UK’s multi-cluster approach to competing

London: Bristol’s central railway station symbolises steam, steel and industrialisation. More than 150 years after Isambard Kingdom Brunel finished Bristol Temple Meads, part of the complex is again buzzing with engineers.

This time, they work with silicon and servers, pointing towards a new future for British industry. The station’s former engine shed houses the SETsquared partnership, an “incubator” providing office space and advice to early-stage technology firms. It is a focal point of the tech scene in Bristol and Bath, which is now second only to London as a UK digital centre.

At a time when traditional manufacturing, once the beating heart of British business, is under intense pressure from emerging markets, tech is a beacon of growth. The number of people with information technology jobs, such as software programmers, web designers and technicians, has increased 66 per cent in the past decade to about 1 million, according to official data.

They represent about 3.4 per cent of the workforce, up from about 2.2 per cent in 2004, and the majority work outside the capital. Nick Sturge, a former entrepreneur who runs Setsquared, says the ghost of Brunel hovers over Bristol’s budding businesses.

“There’s a pioneering spirit in the city,” he says. “A lot of people decide: I can do a better job at this, I don’t want to work for somebody else. It’s a welcoming environment for people wanting to do that.”

This month, a survey of the UK digital economy by Tech City UK, a government body, reported that 62,000 people work in tech jobs in the Bristol area and, between 2010 and 2013, there has been a 65 per cent increase in technology companies incorporated.

Bristol is just one of many tech “clusters” sprouting in places from Bournemouth to Newcastle. It is likely to rise — or fall — with the rest of Britain’s fragmented digital industry.

Some 98 per cent of UK technology companies are small businesses scattered across the land. This is in sharp contrast to Silicon Valley in the US, an established tech scene featuring a number of big international groups.

So how easy is Bristol’s success to replicate? The city’s digital entrepreneurs describe several key advantages.

The area has a strong pool of workers with engineering expertise. For years, Bristol and its surroundings have been a base for microelectronics and aerospace companies. Hewlett-Packard, BAE Systems and Rolls-Royce have all had a substantial presence in recent times.

SETsquared itself is a partnership between five local universities. One of its resident companies is Blu Wireless Technology, a microchip design company. Henry Nurser, chief executive, started the firm in 2009, after nearly two decades at Inmos and STMicroelectronics, chipmakers based in Bristol.

“A little bit of experience, and having gone through it a few times at another company does no harm when starting your own business,” he says.

But if Britain’s tech scene is fragmented, entrepreneurs in it share common complaints. These include access to capital: the multimillion dollar funding rounds commonplace in Silicon Valley are rare in Britain.

Nurser said when he first pitched his high-tech concepts to investors “certainly in the UK and Europe, people just ran a mile”. “The big problem is that they see it as ... high risk,” he says. “We need to circulate as an idea that high-risk things are good.”

Bristol’s other strength is in digital arts, particularly the film and television industry. The city is home to the BBC’s Natural History Unit, which produces its wildlife documentaries, and Aardman Animations, the Oscar-winning group behind hits such as; Chicken Run’ and ‘Wallace and Gromit’.

These two leading groups help to sustain dozens of local businesses, from freelance animators to graphics makers. “In a place [as small as] Bristol, you can find all the interesting people and bring them together,” says Clare Reddington, the director of Pervasive Media Studio, a collection of creative companies and technologists based at Watershed, Bristol’s famed arts institution.

Another frequent refrain from Bristolians is that the city is a good place to live, promoting a laid-back lifestyle that ensures workers stay in the area. This also has its drawbacks.

“Talk to some of the larger companies,” says Dan Efergan, creative director of Aardman Digital. “They want to compete against London or the world. They will say they feel like they hit a ceiling in the quality of their work. They couldn’t push it high enough because they don’t have teams of people working around the clock.”

Another advantage of the happy workforce is that it is also cheap. Charles Grimsdale at Eden Ventures, a tech investment group that has funded several Bristol-based companies, says engineers are 30-50 per cent cheaper to employ in Bristol compared with London, where starting salaries for young computer graduates can be above £50,000.

The desire to reduce costs helps explain why Bristol continues to attract significant tech companies. Two London-based groups, JustEat, the online takeaway food business, and Somo, a mobile marketing company, have both set up engineering centres in Bristol in the past year.

Overall, relatively few may directly benefit from the rise of technology in today’s increasingly disunited Kingdom — certainly far fewer than the 5 per cent of the British workforce who once toiled on the railways that Brunel helped to shape.

The digitally skilled and unskilled are today’s haves and have-nots. Computer scientists and graphic designers, but few others, can command huge salaries on graduation. Would-be entrepreneurs need to know how to tap wealthy individuals or venture funds to gain investment.

It is also possible that Britain’s local digital clusters will be stamped out by international competitors. This does not worry Nurser, who has already secured significant contracts from US companies. He suggests there is only one way British companies can compete.

“If you’re building something unique or hard to replicate, you can create value,” he says. “Do difficult things.”

— Financial Times