Paul Hildreth UCL, Bartlett School of Planning p aul.hildreth.11@ucl.ac.uk

1. Firms and Location: Reflections from Companies in the Mersey Dee Alliance areaDepartment of Communities and Local Government, 11 November 2015 Paul Hildreth UCL, Bartlett School of Planning paul.hildreth.11@ucl.ac.uk

2. Deeside Enterprise Zone Source: Business Wales Agenda Your questions • Literature on firm location decisions? • Are firms rational in locating? • What benefits do firms see in EZs? • Costs of moving? • Advantages from co-locating? • Land prices impact on firm productivity? • Questions • My research • Why Mersey Dee Alliance area? • Firms location decisions and relocation issues • Other issues • Conclusions City of Chester Source: City of Chester

3. Context to my research: Devolution debate The Short Version of Question – In economic development what should be done nationally and what more locally? Full version - In what ways do governance institutions influence the shaping of local economic geography and contribute to the ability of local places to adjust to changing economic and social circumstances?

4. Basic Research framework Local* Governance (Institutions) National (Wales and UK) Policy framework (Coded) Statements Policies Economic framework Soft (Tacit) Understanding ‘community of place’ Influence of policy frameworks Position of ‘capital city’ Informal Networks Values Identity History Formal Structures Frameworks Boundaries Resources National to Local Understanding the local economy (knowledge)? (e.g. firms and human capital) * Note - Where local can have a flexible meaning: region, sub-region (city-region), local authority area see Hildreth and Bailey, 2014 Background see Hildreth, 2009, 2011;,2015; Hildreth and Bailey, 2013,2014; Bailey, Hildreth and de Propris, 2015

5. Why, with the focus on Cities is the MDA area interesting? Unique cross-border functional economy (Wales and England) (83% self-containment) Almost ½ size (GVA) of the Welsh economy Resurrection, Decline and Resurrection Advanced manufacturing centre (26% employment Flintshire) and Regional Services City of Chester Away from the gaze of policy, but close to Manchester and Liverpool Cheshire & Warrington LEP and devolution bid MDA North Wales Economic Ambition Board Welsh Government Travel to Work England and Wales based on 2011 census data Source: Alasdair Rae, University of Sheffield, August 2014, available at: http://ajrae.staff.shef.ac.uk/img/eng_ttw_all_blue_300px_labels.png

6. Map produced by Basak Demires Ozkul Red stars indicates interviewed firms Drawn to at least 75% self-containment ONS Travel to Work Areas for United Kingdom 2011 Source: https://geoportal.statistics.gov.uk/Docs/Maps/Travel_to_work_areas_(UK)_2011_map.pdf

7. Seen closer up Source: 2011 Census Data mapped by Basak Demires, 2014

8. Map produced by Basak Demires Ozkul Concentration of skilled manufacturing workforce and interviewed firms

9. Map produced by Basak Demires Ozkul Concentration of finance and insurance workforce and interviewed firms

10. Why did inward investment come to NE Wales? To From • Wales/UK earning ratio • Welsh share of new infrastructure spending (e.g. roads, sites etc) • Good market access • Regional preferential assistance • Effective FDI targeting and support (WDA/Welsh Office/Local authorities) • [Established supply of skilled workers] Airbus, Broughton – today Source: Sunday Times and BBC Former Shotton Steel Works 1970s Source: BBC Quotations Source: Hill and Munday (1991a, b; 1992) Bristow and Munday (1997) “…both X and Deeside have a very strong engineering background. The basic infrastructure was in place, such as a good road network…the two local governments worked hard and were open in saying that they wanted this manufacturing investment and would do all they can to make it successful.” MNC – Deeside A. More peripheral location B. Mass market location • Earnings ratio • Connectivity • Regional assistance “The choice of Wrexham was likely to have been connected to the availability of grant funding and the regeneration of the industrial park.” MNC - Wrexham Inward Investment firms locate in A to serve market B (and beyond)

11. Firms interviewed analysed so far *Notes on table Trade – where companies trade Supply chains – limited local services excluded Horizontal links – collaboration across firms in local area Vertical – supply or customer relationships across firms in local area Flintshire – one of the interviewed companies is a joint private/publically funded research & development centre M – Manufacturing; S – Services; R – Retail; C - Construction W – Wales G - Global

12. What comparative cost factors are raised in interviews? Wages – NE Wales is not a high wage cost area, but MNC’s pay upper quartile or + rates. Staff turnover low, but ageing workforce. Good access to general workforce. Higher skilled roles filled from outside area. Transport – Good local and regional connectivity for Deeside/Wrexham, whereas Denbighshire is more remote. Connectivity a game changer where a) customer service response is critical or b) cost of shipping bulky product to the UK offsets higher labour costs. Cost advantage Cost disadvantage

13. Comparative cost factors Premises – Not a high cost location. Individual company rather than general concerns. Plans for new major site development at Deeside (Northern Gateway). Cost of business rates compared with Europe raised. Energy and Environment – Strong perception of higher energy costs by companies dependant on high energy consumption. Raised consistently in Ellesmere Port/N. Cheshire as well as Deeside. Cost advantage Cost disadvantage

14. a. X, Y and Z are branch plants (overseas) within the same MNC as A and potentially competing for product production. Challenges: For some MNC’s, not others Global HQ X Y Z d.Transport costs increasing/significant for some firms. e.g. Issues . fractured supply chains; connection to markets. Can work in favour where: costs shipping to UK higher than UK production; where fast customer service is an issue. c. Workforce costs are likely similar (Europe) or higher (RofW). Objective of high plant productivity to complete with X, Y and Z b. Firms value engineering heritage, access to local skills, low turnover. But access to higher level skills and ageing workforce are issues. • e.Challenges might include: • Maturing or routine product • Ageing capital equipment • Weak regional markets e.g. Europe • Plant at under-capacity • New capital investment becomes crucial. [But some have successfully overcome these challenges]

15. How embedded are the MNC’s into the NE Wales economy? MNC Examples from Flintshire and Wrexham (Drawing on Phelps et al, 2003) Key Plant – Manufacturing only. Plant + - Manufacturing plus other upstream (R&D, Design) or downstream (marketing or sales) functions. HQ – Headquarters functions. C. supplies F. C also supports I. (Sustainable Building Envelope Centre ) for which F. is a main partner. A – Anchor Company in Wales R – Regionally important company Wales - Yes X – No L -Limited * Note – Criteria used in Phelps et al. 2003;

16. UK/Welsh company: challenges • All the Welsh/UK manufacturing companies interviewed were privately owned. They were either: • HQ (either sole or with other plant(s) in area (all functions) • HQ, but within the ownership of another company • Branch or Branch+ plant with particular functions or distribution role with Wales/UK HQ elsewhere • b. Whilst they face similar competitive challenges to MNC’s, their overall position is possibly more secure. • The main challenges are: • Product development and innovation. • Capital investment - most invest through their own saved resources and none interviewed had borrowed since 2007. • Access to skilled labour force – one company has built its own training centre. • Transport costs.

17. Literature on firm location decisions (firm perspective)* * Note – there are other ways of exploring the issue of agglomeration e.g. sharing, matching learning (see: Overman et al, MIER, 2009). Here I have deliberately not focussed on usual distinction between localisation and urbanisation economies, as urbanisation economies are unlikely to apply in the MDA area

18. Southport Liverpool City Region Formby Maritime (‘Liverpool Superport’) s St Helens ICT/digital Creative industries M62 Even within the city, there may be different location patterns Source: Liverpool case study for Centre for Cities, SURF and Work Foundation, 2009

19. Literature on firm location decisions – place-based and agglomeration* *Note – i.e. heterogeneous differences between places (See Garcilazo, Martins and Thomson (2010): www.voxeu and OECD (2010))

20. MNC: overcoming challenges Global HQ X Y Z B. Re-position product life-cycle - Joint collaboration (local firms, Welsh Government, universities) to develop new technological solutions e.g. Sustainable Buildings Envelope Centre (SBEC)to transform building façade’s from passive to active energy generation [High-technology] A. Re-position product life cycle - Product innovation and evolution, significant capital investment, development of supply chain (including locally), investment in skills development. [Other similar examples] [High-technology] C. Product replacement – Replace redundant product with new (maybe different) product [Lower technology]

21. Other points worth highlighting Business services or relational? • Nearly all firms stressed that a single point of contact (WG or LA) more important than provision of business services per se. • Welsh Anchor and Regional Important companies more likely to stress positive benefits of devolution than those without status. Collaboration • Stronger evidence of vertical than horizontal collaboration between firms in NE Wales. Access to capital • None of the interviewed firms had borrowed capital in recent years or were seeking to do. • Investment funding came from company reserves (indigenous firms) or parent company (MNC). • Questions about extent of private sector re-investment? Appropriate role of institutions? • Danger of being overlooked in the context of place? • Public investment going alongside private investment e.g. skills and innovation.

22. Final Observations?