Supporting large local firms

Excellent article in the Financial Times today on the subject of supporting large local companies.

Whilst the focus is on Manchester, there are certainly lessons here for the Welsh Assembly Government in supporting indigenous businesses.

Focus should be on big local UK companies
By Andrew Bounds, North of England Correspondent

Large local companies rather than small start-ups or overseas investors are the biggest drivers of economic growth in cities but are too often ignored by policymakers, according to a study that challenges conventional thinking.

Aimed at taking stock of Manchester’s progress since the loss of much of its manufacturing base in the 1980s, the study is the first of seven to be released over eight weeks.

Carried out by Aston Business School, they will together amount to one of the most comprehensive surveys of a regional economy in Europe. The intention is to guide local councils and investment agencies – not just in Manchester but potentially in the rest of the UK – over the next decade.

The study found that indigenous companies with more than 200 employees were the biggest investors in the city – but that reality was not reflected in the way state support was targeted.

“Policy support should not be geared disproportionately either towards overseas investors or towards SMEs... conventionally considered to be the most important targets,” the report said.
“Investment by large domestic firms in the region will have the biggest impact on both productivity and employment.”

The study found that foreign investors were more productive and tended to pay wages around 5 per cent higher than local equivalents.

They also improved the performance of their customers via training, know-how and technology and could make domestic competitors more efficient, as they were forced to match their service and quality levels. However, if they were attracted by subsidies, they crowded out domestic investment.

That had a bigger impact on employment levels in Greater Manchester because it was not used to replacing people with machines, the authors said. However, they warned the investment was largely funded by debt and therefore vulnerable in the credit crunch.

They added that a skilled workforce was the biggest factor in attracting investors.
Manchester produces more graduates than any UK city apart from London but it also has tens of thousands of unqualified people in its poorer areas.

The panel overseeing the review includes Sir Tom McKillop, former chairman of the Royal Bank of Scotland Group, Professor Edward Glaeser of Harvard University and Jim O’Neill, chief economist of Goldman Sachs, the US bank.

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