3.2 Derby’s innovative economy

3.2.1 Competitiveness

Founded on its world-class strengths in advanced manufacturing and engineering; viewed as a whole Derby’s economy is very competitive. In 2016 it ranked 12^th of 46 cities in its overall competitiveness as measured by the Huggins Competitiveness Index – above cities such as Leeds, Newcastle, Sheffield, Birmingham, Nottingham and Leicester. Its rank is unchanged since 2013, indicating that it has kept pace with higher-ranking places such as Manchester, Brighton, Bristol, Cambridge and Oxford. The index accounts for a range of  indicators covering facets such as business, workforce skills, productivity, economic activity and earnings to measure the relative strength of cities and local authority areas – and provides a useful oversight of the relative health and progress of Derby’s economy.[i]

3.2.2 Innovation and entrepreneurialism

Although Derby’s all-round competitiveness is strong, it has a relative weakness in the range and number of its businesses and it is more reliant on large employers than other cities. Competitiveness and innovation require a healthy and diverse range of businesses in any city economy.

Business density (businesses per 10,000 population) in Derby is lower than would be expected – the City would need to generate an additional 1,950 business to reach the average level across the East Midlands and 2,750 to reach the national average[ii].

This would require a step-up in the historic rates of business start-ups and the entrepreneurial culture in the City. The 2011 Derby Economic Strategy identified the lower than average rate of business registrations as a significant weakness of Derby’s economy. However, national data on business start-ups (Table 3.b) shows that Derby continues to remain considerably behind the wider regional and national averages in terms of growing and replenishing its business stock.

This trend is corroborated by separate data based on new business bank accounts which shows a general decline in the rate of new business formation in the city since 2011 – although an encouraging upturn has been seen in 2017[iv].

Although there are fewer new businesses than required, new businesses in Derby tend to be reasonably resilient in the earliest years of development and broadly in line with national averages.

3.2.3 Research and technology-based innovation: the Rolls-Royce effect

Derby’s ambition is to establish itself as the UK’s leading high-tech city (Core Strategy). In parallel to skills development for industrial digitalisation, research and technology-driven innovation in Derby will be key to maintaining the competitiveness of its most productive businesses in the next five years. R&D activity across the East Midlands is driven strongly by business – more so than across the country where government and university research plays a stronger role. In 2015, £1.5bn was spent on R&D by the private sector in the region – 78% of total expenditure compared to 66% nationwide –  of which £1.3bn was invested in manufacturing[vi].

Unsurprisingly, Rolls-Royce is the key driver of innovation, both in Derby and the wider region. The Midlands Engine Science and Innovation Audit (2017) identifies advanced manufacturing as the key sector – an ‘enabling competency’ – for innovation in the future Midlands economy. Rolls-Royce’s R&D spend (£800m) accounted for 4% of the UK commercial total in 2015 and the group is the largest UK European patent filer.[vii]

In order to justify and maintain its ‘UK Capital of Innovation’ status, the City will need to continue to diversify its R&D and innovation activity – building on the strength of Rolls-Royce – and capturing opportunities for investment and collaboration in the next five years. National government has made investment in science, research and innovation the first ‘pillar’ of the Industrial Strategy (2017) and is committed to investing an additional £4.7bn in R&D by 2021 (Industrial Strategy p17).

This places increasing emphasis on the roles of universities as the drivers and guardians of local and regional economic growth – an opportunity for the City’s own university and for greater collaboration with other institutions around the region, working through the Midlands Engine Innovation Group.

3.2.4 Attracting and retaining an innovative and entrepreneurial population

Derby benefits from a ‘brain gain’ – according to 2017 research by Centre for Cities, as a result of the manufacturing sector which attracts many graduates to Derby, weighted heavily towards brighter graduates, who then stay longer than those in other sectors[viii].

The city gains a greater number of new graduates from the rest of the country than it loses in local residents moving elsewhere to study (significantly to Nottingham, Birmingham, Sheffield and Leicester). 60% of those moving to the city with a 1^st or 2:1 from a Russell Group university come to work in manufacturing. This strong concentration of talent in one industry suggests that specialist employment opportunities are the key attractor of well-qualified young people to Derby – annual graduate wages in manufacturing in Derby (£29,800) are almost 20% (£4,800) higher than they are around the country. However, graduate employment opportunities in KIBS and other private services in the City are not nearly as attractive, each being over £2,000 below the national average[ix].

As highlighted in the Derby City Centre Masterplan (2017) more can be done to make Derby a vibrant living city with a sense of identity based on innovation and a greater presence of high tech firms and the university in the City Centre. To attract and retain an innovative and entrepreneurial population, Derby needs to continue to deliver the vision for its own City Centre as a place of choice for retail, culture, leisure and living – and a vibrant riverside location. This will also align with the Metro Strategy vision for Metro Living both Derby and Nottingham to provide ‘exciting and accessible opportunities for modern urban lifestyle and vibrant city centres.’

Innovation and entrepreneurialism also requires the right property market offers to support businesses in the earlier years of development. The 2015 Local Plan Core Strategy Economy Position Statement identifies a shortage of smaller and affordable units highlighted by businesses and the development industry, noting the economic importance of providing start-up space for new enterprises.

3.2.5 Innovative economy indicators

Footnotes

[i] Cardiff Business School, Nottingham Business School (2016). UK Competitiveness Index 2016

The Huggins Competitiveness Index provides a benchmarking of the competitiveness of the UK’s localities, and it has been designed to be an integrated measure of competitiveness focusing on both the development and sustainability of businesses and the economic welfare of individuals

[ii] Lower than average business density: 2016 local business units per 10,000 population: Derby, 351: East Midlands, 428; Great Britain, 459. (GEENCON analysis of ONS UK Business Counts 2016 and Mid-Year Population Estimates 2016).

[iii] GENECON analysis of UK Business Demography and Mid-Year Population Estimates (2013-2015)

[iv] GENECON Analysis of Derby City Council data provided by Bank Search Information Consultancy Ltd (2017).

[v] ONS Business Demography (2015) Business Survival rates.

[vi] GENECON analysis of ONS Research and Development in UK Businesses (2015)

[vii] Oxford Economics (2016) The Contribution of Rolls-Royce to the UK Economy in 2015.

[viii] Centre for Cities, 2017, The Great British Brain Drain: an analysis of migration to and from Derby

[ix] Ibid