Download City SME Supply Chains

Special intereSt paper

report prepared for the city of london corporation by Bone Wells Urbecon in association with london Metropolitan Universityapril 2013

city SMe Supply chains

city of london economic DevelopmentpO Box 270, Guildhall, london, ec2p 2eJwww.cityoflondon.gov.uk/economicresearch

Special intereSt paper

city of london economic DevelopmentpO Box 270, Guildhall, london, ec2p 2eJwww.cityoflondon.gov.uk/economicresearch

report prepared for the city of london corporation by Bone Wells Urbecon in association with london Metropolitan Universityapril 2013

city SMe Supply chains

City SME Supply Chains is published by the City of London. The author of this report is Bone Wells Urbecon in association with London Metropolitan University.

This report is intended as a basis for discussion only. Whilst every effort has been made to ensure the accuracy and completeness of the material in this report, the authors, Bone Wells Urbecon in association with London Metropolitan University, and the City of London, give no warranty in that regard and accept no liability for any loss or damage incurred through the use of, or reliance upon, this report or the information contained herein. April 2013 © City of London PO Box 270, Guildhall London EC2P 2EJ

http://www.cityoflondon.gov.uk/economicresearch

TableExecu

1 2

2.1

2.2

2.3

3 4 5

5.1

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48

1

Executive Summary

The City of London Corporation commissioned this piece of research to build on previous work carried out on businesses within the City. This research focuses particularly on Small and Medium-sized Enterprises (SMEs), and looks at supply chains and buying and selling trends within the City and also with other firms in the City fringes. The research also looks at possible cluster and location benefits, and networking practices. The main research objectives are:

1. To carry out research into the nature of SME procurement and sales within the City and also with firms in surrounding areas (City fringes); 2. To identify advantages and disadvantages that a location in the City presents to local SMEs in different business sectors; 3. To examine the type and intensity of relationships between businesses through networking (both formal and informal), with a focus on the diffusion of knowledge and innovation. The research was carried out using a mixture of methods: secondary research and desk based analysis, a survey of SMEs, and in depth interviews with businesses. For the survey, responses were secured from 201 SMEs from varying sectors across the City of London to ensure a representative sample. Ten of those respondents were interviewed to obtain more in depth information about their buying and selling practices, and their views on their location.

Key findings Buying

63% of firms in the City buy from others based in the City. The most likely sectors to purchase from other firms in the City are professional, scientific and technical organisations, and other personal service activities (this covers a variety of activities such as hairdressing, beauty treatments, funeral services and dating services, etc). The sector which is least likely to purchase from other firms in the City of London are the wholesale and retail trades.

Only 39% of purchases are made from businesses based in the City fringes. The sectors which are most likely to purchase from the fringes are the wholesale and retail trades. The sector least likely to purchase from the fringes is the information and communication sector.

70% of businesses from the City spend less than a quarter of their total budgets in the City.

The key reasons for purchasing within the City are the proximity of businesses and the good reputation of businesses based there.

Selling

68% of firms make sales to other businesses in the City. The sectors which are most likely to sell within the City are information and communication, and the professional, scientific and technical sectors.

Interviews suggested that businesses selling to the City made their sales through word of mouth, and also through direct marketing to potential or established customers.

2

Just over half of the respondents (52%) make sales to firms in the City fringes. Sectors most likely to sell to the fringes are those involved in real estate activity, and professional, scientific and technical activities.

More than one third of SME respondents’ sales to City firms account for more than half of their annual trading income.

There appears to be a relationship between firm size and the proportion of sales made within the City, with large SMEs being most likely to sell within the City.

Location

The perceived prestige of a City location is one of the most important benefits of being located in the area. Legal firms in particular are most likely to rate this as important, as well as firms engaged in employment activities.

Over half of the businesses surveyed feel that being close to customers is an important or very important benefit of their location, particularly for food and beverage companies. In contrast being close to key suppliers is not deemed important.

Good transport links were found to be the second most important benefit of a location in the City. This appeared to be particularly important for firms involved in employment activities and firms involved in financial services activities.

Factors which did not seem to be a key benefit of the location include the availability of support from local government and agencies.

Networking

The business services sector, in particular those firms offering legal and financial services, are most likely to belong to formal business organisations in the City. The greatest role these networks play is in providing access to information and intelligence.

45% of the sample surveyed belong to informal networks based in the City of London or surrounding boroughs. Those involved in professional, scientific and technical activities are far more likely to be involved in this type of network than other sectors.

The main value to firms of these informal business networks is in providing a source of information and intelligence, and in developing new business collaborations.

3

Recommendations Recommendation 1: Trade fairs and networking events to enhance inter-trading. A programme of events or tweaking of current events which can act as a platform or ‘market place’ to encourage inter-trading between SMEs in the City and SMEs in the neighbouring boroughs. Recommendation 2: Awareness campaigns. SMEs based in the City of London could be made aware of the benefits of their location and be provided with more and easier access to publicly funded business support. Recommendation 3: Industry specific seminars and knowledge transfer. Collaboration with trade bodies and institutes based in the City of London would be highly beneficial in disseminating information about events, seminars and research findings to SMEs based in the City and its fringes.

Recommendation 4: Work to help encourage innovation and explore the factors supporting this. Further exploration of which aspects of the City’s structure and City businesses’ interactions help to encourage innovation.

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2.3 Business interviews Businesses completing the survey were asked if they were prepared to talk to our researchers. Twenty four businesses were willing to do this. Semi-structured interviews were undertaken with ten of these businesses to provide qualitative in depth data. The sample selected was chosen to ensure that businesses were of varying sectors and size. The questions were designed to provide us with further data on businesses’ trading practices, clustering, networks and views on their location. A copy of the semi-structured interview questions can be found in the appendices.

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Thus, they could be described as types of ‘learning’ region, showing higher rates of technological and organisational innovation and retaining their adaptability to unexpected exogenous localised concentrations of industrial specialisation.

In the context of emerging technologies and related knowledge-economy business models, linking stakeholders in dynamic clusters is believed to enhance competition and regional innovation.2 Since these are the predominant business models operating in the City of London, a better understanding of SME clustering is seen as having strategic importance.

While the focus of those policies has been primarily on larger firms, it is also recognised that SMEs play an important role:

“…the presence of SMEs in the City’s neighbouring boroughs is integral to maintaining the City’s status as the world’s leading international financial and business centre.”3

Research commissioned by the Corporation confirmed clustering factors are also at play in the City and surrounding area:

“…the study also focused on the advantages and disadvantages the location offered to print and publishing firms. The key findings here were that the City fringe location was chosen because it offered close proximity to the sector’s clients, as well as suppliers and ancillary businesses. The quality of the transport links, availability of skilled labour and close linkages between printers within the City fringes and clients in the City were also emphasised. The key results in relation to the research presented in this report are that the City fringe area was viewed as a strong location for printers and publishers in terms of the labour market and clusters, and, critically, that the proximity to the City gave firms in the area an edge that could not easily be imitated.”4

Although the focus of that research was not strictly on SME clustering but on the potential for City fringe SMEs to increase their sales to (larger) City firms, its key findings are very much in line with those of a previous study of professional and business service consultancies in central London. For these businesses, clustering:

“Is powerfully and centrally influenced by the need for and benefits of proximity and accessibility to clients, both those in London itself and accessible through the metropolis’s unrivalled national and global communications nodality.”5

This is further defined for the financial institutions in the 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.”6

This suggests demand-side factors are important for understanding the clustering of professional and business service firms at the heart of a global city like London. In addition, clustering at the heart of the capital confers prestige and credibility, boosting the image of its firms before potential clients.

2 OECD (1999) Boosting Innovation: The Cluster Approach. 3 CEBR, (2008):p2 4 CEBR, (2008):p11 5 Keeble & Nachum, (2001):p26 6 BWU & CBP, (2010):p11

9

The research cited here7 also highlights the importance to central London firms of localised processes of knowledge acquisition, development and networking, of the kind highlighted in other cluster studies. Researchers have found that the central London cluster is characterised by high rates of spin-off of new firms from existing local businesses. Owners and managers consider personal contact networks as key not only to obtaining work from clients, but also as a vital source of professional and market knowledge. Networking with staff in other consultancies is also more frequent amongst central London cluster firms than amongst their decentralised counterparts, as are formal and informal collaborative arrangements with firms other than clients. The central London cluster also showed signs of a dynamic flow of professional staff between firms, especially from larger to smaller firms and most recruits were acknowledged as being a source of new expertise and knowledge.

The survey also showed that central London cluster SMEs were significantly more globally-oriented than their decentralised counterparts, in terms of client revenues, overseas offices, collaborative arrangements and even professional staff recruitment, adding weight to previous research which had also found a high level of openness to, and interaction with, the global economy in the central London consultancy cluster.

The study of clusters is, however, not exempt from difficulties. Despite the popularity of the cluster concept and the economic importance of SMEs, some argue existing theoretical models are weak in terms of SME clustering processes. The broad nature of the cluster concept adds complexity and might in itself be partly responsible for clouding our understanding of SME clustering. The literature shows the cluster concept can act as an umbrella term for a wide range of phenomena. It can be used to signal both supply-side (Silicon Valley) and demand-side processes (the central London professional and business service consultancies cluster), as well as different institutional links, and is broad enough to be applied to service and manufacturing industries and high-tech agglomerations as well as to concentrations of lower technology industries. Thus, some argue that the elasticity of the concept makes it hard to identify clusters, particularly when it comes to distinguishing cluster externalities from general urbanisation economies and infrastructural externalities8

Our research looks at the impact of place and SME behaviour, particularly focusing on their sales and procurement patterns. It also looks at the levels of connectivity and networking of the SMEs in the survey. While these factors are connected to the SME clustering processes discussed above, the research is not primarily about clusters, as this type of study would have required a detailed look at the factors determined by industry. Instead, the aim is to add to the body of knowledge on the SME community in the City, to help inform policies directed towards SMEs, which might be enhanced by the inclusion of clustering aspects.

7 Keeble & Nachum, (2001):p26 8 Harrison et al, (1996)

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No responses for the construction sector were collected as the database contacts were unable to complete the survey. However, this sector amounts to a small percentage of those in the City of London as a whole. The proportion of SMEs surveyed in the wholesale, retail trade and repair of motor vehicles sector is also smaller as less contacts were on the database for this group. However, seven responses were gained when this sector was targeted. We were able to collect responses from all other sectors at a representative level. Please note that those contacted for interviews were only those who were happy for us to do so following survey response, though we ensured SMEs from a variety of sectors were interviewed.

Figure 4.1 below shows the sizes of the SMEs who responded to the survey. 46% have fewer than 10 employees, 38.3% have 10 to 49 employees, and 15.4% have 50 to 249 employees within their organisation.

Figure 4.1 - Size of the SME survey respondents

Source: SME Business Survey

In terms of the different roles of those who took the survey, 23 are owner-managers of the company, 40 are directors/CEOs, and 82 are managers. Nine are procurement officers, 20 are responsible for marketing or sales, and the 27 which quoted ‘other’ roles include operations manager partner, receptionist, account executive, executive assistant and personal assistants.

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38.3%

15.4%

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10-49

50-249

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13

72% buy in the City, and of the larger SMEs (50 to 249 employees), 65% buy in the City (see Figure 5.3).

Figure 5.2 - Percentage of total buying (by £ value) SMEs buy from firms in the City


Figure 5.3 - Cross tabulation of size by buying in the City of London


As shown in Figure 5.4, certain sectors are more likely to purchase within the City. In particular other service activities (80%), and professional scientific and technical organisations (81.6%). The sector which is least likely to purchase from other firms in the City of London is the wholesale and retail trade (14.3%).

56%

72%

65%

44%

28%

35%

0% 50% 100%

Less than 10

10-49

50-249

Yes

No

1.7%

70.0%

18.3%

5.8%4.2%

0

1-25%

26-50%

51-75%

76-100%

14

Figure 5.4 - Cross tabulation of sectors and whether they buy in the City of London9


5.1.2 Buying from the City fringes As shown in Figure 5.5, the majority of firms responding to the survey (60.9%) do not purchase from the City fringes. The wholesale and retail sector is most likely to purchase from the fringes (83.3%). SMEs in this sector are also the least likely to purchase within the City. The professional, scientific and technical sector is the second sector most likely to purchase from the City fringes, with almost half (48.9%) purchasing from firms in the fringe. The sectors least likely to purchase from the City fringes are the information and communication sector (30.8%), and administrative and support services (28.9%) (see Figure 5.6).

Figure 5.5 - Buying from the City fringes


9 Please note the sectors have been merged into broad SIC classifications.

14.3%

58.3%

64.3%

53.8%

63.6%

81.6%

57.8%

80.0%

85.7%

41.7%

35.7%

46.2%

36.4%

18.4%

42.2%

20.0%

0% 20% 40% 60% 80% 100%

Wholesale & retail trade, repair ofmotor vehicles

Accommodation & food serviceactivities

Information & communication

Financial & insurance activities

Real estate activities

Professional, scientific & technicalactivities

Administrative & support serviceactivities

Other service activities

Yes

No

39.1%

60.9%

Yes

No

15

Figure 5.6 - Cross tabulation of sectors and whether SMEs buy in the City fringes10


The most bought from sectors are food and beverage activities (52.8%), retail trade (33.3%), computer programming (23.6%), and accounting, bookkeeping and auditing activities (23.6%). The least purchased activities are construction (1.4%), activities auxiliary to financial services and insurance activities (1.4%) and management consultancy activities (2.8%).

Businesses interviewed who purchased in the City fringes stated that the reasons for purchasing from those particular firms is due to their sale of specialist products which are needed for their business, as well as for convenience. Another business interviewed purchased food and beverages in the City fringes in order to meet up with clients closer to their place of work.

As demonstrated in Figure 5.7, similar to purchasing patterns within the City, the majority of firms purchasing from the fringes (70.8%) spend only 1% to 25% of their total purchasing budget on firms there. 17% of those that purchase from the fringes spend 26% to 50% of their budget. Less than 3% spend 76% to100% of their budget in the City fringes. This is similar to the spending value of firms that purchase within the City.

10 Please note sectors have been merged into broad SIC classifications.

83.3%

43.5%

30.8%

34.2%

36.4%

48.9%

28.9%

33.3%

16.7%

56.5%

69.2%

65.8%

63.6%

51.1%

71.1%

66.7%

0% 20% 40% 60% 80% 100%









YesNo

16

Figure 5.7 - Percentage of total buying (£ value) from the fringes


Analysis of purchasing behaviour by firm size suggests that larger companies are more likely to purchase from the fringes (see Figure 5.8). 35% of SMEs with fewer than 10 employees purchase in the City, 41.7% of organisations with 10 to 49 employees purchase from the fringes, and 45.2% of the larger SMEs with 50 to 249 employees buy from the areas surrounding the City. There appears to be a direct correlation between firm size and the proportion of the purchasing budget that is spent in the City fringes. This is in contrast to purchasing from firms in the City of London where no clear relationship between firm size and amount spent was found.

Figure 5.8 - Cross tabulation of size and whether firms buy in the City fringes


The following case study demonstrates why one business interviewed chooses to buy and sell locally.

34.8%

41.7%

45.2%

65.2%

58.3%

54.8%

0% 20% 40% 60% 80% 100%

Less than 10

10-49

50-249

Yes

No

1.4%

70.8%

16.7%

8.3%

2.8%

0

1-25%

26-50%

51-75%

76-100%

17

5.2 Case study

Bugbugs Media Ltd – buying and selling locally Bugbugs provides zero-emission transportation in the City of London and the West End. Bugbugs is a founder member of the LPOA (London Pedicab Operators Association) which is at the forefront of working with the London authorities, to create an appropriate licensing scheme for pedicabs.

Bugbugs operates a social enterprise business model and is totally focussed on reducing emissions locally as much as possible. For this reason, the company has decided on principle to buy locally where it can. The one major item it buys outside the City of London is a powder coated material required in the manufacture of its pedicabs. This is from a specialist manufacturer.

Bugbugs was based in Southwark but decided to move closer to its main client base in the City and West End. The infrastructure in the City of London is very good, though the managing director feels it could be more cycle friendly.

18

5.3 Selling This section will look at the selling patterns of SMEs in the City of London.

5.3.1 Selling to the City of London Approximately 68% of the firms in the City sell to other firms within the City of London, as demonstrated in Figure 5.9. The sectors that are most likely to sell to others in the City are the information and communication sectors (92.3%), the professional, scientific and technical sector (87%), and the administrative and support service activities (77.8%). Those least likely to sell to other firms in the City are accommodation and food service activities (17.4%), and other service activities (22.2%) (see Figure 5.10). However, one of the restaurants that did sell to the City stated that location was important to them as a large amount of their revenue comes from local corporate firms using their venue for events due to the good location.

Figure 5.9 - Do SMEs sell to firms in the City of London


Other key ways that the businesses interviewed made sales in the City was through word of mouth, direct marketing to potential or established customers, self promotion, via the internet, and through meeting people at specialist seminars and events.

67.6%

32.4%

Yes

No

19

Figure 5.10 - Cross tabulation of sectors and whether they sell to firms in the City of London11


The value of sales to firms differ. 39% of survey respondents make 1% to 25% of their total sales in the City, 23.6% make 26% to 50% of their sales in the City, 17.3% make 51% to 75% of their sales in the City, and 19.7% make 76% to100% of their total sales to firms in the City.

The sectors for which selling in the City is most significant to their total sales, are the food and beverage sector (half of SMEs make 51% to100% of their sales to other City firms), retailers (66.7% make 51% to75% of their total sales in the City), and employment activities (half make 51% to100% of their sales in the City).

11 Please note sectors have been merged to broad SIC classifications.

60.0%

17.4%

92.3%

66.7%

63.6%

87.0%

77.8%

22.2%

40.0%

82.6%

7.7%

33.3%

36.4%

13.0%

22.2%

77.8%

0% 20% 40% 60% 80% 100%









Yes

No

20

Figure 5.11 - What percentage of total sales (by £ value) are to firms within the City of London


There appears to be a relationship between firm size and the proportion of sales made within the City, with larger companies being most likely to sell within the City. 62% of SMEs with fewer than 10 employees sell to the City, compared to 69.4% of those with 10 to 49 employees and 79.3% of those with 50 to 249 employees which sell within the City of London.

Figure 5.12 - Size cross tabulation of whether they sell to firms in the City of London


5.3.2 Selling to the fringes A total of 51.6% SMEs surveyed said that they do sell to other firms in the fringes. This has a lower significance regarding income for firms compared to the value of sales in the City, as demonstrated in Figure 5.13. The sectors for which sales to the City fringes had highest significance are the office administrative, office support and business support sector (60% of those surveyed made more than half their sales to the City), followed by activities auxiliary to financial services and insurance activities (40% of respondents’ sales to the City fringes accounted for 76 to100% of their total sales).

0.8%

38.6%

23.6%

17.3%

19.7% 0

1-25%

26-50%

51-75%

76-100%

62.1%

69.4%

79.3%

37.9%

30.6%

20.7%

0% 20% 40% 60% 80% 100%

Less than 10

10-49

50-249

Yes

No

21

0.0%

50.5%

24.7%

10.3%

14.4% 0

1-25%

26-50%

51-75%

76-100%

Figure 5.13 - Percentage of total sales (by £ value) to firms in the City fringes


Micro businesses (fewer than 10 employees) are less likely to sell to the City fringes (40.2%) than those with 10 to 49 employees (62.5%). 59% of larger SMEs with 50 to 249 employees, sell to the City fringes (see Figure 5.14).

Figure 5.14 - Cross tabulation of size and whether they sell to City fringes


The businesses interviewed that sell to the City fringes use the same methods of gaining sales as they do to potential customers in the City, i.e. mainly through word of mouth and marketing.

40.2%

62.5%

58.6%

59.8%

37.5%

41.4%

0% 20% 40% 60% 80% 100%

Less than 10

10-49

50-249

Yes

No

22

Figure 5.15 - Cross tabulation of sectors and whether they sell to the City fringes


As demonstrated in Figure 5.15, those sectors most likely to sell to the City fringes are those involved in real estate activities (81.8%), professional, scientific and technical activities (65.2%), and the administrative and support service activities (62.2%). The sector least likely to sell to the City fringes is accommodation and food service, with only 13% of respondents selling to fringes.

5.4 Conclusion Buying

Almost two thirds of SMEs in the survey source services and goods from other firms within the City, suggesting City SMEs in general have important trade relationships with other local firms.

The overall expenditure in the Square Mile by those respondents that buy in the City only accounts for a quarter or less of their total spending budget. The most common types of purchases by City SMEs are connected to food and beverage, and retail activities. This indicates that local SME purchases in both the City and surrounding area tend to be of relatively low value. A similar picture emerges regarding expenditure in the City fringes.

The main reasons that City SMEs give for buying from other City firms are proximity and good reputation.

In terms of business sectors, professional, scientific and technical organisations are the most likely to purchase from other firms in the City. City SMEs in the information and communication sector are the least likely to purchase from the fringes.

Conversely, the majority of the firms responding to the survey (60.9%) do not purchase from the City fringes.

60.0%

13.0%

46.2%

41.7%

81.8%

65.2%

62.2%

33.3%

40.0%

87.0%

53.8%

58.3%

18.2%

34.8%

37.8%

66.7%

0% 20% 40% 60% 80% 100%









Yes

No

23

The opposite is true for the wholesale and retail trade, which is most likely to purchase from the fringes.

Selling

Over two thirds of respondents sell to other firms within the City. The sectors most likely to sell to other City firms are information and communication, and the professional, scientific and technical sector. Those least likely to sell to other firms in the City are accommodation and food service activities.

More than one third of SME respondents’ sales to City firms account for more than half of their annual trading income.

Larger SMEs in the survey are more likely to sell within the City, but compared to smaller SMEs the difference is not significant. In relation to selling within the City, business sector appears to be a better indicator than size.

Just over half of respondents sell to the City fringes. Larger City SMEs are more likely to sell to firms in the fringes. The sectors most likely to sell to the City fringes are those involved in real estate activity; professional, scientific and technical activities; and the administrative and support service activities. The sector least likely to sell to the City fringes is the accommodation and food service.

6

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25

Proximity to customers is the third most important benefit of a City location, by 59% of those surveyed. This is particularly true of food and beverage companies, where 73% of firms surveyed reported this as a very important factor. The importance of proximity to customers and potential customers was also emphasised during the course of all of the business interviews. Restaurants in particular benefit from being close to a large number of corporate firms who entertain on a regular basis. The restaurant interviewed explained that “Firms are looking for a nice venue in which to entertain their clients at lunchtime and for dinner.” Those interviewed from business services sectors report that having a location in close proximity to clients means it is easy to meet them locally.

In contrast, being close to suppliers is only seen as important or very important by just over 16% of those surveyed.

The fourth most important benefit of a City of London location is that customers can easily find the firm. Fifty one percent of those surveyed thought this is an important or very important benefit. This is particularly the case for those involved in the food and beverage industry, where 64% of respondents feel this is a very important factor.

The availability of suitable business premises is seen as being a very important or important benefit by 45% of those surveyed.

Factors which do not seem to be a key benefit of the location include the availability of support from local government and agencies. Only 9% think this is important or very important. Similarly, issues such as the ability to access real-time information, being close to competitors and being close to professional bodies are not seen as being a benefit linked to a City location. Interestingly the scope for knowledge transfer from other firms and organisations in the area, which is generally thought to be a key benefit of clustering, is only thought to be important or very important by 25% of the firms surveyed.

The business interviews also identified issues that are seen by some firms as being a disadvantage of their City location. These include the high costs of premises, congestion charges which mean it is almost impossible to get trades people to undertake work at their premises, and the lack of weekend trade, which particularly affects restaurants. On the whole however, the businesses interviewed seem to feel that the benefits more than outweigh any disadvantages the location might have.

The following case study demonstrates the importance of location to a consultancy based in the City.

26

6.2 Case study

GBRW Expert Witness – a key example of the importance of location GBRW Expert Witness is an affiliate of GBRW Limited, a consulting company based in the City of London which provides advice on banking, insurance, financial sector and enterprise development issues.

Since the firm’s business model relies on a small core staff team (the two directors) and a large pool of freelance associates, it is able to operate from a very small office base in the City. A minimal amount of office equipment and services are therefore required. The largest purchases made from other firms in the City are the rent of the office, accountancy services and printing services. Nothing is bought from the surrounding boroughs. Customers come from all over the world, but include a large number of legal and financial firms based in the City and these clients account for between 26 to 50% of their business. They also have a number of clients based in the boroughs surrounding the City including Canary Wharf in Tower Hamlets, Camden and Westminster. Some of these clients were inherited when they purchased two companies working in the field and the rest have found them through word of mouth, the internet and directories of experts.

A location in the City is seen as a key advantage for the business. As Director Paul Rex explained,

“ A location in the City of London gives the business credibility and enables us to charge premium rates. Oversees clients are financial institutions and are more likely to be impressed by a City of London address.”

The firm also benefits from being close to professional bodies from which it secures much of its business. Networking with these firms, for example at law firms’ events, all provide useful opportunities for meeting people, picking up information, and discussing business. Being close to providers of key services is also important. For example the notary they use is based just around the corner. The cost of management time is crucial and if they can save time by getting this sort of thing done quickly, this can be measured in the reduced cost of staff time. If they need to shift documents by Courier they can also get this done quickly from their current location.

27

6.3 Networks 6.3.1 Formal business networks 36% of the firms (66) surveyed belong to formal business networks based in the City or surrounding boroughs (see Figure 6.2). The interviews suggest that many of these formal business networks are national industry bodies which have a base in the City or hold regular events in the area.

Figure 6.2 - Do businesses belong to formal networks?


Figure 6.3 - Cross tabulation of SME sectors belonging to formal business networks


Firms in the technical and professional services sector and those offering financial and insurance services are most likely to belong to formal business organisations in the City. Over 40% of the firms in these sectors reported that they belong to some sort of formal business network (see Figure 6.3). This contrasts with just 18% of firms in the accommodation and food services sectors and none in wholesale and retail trade. The greatest role these networks play is in providing access to information

35.7%

64.3%

Yes

No

0.0%

18.2%

30.8%

41.7%

36.4%

44.4%

36.4%

33.3%

100.0%

81.8%

69.2%

58.3%

63.6%

55.6%

63.6%

66.7%

0% 20% 40% 60% 80% 100%









Yes

No

28

and intelligence. 63% of the 66 businesses belonging to formal networks in the area suggested that this is a very important or important advantage of being a member of these networks. The interviews confirmed that a number of firms belong to professional bodies who hold regular seminars and networking events in the City, and while attendance at these events rarely led to immediate new sales contracts, they were a useful means of making contacts and obtaining information of benefit to the operation of their business.

Figure 6.4 - Importance of formal network membership

Source: SME Business Survey. (Please note some answers do not add to 100% as the option of ‘not applicable was available’.)

41% of the businesses surveyed who were members of formal business networks in the area responded that the networks are a very important or important means of securing new sales leads and developing new business collaborations, or securing access to resources. They are less important for finding staff, suppliers, or fostering innovation within the business.

The business interviews further highlight the importance of both formal and informal networking, to securing business. One of the employment agencies interviewed, for example, explained that in their line of business the personal approach is crucial to getting business and thus a lot of emphasis is placed on networking. In the owner’s view, “Networking is key to getting sales.”

4.5

24.2

42.4

24.2

18.2

18.2

15.2

4.5

16.7

9.1

7.6

7.6

12.1

10.6

25.8

24.2

24.2

22.7

28.8

22.7

33.3

30.3

16.7

7.6

22.7

25.8

19.7

22.7

33.3

13.6

9.1

18.2

18.2

22.7

13.6

0% 20% 40% 60% 80% 100%

Obtaining information andintelligence.

Finding staff and skills

Finding suppliers

Obtaining sales leads

Developing new businesscollaborations

Securing access to resourcesi.e. research, expertise,specialised knowledge,…

Fostering innovation withinthe business

1 = not important

2

3

4

5 = very important

29

6.3.2 Informal business networks 45% of the sample surveyed belong to informal networks based in the City of London or surrounding boroughs (see Figure 6.5). Those involved in professional, scientific and technical activities are more likely to be involved in this type of network than other sectors. 73% of firms involved in head office and management consultancy activities, the two accountancy firms and 57% of legal firms are members of informal networks. In contrast, only 18% are involved in real estate activities are involved in informal business networks in the City, and none of the five wholesale and retail firms responding to the survey are members (see Figure 6.6).

Figure 6.5 - Do SMEs belong to informal business networks?


The main value to businesses of these informal networks is in providing a source of information and intelligence, and in developing new business collaborations. 43% and 42% respectively feel that informal business networks are very important or important for these reasons.

Figure 6.6 – Cross tabulation of SME sectors belonging to informal business networks


45.4%

54.6%

Yes

No

0.0%

40.9%

38.5%

44.4%

18.2%

66.7%

43.2%

33.3%

100.0%

59.1%

61.5%

55.6%

81.8%

33.3%

56.8%

66.7%

0% 20% 40% 60% 80% 100%









Yes

No

30

37% also find membership of these informal networks important or very important for obtaining sales leads (see Figure 6.7). While the small size of the data sets makes reliable comparisons difficult, there seems to be distinct differences between the different sectors. For example, firms from the professional and technical services sectors feel that informal networking is a far more important source of information and intelligence than firms in the food services (see Figure 6.8). Figure 6.7 - Importance of informal network membership

Source: SME Business Survey (Please note some answers do not add to 100% as the option of ‘not applicable was available’.)

The interviews also highlight the importance of informal networking events such as corporate parties, that are sometimes organised by leading City firms. The consultancy firm interviewed highlighted how a chance encounter at one such event led to a new contract for the firm. A further form of networking which was raised during the interviews is the use of social media for networking purposes. Several firms, particularly those operating in the employment and recruitment sector are attaching increasing importance to the use of social media as a means of networking with clients and promoting their business.

11.9

29.8

52.4

33.3

25.0

35.7

21.4

2.4

14.3

10.7

4.8

6.0

10.7

10.7

41.7

23.8

15.5

19.0

26.2

23.8

36.9

21.4

14.3

11.9

19.0

20.2

19.0

21.4

21.4

13.1

6.0

17.9

21.4

8.3

7.1

0% 20% 40% 60% 80% 100%

Obtaining information andintelligence.

Finding staff and skills

Finding suppliers

Obtaining sales leads

Developing new businesscollaborations

Securing access to resourcesi.e. research, expertise,…

Fostering innovation within thebusiness

1 = not important

2

3

4

5 = very important

31

Figure 6.8 - The importance of obtaining information and intelligence


The following case study demonstrates how networking is used to build business by a recruitment firm based in the City.

44.4%

13.3%

5.3%

33.3%

11.1%

3.3%

33.3%

56.3%

50.0%

30.0%

57.9%

66.7%

60.0%

31.3%

50.0%

20.0%

15.8%

40.0%

12.5%

33.3%

21.1%

11.1%

0% 20% 40% 60% 80% 100%

Accommodation & food service…




Professiona, scientific & technical…

Administrative & support service…


1 = not important

2

3

4

5 = very important

0 = not applicable

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6.4 Case study

Hornby Chapman – how networking works to build business Hornby Chapman Ltd is a recruitment firm specialising in senior permanent hiring within a very narrow industry segment; the asset servicing industry. Hornby Chapman has relatively few administrative and office requirements and consequently, few suppliers. The main services it sources from within the City are computer support followed by consultancy and related services. The business does not procure services from the fringes. One of the main reasons to source services from the City is the availability of suppliers who have industry specific knowledge and therefore are able to understand Hornby Chapman’s needs. Another reason is the high level of responsiveness of suppliers, who are able to deal with issues at short notice and at any time. Networking within the banking industry both in the UK and overseas has been and continues to be the most important way of sourcing clients. Networking takes the form of attending sector specific conferences, mainly in banking, and meeting people in restaurants, bars and clubs in the City. According to Paul Chapman, Founder, the personal approach is critical to get new business, so he prioritises for networking with people in the banking/asset servicing industry at conferences and one to one meetings. Lunch meetings take place almost every day. In addition, Paul attends about four conferences in a year. In partnership with Peter Shepherd, another City recruitment specialist firm, Paul runs an annual networking event called the Williams Network. According to Paul, networking is key to getting sales and maintaining their presence in the industry. It is also good for getting information and intelligence.

The main advantages of a City location for Hornby Chapman are proximity to clients (the principal benefit), followed by credibility before national and overseas clients and access to suitable premises. The high levels of premise costs is seen as the only disadvantage of a City location.

33

6.5 Innovation 40% of the businesses responded that they have introduced new or significantly improved products, services, or processes in the last 12 months. Those involved in management consultancy activities (68%) and the food and beverage sector (59%) are most likely to say they have introduced such an innovation.

Figure 6.9 - Have SMEs introduced new or significantly improved products, services or processes in the last 12 months?


The interviews highlight how some firms are introducing new skills into their business from other sectors. For example, a consultancy firm working with legal firms representing the construction industry has been working with architecture graduates to develop computer animations to help provide vivid visual animations to illustrate problems that have occurred in a building project. Providing this specialist service has given the firm a distinct competitive advantage. This example also illustrates the potential of cross-sectoral links as a means of fostering innovation.

Other innovations identified during the course of the interviews include significant developments to websites, incorporating various forms of social media that allow for a greater level of engagement with clients, as well as the introduction of more efficient office systems to allow for virtual working and the sharing of data.

6.6 Conclusion The research provides some evidence of clustering and the associated benefits, although there are also marked differences between the different types of sectors.

For the majority of firms, the prestige associated with an address in the City of London and the convenience of good transport links that are seen as being the greatest benefits of the location. Other factors such as proximity to suppliers and the potential for knowledge transfer which are normally associated with clusters, appear to be of far less importance. There are clear differences between the sectors however, and whilst a prestigious location is particularly important for those from the professional and technical services areas, proximity to customers is of greater importance to firms in the food and drink industry.

40.0%

60.0%

Yes

No

34

Networking, both formal and informal, is also of greater importance to firms in the professional and technical services and for many firms it is integral to the way business is conducted. It is particularly important for gathering information and intelligence, and developing contacts that can generate new business opportunities. The high concentration of firms in inter-related professional service areas together with the tendency for many formal networking events to be held in the area, enhances opportunities for networking and strengthens the horizontal (between same sector firms) and vertical links (with firms in the supply chain) in the cluster.

In contrast, there is little evidence of this type of networking and clustering activity taking place in many of the other sectors, who tend to be located in the area because they service the professional and technical service firms.

40% of the businesses responding to our survey have introduced some form of new or significantly improved product, service or process in their business in the last 12 months, but there is ilttle evidence here as to the extent to which clustering in the City of London encourages this. The interviews suggest that there is potential for encouraging more cross-sectoral linkages, particularly between firms in the new digital media sectors and the professional and technical services.

7

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36

C6. In relation to selling within the City, business sector appears to be a better indicator than size. C7. The sectors most likely to sell to the City fringes are those involved in real estate activities, professional, scientific and technical activities and the administrative and support service activities. Recommendation 1: Trade fairs and networking events to enhance inter-trading. A programme of events which can act as a platform or ‘market place’ to encourage inter-trading between SMEs in the City and SMEs in the neighbouring boroughs. A key emphasis on some of the Corporation’s recent business support measures has been placed on facilitating SMEs’ access to City procurement managers (largely corporations) through ‘Meet the Buyer’ type events and getting them ‘ready’ to sell to larger City firms through training and consultancy support.

While it is important these measures are maintained, it might be beneficial to broaden this remit through the incorporation of a programme of events which can act as a platform or ‘market place’ to encourage inter-trading between SMEs in the City and SMEs in the neighbouring boroughs.

Suggested actions:

i. For example, at ‘Meet the Buyer’ events organised by City of London and its partners, SMEs could be encouraged to fill out a simple card which says ‘I buy…’ and ‘I sell…’ and their contact details. These cards can then be pinned to a board visible to all attendees and would encourage interaction during and after the event.

ii. City of London can act as a catalyst for interaction between small firms, specifically those based in the City and its fringes. A successful format is the ‘Open Coffee’ format. The City (or one of its partners) would need to provide a meeting space where refreshments can be bought. Open Coffee events are held regularly, usually once a week at the same place and same time. These are self organising and just need to be advertised widely. The purpose is to come in and network with other like minded people. There is no registration process, no speakers and no facilitator.

2. Advantages and disadvantages that location in the City presents to local

SME in different business sectors Location C8. Having an address in the City is one of the most important benefits of being located in the area for a large number of respondents. The prestigious profile of the City confers business credibility not just at national level but also with overseas clients. C9. Proximity to customers is another important benefit for some sectors in partocular. In contrast, being close to suppliers is not seen as important. C10. Good transport links are the second most important benefit of locating in the City.

37

C11. The availability of support from local government and agencies did not emerge as being a key factor of a City location. C12. The disadvantages of a City location were explored in the interviews. High rent costs and to a lesser extent, the high costs of peripheral services, for example entertaining clients, emerged as the most common disadvantages. Recommendation 2: Awareness campaigns are important. SMEs based in the City of London could be made aware of the benefits and be provided with more and easier access to publicly funded business support. SMEs based in the City of London could be made aware of the benefits and be provided with more and easier access to publicly funded business support as currently knowledge of this support is lacking. As there seems to be a gap between the knowledge of support available to SMEs and what is actually available, it is recommended that there is further engagement and promotion of these actvities. It is important to present a comprehensive view of the different support measures available and to provide tailor-made support services. There are funded programmes currently available that provide support for:

Access to finance; International trade development; Innovation; Research; Growth acceleration.

Suggested actions:

iii. A central orgasnisation such as the City of London could collate the support that is available to SMEs in the City and maintain a database of what is provided. Future updates can be provided by the project managers of various schemes. This can then be promoted to the SMEs using different marketing tools depending on resource available; this may include promoting links to the database on the City of London and partner organisation websites.

iv. A central organisation such as the City of London could facilitate a ‘round the table’ regular meeting on engaging SMEs and promoting business support activities. Working in close partnership with existing SME networks, City based institutions and providers of funded business support.

3. The type and intensity of relationships between businesses through

networking both formal and informal with a focus on the diffusion of knowledge and innovation.

C13. The level of participation in formal business networks is not particularly high -only one third of respondents are involved in formal networks. City SMEs in legal and financial services are more likely to belong to formal networks. C14. A larger proportion (45%) of respondents are involved in informal business networks. Those involved in professional, scientific and technical activities are more likely to be involved in this type of network than other sectors.

38

C15. The main value of these informal networks is in providing a source of information and intelligence, and in developing new business collaborations. C16. Gaining new business and maintaining clients is highly dependent on informal networking, including attending lunch meetings with contacts and prospective and existing clients as well as gatherings with other professionals to maintain the profile of their businesses. C17. The research provides some evidence of clustering and the associated benefits although this varies by sector. For most City SMEs, the prestige associated with an address in the City and the convenience of good transport links are seen as the greatest benefits of the location. C18. Other factors such as proximity to suppliers and the potential for knowledge transfer, which are normally associated with clusters, appear to be less important for our surveyed firms There are clear differences between the sectors however, and while a prestigious location is particularly important for those from the professional and technical services areas, proximity to customers is of greater importance to firms in the food and drink industry. Recommendation 3: Industry specific seminars and knowledge transfer. Collaboration with trade bodies and institutes based in the City of London would be highly beneficial in disseminating information about events, seminars and research findings to SMEs based in the City and its fringes.

For example, the interviews highlight the role that events organised by leading city firms can play facilitating the diffusion of expert advice. It would be useful to increase the reach of this knowledge transfer to those currently not taking advantage of this.

Moreover, it would be interesting to explore further whether and to what extent the sharing of information and intelligence, seen as one of the main benefits of networking, also includes elements of knowledge transfer.

There is much sector variation regarding the type of networking activities undertaken by SMEs. We suggest that the more targeted the activity, for example offering industry specific marketing intelligence, the better the chances of securing the participation of the relevant SMEs.

Suggested actions:

v. Collate information on the events and who is running them, and promote it to businesses in the City. (This could be done in conjunction with recommendation 2 action iii).

Innovation C19. The scope for knowledge transfer from other firms and organisations in the area, generally thought to be a key benefit of clustering, was only important or very important for 25% of the firms surveyed. C20. 40% of the businesses responding to the survey had introduced some form of innovation in the last 12 months.

39

Recommendation 4: Work to help encourage innovation and explore the factors supporting this. Further exploration of which aspects of the City’s structure and City businesses’ interactions help to encourage innovation. The business responses suggest a healthy level of innovation taking place in City businesses. Further work could look at how this can be supported and facilitated, and what role clustering plays in this. The interviews suggest that there is potential for encouraging more cross-sectoral linkages, particularly between firms in the new digital media sectors and the professional and technical services. Suggested actions:

vi. Further research on supporting and promoting innovation and the factors which encourage this could be explored.

40

Reference List

P Braun et al (2005) Small business clustering: Accessing knowledge through local networks, CRIC, University of Ballarat.

Bone Wells Urbecon and Colin Buchanan & Partners (2010) Supporting London business clusters, Partners for London Councils.

CEBR M Pragnellet al (September 2008) The City of London’s supply chain and its relationship with the City fringes, City Fringe Partnership and the City of London Corporation.

G Cook et al (2004) Financial services clustering and its significance for London, UK Economic and Social Research Council and the city of London Corporation

DTI (2001) Business clusters in the UK: A first assessment.

Experian (July 2012) Mapping SMEs in the City, City of London Corporation.

D Keeble and L Nachum (March 2001) Why do business service firms cluster? Small consultancies, clustering and decentralisation in London and Southern England, Working Paper,194.

Harrison, B. Kelley, M. and Grant, J (1996) Innovative firm behaviour and local milieu: exploring the intersection of agglomeration, firm effects, and technological change.

OECD (1999) Boosting innovation: the cluster approach.

41

Glossary

BIS Department for Business, Innovation and Skills BWU Bone Wells Urbecon CBP Colin Buchanan & Partners CEBR Centre for Economics and Business Research DTI Department of Trade and Industry

OECD Organisation for Economic Co-operation and Development

SIC Standard Industrial Classification SME Small to Medium Enterprise UK United Kingdom USA United States of America

42

Appendices

Business survey Please see below for the business survey questions used. Please note that this does not include any question logic.

43

44

45

46

47

48

Business Interview Questions

Trading Practices:

1. Buying a. What are the 3 largest categories of goods/services (in terms of £ value) you

buy from firms within the City of London?

b. Why do you buy from them?

c. What are the 3 largest categories of goods/services you buy from local firms in boroughs surrounding the City of London? (Tower Hamlets, Hackney, Islington, Camden, Westminster, Lambeth, Southwark).

d. Why do you buy from them?

2. Selling a. What do you sell to firms within the City of London?

b. How did you find your top 3 clients from the City of London?

c. What do you sell to firms in the boroughs surrounding the City of London? (Tower Hamlets, Hackney, Islington, Camden, Westminster, Lambeth, Southwark).

d. How did you find your top 3 clients in the surrounding boroughs?

3. Location a. When did your business locate to the City of London?

b. Why did your business locate to the City of London?

c. In your opinion, what are the 3 main advantages of being located in the City of London?

d. In your opinion, what are the 3 main disadvantages of being located in the City of London?

4. Networking a. In your opinion, is networking important? Why?

b. Who (people, organisations) do you network with in the city?

c. On average, how many networking events (formal & informal) do you attend in a month?

d. How has the business benefitted from you networking activities?

49

5. Innovation a. Have you introduced any new or significantly improved products, services,

or processes in the last twelve months?

b. If yes, what impact have these made on your business?

c. Are you likely to introduce any new or significantly improved products, services, or processes in the next 12 months?

d. Do you collaborate with any research based organisations (Universities, research institutes, research companies, etc.)?

6. Business performance a. Compared with the previous 12 months, has your turnover in the past 12 months..

Increased Decreased Stayed roughly the same

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