Business Clusters Foreword and Report

Foreword for supporting London business clusters Stimulating private sector jobs growth has never been more important, given the estimated loss of half a million public sector jobs over the next four years. With reduced government funding to support businesses, government at all levels needs to be very clear about what works to stimulate business growth and innovation. London Councils commissioned Colin Buchanan and Bone Wells Urbecon to undertake a study on business clusters in London – to identify and map business clusters, to draw lessons from home and abroad about what does and does not work in developing them, and to make recommendations for London boroughs and their partners on how best to support them. The report demonstrates that place matters – that a critical mass in skills, services, knowledge and institutions can underpin economic competitiveness. It shows that business agglomerations exist across London and that London boroughs need to understand these clusters – the depth of the supply chain and linkages between firms – to effectively support these. Business support is likely to become more generic and institutional, and privately-funded support could have a greater role to play. Boroughs are well placed to co-ordinate this support to encourage local growth and innovation. The report also highlights how boroughs can use their planning and regulatory duties to support business clusters – creating the right conditions for business growth and innovation. It provides practical steps for boroughs to decide when and how they support business clusters in their area. It also highlights that business clusters spread beyond borough boundaries and boroughs need to work together, with the Mayor, with higher education and other specialist institutions and with the businesses themselves to help them flourish. It shows that London has some great assets that we collectively need to draw on to create more jobs and growth in all parts of London.

Cllr Chris Roberts Portfolio holder for economic development and infrastructure London Councils

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London Councils

Supporting London Business ClustersFinal Report

Supporting London Business Clusters Final Report

Project No: 18267-01-1 August 2010 20 Eastbourne Terrace, London, W2 6LG Telephone: 020 7053 1300 Fax: 020 7053 1301 Email : [email protected] Prepared by: Approved by:

____________________________________________ ____________________________________________Ryan Emmett / Martin Houghton John Siraut Status: Status Issue no: 0 Date: 07 December 2010

18267-reportv12.doc

(C) Copyright Colin Buchanan and Partners Limited. All rights reserved. This report has been prepared for the exclusive use of the commissioning party and unless otherwise agreed in writing by Colin Buchanan and Partners Limited, no other party may copy, reproduce, distribute, make use of, or rely on the contents of the report. No liability is accepted by Colin Buchanan and Partners Limited for any use of this report, other than for the purposes for which it was originally prepared and provided. Opinions and information provided in this report are on the basis of Colin Buchanan and Partners Limited using due skill, care and diligence in the preparation of the same and no explicit warranty is provided as to their accuracy. It should be noted and is expressly stated that no independent verification of any of the documents or information supplied to Colin Buchanan and Partners Limited has been made


Contents 1 Executive Summary 5 2 Introduction 9 3 Clusters: an overview 10 3.1 Introduction 10 3.2 The sources of agglomeration 10 4 The Central London Context 12 4.1 Clusters in Central London 12 4.2 Policy context 11 5 Clusters in Greater London 12 5.1 Introduction 12 5.2 Issues to be aware of in identifying clusters 12 5.3 Mapping 12 Clusters 13 6 Business support in Greater London 28 6.2 Conclusions & Recommendations from this Chapter 28 6.3 Rationale for Publicly Funded Business Support 29 6.4 Examples of Cluster Specific Support 30 6.5 Business Support in Greater London 30 6.6 LDA sector initiatives 33 6.7 Solutions for Business 34 7 Best practice approaches 38 Key Conclusions and Recommendations 38 Specific Recommendations for Boroughs and London Councils 39 7.2 Introduction 39 7.3 Featured case study – Uppsala BIO 40 7.4 City Growth Clusters in London 42 7.5 Work in Progress: London Sustainable Industries Park (SIP) 48 8 Clusters: Development Toolkit 50 8.2 Overview 50 8.3 Guide to Applying the Toolkit 50 8.4 Steps for the Cluster Toolkit 52 Table 8.1: Tasks in Detail 53 Appendix 1: The Clustering Process 8.5 The Clustering process 58 8.6 The policy rationale 60 Appendix 2: Overview of Business Support Appendix 3: Additional Best Practice Case Studies


Tables Table 5.1: Activities and Location of Selected Agglomerations in Greater London

14 Table 6.1: Business support hierarchy 31 Table 6.2: Solutions for Business products relevant to clusters 35 Table 7.1: SWOT Park Royal food manufacturing cluster 43 Table 8.1: Tasks in Detail 53 Figures Figure 3.1: Overview of the components of a Business Cluster 11 Figure 4.1: Key Concepts in Cluster Development 13 Figure 4.2: A Map of the Key Business Clusters in the Central Activities Zone

(CAZ) 14 Figure 6.1: Examples of Cluster Specific Support 30 Figure 6.2: Brief Cluster Case Study: Humberside Seafood 33 Figure 6.3: Brief Cluster Case Study: The case of Italian industrial districts36 Figure 6.4: Brief Cluster Case Study: Norwegian Centres of Expertise 37 7.4.21 Figure 7.1: The Anatomy of the MICE Cluster (next page) 46 Figure 8.1: The Anatomy of the Castellano Ceramics Cluster 59 Figure 8.2: Concepts within the Clustering Process 60 Figure 8.3: The Diamond Model of Industry Development 61

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1 Executive Summary

Why Promote Business Clusters? Business clusters have gained currency as an approach to regional economic development in the last 10-15 years. There have been numerous initiatives and case studies of cluster development around the world, building on the work of Professor Michael Porter and the experience of industrial districts in Europe and in the US, in the latter case Silicon Valley being the most notable.

Clustering can be a powerful process for economic development and building local economic resilience. The agglomeration of businesses in a particular location not only aids competition but can also produce external benefits that all businesses share in. These relate to the sharing of knowledge, specialised inputs and skilled labour. A location in the cluster can help firms to achieve innovation and develop value added in both their products and processes. Cluster dynamics typically involve interactions between businesses, supporting institutions and development agencies towards shared goals which can result in the development of new markets for products, inputs and services. This attracts more firms to the cluster and further strengthens the benefits of agglomeration.

In this report we have identified and mapped 12 concentrations of specific business activities in Greater London. This is not intended to be an exhaustive analysis of the fastest growing sectors or represent ideal business clusters. Often a more in-depth investigation is needed before it can be confirmed that the concentration of certain types businesses in a certain location produces value added activity.

Recommendations The value added from clustering to a business means that locating elsewhere would be inherently less productive. Clusters enable businesses to collaborate in ways that improve their products and meet their client’s needs through ways that would otherwise be cost-prohibitive if they were geographically dispersed. Below we provide specific recommendations for London Boroughs who may consider cluster development as a business growth strategy.

London Boroughs

1. As part of their remit to promote economic development within their boundaries boroughs will often begin cluster initiatives locally. However, functioning clusters will tend to go beyond the immediate area and local initiatives should ultimately work with neighbouring boroughs from an early stage. This is to understand important issues such as the depth of the business supply chain and the geographical extent of linkages between firms.

2. In most boroughs there are a number of agencies providing generic business support on behalf of or in addition to local authorities. Once a functioning cluster is identified, boroughs should engage with support agencies to examine the scope for providing more focused support to the cluster and reduce any duplication of generic services provided by other support providers. Greater collaboration between local authorities in deciding the scope of support services will help to reduce the number of brands presented to businesses, and enhance their ability to offer effective and tailored support to clusters.

3. Local authorities’ statutory functions of land use planning, trading standards and environmental services need to be aware of business clusters in the locality and ensure that their policies facilitate the development of a critical mass.

4. Cluster development projects need to be incremental. In some cases value added can result from firms simply engaging with each other and exchanging ideas. Initiatives such as sector-focused networking events and creating a directory of complementary buyers, suppliers and service providers can help overcome coordination problems and raise mutual awareness between firms.

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Boroughs are well placed to make these interventions and should consider this before investing resources in more sophisticated support.

5. The emergence of the localism agenda and move towards Local Enterprise Partnerships (LEPs) presents an ideal opportunity for local authorities to investigate business clusters. It is recommended that LEPs be underpinned by partnerships of local authorities covering a relevant functional economic area. The spatial extent of such areas can be defined by the flow of goods and services in the local economy - which would involve tasks such as the mapping of business linkages and supply chains. These have been identified in this report as necessary initial steps in cluster development.

6. around two-thirds of London boroughs view the promotion of innovation among existing firms and key sector support as a priority activity for LEPs. The process of identifying relevant supply chains and business linkages in the formation of a LEP provides the opportunity to bring complementary businesses and other relevant agency and institutional activities together from different boroughs. The local authorities should play a facilitating role in developing the intensity of relationships as outlined in figure 4 of this report (p.9).

London Councils/GLA & LDA

1. In many cases clusters operate at the regional (London-wide) level but encounter similar problems of a lack of coordination which can be addressed by the public sector. Where there is a good business case for greater collaboration, London Councils should work with GLA and LDA (while still in existence) towards reducing the barriers to support agencies and businesses working together. This could involve London-wide provision of specialised training courses or focused networking opportunities and should target areas where there are known clusters or concentrations of particular industries, such as those identified in this study.

2. The Mayor’s Economic Development Strategy acknowledges that more could be done to take advantage of university research for commercial uses. As in the Swedish case study cited in this report; effective coordination between universities, local councils, regional public agencies and business organisations can add value in developing non-core business activity from universities that may serve a wider business and economic development objective. London Councils, working with GLA and/or LDA should strengthen links between similar pan-London organisations such as London Higher and London Chambers of Commerce in increasing the role of higher education within the Boroughs’ economic development policies.

3. More specifically, London Councils can work with London Higher to identify areas of expertise within London universities and match this up with areas containing concentrations of relevant businesses. This information can then be communicated to businesses via the Boroughs, with London Councils co-ordinating activities where necessary. For example, special events can be presented to showcase research and collaboration between academe and business, and to recruit new partners to pool resources. This will help to kick-start the process of developing a critical mass of business and agency interaction within the sector concentrations.

Cluster and Business Support in London: the current picture Virtually all local authority funded business support in London is generic support rather than providing cluster or sector specific services. This includes services available through the national Solutions for Business framework.

London boroughs are involved in providing business support to varying degrees, with some providing only a statutory service and leaving responsibilities to sub-regional organisations and Business Link. Often support services are outsourced to local enterprise agencies who work across boroughs providing a wide-range of services.

Government efforts to simplify the provision of business support has streamlined the number of initiatives and programmes, but there remains a relatively complicated web of provision overlapping at

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the national, regional, sub-regional and local levels. There is a gap for targeted assistance aimed at businesses within clusters.

The provision of cluster specific support can be vital in embedding and attracting similar businesses to the locality (with the aim of achieving critical mass), but this does require an understanding of the needs of the cluster and its geographic coverage. Often local authorities lack the resources or the capability to provide tailored services, with measures largely based around organising general business networking events.

Cluster development initiatives which have been pursued in London consist of a mix of LDA-funded and central government-led initiatives such as the City Growth Strategy which targeted specific sectors at the borough level. Although the prevailing LDA/GLA approach is to promote all businesses in London, there are a number of priority sectors for which they have developed strategies or provided indirect support to.

In light of the 2010 Economic Development Strategy and era of budget constraints, the London-wide approach is set to move further towards providing generic business support. However, the new emphasis on localism has the potential to favour cluster initiatives as best practice methods require an understanding of the needs of local business and individual sectors. London boroughs, in understanding local conditions and having regular contact with businesses are well placed to take the lead in this.

Best Practice Approaches to Cluster Development The study analyses a number of examples and featured case studies of cluster development that are relevant to London. These identify the cross-cutting issues typically encountered when implementing cluster development policy; paying attention to the pre-conditions for growth, common pitfalls and areas of good practice. The following key conclusions were made:

Up-front investment: All cluster initiatives require some form of up-front investment. This is needed to map the cluster, identify the various players and understand their needs and motivations for involvement, as well as establish technical matters such as supply chains and technologies. Without this any projects will be working blind and are unlikely to succeed.

Small investments can also work. Low cost projects such as hosting focused networking events, business directories or publishing a map of film/TV businesses have all generated tangible results.

Take a cautious approach. Local cluster initiatives should be considered only where the conditions are appropriate, e.g. very high concentrations of businesses such as jewellery in Hatton Garden. As was the case with many of the City Growth projects, the local scale of the targeted clusters was much smaller than that originally proposed; meaning few of the cluster projects contained the depth or breadth of businesses necessary to generate self-sustaining activity. For London effective clusters are equally likely to operate at a regional as a sub-regional level.

Work with the grain of business: While nearly all cluster projects seek to encourage businesses to commit more effort to innovation, this cannot be forced. Firms need to accept the argument for innovation and collaboration with others before they will commit. Achieving this is most probably the major challenge facing any cluster initiative.

The presence of a supply chain is important: Innovation tends to be driven by firms’ attempts to meet the needs of their customers by improving quality and/or developing niche products. Therefore, having at least two levels of a supply chain within the area can assist businesses in engaging with customers and encourage them to seek new ways of meeting their needs.

Clusters are not suitable for everywhere. There are limitations to what cluster initiatives can achieve and where they are appropriate. Experience of City Growth demonstrated that by treating the

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cluster approach as a panacea, it was applied under inappropriate circumstances and failed to achieve the desired results.

Use planning to assist agglomeration. Local authorities, as planning and regulatory bodies, have a key role to play. Understanding land use and premises requirements, as well as the impact of regulations, can make all the difference in achieving a critical mass of complementary businesses.

Understand the key market failure that should inform any intervention from the outset; which can be characterised as “externalities and co-ordination failures”. Essentially there are too many obstacles and uncertainties facing individual firms, especially small businesses, for them to develop the trust and co-ordination with other firms by acting of their own accord.

Maintain a clear brief for intervention. Addressing market failures is a common feature of publicly funded cluster projects. However, a large amount of resources are dedicated to delivering a range of other (often generic) services including business support. A more focused approach based on the steps set out in the development toolkit in Chapter 7 could prove more cost effective.

Explore university linkages. Universities, as providers of learning and research, generally tend not to see themselves as part of the business infrastructure. This contrasts distinctly with the Norwegian and Swedish experiences highlighted in this study, where there is a strong focus on supporting local businesses.

CLUSTER DEVELOPMENT TOOLKIT

Chapter 7 of this report (from p.51) contains a practical guide to cluster development. It is not intended to be a comprehensive manual but instead proposes a set of coherent and incremental steps towards development, based on first hand experience and the analysis contained in this report.

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2 Introduction

2.1.1 Colin Buchanan in association with Bone Wells Urbecon have been commissioned by London Councils to undertake a review into business clusters in London, to assist with the development of local authority policies to support businesses.

2.1.2 There has been a considerable amount of restructuring in recent years with regard to publicly funded business support, most notably through the Business Support Simplification programme led by the Department of Business Innovation and Skills. The election of the coalition government and era of spending cuts means there is likely to be further restructuring of support services and local economic development powers in general.

2.1.3 London has also seen a number of cluster-led initiatives assisted by the work of Michael Porter, the leading exponent of the cluster model. This document provides an overview of the case for business clustering with a focus on Greater London and an up-to-date picture of business support provision and cluster initiatives in the capital. The report seeks to set out a best practice approach to cluster development for London Boroughs, drawing on the lessons learned from featured case studies.

2.1.4 The report is structured as follows:

Chapter 2: provides an overview of the case for business clusters and the main concepts underpinning the clustering process.

Chapter 3: provides an overview of the role of business clusters in Central London and how various business activities hang together to drive competitive advantage and innovation.

Chapter 4: identifies and maps clusters and agglomerations of business activities in Greater London and outlines the steps and pitfalls in involved in identifying clusters.

Chapter 5: sets out a review of business support in London and an audit of the provision and scale of publicly funded business support and sector specific initiatives in the surveyed London boroughs.

Chapter 6: reviews case studies of cluster and sector development programmes focusing on a range of projects and the lessons learned in each case. The chapter is rounded off with best practice recommendations.

Chapter 7: drawing on the findings of the previous chapters we set out a toolkit for cluster development aimed at providing practical steps and guidance to boroughs in understanding, identifying and nurturing cluster activity at the local level.

2.1.5 The content of this report is based on a combination of existing research, discussions with borough representatives and key individuals, case study material and first hand experience in setting up cluster initiatives. While it sets out the case for clusters it is not intended to promote cluster strategies as the ideal model for local economic development. Instead it sets out a pragmatic analysis of the conditions for success and the pitfalls that are commonly encountered in encouraging and sustaining such initiatives.

2.1.6 Moreover, while cluster development may not be appropriate for every London borough it is hoped that this document will assist local authorities in strengthening their role in local economic development and in forming Local Enterprise Partnerships or similar arrangements with neighbouring boroughs. This would include tasks such as mapping and auditing complementary business activities, supply chains and understanding the competencies and competitive strengths of local businesses.

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3 Clusters: an overview

3.1 Introduction 3.1.1 Business clusters have gained currency as an approach to regional economic

development in the last 10-15 years. There have been numerous initiatives and case studies of cluster development around the world, building on the work of Professor Michael Porter and the experience of industrial districts in Europe and in the US, in the latter case Silicon Valley being the most notable.

3.1.2 Business clustering is viewed as a path to improved regional competitiveness and productivity, but the focus on clusters and specialisation is not a new concept. The industrial district was first observed in the textile industry in 19th Century Lancashire by the economist Alfred Marshall, who gave rise to the understanding of why firms agglomerate in a specific location.

3.1.3 The recent renewed interest in clusters has led to many varied definitions of a cluster, and in 1990 Porter identified them as:

“Geographical concentrations of interconnected companies, specialised suppliers, service providers, firms in related industries and associated institutions (eg universities, standards institutions, trade associations) in a particular field that compete but also cooperate”.

3.1.4 The key theoretical argument behind clustering is that a business gains from being in close proximity to other businesses that undertake similar activities or provide inputs and support to the core business. This leads to a process of agglomeration and economies of scale that all businesses benefit from.

3.2 The sources of agglomeration 3.2.1 Alfred Marshall identified three economies of scale that are the source of industry

localisation:

1. access to a pooled market for labour, enabling the costs of searching and training skilled and specialised workers to be lowered. This is especially important for small firms operating in uncertain market conditions and who are constrained in their ability to invest in factor inputs that rapidly become redundant.

2. the cost of specialised machinery, technical services and other inputs can be

spread over a large number of firms that are spatially concentrated. This acts as a draw on additional firms, and in turn supplier and other subsidiary businesses, encouraging additional cost competition.

3. there is the ease of information and knowledge transfer facilitated by close

proximity and regular interaction, which creates a learning environment and an impetus for continuous improvement and innovation.

3.2.2 Localisation economies are different from city-wide agglomeration economies in that they

are much more place and industry specific. They are distinct from the agglomeration effects that accrue to all firms located in cities and can be accessed readily such as transport networks, skilled labour and a wide range of support services.

3.2.3 In reality there is an element of localisation and urbanisation economies in urban areas. The classic example in London is the financial institutions densely clustered in the City of

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London’s Square Mile. A location in the financial district maximises a firm’s access to the right kind of personnel and specialist services, such as IT support, which are critical to the everyday activities of finance. They also benefit from the excellent public transport links and proximity of a variety of other services based in and around the City, such as marketing support and facilities management.

3.2.4 Perhaps most importantly, clustering enables the flow of information between firms, service providers and institutions both formally at conferences, training courses and seminars; as well as informally in the pubs, bars and cafes around the City. The access to information enabled by working in close proximity helps individuals and businesses generally to keep up to date on industry trends, market opportunities and what competitors are up to. This can be a highly localised phenomenon depending on the knowledge intensity of the business, but undoubtedly is a critical factor determining the level of innovation and the development of the cluster.

Figure 3.1: Overview of the components of a Business Cluster

Source: Glen, Brunel University 2006

3.2.5 Appendix 1 contains more detailed analysis of the drivers of business clusters and their

role in promoting competitive advantage. The remaining chapters in this report are structured as follows:

Clusters in the Central London Context Identifying and Mapping Clusters in Greater London The Structure and Scope of Business Support Services in Greater London Case Studies and Best Practice in Cluster Development Cluster Development Toolkit

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4 The Central London Context

Key points from this chapter: Central London contains many of the UK’s most competitive and fastest

growing business agglomerations Historical factors have played a role in this, but most importantly: Critical mass in skills, services, knowledge and institutions, as well as

competition underpin economic competitiveness Scale and scope of activity promotes spin-off ventures and innovation Policy is largely to facilitate critical mass, i.e. in planning and transport

infrastructure, rather than to target growth of particular sectors

4.1 Clusters in Central London 4.1.1 Central London is known for a number of high profile and economically significant

business clusters which underpin the capital’s economic geography. They are also considerably varied in their nature – some of which are due to historical factors and others are more recent developments. Classic examples (beyond the financial district) are the jewellery quarter in Hatton Garden, which still retains a local critical mass of jewellery makers, designers, wholesalers and retailers; and nearby the legal activities around the Inns of Court in Chancery Lane and Holborn. Just to the north in Clerkenwell is the long-standing print and publishing cluster on the fringes of the City.

4.1.2 The cultural and entertainment activities are famously centred around the West End, and related to these is the concentration of media and creative businesses based in Soho. Further west towards Mayfair are property and management consulting businesses and more recently hedge funds which have grown rapidly in recent years and opted for prestigious addresses in West London rather than a Square Mile location. Central government functions are located around Whitehall and there is of course the main shopping districts of the West End and more specialised retail further west, such as antique dealers in Notting Hill.

4.1.3 Figure 4.2 provides an overview of the main areas within the Central Activities Zone (CAZ) where various clusters are located.

4.1.4 The nature of linkages between firms is important in distinguishing clusters from concentrations. Central London, as a world city, means there is a sheer critical mass of high quality labour, services and infrastructure which promotes specialisation in the same way as the ceramics cluster example highlighted in the appendix. The difference is that all firms benefit from economies of scale across range of supporting activities, assets and facilities rather than one particular sector. In this context it is the urbanisation economies that are the strongest drivers of the economic benefits of clustering, rather than the sector-specific localisation benefits mentioned in Chapter 2.

Proximity, scale and scope 4.1.5 Of course there are still localised clusters within the central area - banks in the Square

Mile benefit from ready access to complementary activities in fund management, accountancy and tax consultancy. But they can, for example, also draw on specialised marketing and PR services which will also serve law firms and management consultants. It is this inter-dependency between the different clusters which makes the economy of the central area quite different from the rest of London.

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One example is the mergers and acquisition business in London. This is an international business requiring a range of specialised and highly skilled services involving investment banking, corporate financing, brokering and law. The ability to get key individuals in the same room and on a regular basis is critical to the successful completion of the work – something that would be less achievable if people were located in different cities or even countries. The importance of clustering is underpinned by the need to develop strong working relationships demanding trust and regular face to face contact between professionals.

4.1.6 Through a combination of critical mass, competition and specialisation, therefore, firms are able to ‘pick and mix’ inputs enabling them to tailor products and offer a wider range of services both nationally and abroad. This is also critical for innovation.

Innovation and Networking 4.1.7 The value added potential of business clustering relies heavily on the strength of

relationships between firms. Developing relationships does not necessarily occur spontaneously and often third party agencies play an important role in facilitating interactions to a level where entrepreneurs clearly recognise that there can be mutual benefits of cooperation and collaboration.

4.1.8 Figure 4.1 outlines the important theoretical concepts underpinning the stages of cluster development. This is discussed further in appendix 1.

Figure 4.1: Key Concepts in Cluster Development

4.1.9 Porter emphasised the importance of having sophisticated and market-aware clients who

push suppliers to upgrade their service, who in turn can draw on a range of highly skilled and specialised inputs to meet that need. The interdependency between different clusters in central London supports these conditions through the sharing of ideas and knowledge between sectors, leading to product development and diversification; as recently highlighted by a GLA Economics report (2008):

“The critical mass (or agglomeration) of specialisations, including skills, knowledge, inputs and markets in the central area encourages growth and innovation. A location within the CBD is often a critical competitive advantage for a business. A ‘cross pollination’ of ideas occurs between different but interrelated business activities which enables further diversification and strengthening of the economic base. Nowhere has this been demonstrated more than in the rapid growth of London’s creative industries sector”.

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Figure 4.2: A Map of the Key Business Clusters in the Central Activities Zone (CAZ) by Super Output Area

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4.1.10 The ‘cross-pollination’ of ideas within clusters often occurs tacitly - either through strong working relationships, movement of employees between competing firms or chance meetings. The pubs, restaurants and bars around the centre even act as a conduit for the sharing of information – and all of this is intensified by spatial proximity.

The role of institutions 4.1.11 The networking function equally operates within a more formal infrastructure. Many

successful clusters involve supporting institutions who actively diffuse new ideas, technology and best practice which promotes a culture of innovation and collaboration between firms. In Central London there is a plethora of nationwide professional and technical bodies serving particular trades, industries and occupational areas. These support skills development, improving standards and knowledge diffusion through training events, conferences and seminars – many of which are in highly specialised activities. Well-known examples include the Chartered Insurance Institute, Chartered Financial Analyst Institute and the London College of Fashion.

4.1.12 The role of such institutions is often concerned principally with bringing professionals together within and across sectors to share knowledge about developments in products, markets and professional standards. This in itself aides competitor visibility and promotes a culture of innovation. In other cases, such as in manufacturing regions, there are more dedicated cluster organisations providing more technical and bespoke services to the cluster members to embed a culture of improvement and innovation. A good UK example is the Humberside Seafood Institute highlighted in chapter 6.

4.1.13 When viewed as a whole Central London can be seen as having a number of interlocking components which, through agglomeration, assist a virtuous cycle of innovation and value added activity. Although it could be argued that it is defined by a number of functions largely dependent on a global financial centre, the interdependence between them results in a highly complex and diversified economy that supports business growth and greater resilience to fluctuations in the wider economy.

4.2 Policy context 4.2.1 London has built a reputation as a world service centre not as a result of a specific policy

or strategy. Indeed, the approach largely reflects a lack of intervention – such as towards immigration and financial regulation which have attracted skilled workers and leading institutions, and which often reflects the policy approach nationally. London has achieved the status of a regional innovation system and international reputation largely by attaining critical mass rather than devising policies specific to any one sector.

4.2.2 Instead, this has occurred through getting fundamentals right such as planning policy (allowing key sectors to grow) and transport (improving accessibility to skills) as well as creating a successful brand image (which can be attributed to the work of a wide variety of public and private sector-led organisations). In short, success has been about getting the general business environment right, and within this there are lessons for those considering cluster and sector development.

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5 Clusters in Greater London

In identifying clusters: It is important to distinguish simple agglomerations of businesses from

concentrations which consist of genuine linkages between firms/activities The number and concentration of businesses is important as well as the level

of employment We have mapped 12 clusters across the 32 London boroughs outside of

Central London containing a mix of manufacturing and service activities

5.1 Introduction 5.1.1 The previous chapter provided an overview of the key business clusters in Central

London and why having a central location is so important for certain types of business. This also highlighted the interdependencies that exist between different business activities and the positive environment they can produce for innovation between different sectors. The following chapter now aims to identify concentrations of business activities outside of the central area which similarly have an important function in the economy of Outer and Inner London.

5.1.2 In identifying clusters we have drawn on the approach used in the Department of Business and Innovation (formerly the DTI) in their original cluster mapping project. This considers the employment location quotient (LQ) which is commonly used to analyse the level of specialisation in a particular sector within a region or district.

5.1.3 The LQ is measured by the proportion of employment in a given sector at the district (or defined area) level divided by its corresponding share at the regional or national level. Hence an LQ of one and above indicates a degree of specialisation.

5.1.4 The geographic scale of the denominator depends on the spatial coverage of the market – for example steel-makers in Sheffield export to other UK regions and abroad, whereas food producers in London have a more regional market but also export to other parts of the UK. As our focus is businesses in Greater London we are assuming their markets are, on the whole, local and regionally oriented, so have used a London-wide employment for each sector as the LQ denominator.

5.1.5 Below summarises the criteria used to identify clusters/concentrations of interest which is based on the earlier BIS cluster mapping work:

Employment and Workplace LQs of 1.25 or above 0.2% or more of total firms in the borough the actual number of firms in the relevant output area

5.2 Issues to be aware of in identifying clusters 5.2.1 Through a combination of the data analysis, desktop searches and interviews with

borough council economic development officials we have distilled the four digit classifications into 12 core business activities represented across Greater London (Westminster and City of London excluded).

5.2.2 An analysis of the data shows certain activities emerging in many boroughs particularly food manufacturing and processing, construction, health services and, to a lesser extent, transport and logistics. This pattern partly reflects that a number of activities are local

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services serving the borough and sometimes neighbouring boroughs and seldom have linkages or markets beyond this area.

5.2.3 On the other hand, ‘traded’ clusters serve markets over a wider area and often have suppliers and other support services based close to major purchasers or producers. Therefore, correctly identifying clusters should take into account the number of firms relative to the district/borough because sites employing many people in a single activity (e.g. food processing or a hospital) may lead to a high LQ but support few related and complementary activities locally. It is therefore less likely to have features that represent a genuine business cluster.

5.2.4 It can also be seen from the mapping work that LQs and concentrations of manufacturing and other space-dependent businesses are much higher in outer boroughs, reflecting better access to suitable premises and the strategic road network. The movement of major manufacturing out of London generally has been a long-term process and many of the older factory premises in inner and central areas have been converted to use by service industries. Indeed, that many of the information, management and technical services become more common towards the central area highlights a well established trend of manufacturing moving out and new types of service industries moving inward.

5.3 Mapping 12 Clusters 5.3.1 As highlighted earlier it should be noted that thematic mapping alone will not distinguish

between clusters and more simple agglomerations of activity. The criteria underpinning the cluster mapping are based on areas with the highest employment and workplace locations quotients as well as the absolute number of firms in the output area.

5.3.2 The selected sectors encompass a wide variety of activities within the supply chain for that sector. Hence the darker the area, the more likely they will represent a greater element of the supply chain and in turn retain cluster-like characteristics and be location-sensitive. However, it should be noted that this still does not guarantee there will actually be linkages between them.

5.3.3 The following clusters have been identified. A more detailed breakdown is provided in figure 4.1.

Food Manufacturing, Processing, Distribution and Related Textile and Apparel Supply Chain Business Information, Management Services and Support Auxiliary Services to International Finance Information and Communications Technology (ICT) Architecture, Engineering and Technical Services Electronics, Electrical Equipment Manufacturing and Related Health and Medical Research Media Services and Creative Hospitality and Events Management Transport, Logistics and Related Services Machinery/Heavy Equipment Manufacturing and Related

5.3.4 The above are intended to reflect activities which individually make-up a significant level

of London’s total employment and business base and are also felt to be important components of the regional economic geography. The remainder of this chapter accompanies the maps with a table outlining each cluster’s constituent activities and the borough location of the largest agglomerations shown in the maps.

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Table 5.1: Activities and Location of Selected Agglomerations in Greater London

Cluster Activities Main Agglomerations Food Supply Chain Food Manufacturing, processing

distribution and relatedNorth Lambeth, Wandsworth (New

Covent Garden), north Lewisham/Greenwich, East Ealing (Park

Royal), Waltham Forest (Spitalfields Market), Kingston (town centre)

Clothing Supply chain

Preparation, finishing, manufacture of textiles and apparel, footwear, wholesale

and specialised retail,

Kensington & Chelsea, Tower Hamlets (City Fringe), Havering, Haringey, East

Ealing, Kingston UTElectrical/Electronics supply chain

Electrical components services, manufacture and support including

specialised retail/wholesale

North East Ealing (Park Royal), South Camden, City Fringe Hackney, Tower

Hamlets (Isle of Dogs & Lower Lea)Media and Creative Services

Radio & TV broadcasting, sound recording, publishing, computer games & web portals,

advertising, media representation, performance

Hammersmith & Fulham, Kensington & Chelsea, Camden, Islington, North East Wandsworth, City Fringe Hackney, East

Hounslow, West Haringey

Auxiliary Services to Finance

Accounting/auditing, life/non-life insurance, financial services admin. Data processing,

call centresBusiness Information, management and support services

market research, PR and communications, business and other management

consulatancy, data processing, combined office support & admin.

North Richmond, East Hounslow, City Fringe Islington, North Southwark,

Tower Hamlets (City Fringe & Isle of Dogs), City Fringe Southwark, Merton

(Wimbledon)

Architecture & Engineering services

achitecture & related, engineering & related technical consultancy, scientific and

technical activities, specialised design

Richmond UT, East Hounslow, Hammersmith & Fulham (south),

Wandsworth, Harrow, Merton, Tower Hamlets (City Fringe & Isle of Dogs),

City Fringe Islington

Hospitality, Events and business tourism

Convention & trade show organisers, event catering, media representation, hotels and

similar, events facilities, reservation services and related, renting and leasing

services, business and employer organisations

North Lambeth, South Brent, City Fringe Camden, Kensington and Chelsea

Health and Medical Research

Hospitals, specialist medical activities, research & development in biotech,

manufacture of medical instruments, pharmaceutical manufacturing, technical

testing & analysis

North Hillingdon, Camden, Enfield, Barnet

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Cluster Activities Main Agglomerations Information Communications Technology

repair of ICT equipment, computer facilities management, renting and leasing of ICT equipment and other ICT services; data

hosting services, web portals & information service activities, computer programming &

consultancy, wholesale of computers, software & related

City Fringe Hackney, North Lambeth/Southwark, Tower Hamlets

(City Fringe & Isle of Dogs), South Kingston UT, Hillingdon, Barnet

Machinery & Equipment Manufacturing, Support

manufacture of pumps, compressors, lifting equipment, turbines, valves, generators, office machinery & equipment, machine

tools, civil engineering equipment. Machinery installation, servicing & repair.

Wholesale of specialist machinery & equipment

Hillingdon, Ealing Park Royal, City Fringe Islington Enfield (Upper Lea

Valley), Barking & Dagenham, North East Bexley, South Bromley

Transport & Logistics

Freight transport, warehousing & storage, passenger air transport, servicing to

land/air transportation, repair and maintenance of aircraft, transport

equipment, postal & courier activities

South Hillingdon, Tower Hamlets (North East), West Hounslow, Ealing Park

Royal, South Havering, North Bexley, North Greenwich

Main agglomerations - no. of businessesFood Manufacturing, Processing, Distribution and Related141 to 197

80 to 140

60 to 79

45 to 59

16

Main agglomerations - no. of businessesTextile and Apparel Supply Chain121 to 174

81 to 120

56 to 80

45 to 55

17

Main agglomerations - no. of businessesBusiness Information, Management Services and Support250 to 554

186 to 249

136 to 185

116 to 135

100 to 115

18

Main agglomerations - no. of businessesAuxiliary Services to Finance62 to 119

31 to 61

16 to 30

10 to 15

19

Main agglomerations - no. of businessesInformation and Communications Technology (ICT)151 to 274

101 to 150

66 to 100

50 to 65

20

Main agglomerations - no. of businessesArchitecture, Engineering & Technical Services201 to 554

101 to 201

71 to 101

40 to 71

21

Main agglomerations - no. of businessesElectrical Manufacturing and Services91 to 250

51 to 90

35 to 50

22

Main agglomerations - no. of businessesHealth and Medical Research

26 to 48

16 to 25

10 to 15

23

Main agglomerations - no. of businessesMedia and Creative Services110 to 2,300

100 to 109

90 to 99

70 to 89

30 to 69

24

Main agglomerations - no. of businessesHospitality and Events Management/Business Tourism50 to 156 41 to 50 25 to 41

25

Main agglomerations - no. of businessesTransport, Logistics and Related Services105 to 308

71 to 105

51 to 71

40 to 51

26

Main agglomerations - no. of businessesMachinery/Heavy Equipment Manufacturing Services and Related21 to 40 10 to 21

27

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6 Business support in Greater London

6.1.1 This chapter provides details of the business support regime as it operates in London covering the borough picture, national programmes, LDA and private sector activities. The chapter also contains brief overview of successful case studies. It begins with the rationale for publicly funded business support and an example of the types of support offered to clusters.

6.2 Conclusions & Recommendations from this Chapter 1. Many London boroughs provide business support directly or indirectly through

enterprise agencies or cross borough/sub-regional organisations. This is in addition to programmes such as Solutions for Business and Business Link.

2. Government efforts to simplify the supply of business support through the Solutions for Business programme have not necessarily achieved this. It is still clear that there is much variability and not all 30 of the services are available in the capital. Furthermore, boroughs report that Business Link’s profile is not consistent across London.

3. Practically all the publicly funded support in the Boroughs is generic and not cluster specific. Boroughs pursuing cluster development have an opportunity to co-ordinate streams of support between different delivery agencies to achieve more targeted assistance.

4. Tailored services are aimed at developing critical mass and collaboration between businesses, institutions and public agencies. These could involve providing specialist training and advice, vital facilities and services, publication of directories and industry trends, marketing and networking events focused heavily on clusters.

5. Such activities could be undertaken by a mix of public, institutional or private sector organisations. Local authorities are well placed to take the initiative and encourage the relevant partners to pool resources.

6. Local authorities should, nevertheless, take a cautious approach to cluster development before committing resources to tailored support: identify and map the cluster and understand the depth of the supply chain.

7. Clusters appear to demand a dynamic relationship between local and regional geographies. While the needs of individual firms are best identified locally, their linkages will go beyond the borough and possibly to a regional level. A mechanism is needed that incorporates these two perspectives.

8. Boroughs have a key role to play in business support through their duties as planning and regulatory bodies. These should be mindful of the presence of business clusters and should accommodate and facilitate their development e.g. through the land-use classification of premises.

9. ERDF funding provides the opportunity to design and deliver cluster development projects. However, there are concerns around the administrative burdens associated with this form of funding and businesses’ reluctance to get involved with any activities that involve red tape.

10. We were unable to find examples of where the full range of business support offerings, e.g. private consultancies, chambers, the boroughs, academia and trade associations were truly ‘joined-up’. As in point (3) there is an opportunity for local authorities to take the lead in bringing together the various providers.

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6.3 Rationale for Publicly Funded Business Support 6.3.1 The government has stated that the rationale for publicly funded business support is to

“help address market failures or equity gaps, so allowing everyone in society to unlock their talents and realise their full potential1”. This support tends to be generic and not aimed specifically at firms within business clusters.

6.3.2 Over the last 20 years a major industry has developed around the provision of assistance to business. This includes both traditional management consultancy and more recently, publicly funded business support. While the former is almost exclusively delivered by private firms, the latter involves a host of providers including government agencies, local authorities, public/private partnerships, and not for profit organisations as well as private businesses.

6.3.3 By 2007, the complexities of business, regional differences and multiple sources of funding had led to a plethora of publicly funded initiatives and support packages. While this may have offered some degree of customisation to local needs, it was also seen as wasteful and confusing to the client. In 2008, the Department for Business, Innovation and Skills (BIS, though BERR at the time2) concluded that simplification and consistency were required. This resulted in the Business Support Simplification Programme and the development of a package of 30 support products known as “Solutions for Business”. It was intended that “by March 2010 Solutions for Business should be the only government help businesses will see”3. (See the appendices for a full list of the 30 products currently available.)

6.3.4 Furthermore, Business Link is now intended to provide the portal through which firms access business support. Typically, enquirers are led through an information, diagnostic and brokerage process (which is itself one of the Solutions for Business products) and signposted to appropriate assistance, e.g. one of the other Solutions for Business products.

6.3.5 However, other mechanisms still exist to allow public funds to be used to help businesses. These include direct delivery by local authorities, grants/service contracts to other organisations, ERDF4 (European Regional Development Fund) and other government agencies, e.g. Transport for London. In a number of cases, there may be a requirement for activities to be aligned to the Solutions for Business product categories. This may not always be apparent to clients as many of the ERDF projects are marketed at local businesses and by-pass the Business Link portal.

6.3.6 It should be noted that the key aim of this drive for simplification is to assist businesses access support more easily, i.e. aimed at the demand side. The supply side appears to have retained a significant degree of complexity, though cut backs in funding have also led to a reduction in duplication.

6.3.7 Finally, it should be noted that the boroughs have a key impact on the business environment through their role as planning and regulatory authorities. How they go about discharging their statutory duties and the interest they take in their local economies can have a major impact on how attractive a location may be as a place to do business.

1 BERR, 2008, ‘Simple Support, Better Business: business support in 2010’ 2 Department for Business, Enterprise and Regulatory Reform. 3 BIS website 4 European Regional Development Fund is intended to part fund business support initiatives. The balance of funding tends to come from public sector sources.

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6.4 Examples of Cluster Specific Support 6.4.1 Cluster support is about developing a specific infrastructure to attract specific types of

business and build critical mass. Critical mass promotes economies of scale meaning the costs of support can be spread across a high number of firms. The support infrastructure is aimed at increasing firms’ ability to upgrade products and processes and promote specialisation through the supply chain. This in itself creates new streams of demand for specialised inputs and services - attracting more firms to the cluster who can offer niche products and services at a lower cost. Successful clusters are able to achieve a self-sustaining process of innovation and growth and the support infrastructure (which is often provided by a mix of public, quasi-public, institutional and private sector bodies) underpins this. Figure 6.1 provides examples of cluster specific support.

Figure 6.1: Examples of Cluster Specific Support

Bespoke training courses and mentoring for start-ups Technical advice, support services and expert research Provision of high cost facilities and equipment often out of reach to SMEs

including product development, technical and testing facilities Trade fairs and exhibitions dedicated to marketing the cluster’s offer Dissemination of business directories, industry updates and market information Focused networking events Provision of incubator and move-on premises Dedicated cluster champions

6.5 Business Support in Greater London

GLA Approach 6.5.2 The Mayor’s Economic Development Strategy5 (EDS) supports publicly-funded business

support programmes where it is shown to be cost effective and does not duplicate services that can be provided efficiently by the private sector. This largely echoes recent government efforts to streamline and simplify business support across the UK.

6.5.3 With regard to innovation, it indicates that collaborative activity between institutions (e.g. universities, research bodies, NHS etc) should be essentially private sector-led utilising the best professional expertise. The role of the public sector should be to facilitate collaboration rather than lead.

6.5.4 The EDS does acknowledge that more could be done to exploit higher-education-business linkages for the commercial development of ideas and that the public sector has a role to play in making things happen. Significant public resources should only be directed to such efforts where absolutely necessary (i.e. where the market fails to provide) and where a return to the taxpayer can be demonstrated.

6.5.5 This does, however, represent a different emphasis from the earlier EDS which tended towards a stronger role for business support and priority sectors (the latter of which are outlined below). With the change of government and an incoming era of tighter public budgets the market failure approach is likely to become more dominant.

5 See Chapter 2 of Mayor’s Economic Development Strategy 2010

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6.5.6 Furthermore, the new government of 2010 stated its intention to promote localism with the proposed abolition RDAs including the LDA and possibly replaced with Local Enterprise Partnerships (LEPs). This will probably mark a move away from London-wide initiatives towards business and sector development, although its uncertain whether LDA funded programmes will be devolved to the boroughs or any LEPs that are created.

Overview of Current Provision 6.5.7 Despite attempts to simplify the business support offer via the Solutions for Business

approach, a wide variety of assistance is still available within London boroughs. The overall picture for business support remains therefore confusing.

6.5.8 In addition to Solutions for Business, there are ERDF funded projects, services offered by Chambers of Commerce, enterprise development agencies, sub-regional partnerships and local authorities. Broadly, these are set out below.

Table 6.1: Business support hierarchy

Geographical Level

Business Support Services Provided

National Full programme of 30 Solutions for Business. Regional Limited selection of Solutions for Business that are funded by

the LDA plus ERDF and other pan-London programmes, e.g. Gateway Asia, BAA Heathrow Meet the Buyers events.

Sub-regional Mix of ERDF and other services funded by LDA and sub-regional partnerships targeted at sub-regions, e.g. events run by West London Business, South London Business property database.

Local Similar mix to that provided at the sub-regional level with the addition of activities delivered by or funded by the London Boroughs. For example, ERDF projects that are targeted at specific communities, locations or sectors; e.g. Finance for Change programme part-funded by ERDF targets SMEs in Croydon; Ealing Council Environmental Health Officers working with food businesses in the borough and Barking and Dagenham’s (with LDA) Dagenham Dock Sustainable Industries Park.

6.5.9 In London there are two main streams of publicly funded business support:

1. Local or sub-regional activities that are led by the Boroughs, local agencies or sub-regional organisations.

2. Pan London initiatives, such as Solutions for Business – largely accessed via Business Link London

6.5.10 Private sector offerings follow the national pattern, viz:

1. Management and specialist consultancies 2. Chambers of Commerce 3. Trade Associations 4. Professional bodies

Local and sub-regional activities 6.5.11 These fall into two distinct categories:

1. Activities that are undertaken by local authorities and other statutory bodies as part of their normal duties using in-house staff.

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2. Project based activities or the work of organisations funded to undertake this type of activity, e.g. the sub-regional bodies, e.g. North London Business or Park Royal Partnership.

On going in-house activities 6.5.12 Local authorities are under no obligation to undertake business support activities and

many choose not to do so. However, all London boroughs are required to act as planning authorities and to undertake certain regulatory duties that have an impact on businesses, e.g. environmental health. Furthermore, in many areas local authorities are the largest employer and control major budgets, so they have an important role to play as buyers of goods and services.

6.5.13 Spatial planning affects all businesses and along with the availability of suitable premises is regularly cited as a key constraint on businesses’ ability to grow. Thus the nature of the planning regime and provision for employment land is a key factor in determining how attractive a location is as a place to do business. For industries with specific premises/land requirements this can be of particular importance, e.g. the film/TV facilities cluster in Park Royal is located there because of the availability of large sheds and easy access to both Soho and the large studios at Shepperton and Pinewood. Premises for start-ups and Small and Medium Enterprises (SMEs) are a major challenge within high cost inner city areas, and local authorities such as Ealing, Enfield, Hackney and Camden have all undertaken initiatives to make subsidised premises available. Camden’s use of a Section 106 agreement to provide work space for designer/makers of jewellery is of particular note.

6.5.14 Several local authorities host or sponsor events aimed at assisting SMEs gain access to public sector procurement opportunities. These ‘meet the buyer’ and related events enable small firms to understand better what councils purchase as well as the procurement process. Examples include Lambeth, Haringey, Sutton, North London Business and BAA – Heathrow (Hillingdon and Hounslow). In most cases these are generic and not cluster specific, though Construction Marketplaces are planned by South London Business and Camden Council hosted a similar event in 2009 around work taking place at Kings Cross.

Project based activities 6.5.15 Local and sub-regional business support is largely provided by a mix of sub-regional

organisations, enterprise agencies and sector-based bodies. Most, if not all, of these organisations are funded to deliver projects and do not receive core funding. Though the City Fringe Partnership, which closed in 2009, did receive funding for its organisational costs. GLE (was Greater London Enterprise), a major player in this arena, is owned by all 33 London boroughs.

6.5.16 The key sources of funding are:

1. LDA/GLA, e.g. TfL, which provides a mix of grants and service contracts to deliver specific activities.

2. Other government departments 3. ERDF 4. Local authorities, core funds or from central government, e.g. Working

Neighbourhoods Fund, area based grant. 6.5.17 While it is not feasible to provide a definitive list of all the local and sub-regional

organisations and their activities, a brief overview of services and by sub-region and selected boroughs can be found in the appendix.

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Figure 6.2: Brief Cluster Case Study: Humberside Seafood

Despite the rapid and near total collapse of the fishing industry on England’s east coast, Grimsby now processes some 70-80% of all the seafood consumed in the UK. In the early 1980s this once thriving fishing town experienced unemployment of 20% and faced a trajectory of terminal decline. Since then efforts have focused on turning it into a global seafood processing, research, training and innovation hub. The area is now Europe’s leading centre for processing salmon – much of it from Norway. Companies located in the area include: Findus Group’s The Seafood Company, Icelandic Group’s Seachill and Brake’s-owned M&J Seafoods, Young’s, Coldwater, Sealord, and Five Star Fish (which is near completing an €8 million investment project). Key features include a focus on innovation, a well integrated supply chain, access to markets, a well trained labour pool and dynamic leadership that has galvanised rivals to collaborate wherever possible. The cluster won the inaugural Cluster Mark competition run by BIS. Much of the success is owed to the Humber Seafood Institute (HSI) –a public-private partnership set up by the Fish Merchants Association and Grimsby Institute of Further and Higher Education. It is guided by a non-profit company owed by the major seafood companies. HSI provides a range of complementary services to support the industry and in particular gives access to incubation and managed workspace units, new product development kitchens, refrigeration research facility, chemical and environmental laboratory equipment as well as process hall and microbiological laboratories. The Institute also provides practical, technical support and guidance for product innovation and business development for the region’s seafood companies, helping companies who might not have been able to afforded specialist services*.

Lessons include a need for radical thinking when faced with major change, engaging the private sector, marshalling significant resources, utilising specialist assistance and dynamic leadership.

*with assistance from Grimsby Institute of Further and Higher Education

6.6 LDA sector initiatives 6.6.1 The LDA currently supports a number of priority sectors within its overall business

support and development remit. These are cross London initiatives focused on industries seen as emerging and/or important to London’s image as a world city including:

Creative Industries including Film London and London Fashion Life Sciences Strategy Green Industries

6.6.2 Activities range from sponsoring networking and trade events such as London Fashion Week to more interventionist projects such as providing start-up space and specialist support facilities. Examples include support for several bio-sciences innovation/incubator centres (of which there are several in London) and the 01zero-one centre for media businesses. All of these are based within higher education establishments.

6.6.3 LDA funded projects are generally led by business, quasi-business organisations or universities rather than the LDA itself. The Life Sciences Strategy, launched in July 2003 is coordinated through several initiatives including the Global Medical Excellence Cluster (GMEC) which groups together leading universities in the capital, London Genetics (a commercial venture to facilitate partnerships between industry and world class academic and clinical centres of excellence in genetics research) and NHS Innovations which promotes technology transfer from London NHS Trusts.

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6.6.4 Non-sector LDA projects tend to focus on specific themes such as the Innovation Network and Knowledge Connect which encourage networking and collaboration. The manufacturing advisory service as part of the Solutions for Business programme covers all production activities in London and also receives financial support from the LDA.

6.6.5 As highlighted earlier, it is unclear how or whether the above services will continue in their present form following the proposed abolition of the LDA. It is possible that they may continue under the GLA. Another issue is the extent to which LDA initiatives will be pursued by local enterprise partnerships should they be formed and take over some LDA functions. A more likely outcome is that provision of business support at the Greater London level is likely to become more generic along the lines of the Business Link/Solutions for Business model.

6.7 Solutions for Business 6.7.1 Within the national business support framework the products that are most obviously

aligned with assisting business clusters are Business Collaboration Networks and Networking for Innovation. The official Solutions for Business document6 offers the following guidance:

6.7.2 LDA indicates that 12 of the possible 30 Solutions for Business products are available to firms operating in London, namely:

6 ‘ Solutions for Business – funded by government’, BERR, March 2009

1. Maximising Foreign Direct Investment

2. Accessing International Markets

3. Developing your Trade Potential

4. Business Collaboration Networks

5. Starting a Business

6. Intensive Start-Up Support 7. Manufacturing Advisory

Service 8. Designing Demand 9. Innovation Advice and

Guidance 10. Coaching for High Growth 11. Enterprise Coaching 12. Innovation Vouchers

6.7.3 On the whole, these services are aimed at SMEs, new firms and pre-start-ups, though

some, typically innovation and export related services, are open to large companies. The products that are most obviously aligned with assisting business clusters are Business Collaboration Networks and Networking for Innovation. The official Solutions for Business document guidance is outlined in table 6.2 (over page).

6.7.4 However, there is no mention of the term “cluster” within the document. This raises questions regarding official policy towards business clusters. Furthermore, while LDA makes reference to a number of sectors on its website, it has stated that it has no cluster initiatives underway at present.

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Table 6.2: Solutions for Business products relevant to clusters

Business Collaboration Networks What’s the product? Collaboration networks typically provide facilitated opportunities for businesses to collaborate together to develop and pursue market opportunities which they would be unable to do on their own. They have been established or will be established for identified growth sectors, markets or technologies within the English regions. Collaboration networks will be developed and facilitated by appropriate organisations in line with priorities in Regional Economic Strategies. What does it aim to achieve? This product will encourage collaboration and the sharing of best practice between businesses operating in key regional sectors, markets, and technologies to exploit opportunities that stimulate and accelerate economic growth. Who’s eligible? Businesses will be able to join a network, where one is available, that is relevant to the sector, market or technology they operate within or look to move into. The composition of a network will depend upon its focus and the sector/market/technology it is representing. Eligible businesses will primarily be small and medium sized firms, although some networks will have more large firm participants than others. Not every sector, market or technology will have a supported Collaboration Network. Networking for Innovation What’s the product? Support to help business build relationships with knowledge base institutions to develop and exploit new ideas. What does it aim to achieve? This product aims to encourage businesses to build relationships with other businesses, intermediaries, knowledge base institutions and government – thereby improving knowledge exchange and linkages across business supply chains and leading to more collaborative innovation activity. Who’s eligible? Businesses from all sectors that are interested in developing innovative products, processes or services, or adopt new management, organisation or business models. Knowledge base institutions who are willing to engage in networks with the primary purpose of assisting businesses to exploit knowledge through new products, services and processes. Trade Associations and similar organisations that wish to promote the interests of their members in the context of innovation and regulatory frameworks.

Private sector 6.7.5 Typically, private sector based business support is delivered as management consultancy

by private firms. Within London there is a full spectrum, of both broad consultants, e.g. accountancy based firms, and those that specialise within particular sectors/industries, e.g. music marketing, food manufacturing, engineering etc. Furthermore, London’s status as the leading world city means that industry leading expertise is available, should it be required.

6.7.6 London is also home to other centres of excellence able to provide business and technical support:

1. Chambers of Commerce 2. Education including universities and research institutes 3. Trade associations 4. Professional bodies

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6.7.7 The Chamber of Commerce movement within the UK is somewhat patchy. The London Chamber of Commerce and Industry (LCCI) covers the whole region, it has five affiliated local Chambers and there are a number of independent bodies. The London Chamber offers a range of general support services such as help with exporting, legal and personnel issues, some of which are covered by membership and others which are paid for. However, the members have indicated that they prefer to use, and pay for, specific support rather than rely on help offered by public agencies. This is most pronounced with services offered by professional advisers such as accountants and lawyers. LCCI members still continue to be confused about the range of funded support services and how to access them.

Figure 6.3: Brief Cluster Case Study: The case of Italian industrial districts

In the late 1970s a number of locations, or industrial districts in central/north east Italy were identified as strongly outperforming other regions. Research indicated that these places were home to many small firms that appeared to be prospering through specialisation, cooperation and flexibility. A number of industries were involved: textiles, leather, ceramic tiles and furniture. While most small firms are unable to become leading experts due to their size, the Italian firms overcame this by concentrating on only a small part of the overall process and relying heavily on a vast array of subcontractors, who also specialised on their element of the overall supply chain. This focus also meant that know-how and quality were significantly higher than in generalised firms of a comparable size. This level of specialisation was possible because of high levels of trust and cooperation a large part of which was due to the local, family ownership of the businesses along with the cultural norms of the area. The levels of trust enabled the development of more formal institutions providing technical services, expertise, marketing and lobbying to local government. Finally, the mix of trust and degree of outsourcing meant that there was significant flexibility within the overall process or enterprise chain. Thus changes in volume, specification or design could be accommodated relatively easily. It is difficult to see how the industrial districts could be replicated in London over the short-term especially given that the loss of much manufacturing has reduced depth in the local supply chain for many producers. However, a parallel does appear to exist with jewellery in Hatton Garden.

Viewpoints on Publicly Provided Business Support in London 6.7.8 Organisations such as LCCI and London First (which represents major companies based

in London) generally view the public sector role in supporting businesses in terms of “getting the fundamentals right” to provide an environment that is amenable to growth. This relates to areas such as planning policy to support critical mass in key and emerging sectors, investing in the public transport network including major projects to increase and upgrade capacity, and ensuring the tax regulatory regime is not unduly burdensome.

6.7.9 There is less enthusiasm for initiatives aimed at kick-starting growth in particular sectors or locations. Also major investments in specialist support and facilities should only take place where it can be demonstrated that the market has failed to provide such services and where it can deliver value for money for the tax-payer. However it is recognised that public intervention which aim to encourage collaboration between e.g. universities and business or other institutions can have catalytic effect in bringing people together, although it should be understood from the outset why such activity is not occurring in the first place.

6.7.10 Similarly there is a degree of scepticism about the role of local authorities in providing business support and the complex array of programmes and initiatives on offer between

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the different geographies which promotes confusion. There are also concerns about effectiveness in dealing with basic infrastructure and procedural issues such as planning applications and rate relief. However, the importance that generic support services can have to small and start-up businesses locally is recognised and any scaling back of provision should be based on a value-led approach which understands where individual initiatives/services are having a positive impact.

6.7.11 Overall, business organisations emphasise factors fundamental to the business environment and dealing with these effectively at both the local and regional level. This in their view should be the priority before focusing on more tailored or specific measures.

Involvement with Universities 6.7.12 While there is a long tradition of some large and technically sophisticated businesses

engaging with universities, the extent of collaboration between academe and the broad business community in London is still limited. While universities are largely funded by the state, firms wishing to engage them are required to pay standard, often commercial rates.

6.7.13 Acknowledgement that innovation underpins competitiveness has led to numerous efforts to encourage and assist firms, especially SMEs, to engage with the knowledge base. A number of the Solutions for Business allow for businesses to work with the knowledge base, see the appendices for examples.

6.7.14 However, there appear to be few active initiatives in London that involve universities working with business clusters. The case studies paint a picture that shows universities in Scandinavia having an explicit remit to work with businesses in a way that does not, in the main, apply to the UK.

6.7.15 Trade associations such as the Association of British Pharmaceutical Industries (ABPI) encourage inter-firm activity, and actively work to share good practice, e.g. seminars on how to protect their brands from counterfeiters and IP thieves as well as working with the NHS (the principal customer) to develop new products and services.

6.7.16 Professional bodies operate at an individual, rather than corporate level, though they aim to achieve many similar goals, e.g. sharing of good practice. For example, most professional bodies have active networking arrangements such as events and social media to encourage interaction between members.

Figure 6.4: Brief Cluster Case Study: Norwegian Centres of Expertise

Six regional clusters were identified in 2006 as centres of expertise. All six focused on aspects of engineering and technology, ranging from materials, through micro-systems, cybernetics and the design of advanced ships. Exports accounted for between 60 and 90 percent of total sales indicating a significant degree of international competitiveness. Characteristics of the clusters include: high levels of educational attainment (Masters/PhD), a core of dominant firms that are constantly innovating and have strong links to the national and regional universities and research institutes, close links to demanding customers and a willingness to collaborate. The links between business and academe mean that many courses are developed in collaboration and reflect the needs of employers. The overriding feature of the clusters is the heavy reliance on the innovation regime within Norway. It is clear that the higher education system and research institutes are overtly focused on supporting businesses. There is a clear lesson for London: much more effort and emphasis has to go into developing links between academe and industry if the levels of collaboration are to match those found in Norway.

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7 Best practice approaches

Key Conclusions and Recommendations 1. Geography and scale are important. Clusters generally work best at a regional, rather

than local scale. While there are clearly some clusters which are more tightly bound such as jewellery in Hatton Garden and film/TV facilities in Park Royal, these tend to be a key part of a larger grouping.

2. All cluster initiatives require some form of up-front investment. This is to map the cluster, identify the various players, understand their needs and motivations for involvement and establish technical matters such as supply chains and technologies. Without this projects will be working blind and are unlikely to succeed.

3. Clusters can be resource intensive. The case studies show that even well bounded clusters can consume significant amounts of funding.

4. Small investments can also work. Low cost projects such as hosting networking events, producing directories or publishing a map of film/TV businesses have all generated tangible results.

5. Projects have to work with the grain of business. While nearly all cluster projects encourage businesses to commit more effort to innovation, this cannot be forced. Firms need to accept the argument for innovation and collaboration with others before they will commit. This is probably the greatest challenge facing any cluster initiative.

6. Local authorities, as planning and regulatory bodies, have a key role to play. Understanding land use and premises requirements, as well as the impact of regulations can make all the difference. The Uppsala case showed how the Council’s provision of land was a key factor in attracting Pharmacia to the city.

7. Collaboration and engagement has to happen for clusters to work. No matter how many businesses are present within an area, unless there is active collaboration and engagement it is unlikely to represent a genuine cluster.

8. The presence of a supply chain is important. Innovation tends to be driven by firms’ attempts to meet the needs of their customers. Therefore, having at least two levels of a supply chain within the area can help businesses engage with customers and encourage them to seek new ways of meeting their needs.

9. Clusters are not for everywhere. There are limitations to what cluster initiatives can achieve and where they are appropriate. Experience of City Growth demonstrated that by treating the cluster approach as a panacea, it was applied under inappropriate circumstances and failed to achieve the desired results.

10. The key market failure that underpins public sector involvement in cluster projects can be characterised as “externalities and co-ordination failures”. Essentially there are too many obstacles facing firms, especially small businesses, for them to interact and develop the necessary trust and co-ordination.

11. Addressing this market failure is a common feature of all the publicly funded projects. However, much of the cost associated with cluster projects has been incurred in delivering a range of other services including business support. A more focused approach could prove more cost effective.

12. Traditionally universities in the UK have seen themselves as independent institutions with a remit to undertake research and teaching. The notion that they are part of the business infrastructure is somewhat alien. This is in stark contrast to the Norwegian and Swedish experience where there is a strong focus on supporting local businesses.

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Specific Recommendations for Boroughs and London Councils

1. London Councils, working with GLA/LDA should address the co-ordination failures that can prevent clusters from developing value-added activity. They are well placed to engage and co-ordinate cross borough and regional support agencies (e.g Chambers of Commerce LDA, North / South London Business) who may not be aware of cluster developments within certain boroughs.

2. Likewise the Boroughs are best placed to engage with local businesses and encourage collaboration (e.g. through focused networking events). London Councils can assist Boroughs in advocating the needs of a local cluster to regional agencies. This could address issues such as technical advice, specialist facilities or technology transfer.

3. In identifying and mapping clusters Boroughs also need to work across boundaries with neighbouring local authorities from an early stage. The emergence of the localism agenda and move towards Local Enterprise Partnerships (LEPs) presents an ideal opportunity for local authorities to investigate business clusters, as LEPs will require partnerships between local authorities covering a relevant functional economic area, such as supply chains.

4. Given the various streams of generic business support on offer in the capital, Boroughs pursuing cluster development projects should explore the possibility of developing more tailored support from existing programmes.

5. The current fiscal and political climate is likely to encourage a more rigorous demand that business support is justified on the grounds of market failure. Boroughs should therefore proceed with caution and any cluster specific support should initially focus on those activities to address coordination failures (e.g. identifying and mapping, networking events, disseminating specialist research and information).

6. There is a case for greater involvement of London’s universities in commercialising spin-off research. London Councils working with GLA/LDA are well placed to act as an intermediary between Boroughs to promote collaboration between businesses with the potential to develop research and organisations such as London Higher.

7. Similarly London Councils, perhaps working with an organisation such as London Higher should consider establishing areas of expertise within the universities and match this up with areas showing concentrations of relevant businesses.

7.2 Introduction 7.2.1 This chapter features selected cluster case studies and distils the lessons learned into a

series of best practice approaches for London.

7.2.2 There are numerous examples of clusters in the literature – too many for a comprehensive review. However, there are relatively few detailed analyses that provide adequate information to enable meaningful insights to be gleaned or to offer robust lessons. Moreover, it is clear that clusters come in a range of flavours. There is no universal pattern and clusters cannot be created using some form of ‘cookie cutter’ template.

7.2.3 What is clear is that there are recurrent themes: co-location of businesses, access to markets and demanding consumers, close relationships along the supply chain, high levels of competition, active labour markets, access to specialised facilities and resources, and constant innovation. Not all the factors cited in the cases, except for co-location, feature prominently in all cases, rather they form a thread that seems to connect those groupings of activity that are clearly recognisable as clusters.

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7.2.4 Three sets of case studies are presented: the Uppsala Bio region in Sweden; The City Growth Strategy in London and the London Sustainable Industries Park which is still in the process of being established. These are intended to provide insight into the cluster development experience and .

7.3 Featured case study – Uppsala BIO 7.3.1 Uppsala is located 70km to the north of Stockholm and has a long standing reputation as

a university town and for having close links between academe and industry, particularly biotechnology. In 2008, approximately 18% of the local workforce was directly involved in biotech across industry, academe or government institutions. In addition to 500 life science companies with 4000 employees, Uppsala University and the Swedish University of Agricultural Sciences are both based within the city and employ more than 900 researchers. There is also a teaching hospital, the National Veterinary Institute, Medical Products Agency and National Food Administration in the area, along with organisations charged with facilitating collaboration and economic development. Within the wider Uppsala/Stockholm region there is a population of 3million, of whom over a quarter have a university degree. Notably the region features in the top 10% of EU regions for innovation – alongside the East of England and the South East (London is not in this group).

7.3.2 Uppsala’s links with life sciences can be traced back to 1950 when the company Pharmacia moved to the city. Two key factors were responsible; high level collaboration between the company, academics and Uppsala University and the City Council making land available.

7.3.3 Pharmacia has, itself, also been a major catalyst within the cluster. While the company, as it existed in the 1990s, is no longer around it has spawned numerous other businesses and grown local employment. Essentially, the divisions that were set up to exploit various compounds and technologies have been sold off to a mix of major pharma companies such as Pfizer and GE Healthcare, or spun out as separate entities.

7.3.4 In 1985, STUNS (Foundation for cooperation between the universities in Uppsala, the business sector and the community) was founded by the Uppsala County Administrative Board, Uppsala University, SLU – the Swedish University of Agricultural Sciences, the Municipality of Uppsala, the County Council of Uppsala and the Chamber of Commerce for Uppsala County in order to facilitate collaboration between the universities, business and the public sector.

7.3.5 It was set up specifically to initiate and support projects of common interest that did not fully fit the remit of each individual partner. STUNS now supports a limited number of initiatives including Uppsala Innovation Centre and Uppsala BIO.

7.3.6 STUNS created Uppsala BIO in 2003 to enhance the competitiveness of the life science cluster. It does this via six key activities: 1. Verify: takes ideas into proof-of-concept. 2. Commercialise: assists in business start-ups. 3. Grow: supports the development of young and mature companies. 4. Network: enhances professional contacts through face to face meetings and

online. 5. Educate: provides both short-term training and long term education programmes. 6. Reach Out: assists in marketing the region’s life science sector, both locally and

globally.

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7.3.7 These are seen as a virtuous circle, with inward investment resulting from the reach out phase leading to further research and the discovery of new chemical entities or medical technologies. Specific initiatives include:

The Uppsala BIO-X, a cross-disciplinary focused research programme. It seeks to bridge the phase between research findings and proof-of-concept, a particularly difficult element in the development of any new technology/chemical entity. Financing is combined with active support for product development and early contacts with a prospective market. The goal is to generate a commercially ‘interesting’ proposition that can either attract development funding itself or be acquired by an established life science company.

A co-ordinated approach to bringing together support around Uppsala Innovation Centre. Despite the breadth and depth of academic and agency support available locally, not all of this was easily accessible from a central location.

The creation of Stockholm-Uppsala Life Science, a joint marketing initiative between Uppsala, Stockholm and Strängnäs, where Pfizer has recently opened a state-of-the –art biologicals plant, to market the region’s life science capabilities abroad. This includes ensuring that any potential inward investor is carefully nurtured and provided with suitable contacts and introductions. Uppsala BIO also acts as an interface between investors and funders, e.g. EU to minimise the administrative burdens involved.

The events programme covers a broad spectrum of topics related to life sciences. This spans technical conferences through to business focused sessions on PR and media.

Uppsala BIO is run by a core team of six together with project based staff recruited on an as-required basis. Funding is largely provided by Vinnova, the Swedish Governmental Agency for Innovation Systems.

7.3.8 Over the five year period 2003-8 employment within life sciences has grown by 12% and the turnover of businesses by 55%.

7.3.9 As a note of caution, research undertaken by the Stockholm School of Economics suggests that the public sector has higher expectations of the impact of Uppsala BIO as a cluster initiative than those in the business sector. The research does not undermine the value of the cluster initiative but rather highlights the different goals and objectives of the partners involved, e.g. businesses need to focus on short-term financial returns, whereas public agencies seek to promote science and innovation.

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7.3.10 The lessons for London from the Uppsala experience include:

1. Relationships between academe and business are built around individuals and take time to develop. Uppsala BIO was set up over 50 years after Pharmacia moved to the city and built on established relationships across numerous organisations.

2. Long-term nature of the project – Uppsala BIO has now been going over seven years and still retains a staff of six. Moreover, networking activity is still needed despite the fact that the key institutions such as the MPA, universities, teaching hospital and businesses have been in the city for many years.

3. Innovation is a clear priority for Sweden. This commitment is put into practice through Innova, a government agency charged with making “Sweden a leading research nation”. There does not appear to be any direct UK comparison, rather it appears as an amalgam of BIS, NESTA (National Endowment for Science, Technology and the Arts) and the RDAs. This suggests that it may be difficult to replicate in the UK. Certainly, London’s Bioscience Innovation Park, run by the National Veterinary College, represents only a small part of the Uppsala BIO model.

4. Sweden, along with the other Scandinavian countries places greater reliance on the public sector than the UK. Therefore, public agencies are expected to take the lead in delivering this type of activity, as STUNS have clearly done in the case of Uppsala.

5. Scale: while Uppsala is small compared to London, the project covers the whole city. In addition promotional activities involve a much wider region: Uppsala – Stockholm - Strängnäs.

6. Land and planning issues are important even in a sparsely populated country such as Sweden. Making land available was a prime reason for Pharmacia relocating to Uppsala.

7. Highly technical nature of the assistance and support: For example, the BIO-X programme relies on leading scientists and other professionals with hands-on knowledge of drug development, regulation and financing. This cannot be left to generalist project managers and support staff.

8. It is likely that the partners in any such initiative will have differing goals and expectations. These need to be identified from the outset and a range of activities generated that allow each party to generate the returns that they require.

7.4 City Growth Clusters in London 7.4.1 The City Growth programme was launched as a pilot initiative in 2002. Based on the work

of Michael Porter it sought to adopt a business-led approach to the economic regeneration of inner city areas. Rather than focusing on deprivation and the problems of run down areas, it aimed to build on the inherent strengths to be found in many inner cities, namely; good infrastructure and communications, concentrated demand, available labour and proximity to thriving business districts. Business clusters formed the centrepiece of the City Growth approach. Four locations within London were selected for the pilot and a further three in 2004. The two rounds of City Growth led to a number of cluster initiatives being set up. Below we feature the case of the Park Royal Food Cluster followed by brief overviews of the other projects.

Park Royal Food Cluster 7.4.2 Park Royal was developed for industrial use mainly during the 1930s. For many years it

was a centre of engineering, with firms including Park Royal Vehicles, GKN and Landis

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and Gyr. In more recent years it has become a centre for food processing and wholesaling, film/TV facilities, warehousing and a broad mix of other industrial uses.

7.4.3 The Edwardian heritage of the site, with narrow roads and relatively small floorplates, coupled with major industrial restructuring meant that the Park Royal estate was in serious decline by the 1980s. To address this the Western Arc programme was set up comprising an area covering Park Royal, Wembley and White City. Research for the City Growth strategy identified three clusters of note: food and drink, film and TV and transport and logistics.

7.4.4 Food and drink is the largest of the clusters, with approximately 16,000 employees in 2002, which represented a location quotient of 4.57 and representing 17% of all employees in the Western Arc area. Major employers include: Katsouris, McVities, Bestway, Greencore, and Bighams.

7.4.5 The research also indicated a range of strengths, weaknesses, opportunities and threats:

Table 7.1: SWOT Park Royal food manufacturing cluster

Strengths Weaknesses Strong local supply chain Proximity to the central London market Strong labour pool Availability of premises Strong ethnic community History of food innovation Local business support services

Skills shortages in basic and middle management

Need for better pre-screening of job candidates

Lack of cold storage facilities Lack of support for innovation and

productivity improvement

Opportunities Threats Growth in the demand for ethnic foods Growth in export demand for ethnic foods Growing demand for health and

convenience foods Potential for collaborative purchasing Wembley development

Regulatory burdens Potential relocation of businesses

out of the area Product imitation Increased insurance premiums

7.4.6 The strategy sought to focus development activity on:

1. Enhancing collaboration between companies 2. Developing links between businesses and the education system 3. Streamlining the recruitment process 4. Enhancing skills, including basic food hygiene and management 5. Developing a food hub capable of delivering targeted business support,

training,incubator space and a development kitchen

7.4.7 To date the following have been undertaken:

1. A food Cluster Action Team was set up.

7 This means that there are 4.5 times the number of employees compared to the London average.

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2. Delivery of a range of seminars and workshops on various aspects of food technology and marketing.

3. Food hygiene courses have been delivered in a variety of languages including Polish and Guajarati.

4. Park Royal Workforce has undertaken pre-screening recruitment for a number of food processors.

5. Networking events. 6. A feasibility study into setting up a food innovation centre.

7.4.8 The latter led to proposals for a food innovation centre. However, the study was unable to establish potential revenues with any certainty due to the fact that new start-ups were the most likely users of the development kitchen yet were the least able to pay. Larger and more established businesses capable of paying market rates tend to have their own facilities and are generally unwilling to share premises.

7.4.9 As a consequence it was decided that a pilot programme be set up using rented accommodation and supported with revenue, rather than capital funding. This would enable the concept to be tested fully and viability be established with more certainty.

7.4.10 After securing funds from ERDF the pilot was set up in late 2009 with the scheme scheduled to run until the end of March 2011. It was intended from the outset that the centre should be financially self-sufficient and not reliant on public subsidy.

7.4.11 The centre provides a state-of-the art development kitchen, training suite and offices, and is intended to act as a hub for food processing, manufacturing and packing companies across London.

7.4.12 The lessons for London from the Park Royal experience include:

1. Developing a significant project takes time and involves significant development costs. The feasibility study itself cost £50,000 and took four months to complete.

2. Establishing financial viability is an art rather than an exact science. Despite being undertaken by an established and reputable firm of accountants, the feasibility study was unable to establish potential with any degree of certainty. This led to the adoption of a pilot project whose performance could be evaluated after the fact with much greater reliability. Should the results indicate that the project is viable a robust business plan can be prepared.

3. Geographically constrained cluster projects are feasible providing that there is adequate breadth and depth of activity.

4. Securing ERDF funding, while relatively straight forward is onerous and time consuming. Furthermore, the current financial climate means that match funding is difficult to win, so development budgets are constrained. Alternative sources of funding and resourcing projects need to be found.

5. A consistent and persistent approach over a period of time can achieve significant results with relatively limited budgets.

Haringey 7.4.13 The City Growth strategy secured over £770,000 in funding for implementation and

cluster activities. This was spread across five clusters. The majority of the funding was allocated to consultants to work with the clusters to form Cluster Action Teams (CAT). These groups, made up primarily of business people, were intended to lead efforts to promote collaboration and joint working for mutual benefit. It was hoped that this activity would lead to increased levels of innovation, sales, employment and inward investment.

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Each CAT was expected to prepare a business plan which could be used to access £20,000 to fund development work, e.g. set up websites, joint marketing etc. Three out of the five initial clusters managed to achieve some sort of outcome. The remaining two floundered due to a range of practical and political difficulties.

Creative and Cultural industries 7.4.14 Research for the City Growth strategy identified concentrations of creative businesses

based in and around the Chocolate Factory complex in Wood Green and the Hermitage Road/Vale Road area of Seven Sisters. Haringey Arts (HA!) was established in 2008 as the CAT to deliver the ambitions for the creative and cultural industries. The central aim was for HA! to act as an agency for artists and creative businesses in the borough.

7.4.15 Actions included:

Engaging the local creative community and getting them to sign up to HA! Facilitating a range of self-help and peer-to-peer support initiatives Setting up a Community Interest Company Arranging planned and impromptu showcase events Organising a launch event in Markfield Park Helping members of HA! secure funding for their businesses and projects

7.4.16 Despite the high levels of activity, the formal evaluation found that tangible outcomes for businesses were limited. However, it appears that HA! is still operating as an informal network now that funding has come to an end, so benefits may be generated into the future.

City Fringe 7.4.17 The City Fringe comprises 13 wards straddling four boroughs (Hackney, Camden,

Islington and Tower Hamlets) bordering the City of London. It is home to some 25,000 businesses and 400,000 employees. It was by far the largest of all the City Growth areas in London. The City Fringe provides stark contrasts with great wealth and poverty juxtaposed with each other. A total of six cluster projects (jewellery, fashion, furniture, publishing and print, visitor economy and health/social care) were developed, of which jewellery was the most ambitious.

Business tourism – London MICE 7.4.18 This area of activity is usually referred to as MICE (Meetings Incentives Conferences and

Exhibitions) by those in the industry. The choice was largely determined by the recruitment of a dynamic Business Champion who was passionate to promote and enhance his industry. He was the chief executive of a growing events business and wanted to see the MICE cluster prosper. A CAT was formed and incorporated as a company limited by guarantee. The cluster took on a part-time manager and prepared a business plan that sought to achieve financial self-sufficiency in 3 years.

7.4.19 Activities included:

1. Development of an online business directory and showcase for MICE businesses located in the area

2. An ambitious programme of networking events 3. Attempts to engage with key organisations such as Visit London 4. A series of meet the buyer events focused on large corporate, rather than the

public sector 5. Reciprocal arrangements with other event managers and MICE organisations

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7.4.20 By late 2008 over 2000 MICE businesses were registered on the online directory. However, by the time funding ran out full financial self-sufficiency had not been achieved and the activities of London MICE were taken over by London Launch, a commercial organisation undertaking similar work.

7.4.21 Figure 7.1: The Anatomy of the MICE Cluster (next page)

Film and TV facilities 7.4.22 After publication of the City Growth strategy, Park Royal Partnership was awarded

£120,000 in funding to kick-start implementation. Research underpinning the strategy identified a major hotspot in film/TV activity in the White City, Ealing and Park Royal triangle. Specifically, this included: production companies, casting agents, set construction, studios, camera and equipment hire, model makers, motion control, post production, prop hire, record companies, special effects and specialist transport. Within Park Royal the emphasis was on faculties, e.g. props, equipment and studios. A CAT was formed under the aegis of Park Royal Partnership that reflected the businesses in the area. While some funds were made available for activities such as specialist business support, the CAT chose to focus efforts on promoting the capabilities of local businesses.

7.4.23 Thus actions included:

1. Developing a website to promote local businesses and showcase capabilities (www.westlondonmediahub.com)

2. Preparation of a cluster map showing some 200 businesses for use by props buyers, agents etc.

3. Networking events – based at local premises 4. Advertising on hoardings and black cabs 5. A mentoring scheme for the owners/managers of small firms

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7.4.24 Following the ending of funding most of the formal activity has ceased, though the industry is still well connected through established networks.

7.4.25 A number of lessons can be taken from the various City Growth cluster projects. These include:

1. The local scale of the City Growth clusters was much smaller than that originally proposed by Porter8. As a consequence, few of the cluster projects contained the depth or breadth of businesses necessary to generate self-sustaining activity. Even the more successful projects such as jewellery in Hatton Garden and London MICE eventually widened their scope to the whole of London. Local clusters need to be considered with caution and initiatives only considered where there are appropriate conditions, e.g. very high concentrations such as in Hatton Garden.

2. The cluster message, as delivered by Porter, can be compelling to the point where it is implemented inappropriately. Several City Growth strategies selected clusters based on weak evidence in order to “fill their quota of clusters”. It is important that cluster initiatives are considered as an option, rather than as a panacea.

3. True clusters require more than just co-location. There needs to be high levels of interaction and inter-dependence between the various players. Attempts to set up cluster projects with printers in London South Central and logistics in Park Royal were abandoned when firms were unwilling to engage with each other.

4. Clusters work best where there are shared needs that drive businesses and other parties to collaborate. This was demonstrated in the Hatton Garden Jewellery and Park Royal Food clusters where firms came together to support the provision of work space and a food innovation centre.

5. Businesses and other organisations need to generate tangible returns if they are to engage and retain an interest. Most cluster initiatives failed to achieve these over the period of funding, resulting in a fall-off in participation. Haringey Arts and Food clusters maintained momentum as they continued to provide tangible assistance by acting as a hub for artists and promoting members’ produce to local buyers. Projects need to understand the motivations of the various partners and the resources and time scales required to generate these.

6. The objectives of public sector funders and businesses do not always align and administrative burdens can smother enterprise. Specifically, London MICE saw its future in building relationships and helping members win business, whereas the Pool of London Partnership and LDA were seeking job and training outputs. In addition the monitoring regime meant that the manager became preoccupied with paperwork and was unable to focus on meeting the needs of members.

7. Cluster projects can be expensive. The six cluster projects run in the City Fringe cost a total of over £7.7m and resulted in 55 jobs being created, or £140,000 per job. While jobs may not be the most appropriate measure to use, the returns in relation to costs need to be understood.

8. Not all cluster projects demand high levels of public funding. The Haringey Food cluster achieved significant success by putting the manager of the local Budgens in touch with local manufacturers. The supermarket now acts as a showcase for local produce. The cost of this was minimal, yet generated worthwhile returns.

9. Cluster projects tend to generate multiple returns. In terms of public policy these include: job creation, job safeguarding, skills development, private sector investment and co-ordination between public agencies. The evaluation of the North London City

8 Porter considered that a working radius of “half a day’s drive” was the limit of an ideal cluster.

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Growth programme (Haringey) indicated that these were, to a greater or lesser extent, achieved.

10. Cluster projects take time to become self-sustaining. Very few of the City Growth cluster initiatives became financially sustainable following three years of support. The Hatton Garden jewellery cluster attracted support for longest of all the City Growth initiatives. This gave it the greatest opportunity to generate some form of sustainability despite the closure of the City Fringe Partnership in 2009.

11. There is the potential for legacy benefits. Both Hatton Garden and Haringey Arts have shown that cluster based activities can live on after public funding has ceased. This suggests that focusing in on building relationships, a common sense of purpose and an agenda of work are vital elements in any cluster project.

7.4.26 Experiences of further London projects under the City Growth Strategy are outlined in the

appendix:

Food and Drink – Haringey-wide Sports and Leisure – Tottenham Partnership London South Central London Business B2B Western Arc

7.5 Work in Progress: London Sustainable Industries Park (SIP) 7.5.1 The Sustainable Industries Park (SIP) at Dagenham Dock was initially the vision of the

London Borough of Barking and Dagenham. It is intended to provide the largest concentration of industries involved in sustainable technology in the UK by occupying a previously developed 125,000 sqm site. Part of the site was originally owned by LDA as part of the Green Enterprise District but was eventually consolidated with London Thames Gateway Development Corporation’s (LTGDC) holding who, together with the Borough, brought forward a masterplan for the development of SIP.

7.5.2 The basis of the SIP masterplan is to develop an embedded green infrastructure for emerging industries built around the areas of recycling operations, energy efficiency, ‘green linkages’ between businesses, transportation and waste minimisation. Currently activities and plans at the site are:

Closed Loop – a major plastics recycling facility with existing plans for an extension Waste to Energy Plant – sustainable heat and power currently in planning

application Anaerobic Digestion Plant – currently out to tender Terms agreed for a paper recycling facility Proposals for the Institute for Sustainability to be based on the Park

7.5.3 The aspiration is that these large core operations will help to fund the infrastructure for

the site and set high environmental standards that will eventually become fundamental attractors of other green businesses. There are existing non-green industrial activities in the wider Dagenham Dock area and it envisaged that these will begin to adopt environmental technologies and practices, and in the process, also utilise the green infrastructure. Examples include the creation of ‘green chains’ (eg waste products from one business used as resource inputs for another) which is currently facilitated by Dagenham Dock Occupiers Forum. This promotes collaboration among the new and existing businesses to solve basic problems such as transport, but also to understand where the sustainable processes could be integrated into their operations.

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7.5.4 The Institute for Sustainability (IoS) is part funded by the University of East London and will provide research, training, incubator and a range of specialised business services at the Park. This will assist with product and process development in environmental technologies, dissemination of best practice, advice with regard to patent development and technology transfer, networking and conference/workshop facilities for green businesses and promoting better environmental management by existing businesses at Dagenham Dock. The model is very similar to the Service Centre model common in Italian business clusters and is viewed as crucial to the development the brand image of the Park as the leading green industry location. Once the IoS is established it will offer a significant competitive advantage over alternative sites focused on green technology and green oriented industries.

7.5.5 The LTGDC are coordinating the development of plots and the types of businesses that can locate at SIP. They assist with meeting environmental regulations for potential tenants and also stipulate a number of criteria with regard to lettings as follows:

1. Industrial Symbiosis – any occupier should be aware of and exploit the opportunities, where feasible, to harness the potential synergies between its own activities, particularly in relation to recycled products, energy production and consumption, and those of other businesses on the SIP and neighbouring sites.

2. Environmental Strategic Priorities – any occupier should be a contributor to the local, regional and national environmental priorities - particularly in reducing carbon dioxide emissions in line with the Government’s 2050 targets, through its own business and supply chain activities and those of its product(s).

3. Local Supply Chain – any occupier should harness, utilise and add value to products sourced from across East London and the region, where practical.

4. Local Customer Base – any occupier should engage with and sell to the local market where possible, although not to the exclusion of wider regional, national and international opportunities.

5. Employment Opportunities – any occupier should be engaged with and actively draw on the local labour market and, where appropriate, local education facilities, and act to develop and foster skills in the environmental technologies, renewable energy and resource efficiencies sector.

6. Building Strategy - any occupier will deliver built space at LSIP to at least BREEAM 'Excellent' and seek to fully utilise and improve the site's sustainable infrastructure in other ways which are not captured by the prevailing BREEAM rating system.

7. Research and Development – any occupier, where appropriate, should seek to promote research and development, using the Institute for Sustainability (IfS) where appropriate, to deliver innovative product(s) and actively engage the regional centres of excellence in their sector, e.g. research facilities at Universities.

7.5.6 In summary the SIP initiative can be viewed as a public sector-led intervention to promote a growth industry through the provision of (1) hard infrastructure – both basic (ie roads and drains) and specific (recycling, waste and energy); (2) setting standards to attract the right kind of firms; and (3) soft infrastructure – the diffusion of information, knowledge and expertise through the presence of the Institute for Sustainability. This, it is envisaged, will create the right conditions for a critical mass of businesses and functions to develop at the Park and set the clustering process in motion.

7.5.7 In the next chapter we develop the above conclusions into a cluster development toolkit for local authorities.

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8 Clusters: Development Toolkit

8.1.1 This toolkit is intended to provide local authorities considering cluster based projects with some practical guidance. It is not intended to provide a comprehensive manual on defining a cluster, engaging businesses or the types of action to take. Rather it is presented as a mix of first hand experience and suggestions on what Boroughs can do to make a difference.

8.1.2 The toolkit is set out in three sections:

An overview of the key steps A schematic diagram of the steps A list of the tasks in detail

8.2 Overview 8.2.1 We believe that any cluster initiative is predicated on the following key steps:

1. Establish that a cluster approach is appropriate. 2. Undertake research to understand the nature of local activities and how they may

fit into a wider arrangement. 3. Engage fully with the businesses and other partners such as trade bodies and

research institutes. 4. Set meaningful (SMART) objectives. 5. Develop and implement the workplan with each partner focusing on their areas of

strength. 6. Monitor, evaluate, learn and feed-back.

8.3 Guide to Applying the Toolkit 8.3.1 Key to all cluster initiatives is to ensure that this an appropriate approach to the challenge

at hand. The evidence provided by City Growth, amongst others, is that the inappropriate use of cluster approaches is unhelpful and can lead to a significant waste of resources. Thus the first stage of any project is to ensure that a cluster exists or there is sufficient evidence to suggest that one might be present. Anecdotal information on similar companies working together or moving into the area can provide an indication that some form of clustering is taking place.

8.3.2 Once there is some reasonable evidence, anecdotal or otherwise a preliminary decision can be made to go ahead and investigate further.

8.3.3 If the decision is to investigate further, a more detailed review will be needed that involves both desk work and meeting the businesses along with other interested parties, e.g. Universities, research bodies, trade associations etc. The aim is to assemble a detailed evidence base about the cluster including the extent and nature of its activities along with any challenges and opportunities that are faced and which the Council can help address.

8.3.4 A final decision is then needed on whether a cluster project is warranted or not. It is likely that any such project will require the cooperation and involvement of neighbouring boroughs and the application of resources, so the decision will not be trivial.

8.3.5 A decision to go ahead will demand further engagement with businesses and the preparation of a detailed action plan with SMART objectives. It will be vital to ensure that there is common understanding about what the project is intended to achieve for each of the parties. The case studies indicated that tensions, misunderstandings and possible

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conflicts can arise between public and private sector partners if this aspect is not addressed fully at the outset.

8.3.6 The action plan needs to be implemented according to the plan.

8.3.7 The monitoring, evaluation and learning elements are vitally important if resources are to be applied intelligently and goals for economic development are to be met.

8.3.8 The remainder of this chapter contains an outline of the steps within the cluster development toolkit and details actions for each step in table 7.1.

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8.4 Steps for the Cluster Toolkit

Yes

Decision taken to investigate local cluster with a view to supporting it

Available evidence suggest that a cluster is present

Undertake preliminary work to establish potential

Confirm cluster project

appropriate

Engage businesses further. Set objectives & metrics. Develop agenda.

Prepare & undertake programme of work.

Monitor

Evaluate

Maintain watching brief in relation to statutory duties, e.g. LDF/LEA

Learn

No

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Table 8.1: Tasks in Detail Task Justification Evidence/Metrics

Assess available evidence Review apparent concentrations of businesses Investigate whether linkages exist – undertake fieldwork

Assessment of whether a cluster is present

Obvious collection of businesses

Consider local component of pan-London cluster

Full extent of cluster not immediately apparent

Indications of ‘connections’ across London

Decide whether to investigate apparent cluster with view to supporting it Initial assessment only on the importance of the cluster. Is it worth the Borough investing resources to support it?

Resources will be required in terms of time and effort

What might the returns be in terms of jobs, local

procurement and spending by employees?

Consider value of local cluster activities. This will include: The number and type of jobs;

skills and educational attainment

Occupation; senior management or low level processing

Value added activities, e.g. manufacturing

Supply chains; extent of local procurement

Ownership; how much of this is local, regional or foreign

Innovation; to what extent is this a sector that features innovation?

What is the value of the cluster and how important is it to the local economy. Does it warrant further

investigation and possible investment?

Orders of magnitude only at this stage.

Preliminary work to investigate the cluster and its potential (after decision has been taken to proceed) Map cluster: Establish activities undertaken

(UK SIC4) Establish employment and

establishments Calculate LQs Establish growth/decline

There needs to be adequate activity and co-location of

businesses for cluster conditions to apply.

LQ of at least 1.25 and 0.2% of total employment must

apply at UK SIC 4 level.

Meet businesses to gain insights across key issues: Extent of connections within

borough and across London. Nature of interaction between

businesses. Rationale for location. Reliance on external support,

e.g. universities, business support etc.

Nature of supply chains and local sourcing.

The nature of the cluster has to be understood

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Task Justification Evidence/Metrics From meetings with businesses establish in broad outline what needs to be done to: Overcome obstacles Assist growth

Without a clear understanding of the major issues it will not be

possible to establish whether a cluster initiative will be useful.

Identify what the Borough could do to assist firms prosper. Key issues are likely to include: Land use Any special requirements, e.g.

large floorplates, high levels of traffic

Access to public transport Interaction with regulatory bodies, e.g. health and safety etc.

Does the Borough purchase any of these products/services?

What can secondary schools do to assist local sectors – e.g training and business mentoring?

Is the Borough in a position to add value or not?

Extent to which land use is important.

Impact of regulatory services.

Decision: Is a cluster initiative appropriate and what role should the Borough play? Answer: No

Maintain watching brief and engage with any relevant activities being undertaken by other organisations, e.g. LDA.

The cluster may still be important to the local economy. The

Borough may be able to add value even if it is not the lead player of

any initiative.

Ensure that the Borough is engaged as an active partner

to any initiative.Quarterly briefings required.

Answer: Yes Engage businesses and set up project

Engage with businesses to understand the cluster in more detail, eg: Build relationships with key businesses including any major companies and leading SMEs. Develop a full directory of the companies involved in the cluster. Identify all other support agencies, e.g. universities, trade bodies, agencies etc. Map the main supply chains. Identify any major gaps or vulnerabilities.

The businesses are the main source of information and the

driver of any cluster project.Getting companies to engage is the key challenge faced by any

initiative. Only businesses will be able to make this happen so a

strong relationship with companies is fundamental.

It is vital that the key features of the cluster are understood if an

effective project is to be run and resources used wisely.

The Porter Diamond provides a useful benchmark of what

needs to be known about the cluster.

Identify the key issues faced, e.g. poor margins, international competition, changing legislation and what actions can be taken to address these, e.g. support to undertake value engineering

The key challenges will set the development agenda.

The list of issues should be comprehensive but focus

clearly on the main challenges, not just those of interest to the

project funders.

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Task Justification Evidence/Metrics studies, how to understand client requirements better, access to support for innovation. Set out objectives for all the partners – note these may not coincide!

Without a clear and explicit set of objectives the project is destined

to fail. The review of best practice indicated that the private and

public sectors are likely to want different things from any cluster

project. Making this explicit from the outset will help build rapport,

trust and lead to more coordinated effort.

Objectives should be limited in number and SMART.

Prepare and undertake the work plan Develop a work plan aimed at achieving the objectives. The evidence of the best practice cases indicates that cluster projects are long term initiatives.

Building trust and getting firms to engage takes effort and needs to

be factored in. Expectations need to be managed.

Anticipating major results in the short term may compromise the

ability to achieve the key objectives.

A minimum time scale of 3-5 years needs to be anticipated.

Use value for money metrics (available from BIS or LDA) to

establish what can be expected.

Note business start ups can only be counted once firms

have been trading for 12 months.

Potential activities that Boroughs can lead on: Including the cluster in any work on the Local Economic Assessment (LEA). The LEA provides an ideal opportunity to collect information and intelligence on local clusters. Ensure that the planning regime takes account of the cluster. This will include: Ensuring that relevant land use needs are known about, e.g. land use classes involved, typical size and facilities required and any special requirements e.g. chimney for restaurants, food production. Anticipating potential growth/decline and factoring this into the Local Development Framework (LDF) and plans for employment land. Identifying what activities of the cluster may involve regulations that fall under the control of the Borough, e.g., health and safety, fire safety, environmental health, trading standards and alcohol licensing. Put in place arrangements to ensure that

Boroughs have responsibility for key activities that impact on businesses. How well local authorities discharge these responsibilities can have a

significant impact.

Ensure that cluster based companies are contacted with fact sheets and provided with

contact details for each service.

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Task Justification Evidence/Metrics businesses are fully aware of the regulations and any help to achieve these. Ensure that there is a cluster champion within the Borough. This is likely to be a member of the Economic Development team. The champion should seek to: Understand the fundamentals of the cluster, e.g. products, services, trends, major changes etc. Meet businesses on a regular basis and have a working relationship with the main ones. Be informed of new developments through journals and websites. Be aware of legislation and regulations affecting the cluster, implications and what role the Borough may play in implementation.

Local authorities are being given increasing responsibilities and

resources for economic development. Being informed about local conditions is a pre-

requisite for any action and supports decision making.

The effort should be proportionate to the cluster

and its importance.

Engage and brief relevant senior executives and elected members, e.g. Cabinet member responsible for the economy, about the cluster on a regular basis. Arrange for elected members to visit key companies in the cluster.

Overt support from elected members demonstrates

commitment and helps build rapport.

Quarterly briefings.Up to 8 meetings per annum by elected members, e.g. 2

per quarter.

Develop links with external agencies such as trade bodies, universities, LDA and other bodies that impact the cluster.

Pan London cluster initiatives may overlook the Boroughs, so

proactive engagement may be required.

Quarterly/biannual updates or more frequent depending on

level of activity.

Engage with other Boroughs that have interests in the same cluster. Where necessary set up Multi Area Agreements (MAA) to ensure that efforts are co-ordinated. Consider use of shared resources, e.g. a cluster champion, access to data, research projects etc. Boroughs can submit proposals to ERDF to win additional resources.

Few, if any clusters, will be contained within a single Borough.

An MAA could provide an opportunity to formalise

arrangements, share resources and gain access to additional

facilities, e.g. replicate some of the features of a cluster.

As required.

Actions that a (group of) Borough(s) may seek to sponsor may include: Networking events. Cluster-focused Meet the Buyer events. Events to inform companies about public sector procurement. Events that bring together businesses with public sector led

Boroughs are well placed to provide a convenient portal for

businesses to engage the public sector.

As required. A quarterly event should maintain the profile of

the Borough to businesses.

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Task Justification Evidence/Metrics agencies e.g. universities. Acting as a portal to its own services and the wider public sector and how to engage it, i.e. the one stop shop approach. Implement the workplan. It is important that the workplan is both challenging but realistic. Unmet expectations are likely to be seen as more detrimental than overachieving is seen as positive. Actions should be allocated to organisations whose core remits most closely relate to the activity planned. In this way costs will be minimised and the likelihood of action taking place to plan maximised.

The workplan will place burdens on staff that are already hard

pressed and demand resources which are limited. Thus

expectations need to be managed and a realistic view taken of what

can be achieved.

As required.

Monitor performance In line with standard project management, activities need to be monitored and changes implemented where necessary.

Standard good practice. PRINCE2 is becoming a standard approach

for project management.

As per the project management plan.

Evaluate Evaluation is becoming an increasingly important tool in assessing performance and learning lessons.

Standard good practice. The RDA Impact Evaluation Framework sets out the

requirements for evaluating major projects. ERDF

guidelines are also available for smaller projects.

Learn lessons It is vital that the lessons learned from the evaluation are captured and disseminated widely. Without this performance is unlikely to improve and the benefits of good practice lost.

Standard good practice. Reports, and presentations available from the partners’

websites.

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Appendix 1: The Clustering Process

8.5 The Clustering process 8.5.1 So far we have highlighted the conditions supporting the existence of clusters and that

these are often maximised in dense urban areas. The concentration of certain types of business is can be plainly observable (e.g. solicitors located around courts, bookshops around universities) but the development of a cluster requires regular and intense interactions between firms and clients that go beyond everyday business to business or client to business transactions. Growing clusters and those that can adapt to a changing business environment often contain strong linkages between firms, suppliers and supporting institutions that exist throughout the supply chain.

An example: the Castellano ceramics district 8.5.2 As an up-front illustration of the components of a business cluster we have taken the

example of the ceramics industry in Castellano, Southern Spain (this could be applied plausible to any business cluster). The region is one of 4 districts around the world that are responsible for 40% of global ceramics production, with the majority of tile manufacturers, suppliers and services concentrated within an radius of 30km. There is the presence of several major producers and product purchasers, but the production process is largely divided up between a plethora of SMEs which allows them specialise in complementary phases of production.

8.5.3 There is a high level of subcontracting throughout the supply chain from manufacturing of raw inputs such as clay, frit and glaze to tile colourers, glazers, designers, to tile manufacturers, machinery makers and machine components through to retailers and end-users. This promotes competition, specialisation and the ability to produce highly differentiated and high quality ceramic products at a relatively low cost. It also keeps entry costs to the industry low, enabling competition from new firms.

8.5.4 Figure 8.1 shows a schematic overview of the ceramics cluster containing the various processes and partners involved in the production process. Intense rivalry between the SMEs involved in tile-making provides a strong impetus for the accumulation of technical knowledge and innovative activity. Local buyers are informed and demanding of manufacturers encouraging them to innovate and subsequently this process cascades through the supply chain. The capacity for innovation is supported by the local presence of training institutes, research and development, providers of technology services and professional associations all focused on the ceramics industry or closely related activities. Such institutions provide collective services to the SMEs that they would normally find too costly to provide in isolation.

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Figure 8.1: The Anatomy of the Castellano Ceramics Cluster

8.5.5 An example of the role played by supporting institutions is the Institute for Ceramics

(ITC). This actively promotes firm competitiveness through the provision of research in industrial design, the training of ceramic designers and also developing global design standards. Also linked to the ITC are local university departments such as the Department of Chemical Engineering at Jaume University developing research for the sector in ceramic technology, chemicals, environmental pollution and also design.

8.5.6 Also present are a range of specialist supporting associations, including the national producers association, machinery and equipment manufacturers, producers of glazes and colours and tile technicians, which offer supporting advice and promote the implementation of standards. These associations are strongly interlinked and through the consultancy services they provide assist in the technological enhancement of the sector – which consequently creates new streams of demand and specialisation. The associations also collaborate to hold regular trade fairs and exhibitions which promote local products and aid the diffusion of new product developments.

8.5.7 Together the different components of the cluster interact in a way that creates a dense network of support infrastructure that favours collaboration, flexible production, innovative methods and enterprise growth throughout the supply chain. This in turn results in a competitive, though positive business environment characterised by a conscious drive for knowledge intensive processes and continuous improvement. But above all this is only possible through an understanding amongst businesses of the wider benefits of collectively provided services that enhances the capacity to innovate and meet the needs of demanding clients.

From Geographic Concentration to Innovation System 8.5.8 The Castellano example illustrates how a region with a largely primary industry has

developed into a leading exporter in the finished product – a process accentuated by geographic concentration. Some of the contributory factors as to why it has occurred in this location and no other can no doubt be attributed to chance, history and culture and are almost impossible to replicate from scratch. However the capacity for highly innovative activity and the diffusion of knowledge has occurred through more formalised institutions which actively promote innovation and knowledge sharing on behalf of the

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industry. The clustering concept can therefore be viewed as a process where initial collaboration or cooperation between businesses can be transformed into more formal arrangements that eventually increases the capacity for innovation.

Figure 8.2: Concepts within the Clustering Process

8.6 The policy rationale 8.6.1 Many successful clusters have come about from an exploitation of the competencies of

local firms, institutions and demand in which one or a number of interventions by the public or private sector have been critical. For example, the ‘Silicon Fen’ cluster of IT and biotechnology companies in Cambridge was largely attributed to a relaxation in the planning regime (which paved the way for the development of a science park) and the attentive attitude of the local small business advisor towards high tech start–up enterprises. There is undoubtedly a strong case for the public and private sector working together to make things happen from the outset.

8.6.2 The mutual benefits of cooperation between firms have so far been outlined, but getting firms to link up with perceived rivals is naturally difficult due to the inevitable pressures of competition. The public sector is able to play a role as a third party agent in encouraging collaboration and economies of scale that all businesses can benefit from. However, the formula for success is dependent on a range of factors including a good understanding of the local and external business environment and the preconditions for growth.

Porter’s diamond 8.6.3 In examining a wide ranging number of case studies Porter attempted to place these

issues within an integrated framework that would enable public agencies to understand how interventions might set clusters on a path to self-reinforcing growth. This is known as the Diamond Model.

8.6.4 In summary there are four points to the diamond:

1. Factor conditions: the cost and quality of inputs – skills, machinery, other capital goods and materials the need to upgrade these and create more advanced factors has increased in a globalised economy

2. Demand conditions: the sophistication of local customers who can pressure firms to innovate and pay attention to product development and where many customers can pass information on changing market conditions better than a single major buyer

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3. The context for firm strategy and rivalry: involves the nature and intensity of local competition and attitudes towards risk, long term investment and profitability

4. Related and supporting industries – the local extent and sophistication of suppliers and related industries; the ability to create a learning environment between producers and suppliers through trust and regular interaction leading to the development of new techniques, designs and problem solving.

Figure 8.3: The Diamond Model of Industry Development

Source: Porter, 1990

The Diamond at Work 8.6.5 The relevance of the four points of the diamond to business competitiveness should be

viewed as an interacting system, where the contribution of each point is contingent on the effectiveness of the other three. For example, factor input creation is strongly influenced by domestic rivalry in determining investment in skilled human resources, technology and specialised infrastructure. The quality of domestic demand influences the effectiveness of interactions between producers and input suppliers in developing new product and process innovations; which in turn impacts the intensity of firm rivalry. An effective diamond is therefore one of a self-reinforcing cycle of innovation that leads to value-added production.

8.6.6 Most importantly, however, the quality of the interactions within the diamond are defined by spatial proximity. Hence, this goes beyond Marshall’s localisation economies to explain the new importance of proximity in technology intensive products. Gaining and sustaining competitive advantage is a process said to be increasingly determined by differential knowledge, skills and rates of innovation that are embodied in skilled people and institutional structures - processes that are intensely local.

8.6.7 The role of the public sector and supporting institutions, it is argued, can influence all aspects of Porter’s diamond. For example, the setting up of a technology park on a local university campus providing high quality workspace and laboratories is aimed at improving factor conditions; as would be the provision of specialised training courses by

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industry institutes. The holding of trade fairs and exhibitions helps to influence demand conditions and the sharing of early market signals while the provision of specialised support services is aimed at encouraging product development encouraging more specialisation and upgrading through the supply chain.

8.6.8 Although the diamond model may be viewed by some practitioners as too abstract a concept to be applied to their local economy, it nonetheless provides a clear and useful framework for understanding when and where cluster development policies are likely to be effective or even appropriate. The economic development toolkit in Chapter 7 of this report seeks to offer practical actions and steps towards this for Local Authorities.

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Appendix 2: Overview of Business Support

Business by London Sub-region and Selected Local Authorities Geography/Organisation ActivitySub-region North West South East

(Inner and Outer)

Central

LDA sub-regional business agencies

North London

Business

West London

Business

South London

Business

Gateway to London

Other enterprise agencies (these tend to operate within a ‘home’ sub-region but increasingly consider their market as the whole of London)

Enterprise Enfield

Park Royal Partnership

Harrow in Business

Business Extra

Croydon Business

VentureBusiness

Focus

HBV Enterprise Greenwich Enterprise

Board East

London Small

Business Centre

Cross River Partnership

Portobello Business Centre

Local (borough) Note: the initiatives set out below are those led or funded by the Borough unless otherwise indicated.

Barking & Dagenham Funds Small Business Centre which delivers start up advice, training and networking services. Sustainable Industries Park acting as focus

for green technologies.Barnet Statutory Services ProvidedBexley Thames Innovation Centre –range of generic servicesBrent No business support services offered. Funds Park Royal Partnership

and West London Business to deliver this for them. Opportunity Area Planning Framework provides a common arrangement across Park

Royal – see Ealing and Hammersmith and Fulham.City of London No sector interventions- mainly planning regime and information

serviceCroydon Croydon Enterprise –providing a range of services. Cluster Action

Teams around mainly local servicesEaling No business support services offered by the Council. Focus is on

developing town centres, including shop front improvements. Using LDF to ensure creative businesses have access to premises and

Environmental Health Officers to assist food companies. Opportunity Area Planning Framework provides a common planning arrangement

across Park Royal – see Brent and Hammersmith and Fulham.Enfield Enterprise Enfield, Chamber of Commerce, Business and Retail

Group and Education Business Partnership receive subsidies. North London Business sponsor/host innovation competitions, food

networking, meet the buyer events and promote health and safety regulations.

Hackney Hackney Enterprise Network run by HBV. Provision of managed workspace. Actively use LDF to encourage provision of premises for

growth sectors. Identified need for more outreach to BAME owned businesses.

Hammersmith & Fulham Funds Park Royal Partnership. Opportunity Area Planning Framework provides a common arrangement across Park Royal – see

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Geography/Organisation ActivityBrent and Ealing.

Haringey Part funds North London Business. Hosts meet the buyer events and how to tender for supply contracts. Significant help for clusters via

City Growth though funding has now ceased.Harrow No direct business support services. Assistance via Harrow in

Business and West London Business.Hillingdon Borough and BAA run meet the buyer events, though increasing size

of contract is excluding smaller local firms. Part of west London which is trying to coordinate business support offer. Keen to see more local

commissioning.Islington No business support services offered by the Borough.Kensington & Chelsea Using planning powers to safeguard antique dealers in Portobello, no

involvement in direct business support. Portobello Business Centre operates across borough boundaries.

Redbridge No business support services offered by the Borough.Sutton Business Focus part funded by local authority. Procurement events

aimed at construction businesses.Tower Hamlets No business support services offered by the Borough.Waltham Forest No business support services offered by the Borough.Wandsworth Significant support for stallholders in New Covent Garden Market.

Focus on winning funds, e.g. ERDF to deliver services.Westminster Borough does not seek to offer business support services. Prefers to

utilise planning regime to make the borough an attractive place to do business.

Sector focused ERDF projects in London As of January 2010, approximately 80 projects had been approved to receive ERDF funding under the 2007-2013 programme within London. Of these 15 were targeted at specific sectors or geographically concentrated business9.

The 2007-2013 programme focuses on three priorities:

1. Business innovation and research and seeks to enhance business-to-business collaboration as well as accessing the knowledge base, e.g. higher education.

2. Access to new markets and finance. 3. Urban regeneration including diversity.

The organisations winning funding include:

1. Local Authorities, e.g. Wandsworth, Westminster. 2. London Development Agency. 3. Partnerships, e.g. Park Royal Partnership, West London Business, Paddington

Trust. 4. Business support organisations, e.g. GLE, Enterprise Enfield. 5. Education, e.g. University College London, University of East London, Tower

Hamlets College. Those projects with a sector/geographical focus target:

1. Fashion/jewellery 2. Broadcast/new media 3. Construction

9 There is one project aimed at Business Improvement Districts within the central boroughs of Westminster, Southwark, Lambeth, Camden and Islington. Those that merely focus on broad geographic areas such as whole boroughs are not included in this group.

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4. Manufacturing/rapid prototyping 5. Theatres 6. Business Improvement Districts.

The majority of projects are too new to have achieved any tangible outcomes. However, some are developments of previous initiatives, so have been investigated under the chapter addressing current activity within London.

Despite the apparent separation between ERDF projects and Solutions for Business, this may not always be the case. For example, LDA’s Solutions for Business – Finance Readiness project is in line to receive £2.4m of ERDF. While the source of funding may be of no interest to the business receiving the assistance, it does cause some confusion when trying to understand the underlying support regime.

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Appendix 3: Additional Best Practice Case Studies

Non-London/General Approaches

EEEGR The East of England Energy Group acts as the hub for the range of businesses and organisations involved in energy within the East of England region. The first British discovery of gas was in late 1965 in the West Sole field, off the coast of East Anglia. Since then Great Yarmouth has become the principal centre for energy in the Southern North Sea. In the early 2000s the UK government initiated the drive to generate electricity from offshore wind turbines and the Scroby Sands farm started producing electricity in 2008 from 24 turbines. The area is now home to a full range of businesses from gas production, drilling, geological survey, marine support, helicopter transfer, steel fabrication, structural design, through to jack-up installation vessels. The key features of the cluster are the integrated nature of the supply chain, regular interaction and constant innovation to address international competition, regulation and technological change. The group highlights what can be achieved with relatively little funding but strong backing of business.

Urban creative industry centres A number of creative quarters or centres for the creative industries have appeared in UK cities over the last 15 years. In most cases they involve the regeneration of former factories and warehouses for use by small and medium sized firms and organisations working in design, new media, architecture, film/TV, advertising, software and cultural activities. Notable examples include: Birmingham’s Custard Factory, the Tea Building in Shoreditch, Haringey’s Chocolate Factory and the Cultural Quarter in Sheffield. A modern variant is Westbourne Studios built under and around the M4 viaduct. The key features of these centres are the focus on inter-firm linkages and generating an ‘innovative milieu’ as well as access to some specialised facilities such as rehearsal rooms or auditoria. To an extent London leads the field and shows what can be achieved when iconic buildings, a sympathetic planning regime and developers with long term time horizons come together.

Greater London City Growth Strategies

Food and Drink The strategy indicated that there were 900 businesses and 7,000 employees involved in the food and drink sector in the area of Haringey covered by City Growth. Retailing, wholesale, restaurant and catering, along with manufacturing formed the main activities.

While development efforts initially focused on promoting ethnic (mainly Greek and Turkish) restaurants, subsequent activity concentrated on manufacturing.

Two ‘meet the buyer’ events formed the main the main focus of the food and drink cluster. These resulted in the local Budgens stocking locally made goods and acting as a showcase for neighbourhood manufacturers. Awareness of local procurement has increased with Haringey Council now seeking to purchase supplies from local businesses.

Sports, leisure and tourism The work of the cluster led to the formation of the Tottenham Partnership, which seeks to “develop a clear and compelling image for Tottenham and implement a strong marketing and PR programme”. So

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far it has published a map of Tottenham showing local attractions and restaurants aimed at local residents and visitors. The map was funded through sponsorship and advertising. While the Partnership is still active, the current economic climate has meant that marketing activities have been put on hold. That the majority of local SMEs were largely unengaged and unwilling to collaborate with each other, seeing little potential benefit but possible dangers.

Jewellery – Hatton Garden Hatton Garden has been the centre for diamond jewellery in London for some 200 years. In the late 1990s the fabric of Hatton Garden and surrounding areas was poor and this made the area unwelcoming to the many potential visitors and purchasers. The City Fringe SRB Partnership, in conjunction with the City of London Corporation and Camden Council undertook a number of physical regeneration activities to improve the area’s appeal. Following publication of the City Growth strategy in 2004, further efforts were made to invigorate the cluster and help it prosper. As with other City Growth projects a Cluster Action Group comprising businesses, local authorities and higher education was formed to guide activities.

Figure S 1: Hatton Garden Jewellery Cluster Map

Actions included:

1. Industry-led seminars and symposia focused on domestic and overseas markets.

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2. In-house training facilities and courses open to the industry being set up by jewellers R Holt & Co..

3. Innovative training and development opportunities being created by organisations such as the Diamond Trading Company (DTC), London Metropolitan University and The Goldsmiths’ Company.

4. Provision of work and retail space for local designer makers using funding from S. 106 agreements.

5. Set up of London Jewellery Week sponsored by bankers Coutts & Co.. Despite the £3m invested in the cluster, overall employment in 2009 was less than in 2003, though there is no indication of what might have happened in the absence of the project. In 2009 the City Fringe Partnership was wound up following cessation of core funding from LDA. Prior to cessation CFP allocated funding for Jewellery Week 2010 which was matched by the LDA. Camden Council continues to provide some assistance but the high profile programme has come to a close.

The bounded geography of the area, regular business interaction and legacy of City Growth means that there is still on going collaboration for the benefit of the cluster as a whole. This is demonstrated by the efforts of local businesses to keep Jewellery Week going (and who are already planning for 2011) following the closure of the City Fringe Partnership and loss of sponsorship from Coutts and LDA.

London South Central The area known as London South Central comprised the portion of central London south of the Thames between Tower Bridge and Vauxhall. Later elements of Wandsworth were included. The original City Growth strategy identified six potential clusters (business services, publishing/print, health and social care, ICT, niche retail and business tourism) based on high location quotients and significant levels of employment. However, only two projects were taken forward with funding from the Pool of London Partnership (Single Regeneration Partnership) and the LDA. During the course of the first project the Pool of London Partnership closed, so there was no real continuity between the original work and the development projects.

Business Services – London B2B Soon after the launch of London MICE, LDA approved funding for further cluster activity in London South Central. Following a survey of local businesses it was agreed that efforts should focus on the range of business services that operate in the business-to-business (B2B) market. As with London MICE, a CAT was set up involving the directors and partners of a number of small firms operating in the area. Despite major recruitment efforts there was no real buy-in from the many large companies located along the south bank of the Thames. The CAT decided not to incorporate in order to minimise costs and administrative burdens. Wandsworth Council acted as the responsible body and project manager.

Activities included:

1. Setting up a website and online directory. (www.londonb2b.net) 2. Running networking events. 3. Hosting a series of training sessions on trade and business effectiveness 4. Undertaking a trade mission to China - from which business was generated.

Some informal activity still appears to be underway and the website is still live, though updates are infrequent. However, attempts to generate a regular income from subscriptions and fees proved unsuccessful and financial viability was not achieved by the time funding ceased in 2009. While the area clearly included enough businesses (14,000) to constitute a cluster, the lack of common interests and focus generated inadequate interest to become self-sustaining.

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Western Arc The Western Arc City Growth project covered Park Royal, Wembley and White City, in the boroughs of Ealing, Hammersmith and Fulham and Brent. While Wembley and White City were included, the centre of gravity and principal area of focus was the Park Royal industrial estate. Park Royal comprises some 8km2 to the east of the North Circular and north of the A40 Westway, of largely industrial premises built over the last 80 years. It is widely credited as being the largest industrial estate in Western Europe. Three clusters were identified for development; food and drink, film and TV, and transport and logistics. Film and TV is described below and food and drink is the subject of a more detailed analysis. The logistics cluster was not developed once it was clear that the intense rivalry and narrow margins meant that businesses were not willing to engage with one another.

Documents

Business Clusters Foreword and Report