Paul Swinney of the Centre for Cities looks at the effects of independent businesses on the economy.
There’s a great deal of discussion, particularly around the high street, concerning the importance of independent businesses.
While I would agree with this – independent businesses make a very important contribution to city economies – overlooking the role of the branch business could be bad for future economic growth. And given growth of any form is desperately needed, it’s a good time to reassess the importance of the branch business.
Our new report, “Open for Business” (pdf), sponsored by ICAEW, looks at the geography of branch businesses. As Figure 1 shows, it finds that Aberdeen has the highest share of branch businesses – almost one in four of its businesses are a subsidiary to a company owned elsewhere in the UK or abroad.
Source: TBR Observatory 2012, 2010 data
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Meanwhile, the data shows that Southend is the UK’s most ‘independent’ city economy – nine of every ten businesses are independent. But this could undermine its future economic growth.
I’ll give you two reasons why this is the case.
Firstly, the number of branch businesses is likely to be an indication of the attractiveness of a city economy to outside businesses. When viewed like this it should come as no surprise to see that cities such as Milton Keynes and Reading are amongst some of our ‘least independent’ city economies – their strong economies are like honey pots for external investment.
Secondly, these businesses are likely to import innovations developed elsewhere in a city. Why is this important? Innovation is the driver of long run economic growth. And innovation isn’t just limited to iPod-like ‘eureka’ inventions in knowledge intensive activities. McKinsey found that retail was responsible for nearly a quarter of the increase in productivity in the US economy between 1995 and 1999.
Of course, being ‘open’ doesn’t come without any risks. The current crisis in the Eurozone is a case in point, and the presence of Eurozone owned businesses in our cities provides one channel through which the stresses on the continent could be transmitted to the UK.
Milton Keynes is the UK city with the highest share of eurozone owned businesses – 3.2 per cent of businesses in the city have parents from the bloc. This is followed by Coventry (3.1 per cent) and Swindon (3 per cent).
The good news for Milton Keynes is that it complements its attractiveness to eurozone-owned businesses with high levels of home-grown enterprise. It has some of the highest numbers of business starts and total businesses out of all UK cities. And this is likely to help them to offset any impact that the fall out in the eurozone may have. This is less likely to be the case for Belfast, which has an above average share of Eurozone-owned businesses but below average levels of enterprise.
Despite continued scepticism, the branch business is good for economic growth. But it’s those cities that are able to mix high levels of home grown, independent enterprises with their appeal to businesses from elsewhere which are best placed to provide an answer to the UK’s current economic growth conundrum.