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07 September 2015
During the spring and summer of 2015 legal, financial, property and businesses services professionals came together to discuss the issues affecting the economic growth of their clients and their own firms.
This report summarises the key points of the discussions.
Factors affecting growth in Coventry and Warwickshire
Local investment agencies
There is a perception that the current investment agencies lack a coherent approach and there is no clarity as to the type of jobs being attracted to the region.
In particular the lack of long-term stability in the leadership of the Local Enterprise Partnership is perceived as a weakness for Coventry and Warwickshire.
Access to finance
Funding is a recurring issue faced by the small and micro businesses typical to Coventry and Warwickshire.
There is a need for unsecured lending to businesses with a strong balance sheet; the perception that banks only provide secured funding remains. This being accepted as true it is to be expected that the continuing decline in commercial property values is negatively affecting access to finance.
There is a question mark over the equity of funding deals available in Birmingham versus those available in Coventry and Warwickshire. Some advisers clearly stated the terms they can obtain in Birmingham are better than in Coventry.
Our universities
Coventry University and the University of Warwick are both world class and have a reputation for driving innovation. Combined they are a powerhouse for the sub-regional economy providing global links, creating jobs locally, attracting often extremely wealthy international students, bringing plenty of student pounds into the region as well as a flow of very high quality talent.
Hubs
Silicon Spa, gathered around Royal Leamington Spa, is a hub for the thriving computer gaming industry and the success of Jaguar Land Rover has supported the development of a hub for design and performance engineering.
Intellectual property (IP) is an important factor in the success of these industries. Funders demand it; it is an essential element of the value of a business. Business owners need to recognise the value of investing in IP early on.
Facilities
High speed Internet is important for growth and the investment made to transform Coventry into a gigabit city is highly valued. Improving the connection in rural areas is also necessary.
Access to commercial premises
There may be plenty of commercial premises in and around Coventry and Warwickshire but there is little flexible, high quality office space. This constitutes a barrier to growth as businesses struggle to find premises that will allow them to take the next step.
Against this backdrop Friargate is a very important development but it is noted that there will be little space available to SMEs.
The depth, breadth and calibre of advice in the region
Coventry and Warwickshire is home to many excellent professional and financial services advisory firms. Collectively they have the capability required to support the growth of micro-businesses and SMEs, advising on everything from exporting to employment law.
However many micro and small businesses opt for the false economy of getting information from the Internet instead of expert advice from qualified professionals.
The Growth Hub and the Clearing House have both been created to provide micro business and SMEs with the advice they need. However the Growth Hub is only as good as the number and quality of local professionals hot-desking there and it is possible to see the Clearing House as devaluing the advice of the professional services.
There is perceived to be a sales and marketing gap amongst small businesses in the region. The product or service may be excellent but the business lacks the knowledge and ability to market and sell it effectively.
The legal sector is evolving. The traditional culture of hourly rates is increasingly a thing of the past as law firms focus on developing deeper client relationships based on something more than simply the provision of legal services. Adding value is the mantra.
Following the lead of city law firms, firms in Coventry and Warwickshire are shifting from the traditional structure of being led and governed solely by lawyers. Operational boards are increasingly the norm with the firm’s partners being the shareholders to which the board is accountable instead of being the day-to-day managers. Consolidation, also a trend, is being driven by a number of factors. Some firms are merging to grow, broadening their skills set and generating economies of scale to capitalise on market opportunities. For others mergers are designed to provide a means of retirement or are in response to the escalating cost of Professional Indemnity insurance.
Success or failure depends on the strength of management and leadership
Businesses succeed or fail on the strength of their management. The final ‘straw’ may be something very specific but strong management and good leadership will ensure the business minimises its exposure to risk and is able to adapt to survive.
Family businesses are particularly vulnerable to weak management. The second, third or fourth generation family members may inherit the position of leading the business but not necessarily the skills or outlook to do so.
The sub-region’s leaders need to be able to access good advice and support, with mentors able to guide them and provide a sounding board.
The JLR phenomenon and conundrum
Jaguar Land Rover (JLR) is an incredible success story, driving innovation and investment into the region. Hundreds, if not thousands of businesses, have flourished in the supply chain, creating employment and wealth throughout the West Midlands. Valuable skills have been developed in the area as a result of its presence and it has played a part in initiatives such as the Warwick Manufacturing Group, which have put Coventry and Warwickshire firmly on the Global map. JLR also runs a number of initiatives through which both the company and employees give something back to the local community.
Coventry and Warwickshire needs to go on capitalising on the positive and beneficial influence of JLR.
JLR also, however, presents a number of challenges that should not be ignored. The dominant effect of this one company on the sub-regional economy is a potential weakness. It is difficult to strip out the JLR effect and properly assess the underlying strength of the local economy. It could be that fundamental weaknesses are being masked.
As well as the obvious regional risk of over reliance on one business, the JLR phenomenon is affecting the availability of skills and access to housing. As a successful global business JLR is ‘hoovering up’ the skills in the region offering excellent career opportunities and salary and benefits packages with which smaller companies struggle to compete. House prices have also increased in the area and the private rental sector is saturated, resulting in an unbalanced housing market.
These issues cannot detract from the overwhelmingly positive impact of JLR but it would be a mistake to ignore them and not seek remedies.
The skills challenge
Rugby is home to many logistics businesses and so there are plenty of warehouse and related jobs in the region. At the other end of the spectrum are high-level engineering roles but there is an absence of mid-tier jobs, a gap that needs to be filled if there is to be a balanced workforce.
As indicated earlier there is a skills shortage. Apprenticeships are an effective solution and businesses feel they need to invest in them, despite the risk of young people leaving quickly.
The lack of work readiness amongst young people is perceived to be an issue. Most businesses feel they have been ‘burnt’ in one way or another by inexperienced young people and have adopted strategies to make sure they take on only the best. These include assessing them on their attitude ahead of their skills, getting existing apprentices and young people to interview the next cohort of recruits and only selecting those who have experience beyond the school environment.
A relationship between businesses and schools could help to address this problem. Schools focus on delivering good exam results rather than producing work ready young people. Closer collaboration between the two could give greater prominence to and support with the life and softer skills young people appear to lack.
The older workforce presents another solution. Traditionally young people were apprenticed to a specific individual who coached them on the working world as well as the craft skill itself. With the lifting of compulsory retirement there are now older people in the workforce who could be the mentors the young people need.
Professional and financial services firms themselves are also experiencing the pain of the skills shortage. Within the property sector there are not enough qualified architects and surveyors and building trades skills. The scarcity of qualified and registered valuers is really beginning to show, particularly now the banks are willing to lend.
As the economy recovers and activity in the legal sector gains momentum law firms need talented lawyers who are one to six years experience post qualification to capitalise on the market potential. During the downturn however the number of trainees was reduced so there are few at this level available now. To compound the problem Birmingham firms are poaching those there are, tempting them with the promise of higher salaries. Local firms are developing their own talent, identifying paralegals with the potential and ambition. Pushing what the region has to offer, in terms of career and lifestyle may also combat the pull of Birmingham.
A lack of skills can also be tackled through innovation and improved efficiency.
The regional offer
Growth is also dependent on attracting key individuals to the region. In particular, chief executives need to opt to live and work here.
Coventry and Warwickshire has a good offer that includes culture, countryside, and good transport links, but there is little that is truly unique to differentiate the sub-region from other locations. Furthermore the housing stock may not be sufficiently high calibre.
There is also a debate as to whether the region should promote excellent career opportunities for those in the professional services or a good work / life balance.
Geography
The West Midlands Combined Authority (WMCA) will pool resources and support the growth of the local economy, giving Coventry access to existing funding streams.
The WMCA does give cause for concern. Growth in Warwickshire is likely to be constrained as the WMCA will pull the available funding into the urban areas.
There is also a cultural challenge; geographically it is not seen as making sense. Coventry and Warwickshire represent a cohesive unit; according to the Coventry & Warwickshire Local Enterprise Partnership over 80% of those who work in Coventry and Warwickshire live in Coventry and Warwickshire. There are also a number of organisations already reflecting this geography; Coventry & Warwickshire First, Coventry & Warwickshire Chamber of Commerce, the Champions, the LEP, BBC Coventry & Warwickshire. The view is that the city of Coventry and the county of Warwickshire should collaborate.
Introducing the artificial boundaries of the WMCA into the region of Coventry and Warwickshire will compound the challenges that already exist in relation to local authority boundaries with regard to planning and development. Coventry, along with South Warwickshire, has developed almost every piece of brownfield space. To grow economically the city needs to expand beyond its boundary but it is being stopped from doing so by the planning decisions of neighbouring authorities. The boundaries are meaningless to business, which instead of demarcations wants collaboration and cohesion to the economic benefit of all.
Promoting Coventry and Warwickshire
The sub-region promotes itself better to the outside world than has been the case in recent decades. Coventry Champions proactively promotes Coventry and Warwickshire to London and the rest of the country and is making connections with successful businesspeople who have an emotional connection with the region. There is already awareness of, for example, Silicon Spa but a perception that few know the whole Coventry and Warwickshire story.
As well as Champions there are other organisations tasked with driving growth in Coventry and Warwickshire and attracting inward investment. These include Coventry City Council, Warwickshire County Council, the Local Enterprise Partnership, the Chamber of Commerce, the Growth Hub and of course Coventry & Warwickshire First. Working collaboratively these organisations could constitute a powerful lobby able to communicate the full story to a wider audience.
More is demanded of the region’s politicians. They need to be lobbied and then held to account. In addition the big institutions, for example the universities, should be lobbied to buy their products and services locally.
Finally, there is a strong belief that Coventry and Warwickshire needs a strong leader or cohort of leaders to make sure all take responsibility for improving the city and tendering for major high profile projects.
The rural economy
There are a number of issues that affect the rural economy in Warwickshire:
The rural economy itself is under-emphasised, the strong food production businesses in the region too often being overlooked.
Diversity
With the Government on track to achieve its target of women accounting for 25% of board members of FTSE 100 companies, there is more to be done amongst firms within Coventry and Warwickshire. The black and minority ethnic representation is also poor. As a consequence the firms are not fully tapping into the potential talent available.
The risk of ghost towns
Coventry city centre is being improved. The renovation around the Council House, the Friargate development and the new access to the railway station are positive.
However there is concern that towns in the region could become ghost towns – Coventry is already a ghost town in the evenings – if there is a not a commitment to ensure a positive balance of office, residential and leisure facilities in the centres. Office facilities are needed for the lunchtime pound and an appealing nighttime economy is needed to attract workers at the end of the day and make the centres a destination for additional visitors.
Property-specific issues
The politics of planning and the power of nimbies
The biggest single challenge facing the property sector in Coventry and Warwickshire remains the planning process. The process is perceived as expensive and time-consuming, presenting a significant commercial risk to developers.
The Government’s “more for less” agenda appears to be unhelpful in ensuring the Local Authorities have the right resource to deal with planning matters at the right level.
Local authorities are viewed as being imbued with a risk-averse culture that means planning officers are reluctant to make recommendations to planning committees without fully exploring every potential issue, despite their experience and expertise.
At the same time nimbies are getting better and better at deploying tactics that slow down if not block new developments; if the process is too slow developers pull out and look for easier sites. This attitude means Coventry and Warwickshire is missing a number of economic growth opportunities from investors, local and international, who wish to do business here in the region.
Nimbies raise issues ranging from rare local wildlife to flood risks and developers are then forced to obtain a whole array of specialist reports, submitted as part of the planning application. This represents a commercial risk; developers commission the reports with no knowledge as to whether or not they are likely to get planning permission. Instead, planning officers should establish if there is any substance to the nimbies’ arguments before calling for specialist reports.
Compounding these challenges is the approach of councilors, who are perceived to make partial, highly politicized decisions. Without a good planning reason, councillors block applications that may be positive for the wider area but unpopular locally in the expectation they will be approved on appeal.
This approach has blocked developments in the greenfield. This may seem appropriate but there is little if any brownfield development space left within Coventry, which means greenfield developments are the only option for growth.
Closed for business?
There is concern Coventry and Warwickshire is ‘closed for business’. Cuts mean there are fewer and fewer planning and conservation officers in post, making it harder for local authorities to respond positively and proactively. There is also a belief that the solution-oriented attitude found in places like Leicestershire is absent from Coventry and Warwickshire.
A strategic vision
To support economic growth an ambitious, long-term strategic vision is needed; one that looks at least 15 years ahead, is unconstrained by artificial boundaries and views Coventry and Warwickshire in the broadest sense.
Facilitating investment in Coventry
Following the Second World War Coventry City Council re-developed the city centre, selling 99-year leases to developers. Those leases are now not long enough to support investment. Naturally the City Council must extract ‘best value’ from these assets but its consequent reluctance to sell new long-term leases or the freeholds to key industrial estates and the areas surrounding the city centre means new development on the land is effectively blocked, hampering economic growth. The constraints of long leases running down on the industrial estates are the greatest peril. The estates of the 1950s, 1960s and 1970s are in desperate need of reinvestment but this is not possible where there is just 50-70 years left on the least. In tandem, JLR, The London Taxi Company etc are booming and there is a real shortage of good workshops and warehouses for suppliers.
Investment is needed to turn the city centre into an attractive night-time and weekend economy but with easier development opportunities elsewhere in Warwickshire and beyond a change in the near future is unlikely.
Preservation vs conservation
While property experts are concerned about buildings that arguably do not warrant the status of being listed, the real issue is the attitude of conservation officers. Buildings should be allowed to evolve with uses relevant to today rather than be preserved, their uses rigidly fixed at the time they were built.