Business development · 19 October 2015

Innovative “new work” small businesses are fuelling growth, but only in certain cities

Businesses in these highly innovative sectors tended to be drawn to cities in the South, with Edinburgh a notable exception
Businesses in these highly innovative sectors tended to be drawn to cities in the South, with Edinburgh a notable exception

According to the Centre for Cities’ latest Small Business Outlook, small firms in “new work” industries, are boosting the economies of some cities, but the North-South divide remains.

The report explored the growth in recent years of these “new work” small businesses in cities. “New work” firms are defined as highly-skilled, innovative businesses spanning sectors such as the creative, professional and digital industries, with the likes of publishing, media services, software and computer consultancy, legal and accounting services all within the ranks.

Centre for Cities said these were growing much faster than companies in traditional industries. They also have a significant impact on the wider city economy by increasing demand and jobs in other sectors such as service-based businesses, retail and leisure.

Small firms were, according to the report, shifting away from the primary industries and towards knowledge-intensive services, with more than a third of SMEs operating in “new work “ industries today.

Centre for Cities CEO, Alexandra Jones, said: “In recent decades, small innovative firms, taking advantage of technological advances, have started to play an increasingly important role in driving jobs growth, wages and productivity in UK ciites.”

While the research found these “new work” businesses have a profound impact on city economies, there were disparities across the country, with “new work” small businesses much more highly concentrated in certain areas. Jones added that the government needed to “give cities greater control over skills, infrastructure and spending, to help them become more responsive to the needs of local businesses.”

The five cities with the highest average of concentration of “new work” small businesses were Aberdeen, Reading, Cambridge, London and Oxford. In these cities, more than one in two SMEs operated in one of the professional, digital or creative industries, while one in five did across cities including Doncaster, Grimsby and Burnley.

The capital accounted for a fifth of all small firms, but 29 per cent of those in “new work” sectors, while “new work” SMEs were underrepresented in some of the other big cities in the UK. Of the ten Core Cities, just four (Bristol, Cardiff, Leeds and Manchester) had a higher concentration of small firms in these sectors than the national average.

Bristol’s Mayor, George Ferguson, said small firms had been “fundamental to Bristol’s success and will continue to play a crucial role contributing to our vibrant economy and an increasingly prominent international profile”.

He added that a way to mitigate future challenges would be to “encourage, wherever possible, the sharing of information and ideas” – a spirit of collaboration “new work” businesses benefit from.

Employment within these industries has increased at over four times the average between 2009 and 2013, with output from the digital sector rising more than seven-fold (657 per cent) from 1990 to 2013, 286 per cent in the professional services and 196 per cent in the creative sector. They have also tended to create opportunities for businesses operating in other industries too – the report found cities that had a high proportion of SME employment in digital industries or professional services also saw an increase in employment overall.

The research though, warned against less stimulated areas seeking to replicate places like Cambridge’s Silicon Fen or London’s Tech City, as “successful clusters grow organically through the decisions of firms and individuals and the interactions between them”.

Cities should instead focus on the broader characteristics of these types of businesses – what influences their location decisions and business interactions, before responding accordingly, while adapting to the specific circumstances of their local economy.

The report noted that the geography was “self-reinforcing”, and that small businesses in these industries benefited from similar economic conditions and being in close proximity to firms in related industries.

It also advised creating more hospitable working environments for these “new work” businesses, with suitable premises for sole traders and expanding small firms. Policymakers should, Centre for Cities advised, respond to the needs of these businesses in the type of offices they plan for and provide. It noted that while many successful examples of these incubators and hubs were co-founded by private sector industry  leaders and entrepreneurs, local authorities can support them with funding or softer measures.

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ABOUT THE EXPERT

Rebecca is a reporter for Business Advice. Prior to this, she worked with a range of tech, advertising, media and digital clients at Propeller PR and did freelance work for The Telegraph.

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