I helped put together this submission to the NorthEast Local Enterprise Partnership, which gives a run-down on some of the tech sector activity in the region:
North East Technology Sector
1.1 The technology sector consists of businesses creating, researching and/or
distributing technologically based products to businesses and/or consumers. There
is a growing cluster of technology businesses in Newcastle supplying software
solutions to a wide range of businesses and organisations including banks,
engineering companies (including control systems), accountants, GP surgeries,
NHS (data investigation), housing associations (management systems) and public
1.2 Evidence suggests that despite the current economic climate, these businesses are
in growth mode, developing niche markets with some employing over 100 staff.
These businesses have the potential to offer great employment opportunities,
investment and wider economic development benefits to the region as other
businesses are looking to new software solutions to generate savings and access
1.3 National research suggests that this sector is still in its infancy and is key to
supporting the economy out of recession. Currently many businesses in this sector
are not reliant on public sector subsidies – the sector has few links with development
agencies and is under-represented in regional economic development research.
2.0 National Context
2.1 The UK is one of the strongest markets in the world for cloud computing and data
centre companies. The UK is Europe’s leading market for software and IT services
with a market value of £58 billion pa. Independent research by Microsoft has
indicated that the market could drive the creation of 3,000 new businesses and
78,200 new jobs by 2013.
2.2 The UK’s success is built on several key strengths:
The UK is a powerhouse for software development attracting £930 million pa
software R&D investment from international businesses.
The UK is home to over 100,000 specialist software companies and all the major
global software companies such as Microsoft, IBM and HP have sizeable
Cloud Services – The UK cloud computing annual market value is the largest in
Europe and is predicted to grow from £2.4bn to £6.1bn by 2014. Currently 18%
of UK SME business use cloud solutions but a further 30% plan implementations
within the next year. By 2015 half of all new IT spending by the public sector is
predicted to be on public cloud services. The opportunities that this public sector
investment presents are significant.
Data Centres – The UK data centre market, is the largest in Western Europe and
the growth in the amount of data and new services such as cloud computing is
creating new sources of demand. Gartner predicts a rise in overall hosting and
cloud services from £21.2bn in 2008 to £70 billion in 2013.
The UK government has committed to further improving the UK’s IT
infrastructure. The 2012 budget pledged to develop a number of superconnected
cities including, Newcastle which will have 100Mbps citywide
networks in their urban areas.
2.3 There are therefore strong opportunities for growth in the UK and regional economy
through to the 2020s if businesses can harness scientific and industrial capabilities
to take advantage of technology-enabled transformations in manufacturing,
infrastructure and the internet (Government Office for Science: Technology and
Innovation Futures: UK Growth Opportunities for the 2020s).
3.0 Sector Characteristics and Contribution to the Economy
3.1 The region houses FTSE 100 software company Sage plc’s global HQ, Leighton,
one of the UK’s foremost digital consultancies, Indian company 5th Generation
Technologies’ European base, Ubisoft, the largest independent game publisher in
Europe, games developer Eutechnyx and CCP Games, the Icelandic games studio,
among thousands of flourishing software technology, electronic gaming and creative
3.2 The Ministry of Pensions, Virgin Money, Tesco Bank, Insure the Box, British
Airways and the AA all have ‘back office tech functions that bring significant
economic benefit to the region. Many ‘so-called’ call centres actually have IT teams,
e.g. Tesco Bank, Newcastle Building Society and Insure the Box The supply chain
includes HP, Accenture and 45 independent software vendors employing 25,000
staff. There is real potential to attract technology back from India.
3.3 In recent years the region has seen more new technology company start-ups than
any area of the UK outside London. The North East has emerged as one of the
world’s leading centres for digital games development and start-ups, with a dynamic
cluster of firms and university courses acting as a magnet for entrepreneurs and
3.4 The area is rapidly emerging as a hotbed of creative talent, with extensive linkages
between innovation centres, universities, incubator facilities and an excellent range
of high-tech business parks.
3.5 Newcastle provides an ideal place for innovative and creative technology based
business development with its exemplar facilities and its diverse business base.
The city has been selected as a UK super-connected city and has been awarded
investment of up to £6m in the existing infrastructure, including wireless
connectivity, to achieve ultrafast broadband by 2015.
3.6 The region benefits from a selection of world-class universities and collaborative
networks mean accessible and successful business connections are ever growing.
Local universities have good computer science courses. Newcastle University is a
centre of research excellence in Computing Science, operates CultureLab and is
developing a course in cloud computing. From Northumbria University
approximately 100 students graduate each year in Animation and Special Effects
and leading research takes place at all our Universities. Specialisms include
eScience and the Grid, Informatics, Digital Technology and Media, Software
Evolution, eBusiness and Virtual Reality. Sunderland University has the UK’s
largest ICT training facility and supplies more computer graduates to Microsoft UK
then any other British University. These computing specialisms are supported by
University Business Schools at Newcastle, Northumbria, Sunderland and Durham.
3.7 Average salaries in the sector are growing, with day rates range from £450 – £1200
4.0 Issues to Address
4.1 The sector is currently ‘under the radar’ from a public policy point of view, and I
would urge the LEP to broaden its vision beyond manufacturing, which is unlikely to
be witnessing, or have the opportunity looking ahead, for a similar growth trajectory.
4.2 There are real issues to address if the region is to maximise the benefits from the
growing technology sector:
Technology is the future and growth is considered to still be in its infancy. The
North East has a more credible story than is currently captured and this needs to
be addressed by the LEP and partners.
More support is required to maximise the potential inward investment
opportunities in the technology sector, selling the local message to potential
relocators. For example, the region is in a position to attract outsourcing from
London companies who are reaching a size where locating IT departments in the
NE would be a more viable option. Companies like Betfair and Wonga are
potential targets. These are the sort of firms that could/should reach a point of
maturity where they don’t need all their team in one place and might be
persuaded to consider Newcastle to locate a service centre, team, call centre, IT
The links between the LEP, NGI’s Business Winning Team, Newcastle Science
City and research contacts within the local universities need to be exploited to
maximise potential inward investment and indigenous growth opportunities.
There is an opportunity to develop more effective networking to strengthen the
sector. A networking group, nominally called Dynamo, with the key players in
some of the companies mentioned in this submission has been put together.
There is a skills shortage both nationally and locally and there is a growing
demand for people with hybrid skills such as technology and design.
4.3 The potential benefits of promoting and supporting the technology sector are
significant, both in terms of job creation and economic development of the region. If
this agenda is not embraced the region will lose out to other areas of the UK and
the local economy will suffer.
4.4 The sector can work with other partners in the NE area to maximise economic
performance by putting more effort into promoting the area to attract back office
functions here, promoting business messages such as lower cost operations as well
as quality of life issues.
4.5 The cross cutting issues that matter most to the sector’s growth potential are
training, skills shortage, bandwidth, sector champions.
5.0 Reasons for Further Public and Private Sector Investment
5.1 There are good examples of successful companies in this sector which could be
replicated with further investment, e.g. Orchard Systems, Scott Logic now
employing 100+ PhD programmers working on dealing room systems across the
world and Opencast Software which looked after Deutsche Bank’s global
settlements with 80m transactions per week from an office in Collingwood St with
170 staff in Newcastle and 400 in China. For 10 years.
5.2 The information revolution is still in its’ early stages but the transfer to knowledge
work has already begun providing high value jobs. Mobile is early-stage but will be
bigger. Newcastle needs to develop a coherent marketing message about the
opportunities in this sector or miss out on the growth.
5.3 Training entry-level, apprentices as well as PhD’s is important to develop a healthy