Organisation for Economic Co-Operation and Development (OECD) also highlights that SMEs can find it difficult to access early stage financing, particularly since the economic downturn. Therefore, it’s important that the government introduces and supports policies that provide access to finance. Two examples that already exist include the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS), which provide tax relief to investors who buy shares in high risk SMEs.

The Campaign for Science and Engineering (CaSE) has also raised the issue of investment in SMEs. They have voiced their concern over the UK government’s cuts to research spending, highlighting that the UK is below the EU average on research spending and is 21st in the league tables of research spending, behind countries such as Belgium and the Czech Republic. The report suggests that increased funding should be given to Innovate UK, a body that supports innovation in business.

Highly skilled workforce

The Department for Business, Innovation, and Skills emphasises the importance of having people with the necessary science, technology, engineering and maths (STEM) skills to generate new knowledge. In addition to technical skills, the report makes it clear that the UK must produce people who have an understanding of business management and the entrepreneurial skills to develop their innovation commercially.

Further Reading:

The Idox Information Service has a wealth of research reports, articles and case studies on a range of economic development issues. Abstracts and access to journal articles are only available to members.