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Why SME markets are thriving up north

At a glance

  • Small business indicators show several northern cities are outperforming those in the south
  • Diverse urban economies have encouraged growth
  • Up-and-coming cities need to ensure that economic growth matches investment in infrastructure

Content provided exclusively for Zurich by Centre for Cities.

This is the first of two articles looking at the UK SME market and the economics behind the north south divide.

It is generally reported that businesses in northern cities tended to be hit harder during the recession and many continue to struggle. However, on closer inspection, the picture is far more complex than a struggling north and a prosperous south.

A Centre for Cities report, Small Business Outlook 2013, supported by Zurich, shows that across a range of small business indicators, several cities in the north are outperforming those in the south.

Growth cities in the north

Edinburgh, Leeds and Manchester remain important growth areas within the north. As three of the most significant and diverse urban economies in the country, these cities stand out as hotbeds for entrepreneurship.

A high percentage of small and medium-sized enterprises (SMEs) in Edinburgh, Leeds and Manchester operate in the financial and professional services sector. The cities also act as ‘global connectors’, with international airports and a significant number of firms operating within global markets.

Several other smaller cities in the north also stand out. Aberdeen and Warrington, which is classed as a city in the report, also rank in the top 10 on the majority of enterprise measures. A particularly high number of firms are growing in both cities. Preston also stands out with a relatively large SME base.

These cities have not been traditional service hubs in the same way as Edinburgh, Leeds and Manchester. Instead, their SMEs have benefited from specialisation in a particular industry – such as, oil in Aberdeen – or targeted investment in infrastructure (road network in Preston).

Northern cities with weaker economies

The economic downturn largely reinforced longer term trends: cities that had low rates of entrepreneurship and SME growth prior to the recession tended to do worse during the recession, and have continued to struggle in the current period of low growth.

For example, cities in the north on the east coast — Dundee, Hull, Middlesbrough and Sunderland — tend to have some of the lowest levels of enterprise in the country (see Table 2).

To some extent this reflects the industrial legacy of these cities. All four were dominated by a single industry — shipping or textiles — and several large employers, a combination that can crowd out entrepreneurship and innovation. Changes in transport, with a shift away from shipping to road and rail, have also impacted on these cities by making them more peripheral.

SMEs in Dundee, Hull, Middlesbrough and Sunderland continue to operate in more traditional industries, such as manufacturing and construction, and there are fewer graduates among the workforce. Businesses in these cities are also more likely to be affected by public spending cuts, as there are higher levels of dependency on the public sector and relatively high numbers of businesses operating primarily within the local or regional market.

Re-balancing the economy

If the government is to succeed in re-balancing the economy, it needs to ensure that cities like Edinburgh, Leeds, Manchester, Preston and Warrington are able to keep up with the demands that economic growth places on infrastructure.

Cities like Middlesbrough and Sunderland need to help foster a more entrepreneurial culture and support businesses to access new opportunities across the UK and in global markets. All cities need to be able to make the right decisions about investment in transport, broadband, new sites and premises, and skills based on their unique circumstances to enable their business base to grow and to nurture high-growth businesses.

Don’t miss further Zurich Insider articles in the series looking at the south.

Image © Getty

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