In Part 1 of this series, we drew attention to the presentation of Marian Sudbury of UKTI at the Institute of Economic Development Conference, who demonstrated that the key to attracting inward investment into a region lies in identifying what makes that region unique. In Part 2, we made the case that of all the unique assets a region possesses, arguably its primary strengths are in its niche industries and its niche skills.
We ended by posing the question of how economic developers can go about uncovering these unique strengths, and the purpose of this piece is to look at the first of these questions: identifying a region’s niche industries. In Part 4 we’ll move on to the second of these questions: identifying a region’s unique skills.
In one sense, it’s not hard to get some idea of the key industries in a region. For example, an economic development agency in an area with a large number of companies in the financial service activities sector will obviously be well aware of this fact, and this might play an important part in how they go about attracting new investment into the area. However, much as some of a region’s strengths might be fairly transparent, many are not. How can a LEP, for example, dig deeper to uncover the strengths that lie under the surface?
The simplest solution, we believe, is the use of granular data; that is, data which does not just deal in headline sectors, but which drills right down to the most specific level of industry data (4-digit SIC). With such data, there are a number of ways of identifying the key industries in a region. Perhaps the most obvious is to look at the largest employing industries in an area. The following graph, with data for the Cumbria LEP region, shows the top 10 industries at the 4-digit level in that area:
However, although this tells us which are the biggest employing industries in the region, it doesn’t actually tell us what makes the region unique. For instance, we could repeat the exercise for a number of other LEP regions in the country, and we would undoubtedly find that they too have large numbers of people employed in industries such as Public Administration and Defence, and Hospital Activities.
In order to identify regional strengths, what we really need to do is to measure the proportion of people employed in a specific industry in a region, and then compare this with the proportion of people employed in the same industry throughout the country. If we could do this, we could determine which industries make a regional economy really unique. But can this be done?
The answer is that it can. Housed in our data tool, Analyst, is an important function known as Location Quotient. This is a statistical measure of industry (or occupation) concentration in an area in comparison to the rest of the country. It works on a benchmark basis with 1.0 indicating the national average, and therefore industries with a score of more than 1.0 have an employment profile in that industry that is greater than the national average.
Using Cumbria once again, we can run a table showing the Top 10 industries at the 4-digit SIC level, in terms of Location Quotient:
It will come as no surprise that Cumbria has a high concentration in the Processing of nuclear fuel sector, but there are no doubt other industries in the list that may not have come to mind quite so readily. Of course some of these sectors might be tiny, which is why it’s important to look at the job numbers as well (which can easily be done using Analyst). However, the fact that this sort of data can begin to unpick what it is that makes a region really unique, is in turn something which can be used to help economic developers understand where they might be wisest to attempt attracting inward investment.
Location Quotient is by no means the only way of measuring regional uniqueness though. Whereas Location Quotient does this in terms of actual numbers employed, a similar function in Analyst called Shift Share measures uniqueness in terms of job growth. The resulting figure — Competitive Effect — explains how much of the change in a given industry or occupation in a region is due to some unique competitive advantage that the region possesses.
Once again using data from Cumbria LEP, the graph below shows the Top 10 industries in terms of Competitive Effect. Positive numbers denote a positive Competitive Effect, and so the larger the number, the greater the Competitive Effect:
Once again, although the figures uncovered here would need to be taken along with actual job numbers (which can easily be done using Analyst), it is clear that such data could become an invaluable aid for economic developers that are seeking to identify what makes their region unique. However, where things become really interesting is where we begin to unpick not just the industry strengths, but also the niche skills that exist within a region. In Part 4, we’ll be showing how this can be done.
For more information on how our granular data can help you identify the niche industries in your region, contact Martyn Gerard at email@example.com