Earlier this year, we looked at a number of Britain’s industries, including the Visitor economy, Creative industries and Logistics and e-commerce, using our new industry cluster methodology. Industry clusters are a helpful way of analysing an economy, as they group individual sectors together according to shared characteristics such as similar workforce, tendency to co-locate in the same areas, and supply chain connections, so making the process of identifying trends in the labour market much simpler than trying to analyse all 569 4-digit (SIC code) industries.
In each of those pieces, we began by looking at the cluster as a whole, before delving down to look at the regions in which it is concentrated. But if we reverse this, beginning with a region and then delving down into the detail of its industry clusters, we actually end up with a powerful tool for economic developers in Local Authorities to answer the following questions:
a) What’s driving growth in our area?
b) Which industries should we be focusing our efforts on?
c) How can begin to shape a sound strategy for future growth?
Let us show you what we mean
We can begin by giving a high-level overview of the industry clusters in a region, in order to get a sense of what is driving its economy. For example, the chart below uses data from an anonymised region in the North West to show the 49 industry clusters we have identified in terms of:
a) Their concentration in the region (as measured by Location Quotient (LQ)) and
b) Projected growth throughout the country between 2017 and 2022.
The green circles represent the region’s local clusters, which are made up of industries that tend to be spread across all areas of the country (such as schools and hospitals), and the dark grey circles are tradable clusters, which are made up of industries that export out of the region, and so tend to be the real drivers of growth:
As you can see, we have highlighted one of the clusters — Business Services — in order to show the kind of insight that can be gleaned from the data. For instance:
- It is one of the highest employing sectors in the region, with 11,197 jobs in 2017
- It has a comparative advantage over other regions (LQ of 1.55)
- It is projected to grow nationally between 2017 and 2022 by 11.2%.
Put together, these facts mean that it is very much “a cluster of interest”, and one which an economic developer in the region would want to focus on.
Zooming in on a cluster
The kind of insight shown in the chart above is interesting, but the fun really starts when we start to zoom in on the details. There are a number of different metrics that we can look at, but perhaps the first piece of insight that an economic developer might want to know is this: what are the underlying industries in the cluster and what insight can we get about them?
If we look at the Business Services cluster in the anonymised region that we highlighted above, we can open it up to reveal data on its eight underlying industries:
As you can see, there is a lot of interesting detail in this table. For instance, most of the comparative advantage in the cluster appears to come from two industries, Activities of call centres, with an LQ of 5.36, and Activities of professional membership organisations, with an LQ of 2.43.
Looking at the projected growth figures gives even more insight. For instance, although the Activities of call centres sector is highly concentrated in the region, it is not actually expected to grow over the next few years nationally. Whereas the Activities of professional membership organisations sector not only has a high concentration in the area, but is also expected to grow nationally over the next few years (10.2% between 2017 and 2022), which means that there may well be potential to grow it further in the region.
However, it is perhaps those industries which are projected to grow over the next few years, but which do not currently have a comparative advantage, that should really excite an economic developer in the region. Since these industries are included in the cluster because of their shared characteristics, they may well represent opportunities for attracting new business into the region, on account of the fact that the area has a high concentration of industries with a similar workforce or supply chain.
Once an economic developer begins to interrogate the insight to highlight potential opportunities for attracting new business, another key question arises: where are those businesses located? Once again, this is a question that can be answered by the data. The chart below shows the Top 10 regions in the North West which enjoy a comparative advantage in the Business Services cluster:
Identifying other regions that have a comparative advantage means that the economic developer in our anonymised region can narrow down the areas where similar businesses are located. This insight can be used either just to learn from those other regions, or to inform a business attraction strategy. It is also worth pointing out that although the chart above is for the Business Services cluster as a whole, we also have the ability to identify the same sort of data for the underlying industries within the cluster.
What about the workforce?
Having looked at the cluster as a whole and then zoomed in on its component industries and competitor regions, one further question arises: what is the occupational make up of the cluster?
The way our data is modelled means that we are able to delve into any industry or industry cluster, for any region of the country, and identify the occupations that it employs. Looking at Business Services in our anonymised region once again, we can unpick it to identify the jobs — and therefore the skills — that it employs. The chart below shows the Top 5 occupations in the cluster in the region:
Again, this information is bound to prove highly useful to an economic developer in the region in terms of attempting to attract business. Put simply, the fact that the region has a comparative advantage in Activities of call centres, and employs a high number of people in the Call and contact centre operations occupation, means that it may well prove to be an ideal location for any company looking to establish a new call centre somewhere in the country.
The insight we have shown above can be applied for any cluster and for any region of the country. By following this process, starting by identifying clusters of interest and then delving down into the detail, an economic developer can establish:
a) The industries that are driving growth in their area
b) The sectors that they should focus their business attraction efforts on
c) The detail that will allow them to begin to shape a sound strategy for future growth
We’ll be covering this in more depth in a free webinar on 10th May, as well as giving details of our new online tool that will enable you to do all we have shown above.