Best places to do business in Britain

The key factors to consider when deciding on where to locate your firm


Whether you’re expanding or relocating, identifying the best place to base your company is a significant challenge – and a crucial one to get right. Growing Business identifies the key factors you should be considering when deciding on where in Britain to locate your firm.

Having enjoyed two years of rapid growth since launching in 2006, the founders of Intelligent Waste Management Solutions (IWMS) faced a problem. With one living in London and the other settled 70 miles outside the capital in Northamptonshire, the business was operating from two headquarters. Fine when there were just a handful of employees, but with 20 staff on the payroll and turnover rising, the founders decided a single base was needed. “We had to choose either London or Northampton,” says Philip Mossop, co-founder and development director.

Economic activity

 

Unsurprisingly, when you look at economic activity across the UK regions, London and the South East sit at the top of the league table. For instance, according to the government’s preferred measure of economic performance, Gross Value Add (GVA), the capital and south eastern counties between them account for one third of the UK total. From there, the figures decline through the Midlands, Scotland and the North East and West, with Wales and Northern Ireland (NI) propping up the rest. London’s GVA amounted to £27,000 per head of population against £15,000 in NI.

But that isn’t the only measure of economic activity. A recent survey by research company KDB charted entrepreneurial activity across the regions, using the number of shareholding directors within postcode areas as the yardstick, with Birmingham emerging as the most entrepreneurial city in the UK. In fairness to the second city’s larger neighbour 100 miles south, London was split into its constituent postcodes, which all featured in the top 10. Meanwhile Brighton, Bristol, Nottingham and Tunbridge Wells were also among the front runners.

The cluster effect

But what do these bald statistics mean for companies deciding on a location? Clearly, if a business is not only based in an area, but also selling into it, a strong economy is good news. However, you have to take into account local factors. For instance, the type of industry that a particular town, city or region attracts can be hugely important when deciding if your own company will find a market there.

“We often see businesses move to areas where similar types of companies have already established themselves. For instance, recently we’ve seen financial services companies moving to the west country,” says KDB’s chief analyst Matthew Boot.

This is called the ‘cluster effect’ and it can define the economy of an area. Witness the ThamesValley, celebrated for its concentration of IT firms, or Oxford and Cambridge areas, where technology companies are gathered in abundance. There are financial services clusters in London, Leeds, Edinburgh and Western England, while the imminent arrival of the BBC in Manchester seems bound to enhance its reputation as a media centre second only to London.

Recruitment

Moving to an area rich in, say, IT or financial services, may mean stiff competition, but it also has some definite advantages, not least in terms of finding the right staff. “If a small business moves to an area where a certain type of industry is based, it becomes much easier to find skilled workers,” says Boot.

David Baggaley, marketing manager of Leeds City Council Business and Enterprise Department agrees, but with an important caveat. “If a particular market is saturated, companies will look elsewhere,” he says. “If not, you can benefit from the fact that there is a talent pool and that you don’t have to start training people from scratch.”

Of course, as companies arrive and sweep up skilled staff, the laws of supply and demand kick in. Stuart Mitchell, a partner in relocation consultancy Business Moves, says the result is higher costs. “If you go to somewhere like Reading, there are a lot of skilled IT people, but they expect to be paid well,” he explains.

So how do you know if a particular location has the skills you need at a price you can afford? “Websites such as Nomiss.com provide you with a huge amount of information,” says Mitchell. Local agencies can also help, but they will, of course, be partial to their own areas.

Customers

Industry clusters also create a customer base. For instance, if you make auto components, it helps to have your factory reasonably close to major car makers. If you supply video editing equipment, then having a media hotspot on your doorstep could be a distinct advantage.

Certainly, the proximity of customers was very much on the mind of IT company Bluefish when it located in Reading, stronghold of the British computer industry. As chief operating officer Lyndon Knight explains, the M4 corridor provided a rich vein of potential business. “Since the area is full of other technology companies, most of the decision makers can be found on our doorstep,” he says. “There are a number of service providers and technical organisations in the area, which means our main and prospective customer base extends all the way from central London to Slough and Swindon. Reading is beautifully placed in the middle,” he says.

A central location can be a key benefit, whether in the ThamesValley or in the heart of the country. For instance, companies based in Birmingham are well placed to serve not only their own highly populace region, but also the cities of the North, the South East and West. That was the thinking that lay behind data warehousing company Biolap’s move from London to Telford in the West Midlands.

“Although the South East represents a disproportionally large segment of the economy, we thought it better to be centrally located to be able to support all our clients wherever they are based,” says chief executive Theunis Viljoen.

Transport

It’s very often the presence of good road and rail links that define whether or not a particular location will work as a business base. For instance, Rosie Hayward, managing director of the Groovy Food company, was anxious to remain in Devon when she started her business, but she had to look long and hard at the local infrastructure before taking that decision. “A key factor was the proximity of the M5,” she says. “If we’d been further away from the motorway, I don’t think we could have run the business.”

Richie Jones, founder of Bristol based digital marketing agency Yucca, is equally emphatic about the importance of good transport. While the company has secured a number of major clients – including P&O and Ocean in the South of England – it is also competing to win work from businesses in London. It’s the train that takes the strain. “We have an excellent rail link to London,” says Jones, “which is very important. Once on the train I can work, using 3G to connect with the office, so the time isn’t lost,” he says.

While the big conurbations are obviously well served by motorways and main-line rail links, and arguably those in the centre of the country are best placed to transport goods or deliver services to all regions, be aware that infrastructure maps can hide a multitude of sins. “Some regions have real congestion problems at peak times,” says Mitchell.

The extent to which those congestion problems hit drivers is illustrated by the latest Journey Times survey from Trafficmaster, a division of the RAC. When measured by the number of congestion alerts issued by Traffic Master, the western sector of the M25 (Junction 10 to 21) topped the league with 161,000. But don’t assume the South East has a monopoly on road rage. While the lower reaches of the M1 were badly affected as well, the East and West Midlands also made it into the top five (M1 and M6 respectively) as did West Yorkshire (M62, M63 and M1).

If somewhere a little off the beaten track is viable when you’re considering other factors, don’t automatically be put off if its transport links seem to be dwarfed by the likes of Birmingham. It might warrant further investigation.

The office

Premises are less of a problem. Currently, there is downward pressure on rents and local development agencies will help you find the right property. However, there are some factors to be taken into consideration. If you would prefer the flexibility of serviced offices with short leases, then, as Rod McInnes of serviced office provider MLS Group observes, some regions are better served than others, and you may find yourself gravitating towards the capital. “The biggest concentration of serviced offices is in London,” he says.

IWMS’s Mossop says companies looking for modern, creatively designed office space are also better served in London. That was a priority for his business and its offices are being fitted out in Northampton to provide staff with state-of-the-art working conditions. That’s not to say that regions are devoid of prestige commercial developments. For instance, Leeds has been working with developers to ensure the city has high-quality office space that will reflect well on the brands of ambitious companies. “We’ve provided a vision of the city they can buy into,” says Baggaley.

This is a very fluid period for office rentals. According to third quarter 2008 data from the Royal Institute of Chartered Surveyors, the rental expectations of landlords has been falling sharply, with London – traditionally the most expensive area – seeing a 54% decline. It’s a similar story in the West Midlands (-54%), Eastern England (-45%) and the North East (-53%). Rental expectations have only fallen by 8% in the South East and 26% in the East Midlands. Bucking the trend, Scotland has seen a 40% increase. So it pays to shop around.

Fund access

According to figures published by the British Venture Capital Association, venture capitalists and private equity houses invested in a total of 502 early stage businesses in 2007, while funds for growth at a later stage were made available to 595 businesses. The problem is that some areas of the UK seem to hold a very limited appeal to the money men.

For instance, while 198 companies in London and the South East secured early stage investment, in Wales and Northern Ireland the totals were 17 and nine respectively. Similarly, 251 later-stage companies attracted funds for expansion, against 12 each in Wales and Northern Ireland. Other regions, such as the Midlands, North and Scotland fared considerably better, but investment in those areas was still far outstripped by the giant economy of the South East.

To be fair, the number of investments generally reflects population and entrepreneurial activity rather than willingness to invest in a specific region. But Kirsty Sandwell, partner in accountancy firm Baker Tilly’s M&A and private equity practice, says that in some cases location does have an impact.

“If you’re an established profitable business seeking a deal with a private equity house, then geography is irrelevant,” she says. “Private equity funds tend to be clustered in London, but they invest all over the UK.”

However, for companies seeking early stage funding, location can matter. “It can help if you are close to an area such as Cambridge or near to a University that has a spin-out fund,” Sandwell adds.

In some regions, you may have real difficulty pitching to a venture capital trust (VCT). “There’s not a lot of money in Wales,” says Sandwell. “VCTs often have offices in cities such as Leeds, Manchester and Bristol. But there isn’t much activity further west.” Equally important, away from the main investment areas, there isn’t the same level of professional advice available to help businesses prepare for investment. However, Sandwell stresses that in areas where economic activity is low, money is available through regional funds under the European Union Assisted Areas Scheme.

Even those based in the hotspot of London can find raising money difficult. Tod Yeadon, co-founder of Quick TV, moved his business from London to the North East because investment wasn’t available in the capital. “Angels could make so much out of property at the time, and they weren’t looking at companies like ours,” he said. In contrast, once the business had relocated, it was able to raise funds from North Star, a fund established to provide early stage support in the regions.

And the headline figures can be misleading. For instance, while entrepreneurial activity in Wales is relatively low, there are hotspots around the Cardiff and Swansea areas. According to Fiona Rees, executive director of Swansea Bay Futures, this illustrates the importance of local factors in defining the economic characteristics of an area. "We see a lot of entrepreneurial activity in the Swansea area and I think that’s largely due the presence of two universities, and we also have support in the form of a number of business incubators. We have those all over Wales but the biggest concentration is around Swansea."    

In the longer term, she expects to see an increase in enrepreneurial activty across the whole of Wales. "The Assembly government is doing a lot to foster an enterpriise culture," she says.

Lifestyle

“One of the things you see all the time is a company moving out of London,” says Mitchell. “The company benefits from lower costs and staff have a much higher quality of life.”

This is a major consideration for many business owners, including Yucca’s Jones. “One of the reasons I set up in Bristol is that it has easy access to really good surfing and mountain biking,” he says.

But it’s not just about leisure. When Biolap relocated to Telford, schools were a key factor. “In London they have become far too selective. We have found excellent schools in Bristol,” explains Viljoen.

According to a Halifax Bank of Scotland (HBoS) survey, Buckinghamshire residents have the highest quality of life in the UK, with the South East dominating the table. Key measures included income, home ownership, life expectancy and GCSE results. The same was true of an earlier HBoS survey looking at quality of life in local authority areas: 22 of the top 30 places are in the South East, with Wokingham in poll position.

Of course, quality of life is a subjective measure. To an unmarried 30-year-old, London may represent a far more attractive proposition than Buckinghamshire or the Vale of Glamorgan, and Mitchell warns that when companies are relocating, consensus is crucial. “To minimise the loss of key staff it’s vital to get buy in from the people you need,” he says.

According to Fiona Rees, quality of life can help create a more stable workforce. "What we find is that people like to live here because they enjoy the quality of life and they tend to be very loyal to employers," she says.  

Ultimately, the best location for your business is the most appropriate in terms of commercial opportunities, costs and lifestyle aspirations. The key is to do your research.

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