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CASE STUDIES:

London – Innovation growth in a roundabout way 

Summary

   The area known as East London Tech City, usually shortened to Tech City, and commonly known as Silicon Roundabout, is a former run-down area of the capital, that is now the most talked about and vibrant area in the country for high-tech companies. The early popularity was generated by media and ICT Small and Medium Enterprises (SMEs) and start-ups who wanted easy access to clients and markets in the City of London, but since the collapse of the dotcom boom did not have much money to spend on accommodation. The embryonic cluster of companies working in media and hi-tech industries with non-traditional business models, started to draw in other like-minded entrepreneurs.

   Local and national governments have been sensitive to the needs of the companies involved through: policy, financial support and ensuring the in-vestment being made for the Olympics in 2012 benefitted local business in the longer term. Larger companies were attracted once they recognised the importance of the companies and this area for their business.

   In order for a company to succeed it needs the right people with the right attitude and the right skills. The London area has a highly diverse cultural and ethnic population which creates a melting pot of innovative and creati­ve ideas. Talented young people from the immediate area, and those who move from elsewhere in the UK, are able to access training to develop their skills through the development of relevant courses at local colleges to meet the demand. In addition, Universities in London as well as Loughborough University have become academic partners for projects in the area. However, most companies are far too small to have their own research departments, and there is a problem with access to high level, world class research facilities.

   The business community is largely drawn from the first generation to have grown up with social networks. It is therefore unsurprising that this has led to a high volume of electronic communication. However, they also value face to face networking, and one of the biggest attractions of the area is that this is where you can meet and socialise with like-minded people, and a huge support service has developed to meet that demand.

The history of Tech City

   A popular saying in the UK is that the streets of London are "paved with gold". Anyone with ambition is naturally attracted to the capital in the hope that they can share in that wealth.

   In 2008, the UK was struck by the effects of the Global recession.  However, in the previously run-down Shoreditch and Hoxton area, there were signs that high-tech businesses and internet start-ups were bucking the global economic slow-down. The centre of activity was the area around the unin-spiring Old Street junction to the north-east of the financial centre of Lon­don. As activity increased and the number of high-tech companies of the type usually associated with Silicon Valley in California, multiplied; this was dubbed Silicon Roundabout.

   The image of London as the place to be was boosted by other serendipitous factors.  In 2008 London elected a new and highly idiosyncratic Mayor - Bo­ris Johnson. Mayor Johnson is committed to promoting the city as a dyna-mic and business friendly place to be; he was given a World stage as London prepared itself for the 2012 Olympics. The Olympic preparations included billions of pounds being invested in improvements to transport and facilities in the area around Tech City.

   In 2010, the recently elected Conservative - Liberal Democrat Coalition government were keen to be associated with economic success stories. In a landmark speech for the industry, on the 4th November 2010, Prime-Minister Cameron announced: "We are firmly on the side of the high-growth, highly innovative companies of the future... Our ambition is to bring together the creativity and energy of Shoreditch and the incredible possibilities of the Olympic Park to help make East London one of the world's great technology centres."

   Silicon Valley was held up as the model for how to create a success in the high-tech and innovation sectors. Cameron acknowledged that Silicon Valley's success did not come from any grand plan. He said that the crea­tive people who drove that success were not there because of government policies (this is debateable); they wanted to be there because they liked the climate and the local cultural scene. Once they were there, industry friendly government policies made it possible for them to stay and thrive. So, Cameron's belief was that government should "...Go with the grain of what is already there. Don't interfere so much that you smother. But do help out wherever you can."

   The new coalition government was committed to supporting industrial inno­vation, and Cameron was able to announce: £200 million to develop the Ca-tapult Programme, which would create seven Catapult centres for promoting technology and innovation in key areas of industry. In addition, he wanted to leverage £200 million of private equity finance for businesses with high growth potential. Following months of discussions with the companies al­ready in the Shoreditch area over what help they wanted he announced £15 million for East London Tech City initiative.

   Traditionally, Conservative governments have had clear anti-immigration credentials, but in this speech he issued a global invitation to anyone who had an idea that will create jobs and had the ambition to build a world-beating company. "...We want you; we'll make it easy for you; we'll put out the red carpet for you. With our new Entrepreneur Visa we want the world to know that Britain wants to become the land of opportunity."

   It was not just foreign entrepreneurs that the government wanted to en-courage in to Tech City. A new body, the Tech City Investment Organisation (TCIO) was set up in April 2011 to bring in foreign direct investment, engage with overseas venture capitalists and raise the profile of the cluster internationally.

   In December 2012, TCIO announced they were going to build a £50 million technical and creative institute. This would provide a permanent space to train and engage young people in high tech industries, and be a resource for local companies and the industry in general. This publicly funded centre is in addition to a number of commercially funded projects offering similar facilities that have been announced during 2012.

What makes a good climate for innovation?

   Inner London and Tech City in particular, was chosen as a case study because it provides evidence for many of the drivers of innovation that researchers look for. The following information is the result of interviews with the people who live and work in the area, and representatives of the organisations that support them.

A large community of people from "the creative class"

   Every study of the industry stresses the importance of attracting the right people in order to create the conditions for a climate of innovation. Young entrepreneurs do not want to work for others, they want to be free to express their own ideas and create new ideas by working with people who share their vision. They are often associated with free-thinking and progres­sive political views, alternative lifestyles, "indie" music, and non-main- stream fashion. Sometimes described as 'Hipster', this lifestyle and look is not always encouraged in 'traditional' industry.

   Tech City quickly achieved the critical mass of people who see entrepreneurship as a lifestyle to create a suitable climate for innovation. Networking activities like the regular "Silicon Drinkabouts" provide an opportunity to relax with peers, and to get support and advice for business ideas from people who share their ideals and ambitions.

A networking environment

   Most studies show that being within walking distance of a large number of your peers, clients and access to finance has a positive effect on the inno­vation climate. The close community on University Road in Palo Alto, Silicon Valley is the best example.

   Tech City is a very compact business community with a wealth of events and thousands of start-ups within walking distance.

   In addition networking through social media is important in maintaining business and personal relationships. The screenshot below of the Tech City Map shows the volume of Twitter use, and just how local this is. Tech City is buried at the centre of the activity.

Cultural diversity

   London is undoubtedly a multi-cultural city, the UK Office of National Statistics estimates that in addition to English, there are over 300 languages spoken in the Greater London area. The majority of speakers of these mi­nority languages are at least bilingual in their native tongue and English. It has been argued that the ability to speak more than one language enhances cognitive development. A greater understanding of how languages work and syntax can also be an advantage in developing computer programming skills. Blending different cultural backgrounds brings together different ways of thinking and can create unique solutions.

Good communication

   Good communication is considered an important factor in supporting innova-tive environments. In addition to Heathrow, one of the largest airports in the world, London is served by four more international airports: London Gatwick, London Stansted, London Luton and London City Airport. It has good rail links to northern Europe via the Channel tunnel and is the man hub for rail and road communication in the UK.

   In addition to the ease with which people can move in and out of the area, Tech City has been given priority in the roll-out of digital communication and access to improvements in broadband speeds. and access to improvements in broadband speeds.

Conclusions from the interviews about the innovation climate

   The majority of interviewees regarded the innovation climate in Tech City as open, easily accessible and with high output.

   There was however a note of caution about the access to high level research. Advanced research carried out by the universities of Oxford and Cambridge which are less than an hour away by train, are considered distant by Silicon Roundabout standards.

External support for innovation

   As previously discussed, the Governmenťs approach has been to provide help where it is needed, but 'cheer from the sidelines' when it is not. The following factors cannot be generated internally by a cluster; they are made possible through high-level support at governmental level or through larger industry and businesses recognising the value of working with the cluster.

Access to capital

   Both people running start ups and those providing financing agree that the amount of capital in London is probably the highest in Europe and also that access to capital for those who have a good idea is quite easy. Even for the travel-averse Tech City community, direct access to the central London money markets is close at hand.

   US investors have looked at SMEs in London, Berlin and the Nordic countries working in the ICT sector (which includes mobile), as good value for money in comparison to what they can get in California or New York. However, there is no guarantee that this will continue to be the case in the long-term. There is concern in the financial sector that there may be a "backlash" in the financial values of companies; the fight to place investments could lead to unrealistic values within the sector. This was the background to the collapse of the dotcom boom in the early 2000's where mercurial companies like Boo.com lost hundreds of millions for investors. Most interviewees were aware of this history, but believe that the valuations placed on companies are still at a moderate level.

Boo.com

   In late 1999, Ernst Malmsten, Kajsa Leander and Patrik Hedelin, who had a previous history as successful e-retailers, launched Boo.com. Just 18 months and $135 million of venture capital later, the company was placed into receivership and liquidated.

Public infrastructure

   The Government primed the high-tech innovation scene with £200 million of investment and has worked to ensure that private resources can at least match that. Tech City has been a major beneficiary of those resources. In addition, the regeneration of the area as part of the preparations for the 2012 Olympics, has achieved significant improvements in public infrastructure; making the area a more attractive place to live and work. In November 2012, the government announced a further £50 million aimed specifically at Tech City through the Tech City Investment Organisation (TCIO).

   The current programme of improvements to public transport will continue which will include refurbishment of tube stations.

UK technology and innovation support mechanisms

   The TCIO was set up in 2010 with the purpose of making company establishments easier in the area. Opinions of the organisation are divided, and there was no clear evidence on the ground of what value TCIO has created. What was clear was that the TCIO was a major factor in the large amount of public attention focussed on the area. TCIO is now working in collaboration with UK Trade and Industry (a government department) to attract large multinationals to the UK.

   Since 2010, Innovate UK (formerly The Technology Stratégy Board), a govern­ment innovation agency, part of the Department for Business, Innovation and Skills (BIS), has been offering support and funding to businesses that are bringing new products and services to market. As part of its support Innovate UK holds 'Dragon's Den' style pitching opportunities. The £100,000 of awards delivered so far through the scheme have also un-locked much larger sums of investment through Venture Capitalists and Business Angels who have greater confidence in the businesses that had survived the dragon's den.

   As part of their activity, Innovate UK has created a series of seven "Catapults" to accelerate growth in key areas of UK industry. The Catapults are part public and part commercially funded. The Connected Digital Economy Catapult is working to boost the commercial opportunities, and encourage the growth, of the digital economy - which includes the mobile services sector. Their support is intended to help innovative companies reduce the time-to-market of disruptive products and services whilst limiting the cost and risk to the companies.

   In addition to government driven support for the industry and Tech City in particular, there are several peer support and mentoring organisations working in the area.

   Intellect is a trade body that provides a collective voice for over 850 techno­logy companies, ranging from SMEs to multinationals. It provides start-ups and SMEs with support on how to operate efficiently, legal matters, training of staff and networking at all levels.

Key elements for growth

   The sheer volume of opportunity for business, and the fact that London is a major financial sector has underpinned the set-up and growth of companies. Most of those companies have responded to market opportunities, and attrition was not seen as an issue by interviewees.

   It is not easy to say with confidence how many high tech companies are located in the area. In 2008 there were probably 18 media and high tech companies. When the Government announced its plans to help in 2010 they were aware of 85 companies. 

   In 2011 this was believed to have risen to 200. In 2012 insiders believed that there could be as many as 5,000. One factor in that uncertainty, and the reason for the growth of start-ups, is the dynamic nature of start-ups. It is very easy for individuals to have an idea, create an app, and start a company. The cost of office space is very low (for

   London) and short-term lets are available, even small offices can be shared by multiple companies. The ease of networking and mentoring opportunities creates the conditions for those companies to combine or merge with others.

The above factors give the area a very good innovation climate, but in order for that to grow and companies to have longer term stability with financial growth and the ability to create jobs, other factors must be present.

Research and Development

   Most people interviewed say that even though both Oxford and Cambridge are within commuting distance, the collaboration between the innovative areas in London and the traditional research heavy universities is not sufficient. The average start up in the Tech City area has a very low level of research driven development, which in the long term can be a problem if you want to create large companies with many employees.

Large multinationals

   Another key element is the presence of large companies that are able to employ large numbers of people and become potential customers for startups and SMEs. This has yet to happen in Tech City, but the multinationals are beginning to make their presence felt.

   In March 2012 Google opened the Google Campus in the area which provides incubation space, holds "hackthons" and training courses. This has quickly gained a support and has 10,000 members. However, this falls short of a genuine research and development facility that would provide business for local companies.

   In late 2012 a series of high profile commitments by major companies were publicised: a multinational consortium that includes University College London, announced they would be creating an innovation centre IDEALon-don. Microsoft promised to build a Technology Development Centre. KPMG and IBM also announced that they would be launching major initiatives to support companies in the area.

   Most people that have been interviewed say that even though there are of course, large companies in London; there are no really large ones in the mobile sector. The long term future of the cluster could well depend on attracting multinationals into the area and set up advanced research facilities, or having some of the existing companies make the transition themselves.

Hackathon

   An intensive event typically lasting between a day and a week which brings together a group of people with the skills to develop software. This is usually focussed on a particular problem or topic.

Strengths and weaknesses

   Throughout the course of the interviews, there was a common set of percei-ved strengths and weaknesses:

Strengths

• The innovative climate
• The multi-cultural environment
• Good access to capital
• A large number of start ups on a small area
• Good infrastructure and communications

Weaknesses

• Lack of collaboration with traditional research and development
• No really large multinational companies within the mobile services sector
• Isolation towards the rest of UK

Challenges

   Probably the largest challenge to the area is to turn the fast growing start up community within the mobile sector into larger companies. There are both historical and physical challenges related to this. The UK has historically created a large number of multinational companies in the heavy industry and manufacturing sectors. Today that work is often carried out in developing countries with lower labour costs.

   The presence of a large multinational, well known mobile brand cannot be underestimated and compared to for instance the Southern Sweden area (which holds companies like Sony Mobile, Huawei, Ericsson and Intel) the London area needs to focus on getting some brands to establish themselves in the region.

   The large multinational companies demand close access to knowledge to support their research and development programmes. Even though London has several well established universities they do not have the kudos of Ox­ford and Cambridge to entice major companies. It is a future challenge for London to ensure that the high level research facilities for the mobile sector at the existing universities gain an international reputation for quality.

Sustainability and future

   Taken into account the results from the interviews; London probably has a bright future within the mobile sector, and should retain its position as one of the emerging spots in Europe. This is supported by the continuing development of an ecosystem that supports and encourages innovation and strong business and social networks within the Tech City community. However, it is essential to work continuously in addressing the challenges, especially with the access to high level research if London wants to move to the next level. Sustainability from a job creation perspective is a balance between building new companies and attracting and retaining large multina-tionals, this will be essential to create a sustainable mobile services sector

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