http://www.nwda.co.uk/pdf/FPS_strategy_final1 by Northwest Regional Development Agency

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Financial and Professional Services Strategy and Action Plan for Englandâ&#x20AC;&#x2122;s Northwest 2010

NORTHWEST FINANCIAL AND PROFESSIONAL SERVICES STRATEGY

CONTENTS .......................................................................................................................................

Executive Summary

1. Purpose of the Strategy………………………………………………………...

2. Policy and Context………………………………………………………………

3. Market Analysis…………………………………………………………………. 3.1 FPS Sector Overview…………………………………………………….. 3.2 FPS Sector Trends, Drivers, Issues and Opportunities…… 3.3 FPS Priority Sub-sectors in summary…………………………………...…

4. Vision and Strategic Framework…………………………………………...

5. Priority Action Plan…………………………………………………………..

6. Monitoring and Implementation…………………………………………..

7. Appendices…………………………………………………………………… Appendix 1 – FPS Sector definition Appendix 2 – BPS Sector definition Appendix 3 – Sub-Sectors in Detail Appendix 4 – Full Action Plan Appendix 5 – Glossary

EXECUTIVE SUMMARY ………………………………………………………………………………………………….. The 2006 Regional Economic Strategy (RES) highlighted Business and Professional Services (BPS) as a priority sector offering significant potential for growth. This strategy provides a framework for the development of a substantial sub-set of the sector, identified as Financial and Professional Services (FPS). Over the last ten years the FPS sector has experienced significant growth, in terms of employment, number of businesses and productivity. The Northwest FPS sector, however, still lags behind the national average as far as productivity (measured as GVA per head) is concerned. Despite the economic downturn, which is having a considerable impact on the FPS sector, it is predicted to grow further in the medium to long term. This strategy provides a framework for action to support the sector’s growth over the next 10 years, its strategic impact being to increase the total GVA of the FPS sector in the Northwest. Our vision for the FPS sector is: An internationally recognised, competitive and vibrant sector comprising innovative, market-focused businesses, underpinned by talent and expertise. Manchester will be a leading European centre, complementing London’s position as a global hub, supported by Liverpool and Chester: thriving FPS centres in their own right.’ Realising this vision will require activity and resources to be focused on the following two main aims and a number of key objectives under seven strategic themes: Aims •

Increase the GVA per head of the sector by encouraging higher added-value employment and raising levels of innovative activity in the sector in the region

•

Increase the number of people working in the sector by attracting new investment, supporting the growth of existing businesses, and encouraging the start-up of new businesses.

Themes and key objectives Marketing/Image 1. To raise the profile of the Northwest FPS sector in the region, nationally and internationally Investment 2. To encourage further investment from overseas markets and existing FPS investors in the Northwest 3. To attract further FPS investment from the rest of the UK Skills 4. To expand the supply of qualified professional and technical staff to meet the current and future needs of the sector

Innovation and Enterprise 5. To increase the level of innovation and enterprise taking place in the sector in the region Markets 6. To increase Northwest companiesâ&#x20AC;&#x2122; market share of regional, national and international FPS business Support 7. To provide businesses in the sector with access to the right business support Infrastructure 8. To ensure that the sector has the right infrastructure to support its growth

Under each of the above objectives are specific actions which are detailed in Section 5: Priority Action Plan.

1. PURPOSE OF THE STRATEGY ………………………………………………………………………………………………….. This section explains the purpose of the Strategy, its scope, its strategic impact and its aims. The 2006 Regional Economic Strategy (RES) highlighted Business and Professional Services (BPS) as a priority sector offering significant potential for growth. This strategy provides a framework for the development of a substantial sub-set of the sector, identified as Financial and Professional Services (FPS). Its overarching aim is to ensure that public sector support facilitates the growth of this sub-sector, and that interventions are directed towards resolving issues emanating from market failure. The FPS sector encompasses a wide range of business activities including: •

•

the whole of the financial services sector including banks, building societies, insurance and pension companies, financial intermediaries such as insurance brokers and financial advisors, venture capitalists, fund, asset and wealth managers, stockbrokers and investment companies key parts of the business services sector broadly comprising the professions, including legal services, accountancy, management consultancy, recruitment consultancy and property services.

A full list of the Standard Industry Classification Codes (SIC) for the sector is provided in Appendix 1. The overall aim of the strategy is to increase total GVA generated by the sector by raising the GVA per head, as well as increasing the number of people employed in the sector by encouraging indigenous growth, new investment and entrepreneurship. Achieving this strategic impact will require a focus on the following aims: •

Increase the GVA per head of the sector by encouraging higher added-value employment, and raising levels of innovative activity in the sector in the region

•

Increase the number of people working in the sector by attracting new investment, supporting the growth of existing businesses, and encouraging the start-up of new businesses.

This strategy has a 10-year lifespan starting from 2009 and contains a three-year action plan which will be reviewed annually. Whilst it is important that the Agency and its partners focus on long-term goals to ensure the realisation of the strategic vision, it is recognised that a degree of flexibility is required to respond to short- to medium-term challenges faced by businesses in the sector in an increasingly difficult economic climate.

2. POLICY AND CONTEXT ………………………………………………………………………………………………….. This section outlines the policy and strategic documents which provide the context of, or are complementary to, the FPS Strategy. It also provides an overview of existing Agency-funded activity which directly supports the sector.

European policy context The updated Lisbon Agenda (2005) has the overriding goal of making the EU the most dynamic and competitive knowledge-based economy in the world and has two broad aims: to generate stronger, sustainable economic growth and to create more and better jobs. The Lisbon Agenda puts an increased emphasis on developing competitiveness through innovation and knowledge-intensive activities. The Northwest has an ERDF Operational Programme (2007-2013) of over £500 million to support the delivery of these objectives, including actions on sector development. UK policy context The five drivers of productivity The Government identifies five drivers of productivity in Productivity in the UK: Evidence and the Government’s Approach,1 published in 2000. These drivers are: enterprise, skills, innovation, investment and competition; areas where improved performance can have a significant impact on the economy as a whole. In recent years these drivers have played an increasingly prominent role in directing public sector intervention. National Enterprise Strategy The Government’s 2008 Enterprise Strategy2 further developed the five drivers of productivity through five enablers of enterprise. The Strategy emphasises the need for business to be competitive so that it can respond to, and seize opportunities from, globalisation. UKTI Financial Services Strategy The financial services sector (and related professional services) has been identified by UKTI as a key growth sector for the UK. In 2006 the UKTI, under the direction of the Chancellor’s Financial Services Sector Advisory Board, developed a Marketing Strategy for the sector, with a focus on London as the ‘attack brand’ supported by strong regional centres throughout the UK. The English regions are represented on the Advisory Board by the NWDA (on behalf of all the English Regional Development Agencies), and Pro-Manchester and Leeds Financial Services Initiative. The NWDA chaired the Financial Services Regional Advisory Board until recently and has now been succeeded in the role by Professional Liverpool, the sub-regional Cluster Organisation for Liverpool. The Board also has representatives from RDAs and cluster organisations/private sector membership organisations. The UK FS Marketing Strategy features inward trade delegations and outward missions to key international markets (e.g. China/India/the Gulf/Russia/US).

HM Treasury 2000, Productivity in the UK: Evidence and the Government’s Approach (www.hmtreasury.gov.uk/media/D/C/ACF1FBA.pdf 2 Enterprise: Unlocking the talent (2008) (www.hm-treasury.gov.uk)

Other Government policy Government policy also seeks to simplify the types of business support to be publicly funded, and how that support is coordinated, procured and delivered. This includes the Business Support Simplification Programme (BSSP) (www.bis.gov.uk), which aims to simplify individuals’ and businesses’ access to business support, and the Sub-National Review of Economic Development and Regeneration (SNR) which aims to ensure that delivery is at the most appropriate spatial level (www.hm-treasury.gov.uk). Regional 2006 Regional Economic Strategy (RES) The RES identifies BPS as a priority sector for growth. The actions in the RES which relate to the development of higher added-value activity in regional sectors include: • • • • • •

Undertake cluster development programmes in priority sectors to develop higher value activity, improve productivity and identify future growth opportunities Enhance business/HEI collaboration and knowledge transfer Raise companies’ awareness about global opportunities/risks to help them compete internationally Provide specialist business support to improve the region’s exporting performance with an emphasis on helping more companies export Focus the region’s inward investment, domestic relocation and aftercare activity to support the region’s knowledge base and complement, support and strengthen priority sectors Deliver the skills required by priority sectors.

The rationale for public sector intervention to support key sectors of the Northwest economy is to remove market failure, because such failure limits the potential contribution these sectors make to the regional economy. The Agency’s investment in priority sectors aims to minimise the impact of these failures (imperfect information, institutional and coordination failures) and stimulate future growth in these sectors.

Northwest Enterprise Strategy The Northwest Enterprise Strategy (2008) provides a framework for encouraging enterprise in its broadest sense in the Northwest. This means not merely focusing on encouraging new business start-ups but on developing an ‘enterprise culture’ in the Northwest to stimulate increased productivity in the region by maximising the competitiveness of existing businesses and supporting a growing supply of entrepreneurs. The RES priority sectors are identified in the strategy as a target segment for enterprise development activities. (See www.nwda.co.uk/enterprise for further details). Northwest Innovation Policy The Northwest Innovation Policy (2008) was developed by the Agency and its partners to encourage increased innovation in the region. Improving the overall levels of innovation in the Northwest necessitates reducing barriers to innovation by raising awareness of its wider benefits; increasing access to, and the exploitation of, knowledge; and increasing the motivation and capacity of the region’s businesses to innovate. The Policy specifically refers to the need to increase innovation in services – specifically in non-science sectors such as business and professional services, and to gain a better understanding of the drivers and outputs of innovation in services. The ability to access knowledge and apply it in short timescales is also highlighted as important for innovation in services.

Internationalisation Strategy for the Northwest The region’s Internationalisation Strategy has six key areas of action, one of which is the development of internationally competitive sectors. As a major sub-set of the BPS sector, FPS is a key target for increased international focus. This includes attracting inward investment, helping businesses in the sector gain access to international markets, attracting and retaining workers with appropriate skills, and developing international supply chains. Sub-regional Financial and Professional Services is identified in both the Greater Manchester and the Merseyside Sub-regional Action Plans as a key sector for growth. In Cheshire and Warrington the action plan refers to the sub-region’s strengths in FPS; however, target sectors are not named. FPS is not a priority sector in the action plans for Cumbria or Lancashire. Existing Agency-funded sector support The NWDA supports a range of activity in relation to the sector, including two cluster development programmes currently operational in Manchester and Liverpool. The focus of this activity is networking, lobbying/marketing, intelligence gathering and skills development. The Agency also provides a one-to-one information, diagnostic and brokerage service to FPS businesses through Business Link’s 30+ specialist BPS advisors. In addition to this, the Agency has a small BPS team that, together with its sub-regional partners, engages with key strategic employers in FPS in the region to support their business needs. In 2008 the Agency established the Northwest BPS Sector Investment Group, which has representation from SRCOs, SRPs, UKTI and Business Link. This is a working group set up to ensure greater coordination and sharing of information between the key stakeholders at regional and sub-regional levels to encourage further investment in the sector. The Agency also supports an international trade programme through UKTI which offers businesses in the sector the opportunity to participate in export development activities. UKTI priority markets include US, China, India, the Gulf States and Russia. The Agency also funds overseas inward investment teams in the US, China and India. In autumn 2007, the Agency established a private sector led body, the NW FPS Steering Group, to provide direction to, and oversee the implementation of, this sector strategy.

3. MARKET ANALYSIS ……………………………………………………………………………………………… This section provides an overview of the FPS sector on a national, regional and sub-regional level; outlines the priority sub-sectors in the Northwest; and presents the key trends, drivers of growth, challenges and opportunities for the sector.

Key messages: • • • • • • • •

Northwest FPS sector employment experienced growth 15% above the UK average for FPS between 2000 and 2006 Northwest FPS Sector GVA has grown faster than in any other sector in the region, but due to London’s influence it still lags behind the UK average by over £16,000 per employee The sector in the region is heavily reliant on the local economy Greater Manchester accounts for 44.7% of jobs in the sector and 47% of the region’s GVA Substantial and growing concentrations of activity are to be found in Cheshire and Merseyside Management consultancy and legal services have experienced most growth in jobs, whilst approximately 3,000 jobs have been lost in insurance GVA per head varies significantly between the sub-sectors, with banking and insurance generating 54% more than other sub-sectors FPS businesses in the region have developed expertise in a number of niche areas including AIM listings, PPP, PFI, wealth management, private equity, consultancy and specialist legal services

3.1 FPS Sector Overview National The financial, business and professional services industries are amongst the most important industries in the UK. The sector has been growing at more than double the rate of the economy for many years, its productivity rising at more than three times the average. In 2004 these industries accounted for 10% of UK GDP and jointly employed over 5 million people (1.1 million in financial services and some 4 million in business and professional services).3 The financial services sector is the single largest contributor to the UK balance of payments: net UK financial services exports in 2005 were £19 billion. Within professional services, legal services alone contributed £14.9 billion or 1.4% to the UK’s GDP in 2004, and exports generated by law firms totalled £2.2 billion in 2005 – more than three times the amount generated in 2000. In terms of employment, the financial services sector is dominated by London. The Northwest accounts for 9.2% of UK employment, the highest of all English regions outside London and the Southeast. Similarly, employment in the broader business and professional services sector is heavily focused in London and the Southeast. The Northwest has the highest number of employees in the UK outside London and the Southeast with 9%, compared to 7% in Scotland, 8% in the West Midlands, and 7% in Yorkshire and Humberside.

www.uktradeinvest.gov.uk

Regional The Northwest of England has one of the largest business and professional services sectors outside London. The sector now accounts for a substantial share of the Northwest’s economy: in 2006 it generated £15.4 billion – approximately 13.3% of regional GVA – and employed 327,300 people. The BPS sector has been the second strongest performer amongst the RES priority sectors in the Northwest, averaging an annual growth of 7.1% between 1999 and 2006. However, the rate of growth in England was 8.6% a year over the same period. A study in 2006 identified a group of sub-sectors within BPS as being the most significant in terms of employment and wealth generation. This group, known as financial and professional services, is the focus of this strategy. In 2006 the FPS sector in the Northwest employed 288,802, and accounted for 9.6% of jobs in the region. It contributed £14.05 billion towards regional GVA, which equates to 12.9% of the Northwest total, and GVA per head for the sector was £48,652; 75% of the UK average. Businesses in the FPS sector in the Northwest offer a wide range of services, both business-tobusiness and business-to-consumer. The region’s broad base of FPS firms, which totalled 29,075 in 2006, includes head offices of firms such as the Co-operative Bank, BoA/MBNA (Europe), Halliwells and Rathbones; major regional operations such as Royal Bank of Scotland and Barclays; and specialist functions for major national and international firms including Royal London, Bank of New York Mellon, esure, and Alliance & Leicester. National and international firms such as Rothschilds (the bank’s original headquarters was in Manchester and its office in the city specialises in investment and corporate banking), PwC, KPMG, Deloitte, Ernst & Young, Baker Tilly, Close Brothers and Grant Thornton also have a presence in the region. In addition, the Northwest is home to a significant number of regionally owned firms, primarily SMEs, in all the main FPS sub-sectors. The FPS sector in the region has grown significantly in recent years; the number of business units in the sector rose by 36.3% from 21,333 in 2000 to 29,075 in 2006. FPS sector employment in the Northwest has also experienced significant growth, with year-onyear increases in employment figures between 2000 and 2006. Over this period employment increased by over 26% in the region from 228,445 to 288,802 compared to the national average growth rate of 9%. This increase was brought about through a combination of new business start-ups, organic indigenous growth, and inward investment, which in recent years has made a significant impact on the size of the region’s FPS sector. The Northwest has been successful in attracting considerable investments from major international institutions such as the Bank of New York Mellon, Bank of America (acquired MBNA and its Chester Business Park operation in 2005 in a £20 billion deal), and JP Morgan Invest. In 2006/7 the region attracted 22 FPS Foreign Direct Investment (FDI) projects, the second strongest performance in the UK after London.4 The international dimension of the sector has also been strengthened through an increase in the export of FPS services from the region. Between 2001 and 2006 internationally exported FPS

UKTI

services doubled in value.5 The estimated value of exported FPS services from the region in 2006 was £2.6 billion. There is evidence to suggest, however, that the majority of Northwest FPS firms do not trade outside the region; it could thus be argued that they rely too heavily on local markets. The sector’s GVA grew from £6.5 billion in 1998 to £14.05 billion in 2006, which equates to 54% growth. Whilst GVA has grown faster in the FPS sector than in any other sector in the region, the disparity with the national average, due to London’s influence, has widened from 14% in 2005 to 25% in 2006. In a Northwest context, some of the highest GVA-creating activities (e.g. investment banking) are also unlikely to be significant employment generators due to concentrations of activity in London and the Southeast. The Regional Economic Forecasting Panel in its latest long-term forecast anticipates that the growth gap will continue to widen over the next 20 years, with GVA per head in the UK as a whole expected to grow 0.4% a year more than in the Northwest, reflecting the growing influence of London as a global service centre of the UK economy. This forecast is based on the expectation that ‘the Northwest’s service providers are likely to go on supplying mainly local and regional markets’ and ‘the highest level of services, and the most clearly segmented and specialised services will continue to be concentrated in London, with further dispersion of relatively lower value work to less costly parts of the UK ’. In 2006 GVA per head in the Northwest was 75% of the UK average. Whilst GVA per employee has been rising in financial and professional services, the 2006 data shows that GVA per employee was £16,343 lower in the Northwest than the UK average. (This gap has widened by more than £11,000 since 2005.) This position is in stark contrast to the manufacturing sector, where GVA per head in the Northwest is comparable to the UK average. The reasons for the GVA gap are complex, relating to differences in productivity within the sector as well as differences in occupational structures and price/salary levels. In the Regional Economic Forecasting Panel’s May 2008 assessment, relative price differentials and the increasing segmentation of the FPS sector (which meant that more higher-level activities and jobs were retained in London) were highlighted as key factors in explaining the GVA gap. These key factors were reinforced in the associated analysis undertaken by SQW and Cambridge Econometrics, which concluded that the prosperity gap was largely due to lower economic activity rates, shorter hours worked and lower consumer prices and that ‘businesses in the region are not obviously less efficient than those elsewhere’. A study undertaken into FPS key sub-sectors in 2008 came to similar conclusions about the GVA gap, noting: • • •

the continuing ability of firms in London to charge premium rates; the level of innovative and enterprising activity which takes place in the Northwest is lower than in London and the Southeast; and the challenge of attracting and retaining talented individuals in the Northwest.

Within the sub-sectors, GVA per employee in the Northwest varies significantly –GVA per employee in banking and insurance in 2006 was £77,625 compared to £32,202 in legal services, accounting and management consultancy (note: the data does not allow more specific breakdowns).

Assessment of Northwest International Trade Performance, ARUP, 2008

As far as GVA is concerned, the differences between sub-regions will partly relate to different sector compositions – for example, Cumbria’s lower GVA per employee is partly explained by its relatively small banking and insurance sectors. Within the region, the 2006 GVA contribution for the seven sub-sectors is estimated as: • • • • •

Greater Manchester 47% Merseyside 19% Cheshire and Warrington 18% Lancashire 12% Cumbria 3%.

Each of the five sub-regions witnessed an expanding business base, with growth rates ranging from 30.8% in Greater Manchester to 46.3% in Lancashire. Cheshire, Merseyside and Cumbria experienced business base growth rates of 40.3%, 35.7% and 33.6% respectively. The cumulative effect is that whilst Greater Manchester has the largest number of businesses significant concentrations of activity are evident in each of the sub-regions. The 2006 shares are: Greater Manchester 39%, Merseyside 16%, Lancashire 20%, Cheshire 19% and Cumbria 6%. In terms of sub-sectors, the biggest increase was seen in management consultancy where the number of firms almost doubled, riding on the back of positive conditions in the macro-economy and growing demand for specialist services between 2000 and 2006. In contrast, the number of businesses in the insurance sub-sector shrunk by almost a fifth as competition and consolidation intensified. Whilst 44.7% of the sector is located in Greater Manchester, there are substantial and growing concentrations of activity in Merseyside and Cheshire – indeed, employment growth in Cheshire was double that in Greater Manchester in proportionate terms, whilst Merseyside grew at a similar rate to Greater Manchester. Lancashire continued to account for 15.5% of jobs in the region whilst Cumbria accounted for only 3.9% of the regional total. Employee Jobs 2006 Banking

Accountancy Legal

27,241 14,650 7,804 17,845 2,170

10,379 2,703 3,979 2,429 1,538

69,710 Source: ABI, ONS/EKOS

21,028

Greater Manchester Merseyside Lancashire Cheshire Cumbria Northwest

Insurance

Man Cons Property Recruitment Total

17,451 8,633 4,942 3,039 1,423

19,323 7,642 3,942 2,431 355

10,953 2,980 3,936 7,158 1,219

10,460 3,113 3,381 3,599 2,628

36,327 10,070 10,232 20,831 1,996

132,134 49,791 38,216 57,332 11,329

35,488

33,693

26,246

23,181

79,456

288,802

The seven sub-sectors accounted for 9.6% of total employee jobs in the region in 2006. Within the Northwest, the sector’s relative share is greatest in Cheshire (11.8% of employee jobs), followed by Greater Manchester (11.4%) and Merseyside (9.3%). The equivalent shares in Lancashire and Cumbria were 6.3% and 5.3% respectively. In spatial terms, recent employment trends in the seven sub-sectors have reinforced the concentrations of activity in the two cities of Manchester and Liverpool, although strong growth in Cheshire and Lancashire has meant that benefits of growth have been spread across a large part of the region. The result is that the 2006 split of employment in the seven sub-sectors is: • • • •

Greater Manchester 44.7% Merseyside 18% Lancashire 15.5% Cheshire 17.7%

•

Cumbria 3.9%.

Taken together, the latest GVA data and other analyses highlight the continuing need for a mix of both demand- and supply-side policies to boost GVA per head above the trend position. Some of these policies, e.g. boosting economic activity rates and qualifications attainment, will be complementary to a FPS sector strategy. Specific policy implications include: Policy implications • • • • •

•

Encouraging innovation through the development of new products, processes and services amongst the existing business base as a route to greater efficiency and profitability. Intensifying efforts to grow markets outside the region, including services provided in London. The importance of Manchester as the prime location for highest GVA-creating activities. Highlighting the cost and other advantages of locations across the Northwest to attract further investment. Working with recruitment agencies and others to ensure that the region attracts a greater share of the most talented, best qualified and most enterprising individuals to the region. Supply-side policies such as boosting qualifications attainment will have a major bearing on the potential to grow GVA above the trend rate.

3.2 FPS Sector Trends, Drivers, Issues and Opportunities This section provides an overview of the key drivers, issues and trends currently affecting the FPS sector in the Northwest and those that will impact upon its performance in the future. It also outlines the sector’s key strengths and the opportunities which must be exploited to ensure the continued, long-term sustainable growth of the sector. PESTEL Analysis Five principal drivers have been identified that will affect the future of the FPS sector. An outline of these drivers, together with associated implications, is provided in the table below: Drivers Demographic and cultural factors, including changing age patterns, population migration, regional cultures, education standards, levels of trust and consumerism.

Implications ¾ Business opportunities are likely to be brought about by an increase in older age groups, including wealth transfer related products such as trusts, life insurance and annuities. There will also be increased competition caused by new entrants amid growing levels of consumer distrust caused by recent scandals involving financial institutions. ¾ Organisations that offer life-cycle wealth management services and can accurately predict changes in consumer preferences will be most successful. ¾ An ageing population is also expected to bring about challenges in relation to the supply of skills in the region. Attracting experienced staff (e.g. 50+ age group) as

well as school leavers and graduates is likely to become increasingly important to ensure the demand for people in the sector is adequately met. Economic cycle, including economic growth rates, interest rates, investment yields, asset prices and levels of liquidity. The current economic crisis will have a severe impact on this area.

¾ FPS companies’ search for new growth areas is likely to propel them into new markets but such approaches are likely to be incremental and carefully controlled. ¾ Institutions will continue to seek to innovate, introducing new products and approaches to generate increased revenue. ¾ Cost efficiency will remain key. There is likely to be further acceleration in the outsourcing of non-core functions and greater emphasis on performance improvement. The Northwest may be well placed to actively bid for relocations from less cost-effective regions of the UK, such as London and the Southeast. At the same time, the region will need to assist existing investors to move up the value chain, to make such operations less susceptible to offshoring. Consolidation is likely to be an ongoing threat to jobs in a range of subsectors, especially financial services, in the Northwest. ¾ Conversely mergers and acquisitions will present new opportunities for businesses in some sub-sectors, e.g. Independent Financial Advisors.

Political factors, including public sector ownership, transfers and barriers to trade, cooperation between states, political stability, consumer protection, legislation and taxation regimes.

¾ Levels of scrutiny of FPS companies are likely to increase – and leading institutions will increasingly solicit and act on customer feedback throughout all stages of the product cycle. The development of simple and transparent products will be a key ingredient of success.

Regulatory factors, including capital and solvency requirements, corporate governance codes, accounting standards, financial disclosure rules and compliance costs acting as a barrier to entry for regimes. In the legal sector, the Legal Services Bill and other legislation is having a major impact.

¾ Decreasing costs and increasing capacity will make offshoring and nearshoring increasingly cost effective, although this will be offset in some markets by other issues, such as rising labour costs in key offshore centres. ¾ Whilst technology may enable the development of low-cost distribution networks, customers are often concerned about security, meaning that people-facing activities such as branch networks will

continue to be an important element of any strategy.

Technological factors include internet access and bandwidth, the ability to automate, cheaper longdistance communications, relationship management capabilities and potential for fraud.

As a result of these drivers the financial services and professional market will continue to evolve and this will have a dramatic impact on the shape of the industry over the next 15-20 years and will present challenges to FPS worldwide. The evolution of the FPS sub-sectors will depend on the prominence of each of the individual drivers. Currently, in 2009, the external economic cycle driver is exerting immense influence in the sector via the liquidity crisis and concurrent economic downturn. This is also having a significant impact on the profitability and future of financial services companies, and on government policy in relation to the sector. Some of the drivers, such as GDP growth and demographic trends, are imposed on the industry by the external macro-economic and social environment. Climate change may have a sizeable impact on the FPS sector. The potential risks include: • • • •

increasing insurance and regulatory risks for businesses impacting on the profitability of companies in the FPS sector; the impact of climate change on regional and worldwide markets for financial services and hence the Northwest’s financial services community; the potential increase in air travel costs, and increased regulation impacting on the ability of businesses to serve international clients; and health and safety implications for the workforce from inadequate office stock.

Policy implications • • • • •

Attracting experienced workers as well as graduates/school leavers into the sector will be key to meeting demand for skills. The increasing trend towards outsourcing presents an opportunity for the Northwest to attract further investment through relocations from London/Southeast. Supporting businesses to move up the value chain to make operations less susceptible to offshoring. Increased regulatory burden may present further challenges for FPS businesses. Climate change is expected to present further challenges for businesses in the sector.

Trends Inward investment In recent years, the Northwest has attracted strong FDI investment. The table below gives a breakdown of projects attracted to the Northwest and UK between 2004 and 2007. 2004/05 (UKTI categories – finance / management & business) Total no. of FPS FDI 110 projects attracted to UK 7 Total no. of FPS FDI projects attracted to Northwest Regional ranking =3 Source: UKTI

2005/06 (UKTI categories – finance /management business) 145

2006/07 (UKTI categories – financial services / business & consumer services) 255

The trend until 2007 was a positive one, with the Northwest and the UK as a whole increasing their market share of FPS inward investment. However the current economic crisis is expected to have a negative impact on FDI flows over the next two to three years, with UKTI forecasting a 20-30% fall in the number of projects. The size of the projects in employment terms is also expected to be smaller than in recent years. Despite this, inward investment will continue to be a source of increased employment and wealth in the next few years, albeit on a smaller scale. As far as sources of inward investment are concerned, the greatest potential is expected to come from the banking and insurance sub-sectors, although all sectors are likely to produce opportunities in relation to expansions of existing operations and relocations from London and the Southeast of England, especially in a climate where there is growing pressure to push activities (including higher value-added services) to lower-cost locations. The varied nature of the Northwest region means that it has the potential to attract added value types of investment from within the same sub-sectors and that FPS investment need not be restricted to the established centres of Manchester and Liverpool. Whilst the established centres would be best placed to compete on a national and international basis for higher value-added projects, for example a European banking headquarters or a financial software development operation, other locations in the region such as Knowsley, Preston or Blackburn may well be positioned to compete effectively for projects such as a business processing centre or a call centre, based on factors such as labour and property cost. Based on a combination of published statistics and market knowledge, PwC assesses current / potential prospects for inward investment projects within FPS as follows: • • • • •

Accountancy (medium) Banking (high) Legal services (medium) Management consulting (medium) Insurance (high).

The primary donor markets for inward investment are considered to be: North America, Europe, India, China and increasingly the Gulf. The table below shows the top five donor countries for FPS projects from 2005-2007 according to the number of projects from each of the sub-sectors.

Ranking

Number of projects Accountancy/Legal Banking

Consultancy

Insurance

USA (121)

UK (178)

USA (162)

USA (88)

UK (42)

USA (105)

UK (59)

UK (71)

Spain (20)

India (90)

Netherlands (19)

Bermuda (41)

France (6)

Austria (83)

Germany (18)

Germany (31)

China (4)

Russia (54)

France (16)

France (28)

Source: OCO Investor development Aftercare is a critical element of any investment development strategy. Published investment statistics clearly demonstrate the importance of expansion of existing businesses for the national and regional economy, as well as new investments. It is important to note that existing business can still be a major source of new projects, hence the importance of ensuring that the Agency and its partners’ aftercare and investor development initiatives are effective. A balance needs to be struck between companies with the highest growth potential, and those whose loss would have the greatest impact on the economy of the region. In 2006/07 the UK attracted 99 financial services FDI projects, and 155 business services FDI projects. Of these projects, 22 of the financial services projects were expansions, safeguarding 658 jobs and creating 2,789. Of the business services projects, 18 were expansions, creating 1,140 jobs and safeguarding 1,403. Interestingly, UKTI stated that ‘In 2006/07, while expansion accounted for around one quarter of inward investment, these 334 projects were responsible for more than 40 per cent of new jobs created by inward investment.’ The importance of growing and embedding the existing FPS base in the Northwest applies equally to locally owned businesses as it does to overseas owned companies. Within large corporations, there may well be major investment opportunities which could be harnessed from other divisions not represented in the Northwest. Encouraging these companies to move up the value chain is also important. In relation to back office and call centre type activity, there is a continual need to emphasise quality standards as well as promoting competitive costs. Low value added operations are likely to be targeted for offshore relocation. It is essential that, as a key part of any aftercare strategy, the Agency and its partners actively look for opportunities to move these operations up the value chain and embed them deeper into the regional economy, thereby reducing the likelihood that the activity will be relocated offshore.

The UK indigenous investment market The UK market itself is a major source of projects, particularly from the Southeast of England. Historically, these projects have been generated by the relocation of companies’ activities from the Southeast or an expansion of existing activities outside the Southeast, and this will continue to be a source of projects for the NWDA and its sub-regional partners. The opportunity for more contestable projects from this source is likely to increase due to the economic crisis as employers actively look for opportunities to take cost out of their operations and improve their effectiveness through a combination of outsourcing, offshoring and internal UK relocations to more sustainable locations. Taken together, these factors provide an opportunity for the Northwest to secure relocations and other investment projects. In terms of activity by sub-sector, opportunities exist in banking, insurance, investment banking and portfolio management.

Policy implications •

• • • •

Despite projections that the economic crisis could reduce the number of FPS projects by 20-30%, inward investment will continue to drive economic growth for the sector in the Northwest. In view of this, attracting inward investment will remain a priority for the Agency and its partners. There is an opportunity for the Northwest to attract mobile projects from London and the Southeast. This will mean increasing the marketing effort of the FPS in the region. Whilst North America has been the most important source of FPS FDI in recent years, the economic crisis and the increasing opportunities in the Gulf, China and India will necessitate a shift of focus to attract investment from new markets. Growth of outsourcing, particularly amongst investment management, legal and banking sub-sectors, may present opportunities for the Northwest. Investor development activities must remain a priority for the Agency and its partners in order to embed existing investors and encourage further investment.

SWOT Analysis An analysis of recent market and employment developments as well as future trends has identified a series of issues which will influence and impact upon the future growth of the key FPS subsectors. These are summarised in the SWOT analysis below, which provides a snapshot of the sector in the region. Sub-sector specific SWOT analyses are provided in Appendix 3.

Strengths

Weaknesses

Strong links and networks between firms and sub-sectors in the region – especially in Manchester and Liverpool via Pro-Manchester and Professional Liverpool. Existing professional networks offer an established basis for support. Size and range of existing FPS base with strong growth across the region.

Low levels of innovation in FPS businesses.

Labour catchment /access to graduates and universities/research presence.

Cost competitiveness, particularly relative to London. Individual margins of cost competitiveness between the Northwest and London will vary between different types of operations, but as an example a senior internal auditor in London can expect to earn between £44,000 and £47,000 compared to between £35,000 and £40,000 in the North West. Regional expertise in a number of niche areas including venture capital and private equity, wealth management, specialist law services, PPP, PFI.

Manchester’s growing reputation nationally and internationally as an FPS centre. Track record in attracting inward investment. Presence of Manchester Airport and sub-regional airports providing services to global business locations.

Lack of an exchange or trading functions around which other FPS activity would cluster. Vast majority of firms – especially SMEs – operate in a regional market, leading to over-reliance on the performance/growth of the economy. Perception of overheating amongst some investors, especially for the central Manchester area.

Labour availability and skills issues present concerns in some sub-sectors. Some difficulties identified in recruiting experienced/senior personnel. Issues around image and perceptions of career progression in the Northwest. Quality of graduates highlighted as an issue, particularly commercial awareness and associated competencies. Lack of HQ functions and limited presence of multinational firms, resulting in loss of business. No direct air links to China or India – two key locations for future business within the sector. Poor perceptions of some of the more deprived parts of the region amongst some investors act as barriers to investment.

Evidence of some leakage of business outside the region. Leadership and management of smaller SMEs identified as a major challenge. Lack of diversity in the workforce. Some sub-sectors are highly fragmented, e.g. brokers. Opportunities

Threats

Stronger profile of FPS sector could improve business growth in-region, as well as exports out of the region both nationally and internationally, and generate increased inward investment and support recruitment. Enhanced role in near-shoring.

Recruitment / skills issues constraining growth of the sector.

Relocations from London / Southeast England. Reinvestments by existing FPS companies and moving businesses up the value chain. Service activities linked to growing sectors of the economy. Raise the profile of careers in the FPS sector amongst school pupils and university students. Increased levels of vocational training. Existing critical mass of activity provides basis for further growth.

Large pool of skilled graduates with the potential to be retained within the region, building on the success of the local university base. Potential to build on the existing business base through expansion and development of niche markets and exploitation of existing sub-sector strengths. Higher share of UK FDI market.

Labour shortages could drive up costs, reducing the regionâ&#x20AC;&#x2122;s competitive advantage. Increased international offshoring of existing FPS and manufacturing activities. Cost competitiveness from India and new EU accession countries. Weakening incentives regime. Current credit crunch has unknown implications for economic stability and confidence in the near future. Growing competition for business amongst UK and global financial business locations. Limited availability of Grade A office space outside Manchester to accommodate demand may cause businesses to consider alternative locations. Increasing consolidation in pursuit of economies of scale and other efficiency savings. Smaller businesses/practices face significant challenges in remaining competitive.

Increasing regulation is increasing costs and competition for some sub-sectors â&#x20AC;&#x201C; e.g. law.

Boosting the image of the sector as well as career progression opportunities among young people. Increasing FPS companies’ capacity to innovate and be entrepreneurial. Increasing trade beyond local/regional markets and developing export potential.

Looked at in the round, the overall long-term prospects for the FPS sector are positive. However, the economic crisis is expected to slow down growth rates considerably for the next two to three years. The FPS sector in the Northwest is reaping benefits from clustering of services and individuals and associated agglomeration effects, particularly in Manchester. In future, developing further niches and specialisms will be essential as competition intensifies. Potential growth opportunities for each sub-sector are considered in the next section.

3.3 FPS Priority sub-sectors in summary A study by Kitshoff Gleaves into the wider Business and Professional Services Sector in 2006 identified five sub-sectors within FPS in the Northwest which offered significant potential for GVA growth. These were: •

Accountancy

•

Banking/finance

•

Insurance

•

Management consultancy

•

Legal services.

Property and recruitment were found to generate less potential growth in terms of GVA. However, they are considered vital to the growth and prosperity of the above five key sub-sectors. Further research and analysis was undertaken on these sub-sectors, in order to assess their true growth potential and to determine how their development can best be supported through public sector intervention. This section provides an overview of the key sub-sectors. Further detail is provided in Appendix 3.

Accountancy Key findings •

The accountancy sub-sector in the Northwest grew at a rate above the national average for accountancy from 2000-2006, both in terms of employment and number of businesses. Employment increased by 16% across the region, well ahead of the UK as a whole, partly reflecting the concentration of corporate finance and other advisory services in the region.

•

The region is now home to more than 3,000 businesses in the sub-sector, of which almost 90% have fewer than 10 employees. Growth has been experienced in all sub-regions, although the sub-sector in Merseyside remains smaller than might be expected given the wider economic renaissance of the area.

•

Consolidation has been a feature in some accountancy practices but the sector also has a large number of micro-businesses in each of the five sub-regions.

•

When considered against other locations, the region’s performance compares favourably, with employment growth in Edinburgh of 8.5%, Birmingham of 4.6% and contraction in London (although the Southeast as a whole grew).

•

A wide range of accounting functions are supported in the region, including regional mergers and acquisitions teams and venture capital operations. The Big Four have continued to expand in the Northwest, as have firms in the mid tier, although short-term growth forecasts have now been scaled back considerably.

•

Corporate finance has been a growing area of business for the Northwest, in part reflecting the expansion of AIM advisory activity in the region. The size of the deals being considered through this sector of the market means that it is a particular growth area for mid-tier organisations. Industry experts estimate that the corporate finance market will continue to grow strongly in the medium term, once credit becomes more available. Although corporate finance is available, further capacity may be required to satisfy demand and opportunity.

•

Whilst there are some exceptions, the majority of accountancy firms are operating in local and regional markets, particularly outside the larger financial centres in the region. SME consultees highlighted the importance of local purchasing and other initiatives to enable firms to grow income from within the region and further afield, e.g. within the creative industries sector.

Impact of the Credit Crunch The depth and breadth of the Big Four and middle-tier operations in the Northwest means most businesses should be able to develop coping strategies to diversify and deal with a downturn. Indeed, many firms across the economy will be looking to this sector to offer pragmatic advice on dealing with a recession – managing budgets with no growth or declining income; improved cashflow; tax advice; and managing relationships with financial intermediaries/banks. Accountants appear to be marketing their capabilities in tumultuous times,6 including advice on governance, liquidity, risk and management, and acquisitions and disposals. The fact that accountants serve a broad range of sectors means although the overall volume of business may decline they still need to service local and regional business needs and routine services for which there will always be a steady demand (taxation advice, annual accounts, 6

http://www.kpmg.eu/5299.htm and http://www.kpmg.eu/docs/Addressing-the-current-market-turmoilSept08.pdf

bookkeeping, audits, etc). The interpretation of any new regulatory measures will also require a strong accountancy sector. Looking at business financing transactions, Grant Thornton find7 Merger and Acquisition (M&A) activity still on the agenda for UK mid-market corporates in 2009, with valuations falling and more opportunities available if they can be financed. However, the overall volumes will be down and the mix of activity/deals will change – with still reasonable but reducing proportions of acquisitions and increased refinancing transactions and disposals. The accountancy sector in the Northwest has the potential to play a key role in the recovery process – whilst not immune from the downturn, it appears to offer a level of resilience perhaps not found in other parts of the FPS sector, even though its fortunes are very clearly tied to the wider performance of the regional economy. In spatial terms, the impact is likely to be spread across the Northwest, although the presence of the large corporate recovery teams and other functions in the larger centres means that some of these locations will fare better. Insolvency practitioners, for instance, are better equipped now than ever before to tackle assignments and guide businesses/stakeholders through worrying periods in their lives, rescuing businesses and jobs where feasible.8 Trends and prospects •

In the medium term, the total UK market for accounting and related services is anticipated to increase strongly, with the strongest growth expected to occur in the corporate finance and business recovery sector.

•

Major trends currently impacting the UK marketplace include: ¾ Mixed picture on growth. The UK market has grown strongly across all market areas, but contraction is likely in a number of areas due to the recession. ¾ Skills shortage. Market growth is leading to skills shortages of qualified and experienced professionals, especially in the Southeast. ¾ Mid-tier mergers. Driven by the need to develop the critical mass and geographical spread needed to serve larger clients, there has been a large number of mergers in recent years. ¾ Increased regulatory burdens. Recent years have seen an increasing number of regulatory changes, including reporting procedures (IFRS), taxation changes and money laundering regulations. The implementation of these regulations is an increasingly important market for accountancy firms.

Policy implications • •

• 7 8

Growth in the sector tends to come from the expansion of existing operations, as demonstrated by the recent growth in some of the Big Four offices in the region. This trend is forecast to continue. Corporate finance growth provides a strong opportunity for the sector, with a range of accountancy services required to support business. Opportunities are also anticipated to be generated around the growth of the media sector as Mediacity:uk takes shape. Opportunities for the region to develop niche practices should be explored. This

http://www.grant-thornton.co.uk/pdf/Securing_finance_report_11_08.pdf See http://www.insolvencypractitioners.org.uk/uploads/PressPublications/IP_sep08_v12_18_3oct08.pdf

•

• •

•

would build on existing successes and allow the Northwest accountancy sector to differentiate its offer to serve national markets. The provision of skilled labour is fundamental in ensuring an environment which allows accountancy firms to grow. Companies require a strong graduate base, as well as the availability of staff at all levels, ranging from experienced professionals to administrative staff. Working closely with the region’s universities will ensure that graduates are alert to the opportunities offered by the region. The provision of regulatory advisory services is an increasingly complex area – there may be an opportunity to explore the possibility of developing a national centre of expertise in this area, particularly for small firms. Given its status as an ‘enabler’ to all sectors of the economy, targeted intervention in the sector (as opposed to the more generic FPS intervention covering skills, property, infrastructure etc.) may be relatively more difficult to carry out effectively. However, as is the case with other FPS sub-sectors, relocations of certain functions (such as back office support) from London and the Southeast could present opportunities for the Northwest. In relation to international trade, the larger accountancy firms already have effective business development mechanisms in place through their existing international networks. Smaller accounting firms with specialist service offerings may well be in a position to benefit from public sector support in opening up potential business opportunities in new markets, or in promoting their services through marketing channels and at events that would be outside their own scope.

Banking and Finance Key findings •

The banking and finance sector is also a major employer in the region, employing nearly 70,000 people in 2006. Approximately 40% of these are employed in Greater Manchester. The Northwest is home to over 80 banks, including Co-operative Bank (which is set to merge with Britannia Building Society), Barclays, RBS, and major building societies including the Cheshire Building Society (which recently announced merger plans with Nationwide).

•

Across the region, the banking and finance sector has a very varied profile. Manchester is home to a broad base of financial services companies, mostly serving regional markets, and is the base for a number of foreign banks. In Liverpool, the spread of companies is much narrower although it is the base for major companies such as Alliance and Leicester. In Cheshire, Chester also provides a substantial hub of banking and finance activity, being home to 1,400 staff at the M&S Financial Services headquarters, 1,500 staff at Capital Bank and 4,000 staff at MBNA. Activity in Lancashire and Cumbria is on a much smaller scale.

•

Employment in the region has been boosted in recent years as a result of a number of inward investment projects including BoA/MBNA and the Bank of New York Mellon.

•

The region is also home to a substantial number of institutions operating in fund management, broking and investment trusts including Infinity Asset Management, MIDAS Investment Management, Universities Superannuation Scheme, 3i Group plc, Montagu Private Equity, and Inflexion Private Equity. Private equity activity is one niche area which has grown significantly within the region. The vast majority of this activity is concentrated in Liverpool and Manchester.

•

The financial advisor community is an important component of the sector in the region. It is estimated that the Northwest is home to more than 1,600 advisor firms, employing almost 13,000 people (as some intermediaries will be self-employed, not all of the employment will be captured within the Annual Business Inquiry total of nearly 70,000). This part of the FPS sector is represented across the region, and plays a particularly important role in rural areas.

•

The Northwest’s banking and finance sector grew at a rate higher than the national average between 2000 and 2006 in terms of business numbers and employment. There was a 20% rise in employment across the region during this period, including an increase of more than 40% in Cheshire arising in part from expansions at M&S Financial Services and BoA/MBNA. As a result, more than a quarter of the region’s jobs are in Cheshire. In contrast, the sector contracted in Cumbria in part due to the consolidation of the retail branch network. It is important to note that the bulk of the expansion took place in the 2000-2003 period, with a much slower growth rate more recently.

•

In parallel with the growth in employment, the business base also expanded by almost a third. This expansion is partly explained by the growth in fund management and brokering activities.

•

Liverpool also has a strong wealth management function, providing the hub of activity for the region and serving a national market. The cluster competes directly with Edinburgh and London in this market. For example, Rathbones employs 300 staff in its Liverpool office providing a full range of wealth management services. Other long established companies include Rensburg Sheppard and Tilney, who have their head office in the city. Recent developments include the decision to open the first branch of JP Morgan’s Private Investment division and an office for Coutts and Co which complements its presence in Manchester. These developments have greatly strengthened the Northwest’s banking and finance sector. Agglomeration effects are apparent, as further inward investment has been attracted which builds on success. The potential for the Northwest’s international business base to be expanded further in the future, to take advantage of critical mass and the existing labour pool, is an important opportunity. The cluster of private equity and venture capital houses in Manchester acts as a key differentiator from other centres such as Leeds and generates significant spin-off benefits.

•

Impact of the Credit Crunch In a period of unparalleled economic instability, predicting the effects of the downturn on the banking and finance sector is fraught with difficulties as it takes steps to improve liquidity, and the downstream effects of the cuts in consumer spending take hold. Certain parts of the asset management market and independent advice sector are relatively busy, reassuring customers and offering practical advice against a backdrop of increasing competition and a desire for low-risk investment options. The difficult housing market has led to the consolidation of mortgage activities. The Manchester Building Society, for instance, has sold its mortgage brokering service and building societies in general are experiencing profit drops, asset write downs, increases in bad debt and a serious drop in mortgage lending. Consolidation in the building society sector is another consequence of the liquidity crisis which is likely to see further activity. This has already affected the region’s biggest independent building society, the Cheshire Building society, which was recently taken over by Nationwide Building Society. Banking companies and credit agencies are experiencing similarly bleak conditions with global workforce cuts and office closures across many well-known institutions. Niche providers such as debt advice and collection, private equity, invoice discounting and factoring companies like Ultimate Finance (Manchester based) are reporting surprisingly confident prospects/deal flows. The challenge for the sector, and for wealth management companies in the

Northwest, is to find ways of achieving growth against a backdrop of customer expectations, falling customer confidence, increased regulation/ attention and intense competition. The likely restructuring in the banking sector following the recapitalisation plan has significant potential implications for the region in the short term. Whilst its exposure is not as great as Scotland’s, for example, substantial employment in banks in the region such as RBS means that the Agency and its partners have a key role to play in working with the sector to maximise the retention of key functions and services. RBS, for example, recently announced 3,000 job losses, albeit mainly in its markets division which is not strongly represented in the region. This could involve a range of activities, including the preparation of a case for the retention of decision making and jobs in the region. In spatial terms, the major centres of Manchester, Chester and Liverpool are most likely to be affected. Trends and prospects Published research and other analyses offer insights into a number of sub-sectors: •

Retail and commercial banking. There has been strong historic growth in these sectors, ranging from fragmentation of the retail sector and the creation of specialist distribution models to the development of more specialised customer propositions such as Sharia banking, which are anticipated to bring more revenue growth in the medium term. Many commentators believe that given the benefits which stem from consolidation and restructuring, growth in this subsector will be strong once the effects of the current downturn have worked through. In addition, given a stronger ‘tailwind’ of factors external to the industry in developing markets, the retail banking sector also stands to benefit from strong consumer demand, which conversely could impact on the sub-sector if this growth fails to emerge.

•

Wholesale banking. Internal factors will be relatively greater than external factors in improving performance. The wholesale banking business has the ability to insulate itself against broader macro-economic downturns to a greater degree than most other businesses as it can apply rapid scale reduction, aggressive cost management and capital adjustment; options that are not as easy for other businesses to carry out.

•

Investment banking. The future of the investment banking sector now looks very uncertain following the collapse of Lehman Brothers in the USA and the move of other independent investment banks such as Goldman Sachs to alter their status. New models and structures are being developed in response to the turmoil in this sub-sector, the outcome of which will only be evident in the longer term. A lower level of proprietary trading is a key driver.

•

These high-level but important trends suggest that this sub-sector will continue to provide investment opportunities for the Northwest and its partners from existing and new entrants. In responding to external market influences, there is likely to be a great deal of volatility in the subsector in the near future.

Policy implications •

• •

•

In the short term, the fallout from the liquidity crisis and the recession mean that the banking and finance sector overall is likely to consolidate in the region. Working to retain existing functions and services will be a key priority, as the region is relatively exposed. Banking is a fiercely competitive market but there are good prospects for contestable new investments and jobs from both mobile FDI and internal UK relocations from the Southeast in the medium term. The Northwest, and especially Manchester, has firmly established itself as a centre for Financial and Professional Services. The recent attraction of inward investment will help the region position itself to attract future incomers. An ongoing programme of product development, including the provision of property and skills initiatives, combined with the development of robust marketing propositions, could prove effective in attracting increased levels of investment to the region as a whole, once the current phase of consolidation has settled down. The potential for cost cutting in light of the ‘credit crunch’ may present an opportunity to the Northwest, based on its competitive cost advantages, particularly in attracting back office and processing operations and some niche value added operations. The Northwest has a series of sector strengths to build upon when the economy comes out of recession. Key elements of activity for the future are anticipated to include: commercial property (through investment for growth); expansion of the wealth management function to provide a comprehensive national service; provision of corporate finance (associated with the region’s AIM functions); and growth of existing private equity expertise. Climate change is a cross-cutting risk and opportunity. It not only creates new risks, costs and liabilities for banks and finance companies, it also generates economic opportunities such as investments in renewable energy technologies, energy efficiency projects, emissions trading, weather markets, and climate change related microfinance.

Management Consultancy Key findings •

The management consultancy sub-sector witnessed significant growth from 2000 to 2006 – the sub-sector almost doubled in size and growth in both numbers of businesses and numbers of employees exceeded the national average.

•

Whilst the sector grew across the Northwest, employment has been increasingly concentrated in Greater Manchester – in 2000, it accounted for 37% of regional employment; by 2006 this had increased to 42%. This partly reflects the concentration of the largest consultancies in Manchester – nine of the top 10 in the UK have a presence in Manchester compared to only three of the top 10 in Liverpool.

•

As well as having a strong presence of the multinational firms, such as Accenture and IBM Consulting, the Northwest also possesses a number of mid-size firms and a broad base of specialist consultancies and individuals working in areas such as health and safety and environmental technologies.

•

Public sector work provides a potential growth area for management consultancy. The dominance of complicated funding regimes, including PFI schemes, provides an opportunity for private sector support to offer the expertise and experience required.

Impact of the Credit Crunch This is the sub-sector that, given its growth, representation and depth (sectorally and in terms of market), has the potential to show some resilience to a downturn both nationally and in the Northwest. The MCA notes that ‘with increasing global uncertainty, management consultants are well placed to impart effective advice and support and help to implement change and transfer skills, ensuring organisations are well equipped to deal with the challenges ahead’.9 That said, there is some evidence that clients are showing caution in spending on consultancy – ‘budgets are unquestionably tighter, but clients are still prepared to spend money on external help, especially where this is tied to improving efficiency and reducing costs’. Looking at different segments within the sub-sector, the need to make savings through outsourcing is unlikely to diminish, especially in the public sector. A new report from the MCA, based on a survey of members of the British Bankers’ Association (BBA), has found that the credit crunch will drive a new wave of outsourcing and offshoring in financial services as cash becomes tighter. ‘Many institutions which have so far ignored the benefits of outsourcing are being forced to revisit it because of financial constraints and liquidity problems.’10 In summary, the focus on cost management and reduction, and ‘doing more with less’ is likely to see this sector weather the recession comparatively well with some limited areas potentially thriving. Trends and prospects Our research and market intelligence highlights the following: •

The key drivers for change in the financial services industry will provide strong business opportunities for the management consulting sector. The financial services sector faces increasingly critical and complex business and technology issues, including increased regulation and technological innovation across an increasingly diversified list of market participants.

•

Further growth in the sector in the medium to long term looks promising and is linked to a number of specific drivers which include: ¾ The growth of emerging markets, particularly China and India, is fuelling demand for consulting of all kinds. ¾ Consulting and accounting projects are being offshored, to take advantage of lower hourly fees, and as part of the offshore strategy of large multinationals. ¾ Corporate mergers and acquisitions were helping to drive demand for consulting, as large and small firms assisted hedge funds, asset managers and corporate acquisition specialists. In the short to medium term, this part of the market will be much more modest. ¾ Increased globalisation of leading consulting companies will continue, and offices will continue to be established in business centres in Europe and Asia Pacific as well as North and South America. ¾ Continuing growth in small management consultancies is likely as well educated, highly qualified executives are laid off during any corporate downsizing. ¾ Continual rapid growth of major companies that are based in India and China but compete globally.

9 10

http://www.mca.org.uk/MCA/News/NewsArticle.aspx?NewsID=161 http://www.mca.org.uk/MCA/News/NewsArticle.aspx?NewsID=164

¾ Accelerated level of consolidation at the other end of the market, driven by the level of innovation among smaller firms. ¾ Increase in alliances and other collaborative arrangements to provide additional channels to market. Policy implications •

•

This sub-sector is highly responsive to changes in the broader economy. Whilst the sector has recorded very strong growth in recent years, future prospects will depend largely on the growth of the economy. In the short term, the recession will reduce the demand for some management consultancy services, such as those linked to the property market. Conversely, specialists in corporate strategy, outsourcing and other areas linked to addressing the recession are expected to benefit. As with the accountancy and legal sub-sectors, management consultancy’s role as an ‘enabler’ to all sectors of the economy makes targeted intervention in the sector (as opposed to the more generic FPS intervention covering skills, property, infrastructure etc.) relatively difficult. In the medium term there is an opportunity to increase engagement in the public procurement sector, through involvement in PFI schemes. The increasing status of Manchester as a financial centre has encouraged steady growth in the consulting sector, which has an increasingly international outlook. The challenge for the public sector, in terms of promoting international trade, is to identify where it can input most added value. More broadly, a key challenge is to minimise leakage of business outside the region.

Insurance Key findings •

The Northwest has a long history as a centre for insurance and related activities. Again, Greater Manchester is the principal location for these activities, but Merseyside is also an important centre for insurance and pension fund activity. Generally employment in the sector is concentrated in a small number of large businesses. In 2006, the insurance sector in the Northwest employed 33,693 people.

•

The insurance sub-sector has reported employment decline in recent years with the regional experience reflecting national trends – only Merseyside and Greater Manchester have not suffered from a decline in total employment.

•

This overall trend is comparable with other locations over the same period – for example, the sector’s fortunes in Edinburgh have fluctuated, with significant growth in jobs in the early part of the decade followed by a more recent contraction, with major insurers such as Standard Life and Scottish Provident downsizing.

•

The region’s insurance broking community has also experienced challenging times recently, with increasing competition and modest consolidation – one recent example being the acquisition of the Manchester-based Mason Group by Jelf. Despite this, anecdotal evidence indicates that the broking sector remains strong.

Impact of the Credit Crunch The insurance sector is arguably slightly better placed than banking and finance to withstand some of the effects of the economic downturn. As its assets and liabilities are longer-term, the sector can avoid some of the liquidity difficulties and high risks that face some parts of the sector. The DirectorGeneral of the ABI (13/11/08) notes that ‘the UK insurance industry has a capital and risk management model that is explicitly designed and tested to cope with hard times’. Nevertheless, job losses and consolidation are inevitable nationally and in the Northwest (given that the economic base determines the flow of business). ‘Although the banks and most other financial services seemed to be taking the brunt of job losses, the insurance industry is now seeing its fair share of restructuring.’11 It is argued that one of the root causes of some of the losses is inefficiencies in the structure of insurance businesses. A number of big players in the Northwest which offer life annuities (such as Royal Liver) will be affected by the decline in the property market. Further work is required to understand the impact on this sector. Inevitably insurance providers will exploit less vulnerable areas ‘through an increased focus on a wide range of non-mortgage related products, including family protection and high sum assured business’. There is also evidence that the marketing of other products in the sector is becoming more challenging. This applies in the case of critical illness policies, for example. Trends and prospects A mix of research and PwC market intelligence has identified the following medium-term trends: •

Life insurance – life insurance, given its long duration, is arguably less exposed to the downside of slower growth than some other insurance sectors. This will be influenced by the type of solutions taken to resolve these issues in the larger markets. From an internal perspective, there is a relatively healthy opportunity within the sector for growth through consolidation and improvements in the supply chain.

•

Non-life insurance – this product segment is anticipated to see stronger than average growth, particularly as the economy recovers in the medium to longer term. The sector will see benefits from internal growth, particularly process improvements, but these could be dwarfed by the impact of external drivers. Weak GDP growth could push the non-life market to weaker revenue and profit growth, particularly as rising demand in emerging markets would not make up for decreased demand in developed markets.

Policy implications •

•

Insurers are seeking to create new products that will cater for niches within particular market sectors. These opportunities include products for SMEs, and specialist products for the liability, property and motor sectors. Such new activity may well encourage new entrants into the industry, potentially providing opportunities for the region. A key trade opportunity for insurance businesses in the Northwest are countries in central and eastern Europe, most of which are currently experiencing annual

http://www.onlyfinance.com/Insurance/Recession-Leads-to-Job-Cuts.aspx

•

premium growth rates in excess of 10% per annum, with most of the increase coming from increased sales of life insurance. Overall the insurance business in central and eastern Europe is still under-developed in relation to the rest of the EU. However, a combination of this largely untapped potential and high GDP growth offers a favourable platform for the rapid development of the insurance industry and presents a clear trading opportunity. Continuing pressure on margins may lead to an expected increase in the levels of outsourcing. Given increased consumer resistance to offshoring, combined with intense competition in favoured locations, ‘nearshoring’ is increasingly being considered by key players in the industry. The insurance market is continuing its rapid growth. However, the market is intensely competitive and companies are responding to this pressure by continually seeking to maximise efficiency and reduce costs. The Northwest provides strong competition compared to locations in the south of England. While views on the scale and implications of global warming and other aspects of climate change vary, it is certain that insurers will be at the frontline of any financial impact. For example, the potential insurance cost of climate change is compounded by the increase in property prices and other asset values, whilst some of the most valuable new build properties are located in waterfront areas. Ultimately, climate change could stretch the limits of insurability, leaving millions of people without cover. The insurance industry in the Northwest and beyond needs to work closely and proactively with governments to address this risk and ensure that any future arrangements are viable and sustainable.

Legal services Key findings •

Growth in the legal sector in the Northwest outstripped the national average between 2000 and 2006, such that the region now accounts for more than one in eight jobs in the legal services sub-sector.

•

From 2000-2006 employment growth in the region was much higher than in comparator locations. Across the region employment grew by 28%, including an increase of 35% in Merseyside and 47% in Cheshire.

•

The larger legal practices are heavily concentrated in Manchester and Liverpool, with many companies having their primary Northwest base in Manchester. Amongst the larger employers in the region are Pinsent Mason, Cobbetts, Halliwells and Hill Dickinson.

•

Legal practices elsewhere in the region are generally much smaller and focus on markets within the Northwest, although some larger players are evident, e.g. DWF and Napthens in Preston.

•

Four in five of the region’s practices have fewer than 10 employees.

•

Property, construction and commercial law services are commonly provided by practices within the region, including a substantial commercial law team based in Cobbetts’ Manchester office. A series of specialisms are also evident within the Northwest legal sector, with examples including: • Disaster law specialists based at Pannones; • Litigation law through the Halliwells Liverpool office and Addleshaws in Manchester; • Insurance law across a series of practices;

• •

Maritime law in Hill Dickinson’s Manchester and Liverpool offices; and Sports law at Brabners Chaffe Street.

•

The legal sector plays an important role in AIM flotations and other corporate finance advisory services. As Manchester has established itself as the second city in the country, behind London, for handling AIM transactions, Manchester-based law firms have benefited and are likely to continue to do so in future.

•

In terms of skills, the Northwest, in common with other regions, is experiencing an over-supply of LPC students relative to the number of training places. Consultees of the 2008 FPS SubSector Study also highlighted growing competition between firms for experienced individuals (25 years PQE).

•

Legal practices do not report any difficulties with the recruitment of graduate trainees. Attracting experienced professionals presents a greater challenge, however, due to competition for staff within the region, and difficulties in attracting staff to the North of England from London and the Southeast.

•

The scale of legal activity in the Northwest provides a strong foundation for further growth. Expansion of existing services and a focus on new and emerging areas of specialism provide an opportunity for the sector’s further development. This process may be assisted by further mergers and acquisitions, allowing market share to be increased and expertise to be bought into existing organisations of significant scale.

Impact of the Credit Crunch Some parts of the legal services sub-sector are badly affected by the economic downturn, whereas others are less affected. Employment law is likely to remain a growth area, whilst civil/criminal law is less cyclical than other parts of the sub-sector. At the other end of the spectrum the downturn in the property, construction and commercial markets will test a number of law firms which have focused on conveyancing work and have been unable to rely on other areas of law such as litigation. Criminal and family law may be able to survive and even flourish in a downturn, provided the Legal Services Commission payment systems do not exacerbate cash flow problems. Multi-disciplinary practices in the larger centres may be able to adapt their business structures to cope with the changing landscape though they may be faced with increasing competition from non-legal specialists as everyone fights for their share of the market. It is likely that certain specialist legal services will be able to weather the storm (albeit with the volume of business reduced in some areas as credit and consumer spending dampens investment). Some legal specialists will be able to exploit the current circumstances, for instance advising clients on mitigating risk of liability in the event of financial institutions collapsing (the safety of money in client accounts). In summary, it is quite a mixed picture for the legal profession with a combination of attrition (in property and commercial activity for instance), stagnation and growth (insolvency) with perhaps weaker, smaller players suffering greatest. To date, the higher-profile job losses have been in property-related activities which have been spread across the region, although the growth of

commercial law linked to the market in Greater Manchester in particular has seen a number of recent redundancy announcements. Overall, the impact will be felt region-wide. Trends and prospects •

Key trends affecting the financial services industry as a whole will also impact on the legal sector. While the credit crunch is creating a lot of uncertainty in the market, there is no doubt that, once the downturn in the economy has worked its way through, leading law firms in the UK will resume a growth path. In terms of future challenges, particularly for the UK law firms, the following sector trends have been identified.

• Talent attraction. Sustaining the high levels of profitability enjoyed by mid-tier firms to date will be challenging based on current business models. Attracting and retaining talent is a prerequisite for maintaining reputation and profitability. • Culture. The culture of international law firms will change. The ‘head office’ culture will be diminished as international operations become larger and contribute more to firms’ revenues. To a large extent, such growth will focus on the clients that generate the bulk of fees. Servicing them to a consistently high standard around the world will be a continuing challenge. • Consolidation. As in investment banking and accounting, a group of probably no more than half a dozen truly global firms will come to dominate the market. Probably two of these will be based on existing leading firms, and others may be formed out of the more aggressive and internationally minded US-based firms. A key impediment to this at the moment is the inability of the leading firms to grow sufficiently quickly in the US and the apparent unwillingness of the major Wall Street firms to invest significantly internationally. Thus, the emergence of a global elite is likely to be an evolutionary rather than revolutionary process. • Technology. Technology will enable projects to be ‘unbundled’. This may mean that parts of the project are outsourced to India and that they are done in a systemised manner, which has not been the case to date. The ‘opening up’ of the Indian market to law firms, announced recently, could accelerate this. This could have a significant impact on the need for junior professionals, particularly if they start to price themselves out of the market. On large mergers and acquisition transactions, for instance, major firms will focus on the structuring and execution of a transaction and ensure that the routine due diligence and post-merger integration is carried out more cost effectively. • Competition. High street legal services will be fundamentally transformed by the Legal Services Act and the Carter Review of Legal Aid Procurement. A number of major brands will dominate the provision of retail legal services. These could be law firms, or may be outsiders such as supermarkets or banks. However, small and specialist firms will still have a future if they can provide a clear, distinctive offering that they can articulate to the market. • Regulation. If the recent reforms are successful, it is anticipated that firms higher up the chain will look for outside capital and float on the market. The drivers will be cash for expansion, orderly succession planning, and providing a clearer path through share options and tax-efficient pension planning. This could encourage hostile takeovers of law firms. • Legislation. Legislation will become ever-more complex, and as a result the role of lawyers will not diminish. However, there will be an increasing distinction between those who provide basic information and advice, much of which will be available online, for fixed fees, and those who provide true ‘value-added’ services.

Policy implications • • •

•

• • • • •

Continued pressure on costs may present an opportunity for the region (especially Manchester and Liverpool) to market itself as an attractive location for back office and processing activities undertaken by legal practices. There are opportunities for the region to continue to benefit from business growth across the country. Existing relationships should be built upon to enable delivery of London-generated business through the regional offices. Rising levels of business in the region and growth in more headquartered businesses /international firms will assist in the growth of the legal industry. The rising costs of doing business in London have also provided an opportunity for Northwest firms to attract legal and other businesses from the Southeast, and this is likely to continue. Legal businesses depend on the generation of business opportunities in the region. The relocation of organisations provides opportunities for clustering of services. An example is the relocation of the BBC, which holds out the prospect of a growth in intellectual property law services. Specialist national teams for property and construction law are already present in the region, and ongoing development proposals for the Northwest and nationally provide an opportunity for these sectors to be developed further in the medium to long term. Further growth and promotion of other specialist functions, including sport, maritime and disaster law, should be encouraged, allowing existing expertise to be built upon to secure national specialisations. The Northwest’s existing business base provides a strong foundation for the development of growth sectors. Liverpool provides a focus for further development of legal services associated with fraud, litigation and personal injury (due to links with the insurance sector), while there are opportunities for expansion of private equity related work in Manchester. Public sector procurement opportunities also require investigation. Manchester is already well positioned for delivery of AIM advisory services with further growth of such activity providing business growth opportunities for legal advisors. Investment in leadership and management within the legal profession provides an opportunity to fuel further growth through greater business planning and achievement of efficiencies. Development of more high-quality office space could provide an impetus for business location and growth in the region. Recent developments at Spinningfields will help to challenge negative perceptions of the region. Mergers and acquisitions have played a significant role in the legal sector’s recent growth, and may continue to do so in future. The SME sector will be under even greater pressure to diversify, with increased competition from non-traditional legal firms and the loss of revenue from legal aid activities. This sector is not historically proactive in planning and executing business strategy.

4. VISION AND STRATEGIC FRAMEWORK …………………………………………………………………………………………………… This strategy covers a 10-year period starting in 2009. The action plan spans three years and will be reviewed regularly – this is particularly important given current economic conditions. Our vision for the FPS sector is: An internationally recognised, competitive and vibrant sector comprising innovative, market-focused businesses, underpinned by talent and expertise. Manchester will be a leading European centre, complementing London’s position as a global hub, supported by Liverpool and Chester: thriving FPS centres in their own right. ’ This is an ambitious vision which seeks to sustain and enhance the contribution of the FPS sector to the Northwest’s economic performance. Strategic impact The desired strategic impact of the strategy is therefore: •

To increase the total GVA generated by the FPS sector in the Northwest.

Realising the vision and increasing the productivity of the sector will require a focus on the following aims: Aims •

Increase the GVA per head of the sector by encouraging higher added-value employment, and raising levels of innovative activity in the sector in the region

•

Increase the number of people working in the sector by attracting new investment, supporting the growth of existing businesses, and encouraging the start-up of new businesses.

A number of key strategic themes have been identified upon which activity and resources will be focused. These are: Marketing/Image; Investment; Skills; Innovation and Enterprise; Markets; Support; and Infrastructure. Within these themes, the Agency and its partners have identified a number of objectives and actions for the sector as a whole and for each sub-sector. These are set out in the priority action plan which follows and the full action plan in Appendix 4. FPS sector-wide actions The FPS sector in the Northwest is characterised by extensive linkages between firms, and a number of issues and challenges are common to firms in more than one sub-sector. These linkages are most effectively dealt with by the specification of a number of sector-wide actions which support the overall vision. The key objectives of the FPS sector are: Marketing/Image 1. To raise the profile of the Northwest FPS sector in the region, nationally and internationally Investment 2. To encourage further investment from overseas markets and existing investors in the Northwest

3. To attract investment from the rest of the UK to the Northwest FPS sector Skills 4. To expand the supply of qualified professional and technical staff to meet the current and future needs of the sector Innovation and Enterprise 5. To increase the level of innovation and enterprise taking place in the Northwest FPS sector Markets 6. To increase Northwest businesses’ market share of regional, national and international FPS business Support 7. To provide businesses in the sector with access to the right business support Infrastructure 8. To ensure that the sector has the right infrastructure to support its growth.

Sub-sector specific objectives / actions The strategic objectives for the priority sub-sectors are: Banking and finance • •

To achieve accelerated productivity and growth in higher added-value employment through the expansion of existing clusters To exploit opportunities in new and emerging product areas and markets.

Accountancy • • •

To increase awareness nationally and internationally of the Northwest’s strengths in corporate finance, risk management and specialist advisory services To grow operations and service offers which can be delivered on a national as well as regional basis To support the growth and sustainability of SMEs through exploitation of new markets and business improvement.

Legal services • • •

To broaden and deepen existing specialisms in order to develop nationally recognised centres of excellence, complementing the London offer To raise the sector’s profile abroad and maximise overseas internationalisation opportunities To enhance the capacity of small and medium-sized practices to meet the challenge of change in the industry.

Management consultancy • • •

To promote the expertise of the region’s consultancies nationally and internationally to secure a growing share of new markets To reduce the leakage of business to firms based outside the Northwest To encourage stronger links between consultancies and the rest of the regional economy and support cluster development.

Insurance • • •

To safeguard and build upon existing major operations in general and life insurance To increase inward investment into the Northwest through both relocations/expansions from elsewhere in the UK and overseas donor markets To develop the skills base in order to meet the needs of employers.

5. Priority Action Plan Below is the priority action plan for the FPS sector with suggested action leads for the next three years. These actions are taken from the full action plan provided in Appendix 4, which will be reviewed frequently to ensure it is up to date.

STRATEGIC THEME Marketing

Investment

OBJECTIVES 1. Raise the profile of the Northwest FPS sector in the region, nationally and internationally

2. Attract further investment from the UK and overseas

DETAIL OF REQUIRED ACTIONS Issue: Whilst the region’s FPS sector has a growing profile, awareness of the breadth and depth of expertise is not as strong as it could be, thus preventing it from growing to its full potential. Action: 1. Undertake a highly targeted marketing campaign within (a) the Northwest, to retain FPS business in the region. (b) the UK, to promote NW and specific sub-regional FPS strengths and expertise. This will involve developing sectoral and sub-sectoral propositions for the Northwest highlighting key strengths and general infrastructure-related benefits, and developing bespoke marketing materials drawing wherever possible on the existing efforts and materials of our partners to develop an over-arching Northwest perspective. Issue: Inward investment from the UK and overseas provides a key opportunity to grow the sector in the NW. The market remains highly competitive and there is a need to promote the region’s offer proactively. Firm location strategies are being reviewed regularly, with supporting functions becoming increasingly centralised in one location. Cost differentials with London provide an opportunity to secure new investments and relocations from the Southeast.

OUTCOME

SUB-SECTOR

LEAD

A stronger profile • facilitates attraction and retention of staff; • supports attraction of inward investment; • increases business for NW FPS firms; • encourages business startups and expansions.

All sub-sectors plus activities cutting across sub-sectors e.g. PPP/PFI, IPO, wealth management capability

NWDA with NW BPS Investment Group. Supported by SRPs, RCOs, professional bodies

Increased investment into the Northwest

Banking/ Finance, Insurance, Accountancy

SRPs Supported by NWDA, NoE, NW BPS Investment Group

Action: 2(a). Proactively target inward investment opportunities from elsewhere in the UK, including the relocation of back-office or other functions from London and the Southeast. 2(b). Proactively target potential inward investors from key target countries and regions: the US, India, the Gulf

States, Western Europe and Australia.

Skills

3. Expand the supply of qualified professional and technical staff to meet the current and future needs of the sector

Issue: Low level of commercial awareness among graduates is having a negative impact on FPS businesses. Action: 3(a). Develop linkages between firms and regional universities in order to enhance the employability of accountancy and finance graduates available to Northwest firms. Issue: Attracting young people to work in the FPS sector is proving difficult due to outmoded perceptions and low levels of awareness of the career opportunities in the industry. Action: 3(b). Where there are known gaps, actively promote accountancy, banking/finance and insurance as an attractive career option within schools, sixth form and FE colleges and other bodies. Issue: There is an identified need for support to SMEs in developing leadership and management skills to enable businesses to respond to the substantial new challenges and competitive pressures brought about by regulatory and market changes

Innovation and enterprise

4. Increase the level of innovation and enterprise taking place in the region

Action: 3(c). Support effective leadership and management development amongst SMEs (especially middle-tier and smaller legal and accountancy practices and IFAs) enabling them to diversify and respond to market challenges. Issue: There is a strong correlation between innovation and productivity in services. There is also evidence of low levels of innovation amongst SMEs in the region. There is a need to raise awareness of the benefits of innovation in the FPS sector in the region and of

Increase in general employability and commercial awareness of graduates

Accountancy and banking

NWUA working FSSC, NWDA, SRCOs and firms

Increase in supply of mid-tier staff in accountancy, banking and insurance

Accountancy, insurance, banking

FSSC, working with SRCOs and NSAFS and firms

Improved leadership and management skills in FPS SMEs

Legal services, accountancy, IFAs, insurance brokers

BLNW, NWDA working with the relevant professional membership bodies

Increased productivity

All

NWDA with SRCOs

the support available to companies to encourage innovation.

Markets

5. Increase NW businesses’ market share of regional, national and international FPS business

Action: 4(a). Develop and deliver an FPS component of the Northwest Innovation Policy. 4(b). Explore the use of lean techniques in the FPS sector. Issue: There is evidence FPS business is leaking from the region to London. There is a need to improve awareness amongst purchasers of NW FPS expertise and to encourage private and public sector organisations to utilise local FPS firms.

Increased retention of business in the NW

Legal services, accountancy, management consultancies

NWDA with SRCOs and Law Society

Increased business for NW FPS firms

Legal services, banking/finance, accountancy, management consultancy

NWDA with SRCOs/the Law Society and other relevant industry bodies

Action: 5(a). Establishing the extent of the problem, the degree of leakage and why it is happening. Issue: There are number of sectors in the region forecast to grow significantly, e.g. creative and media, thereby generating additional and new demands for F and P services. The FPS offer in the NW should therefore be strengthened to capture new market share. Action: 5(b) Support the expansion of specialist services, e.g. intellectual property law, sports services, disaster recovery law linked to growth sectors. This will be implemented via: • A mapping of existing capabilities in the region against future growth areas • A periodic review of future growth /trends in other key sectors which could influence the demand for other FPS services. Action: 5(c) Explore the potential for the exploitation of niche areas in banking and associated professional services in the Northwest. There is a need to undertake specific studies in carbon emissions advice and trading services, ethical banking and Islamic finance to include: •

NWDA/SRPs /SRCOs

Consultation/research

•

with leading industry players and academics – new Development of an options assessment of each niche which can inform the next stage – new Preparation of an initial strategy and action plan which can be implemented quickly where appropriate – new

6. Monitoring and Implementation Key Performance Indicators It is vital that the implementation of the actions outlined in this Strategy are monitored and evaluated to ensure that the objectives of the Strategy and the sector’s potential are being realised. Amongst the primary performance indicators are: ¾ Total GVA ¾ GVA per head ¾ Number of business units ¾ Number of business start-ups/ and survival (Business density – VAT registered businesses per 10,000) ¾ Level of innovation ¾ Export levels ¾ Number of inward investment projects/jobs created

Implementation This strategy was developed by the NWDA with input from a range of public and private sector organisations. The Northwest FPS Steering Group, a cross-sector, non-executive private sector body brought together by the Agency in 2007, provided strategic guidance in the development of this document and will oversee its implementation. A working group involving key public and private sector stakeholders will coordinate the delivery of the strategy.

7. Appendices Appendix 1 FPS Sector definition by 2003 4-DIGIT SIC CODES 6511: Central banking 6512: Other monetary intermediation 6521: Financial leasing 6522: Other credit granting 6523: Other financial intermediation 6601: Life insurance 6602: Pension funding 6603: Non-life insurance 6711: Administration of financial markets 6712: Security broking and fund management 6713: Activities auxiliary to financial intermediation 6720: Activities auxiliary to insurance/pension funding 7011: Development and selling of real estate 7031: Real estate agencies 7032: Management of real estate 7411: Legal activities 7412: Accounting/book-keeping activities, etc. 7414: Business/management consultancy activities 7450: Labour recruitment, etc.

Appendix 2 BPS Sector definition by 2003 4-DIGIT SIC CODES 6511: Central banking 6512: Other monetary intermediation 6521: Financial leasing 6522: Other credit granting 6523: Other financial intermediation 6601: Life insurance 6602: Pension funding 6603: Non-life insurance 6711: Administration of financial markets 6712: Security broking and fund management 6713: Activities auxiliary to financial intermediation 6720: Activities auxiliary to insurance/pension funding 7011: Development and selling of real estate 7031: Real estate agencies 7032: Management of real estate 7320: Research; social sciences/humanities 7411: Legal activities 7412: Accounting/book-keeping activities, etc. 7413: Market research/opinion polling 7414: Business/management consultancy activities 7415: Management activities: holding companies 7450: Labour recruitment, etc. 7485: Secretarial and translation services 7486: Call centre activities 7487: Other business activities not elsewhere classified 9111: Activities: business/employer organisations 9112: Activities of professional organisations

Appendix 3 – FPS Sub-sectors in detail Accountancy National market size and trends The market for accountancy and accountancy-related services is significant and has been growing rapidly in recent years. The main indicators of the overall size of the market are the annual league tables of the larger accounting firms published by the magazines Accountancy and Accounting Age. The 2007 league table published by Accounting Age stated that the top 50 firms had a total turnover of some £8.7 billion in 2006. Of this sum, the three core accountancy services (audit and accounting, taxation and legal services, and corporate finance and business recovery) represented 82% of all fees earned. It is estimated that the overall UK market for the top three accounting services was worth approximately £9.45 billion in 2006, and grew by about 45% between 2002 and 2006. Fee income across the top 60 firms is reported to have increased by 13.8% during 2007. The Big Four firms accounted for 32.4% of the UK market for accounting and related services. The remainder of the market was shared, not only with other accounting firms, but also with the major management consultancies, IT companies, and specialist outsourcing companies. Acquisition activity has enabled mid-tier organisations to consolidate their position in the market. Further mergers and acquisitions are possible to ensure that organisations are of a sufficient scale to compete and retain market share. Investment trends Recent Northwest successes in attracting indigenous investment to accountancy services include: • • •

Ernst & Young: expansion of the Manchester practice creating up to 130 new jobs. Deloitte: expansion of Manchester practice creating up to 50 new jobs Goldsmith Williams: expansion at its Liverpool operation, creating up to 110 new jobs.

Overseas trade According to the ONS, net exports of accounting services rose to a new high of £1,012 million in 2007 from £759 million in 2005 and £414 million in 2001. Exact figures for accountancy in the Northwest are not readily available, but it is estimated that jointly accounting, legal services and management consultancy generated £249 million in 2006.12 The Northwest market – scale and position The accountancy sub-sector in the Northwest grew at a rate above the national average over the period 2000-2006, both in terms of employment and in the numbers of businesses. Employment increased by 16% across the region, well ahead of the UK as a whole, partly reflecting the concentration of corporate finance and other advisory services in the region.

Assessment of the Northwest’s International Trade Performance, Arup

Employee jobs – Accountancy Location 2000 2003 Great Britain 211,059 194,592 Northwest 18,198 18,456 Gtr Manchester 8,946 8,928 Merseyside 2,520 2,131 Lancashire 3,543 3,934 Cheshire 1,989 2,119 Cumbria 1,200 1,344 Source: ABI, ONS

2006 219,747 21,028 10,379 2,703 3,979 2,429 1,538

% Change 2000-2006 4 16 16 7 12 22 28

Within the Northwest, jobs growth was, in proportionate terms, strongest in Cumbria (albeit from a low base), with above-average rates in each of the sub-regions. Lancashire now accounts for almost a fifth of all jobs in the sector. Whilst the Big Four and other mid-tier firms have continued to grow in the region, this has been within a broader expansion of the sub-sector. The region is now home to more than 3,000 businesses in the sub-sector, of which almost 90% have fewer than 10 employees. Growth has been experienced in all sub-regions, although the sub-sector in Merseyside remains smaller than might be expected given the wider economic renaissance of the area. Number of business units – Accountancy Location 2000 2003 2006 Great Britain 28,798 30,435 35,202 Northwest 2,455 2,709 3,199 Gtr Manchester 992 1,094 1,275 Merseyside 363 380 424 Lancashire 494 564 685 Cheshire 430 480 575 Cumbria 176 191 240 Source: ABI, ONS

% Change 2000-2006 22 30 29 17 39 34 36

Consolidation has been a feature amongst some accountancy practices but there are still a large number of micro-businesses in each of the five sub-regions. The region’s performance compares favourably to that of other locations, with employment growth of 8.5% in Edinburgh, 4.6% in Birmingham and contraction in London (although the Southeast as a whole grew). Greater Manchester accounts for four in 10 accountancy businesses in the region and Manchester is well represented and served by accountancy practices. All of the major international firms have a credible presence in the City, as do principal second- and third-tier firms. Major organisations in the region (including KPMG, Deloitte, PWC, Grant Thornton and Baker Tilly) provide national or supraregional services from their Manchester base. The sub-sector has also continued to grow outside Greater Manchester, although the absolute numbers of jobs are much smaller. Liverpool possesses offices of the Big Four as well as a number of the mid-tiers such as PKF. Elsewhere, Moore and Smalley and Tenon Group, for example, have grown significantly in Lancashire, and Armstrong Watson have expanded from their Cumbria base. A large range of functions are provided in the region including regional mergers and acquisitions teams and venture capital operations. The Big Four in the Northwest have continued to expand, as have firms in the mid-tier, although short-term growth forecasts have now been scaled back considerably.

Corporate finance has been a growing area of business for the Northwest, in part reflecting the expansion of AIM advisory and other activity. The size of the deals being considered in this sector of the market means that it is a particular growth area for mid-tier organisations. Industry consultees of the 2008 Sub-Sector Study estimate that the corporate finance market will continue to grow strongly in the medium term, once the availability of credit resumes. Although corporate finance resource is available, further capacity may be required to satisfy demand and opportunity. Overall, the study consultees indicated that the bulk of advisory services could be provided within the Northwest, with only the leakage of very specialist and capital markets advice to London. There was also a recognition that many of the Northwest’s specialisms have developed ‘by chance’ through the enterprise of one or two individuals rather than as a result of a coordinated strategy on the part of the sector. Whilst there are some exceptions, most accountancy firms are operating in local and regional markets, particularly outside the larger financial centres. SME consultees highlighted the importance of local purchasing and other initiatives to enable firms to grow income from within the region and further afield, e.g. within the creative industries sector. Summary SWOT Analysis Strengths

Weaknesses

Substantial Big Four presence and significant mid-tier and second-tier representation. Private equity expertise with an expanding regional market. Good professional networks, especially in Liverpool and Manchester. Large pool of graduates on which to draw. Location of specialist teams serving clients nationally and internationally.

Property supply outside key regional centres.

Opportunities

Threats

Regeneration momentum in centres throughout the region. Continuing growth of sector in UK economy. Reinvestments by existing companies, including relocation of support activities. Raise profile of accountancy as a career among young people and people of different ethnic backgrounds. Strong relationship managers in place to help establish new service lines.

Rising labour and property costs due to growth pressures. Economic uncertainty.

Competition for graduate labour. Limited differentiation of the Northwest ‘product’ against competitor locations. Lack of corporate headquarters in the region restricts further growth. Relocation of purchasing decisions to London and the Southeast. Low levels of awareness amongst young people of accountancy as a career option. Lack of diversity among the workforce.

Efficiency savings / job losses in existing companies in region.

Banking and Finance National market size and trends According to the British Banking Association (BBA), the banking industry: • Contributes £70 billion to the UK’s national output (6.8% of GDP); • Provides (along with financial services) 25% of corporate tax paid to the UK Government; • Comprises 355 banks, a decline of some 45 since 2002 caused in part by consolidation and overseas banks retrenching into home markets; and • Had total assets of £6.3 billion in 2006, although substantial write-offs and bad debts since then have seen this asset base shrink markedly.

The UK banking sector is the third largest in the world with assets of US$4.6 trillion, behind the US and Japan, both of which had deposits of approximately US$5.3 trillion in 2006, prior to the current liquidity crisis. The UK is the world’s largest single market for international lending. This accounts for 20% of cross-border lending and 22% of cross-border borrowing. Over 260 foreign banks operate in the UK, more than in any other international financial centre, and approximately 50% of all European investment banking activity in 2005 was undertaken in London. Inward investment by overseas banks into the UK exceeds £36 billion. In terms of employment, the BBA estimates that the industry as a whole employs some 450,000 people. BBA member firms’ employment is currently divided as follows: Retail banking Foreign subsidiaries / branches Global / universal banks Wholesale / investment banks Other domestic banks

334,100 23,500 37,400 4,900 24,500

Within the UK, employment is dominated by London and the Southeast. The Northwest banking sector employs approximately 10% of the UK total. Like the entire FPS sector, the banking sector has witnessed a number of recent mergers and acquisitions. Key acquisitions include the joining of Royal Bank of Scotland with NatWest and Halifax with the Bank of Scotland. The deals have allowed banks to improve their market share and competitive advantage, often resulting in job losses as operations merge. As an example, the creation of HBOS is forecast to have resulted in the loss of at least 5,000 jobs in the UK. Internet and telephone banking have become increasingly popular in recent years, reducing the provision, and use, of in-branch banking services. Offshoring of call centres has also been a trend within the banking sector although the establishment of UK-only banking call centres suggests that services may be gradually returning to the UK. The impact of the ‘credit crunch’ is currently difficult to estimate. It is likely that activities related to the provision of debt, including secured lending, will suffer over the coming period. There is a strong prospect that banks may seek to reduce their overheads through consolidation of offices and reductions in staff numbers. Key mergers such as HBOS and Lloyds, Abbey and Alliance and Leicester, and Cheshire Building Society with Nationwide, will inevitably be accompanied by a rationalisation of functions and staff numbers. The impact of any rationalisation is likely to be most keenly felt in Greater Manchester and Merseyside – A&L, for example, have a large base in Liverpool.

Investment trends The banking and finance sub-sector has been a significant source of inward investment for the region. Between January 2005 and October 2007, five new projects were landed creating 523 jobs. This placed the region second only to the Southeast in the UK, highlighting the Northwest’s enduring appeal. Recent Northwest successes in attracting inward and indigenous investment in banking and finance have included: • Intrum Justitia: Expansion at its Liverpool-based credit management and debt collection business, creating up to 200 new jobs. • Compass Finance: Expansion at its debt advisory business in Manchester, creating up to 100 jobs. • Rensburg Sheppards: Creating up to 70 jobs at its investment management office in Liverpool, having transferred activity from London. • ICICI Bank: Launch of a third branch in Manchester, creating 35 new jobs. • Anglo Irish Bank: Opening of a new facility in Manchester, creating 20 jobs. • Bank of New York: Expansion of its Manchester facility, creating 400 new jobs. • State Bank of India: Opening of a branch in Manchester, creating 10 new jobs. Overseas trade Net exports of the UK banking industry totalled some £9.9 billion in 2005, a rise of 21% from the previous year. Important sources of export income in the banking sector include portfolio management, securities transactions, and general service earnings. Although not measured by conventional balance of payment methodology, banks also earn a net interest margin from their lending and borrowing from overseas sources. According to the ONS, the main export markets for UK banking and financial services were: • • • • •

United States: 20% France: 13% Germany: 11% Netherlands: 9% Japan: 7%

According to the IMF, the UK has a significant and growing trade balance in financial services, of which banking is a key component. A recent report produced by Arup suggests that the value of exports generated by the financial services in Northwest in 2006 was £1,966 million. The Northwest market – scale and position The banking and finance sector is also a major employer in the region, with nearly 70,000 staff in 2006. Approximately 40% of these are employed in Greater Manchester. The Northwest is home to over 80 banks, including Co-operative Bank, Barclays and RBS, and major building societies including the Cheshire Building Society (which recently announced merger plans with Nationwide). Across the region, the banking and finance sector has a very varied profile. Manchester is home to a broad base of financial services companies, mostly serving regional markets, and is the base for a number of foreign banks. In Liverpool the spread of companies is much narrower, although the city is the base of major companies such as Alliance and Leicester, the UK’s sixth largest bank. In Cheshire, Chester also provides a substantial hub of banking and finance activity being home to

1,400 staff at the M&S Financial Services headquarters, 1,500 staff at Capital Bank and 4,000 staff at MBNA. Activity in Lancashire and Cumbria is on a much smaller scale. Employment in the region has been boosted in recent years by a number of inward investment projects, including MBNA and the Bank of New York. The Northwest is also home to a substantial number of institutions operating in fund management, broking and investment trusts including Infinity Asset Management, MIDAS Investment Management, Tilney Fund Management, Rathbone Investment Management, 3i Group plc, Montagu Private Equity, and Inflexion Private Equity. Private equity is one niche area which has grown significantly within the region. The vast majority of this activity is concentrated in Liverpool and Manchester. The financial advisor community is an important component of the sector in the region. Whilst regional specific data is limited, at a UK level the recent intermediary survey undertaken for the AIFA and ABI highlighted the size and depth of the sector, specifically: • There are more than 16,000 advisor firms in the UK, employing over 128,000 people, of which 56,000 are registered advisors. • Total employment has grown significantly in the last decade – up from around 50,000 in 1996. • Around 70% of intermediary firms are small, employing between one and two advisors. • Intermediaries accounted for 66% of the total value of life insurance business sold in 2005. • More than 80% of turnover was generated from individual clients. Applying proportionate shares from a 1998 survey, the Northwest is home to more than 1,600 advisor firms, employing almost 13,000 people (as some intermediaries will be self-employed, not all of the employment will be captured within the Annual Business Inquiry total of nearly 70,000). This part of the FPS sector is represented across the region, and plays a particularly important role in rural areas. Whilst revenues and market share amongst intermediaries have grown, this part of the sub-sector faces a more uncertain future, in part due to the credit crunch. The effects of the latter are not yet clear, although a survey of IFAs by Axa Wealth Management at the end of 2007 highlighted that more than a quarter of firms were confident about the future. Anecdotal evidence of sentiment more recently is less positive, although in the short term some advisors have seen a spike in demand for their services as businesses and individuals look to respond to the volatility in the financial markets. Also unclear is the potential impact of the FSA-led Review of Retail Distribution which proposes, amongst other things, to change the channels for advice and ultimately the status of intermediaries. In parallel, there has been a move by some banks and insurers to boost in-house direct sales teams, again with a potential adverse impact on IFAs and other intermediaries. The combined effect of these changes is a potential rationalisation in the number of IFAs and other intermediaries in the region. Employment and business trends The Northwest’s banking and finance sector grew at a rate higher the national average between 2000 and 2006 in terms of business numbers and employment. The period saw an increase in employment of 20% across the region, including a rise of more than 40% in employment in Cheshire arising in part from expansion at M&S Financial Services and MBNA. As a result, more than a quarter of the region’s jobs are now in Cheshire. In contrast, the sector contracted in Cumbria in part due to the consolidation of the retail branch network. It is also important to note that the bulk of the expansion took place in the 2000-2003 period, with a much slower growth rate more recently.

Employee jobs â&#x20AC;&#x201C; Banking and Finance Location 2000 2003 Great Britain 699,325 735,806 Northwest 58,048 66,819 Gtr Manchester 23,559 26,186 Merseyside 12,835 14,377 Lancashire 6,915 7,879 Cheshire 12,286 15,910 Cumbria 2,453 2,467 Source: ABI, ONS

2006 717,485 69,710 27,241 14,650 7,804 17,845 2,170

% Change 2000-2006 3 20 16 14 13 45 -12

In parallel with the growth in employment, the business base also expanded by almost a third. This expansion is partly explained by the growth in fund management and brokering activities. No. of business units â&#x20AC;&#x201C; Banking and Finance Location 2000 2003 2006 Great Britain 35,542 35,277 40,999 Northwest 3,310 3,432 4,363 Gtr Manchester 1,337 1,368 1,841 Merseyside 602 612 732 Lancashire 607 642 811 Cheshire 503 562 699 Cumbria 261 248 280

% Change 2000-2006 15 32 38 22 34 39 7

At this time of growth in the Northwest, the banking sector declined in the three UK comparator cities of Birmingham, Edinburgh and London (see graph below).

first branch of JP Morgan’s Private Investment division and an office for Coutts and Co which complements their presence in Manchester. These developments have greatly strengthened the Northwest’s banking and finance sector. Agglomeration effects are apparent, as further inward investment has been attracted which builds on success. The potential for the Northwest’s international business base to be expanded further in the future, to take advantage of critical mass and the existing labour pool, is an important opportunity. The cluster of private equity and venture capital houses in Manchester acts as a key differentiator from other centres such as Leeds and generates significant spin-off benefits. A cluster of banking activity has emerged at the new Spinningfields development in Manchester. The development of high-quality office space has provided a new base for the Royal Bank of Scotland. The location decision of RBS has acted as a draw for HSBC, which wanted offices that enabled it to compete effectively. The region’s financial skills base is strong, recognising the scale of the sector in the Northwest and labour force that has been assembled. A number of specific courses have been established to improve training provision for the sector, e.g. the Manchester Metropolitan University Business School has launched a part-time Financial Services degree. This is one of a limited number of financial services courses available at this level across the UK and provides the region with a competitive advantage. Developed in response to employer demand, the course will help the sector to secure the full range of skills required to expand.

Summary SWOT Analysis Strengths

Weaknesses

Presence of banking headquarters and major regional centres of operation e.g. RBS, MBNA.

Liquidity crisis and recession likely to see consolidation in jobs/activity, particularly in Greater Manchester, Merseyside and Cheshire. Few HQ functions in the region, with 1 or 2 notable exceptions.

Growing profile as an investment location – success attracting highprofile inward investment, e.g. BoNY, JP Morgan Invest. Strong HE/industry links including development of tailored courses in growth areas. Labour catchment/access to graduates from major regional universities.

Small number of large operations which are potentially subject to threat of offshoring. Recruitment difficulties reported for some positions, including both entry level and experienced personnel.

Recognised specialisms in wealth management and private equity. Opportunities

Threats

Higher share of UK FDI market (especially N. American investment). Continue to market the region nationally and internationally. Continuing growth of sector in UK economy in the medium term and expansion of specialisms.

Domestic and international competition for higher value added activities. Rising labour and property costs due to growth pressures. Economic uncertainty represents a challenging environment for the banking sector.

Southeast ‘overheating’ demonstrated by the number of companies seeking to relocate some of their operations to other regions of the UK.

Potential for further job losses through M&A activity and other consolidation.

Management consultancy National market and size The latest Management Consultancies Association (MCA) data reveals that the UK consulting sector generated revenue of £13 billion in 2007, of which approximately 50% was in the form of ‘traditional’ management consultancy. Whilst the figure was larger than 2006, this represented a significant slowdown in growth in comparison to the first part of the decade. Data from MCA firms, which make up some 70% of companies active in the industry, suggests that although the rate of growth slowed in 2006, it still averaged about 13%. The next table contains data for the 10 largest UK consulting firms: 2006 fee (£)

income

Fee income (£)

Accenture

851.8

16.8

IBM Business Consulting Services

649

Deloitte

403

Xansa

397.7

27.9

Capgemini

319

PwC

289

Logica CMG

263

KPMG

242.6

27.5

PA Consulting Group

230.5

27.9

Ernst & Young

197.9

27.3

change

Source: Accountancy Age / FT MCA members collectively employed some 18,000 fee-earning management consultants in 2006, an increase of 26% on 2005. Given that the MCA represents around 70% of the industry, this would suggest that the industry as a whole employs around 26,000 consultants in the UK. As well as the expansion of larger generalist practices such as Accenture and PA Consulting Group, the growth of niche firms has been a particularly noteworthy feature across the UK. These firms are founded by consultants leaving the larger firms to set up their own firms in a particular sector or area. Trends in investment and overseas trade Recent Northwest successes in attracting inward and indigenous investment within the consultancy sector include: • •

Acta Group. Establishment of an office in Manchester, specialising in the chemicals industry, creating 27 new jobs. Mayer Brown. Establishment of a transport consultancy office in Preston.

According to the ONS, the UK has substantial net exports within the management consultancy industry, totalling some £1.2 billion in 2002. Primary geographical markets were as follows: • • • • • •

US: 30% Switzerland: 14% Belgium: 9% Germany: 6% Italy: 4% Ireland: 4%

In terms of the international market for consultancy services, the primary markets are ranked as follows: • • • • •

US: up to 50% UK Germany France Italy.

The Northwest market scale and position The management consultancy sub-sector witnessed significant growth from 2000 to 2006 – the sub-sector almost doubled in size and growth in both business numbers and employment exceeded the national average. Employee jobs – Management Consultancy Location 2000 2003 Great Britain 204,186 233,089 Northwest 13,677 19,050 Gtr Manchester 5,145 7,871 Merseyside 1,737 2,877 Lancashire 2,494 3,091 Cheshire 3,601 3,822 Cumbria 700 1,389 Source: ABI, ONS

2006 302,645 26,246 10,953 2,980 3,936 7,158 1,219

% Change 2000-2006 48 92 113 72 58 99 74

No. of business units by employee numbers, 2000 – Management Consultancy Location 1-10 11-49 50-199 Over 200 Total Great Britain 60,525 1,666 298 65 62,554 Northwest 3,950 120 23+ 6+ 4,099+ Gtr Manchester 1,315 * 46 13 1,374 Merseyside 436 * 20 * 456+ Lancashire 706 * 21 * 727+ Cheshire 1,215 * 24 * 1,239 Cumbria 278 * 9 0 287+ Source: ABI, ONS. *precise number suppressed due to confidentiality. Totals may not equal sum of breakdown due to suppression.

No. of business units by employee numbers, 2006 â&#x20AC;&#x201C; Management Consultancy Location 1-10 11-49 50-199 Over 200 Total Great Britain 95,003 2,593 461 93 98,150 Northwest 7,351 214 52 9 7,626 Gtr Manchester 2,445 94 24 6 2,569 Merseyside 900 35 6 * 941 Lancashire 1,297 26 * * 1,330 Cheshire 2,188 43 16 * 2,248 Cumbria 521 16 * * 538 Source: ABI, ONS. *precise number suppressed due to confidentiality. Totals may not equal sum of breakdown due to suppression.

Whilst the sector grew across the Northwest, employment is increasingly concentrated in Greater Manchester. In 2000, it accounted for 37% of regional employment; by 2006 this had risen to 42%. This partly reflects the concentration of the largest consultancies in Manchester â&#x20AC;&#x201C; nine of the top 10 in the UK have a presence in Manchester compared to only three of the top 10 in Liverpool. Greater Manchester and Merseyside both exceeded growth in the number of businesses reported in comparator areas, whilst only Edinburgh reported higher employment growth.

As well as having a strong presence of multinational firms, such as Accenture and IBM Consulting, the Northwest also possesses a number of mid-size firms such as PKF Consulting and a broad base of specialist consultancies and individuals working in areas such as health and safety and environmental technologies. Public sector work provides a potential growth area for management consultancy. The dominance of complicated funding regimes, including PFI schemes, provides an opportunity for private sector support to offer the expertise and experience required.

Summary SWOT Analysis The core challenges and opportunities for the regionâ&#x20AC;&#x2122;s management consultancy sector can be summarised as: Strengths

Opportunities

Good representation of the major international consultancies. Cost competitiveness against London Southeast in terms of labour and property costs. Vibrant SME sector and growing number of niche firms with expanding reputations. Labour catchment / access to graduates.

Increased take-up of services from public sector organisations based in the Northwest. Spin-off benefits from the wider growth of the FPS sector.

Weaknesses

Threats

Limited presence of larger consultancies outside Manchester. Leakage of business to firms based outside the region.

Growing concentration of activity and talent in London and the Southeast. Volatility of demand for IT and other outsourcing services.

Growth in M&A and other activity will boost the demand for consultancy services.

Insurance National market size and trends The UK insurance market was worth an estimated £175 billion in 2006, a 20% increase on the 2005 figure. The UK is the third largest insurance market in Europe. The insurance industry accounts for approximately one-third of all financial services jobs in the UK with almost 80% of the market being accounted for by long-term insurance. The main market segments are as follows: Long-term insurance:

• Life insurance • Pensions • Annuities • Income protection insurance • Critical illness insurance. General insurance: • Motor insurance • Property insurance • Accident and health insurance • General liability insurance • Pecuniary loss insurance. UK insurance (£000m)

market

sector

net

premium

income

2002–2006

2002

2003

2004

2005

2006

99.4

92.7

89.9

109.6

138

Motor

10.8

10.7

11.3

11.9

12.4

Property

8.1

8.9

9.6

10.0

10.4

Accident and health

4.8

4.9

5.1

General liability

3.4

4.3

4.4

4.6

4.8

Pecuniary loss

3.2

3.8

3.7

4.3

4.4

Total general insurance

30.3

32.6

35.9

37.1

Total

129.7

125.3

123.8

145.5

175.1

% change year on year

-3.4

-1.1

17.4

20.5

Long-term insurance General insurance

Source: ABI

Long-term insurance is the strongest-performing element of the market, now accounting for about 78% of all insurance premiums in the UK. According to the Office for National Statistics, some 311,138 people are employed in the insurance industry, either directly or indirectly. It is estimated that around 186,682 people work for insurance companies. The remaining 124,456 are employed by organisations offering support services, such as brokers and loss adjusters. The UK insurance market is crowded and highly competitive. It is also highly concentrated. According to the Association of British Insurers (ABI), the 10 largest companies account for 74% of the market for long-term insurance and 71% of the market for general insurance.

Largest companies by net premium value – 2005 Long-term insurance General insurance 1. Prudential 1. Aviva 2. Lloyds TSB 2. RBS 3. Aviva 3. Royal & Sun Alliance 4. Standard Life 4. Axa 5. HBOS 5. Zurich 6. Legal & General 6. Bupa 7. ALICO 7. Allianz 8. Axa UK 8. HBOS 9. Zurich 9. IUFU Mutual 10. Aegon 10. Barclays Source: ABI

Mergers and acquisitions have taken place in the sector both to increase market share and to provide access to target niche markets. A series of high-profile broker acquisitions have occurred, for example in 2008 Axa acquired two broking firms with a mainly commercial focus to provide an extension of broking services to SMEs and property owners. Trends in investment and overseas trade Recent Northwest successes in attracting inward and indigenous investment within insurance have included: • • •

Hiscox. Opening of an office in Manchester, employing 55 people. Homeserve Claims Management. Expansion at its Preston call centre, employing up to 500 people. E-sure. Expansion at its Manchester insurance operation.

The UK insurance industry generates net exports by selling cross-border insurance and reinsurance cover. Auxiliaries, such as brokers, also generate further exports by earning commission on the placement of cross-border risks. According to the Office for National Statistics, the trade balance recovered to £3.5 billion in 2006 compared to £1.6 billion in 2005. The 2005 total was depressed by claims relating to Hurricane Katrina. Primary components were as follows: Insurance Life insurance and pension funds Freight insurance Other direct insurance Reinsurance Insurance brokers

£ Million - 1,394 - 1,063 + 3,228 + 393 + 1,401

In addition to net exports, insurance companies also generate overseas income from earnings on direct and portfolio investment. Unsurprisingly, growth forecasts for the sector have recently been downgraded – it was originally estimated that the UK insurance market would grow 9% each year between 2008 and 2011. Whilst all sectors of the market are expected to become more diverse in the longer term, with a greater range of products on offer, in the short term the position is likely to remain volatile. Insurance companies’ direct investment income, which includes interest, profits and dividends from overseas subsidiaries and affiliates, totalled £4 billion in 2006.

The Northwest market scale and position The Northwest has a history as a centre for insurance and related activities, employing 33,693 people in 2006. Again, Greater Manchester is the principal location for these activities; however, Merseyside is also an important centre for insurance and pension fund activity. Generally employment in the sector is concentrated in a small number of very large businesses, e.g. Royal Sun Alliance and Royal Liver. The insurance sub-sector has reported employment decline in recent years, with the regional experience reflecting national trends – only Merseyside and Greater Manchester have not suffered from a decline in total employment. Employee jobs – Insurance Location 2000 Great Britain Northwest Gtr Manchester Merseyside Lancashire Cheshire Cumbria Source: ABI, ONS

363,278 35,778 18,918 7,304 4,112 3,992 1,452

2003

2006

336,653 30,880 17,517 6,699 3,641 2,466 557

311,138 33,693 19,323 7,642 3,942 2,431 355

% Change 2006 -14 -6 2 5 -4 -39 -76

This overall trend is comparable with other locations over the same period – the sector’s fortunes in Edinburgh have fluctuated, with significant growth in jobs in the early part of the decade followed by a contraction more recently, with major insurers such as Standard Life and Scottish Provident downsizing. Number of businesses by employee numbers, 2000 – Insurance Location 1-10 11-49 50-199 Over 200 Great Britain 10,466 2,761 826 346 Northwest 1,098 288 89 33 Gtr Manchester 454 127 51 18 Merseyside 155 53 12 8 Lancashire 255 45 10 * Cheshire 160 42 13 * Cumbria 74 21 3 * Source: ABI, ONS. *precise number suppressed due to confidentiality. Totals may not equal sum of breakdown due to suppression.

Number of businesses by employee numbers, 2006 – Insurance Location 1-10 11-49 50-199 Over 200 Great Britain 9,151 1,723 557 325 Northwest 949 178 48 33 Greater Manchester 389 94 29 19 Merseyside 138 30 9 7 Lancashire 209 23 * * Cheshire 150 23 * * Cumbria 63 8 0 0 Source: ABI, ONS. *precise number suppressed due to confidentiality. Totals may not equal sum of breakdown due to suppression.

Total 14,399 1,507 650 236 300 207 106

Total 11,756 1,230 531 200 211 135 71

The Northwest has maintained a 10% share of employment in the insurance market of England and Wales since 2000. Liverpool traditionally provided the heart of the Northwest insurance sector, although this strength has dissipated recently as many of the larger players have consolidated. Key players in the city’s insurance sector include Royal Sun Alliance Aviva (Norwich Union). In Manchester, the largest employers also include RSA and Aviva as well as Direct Line and Friends Provident. Consultees of the 2008 Sub-sector Study confirmed that most underwriting and other insurance needs can be met by firms in the region, without recourse to London. The region’s insurance broking community has also experienced challenging times recently, with increasing competition and modest consolidation – one recent example being the acquisition of the Manchester-based Mason Group by Jelf. Despite this, anecdotal evidence indicates that the broking sector remains strong. Legal services National market size and trends Estimates based on ONS data indicate that the output of legal services based on GDP nearly doubled in the past decade, whilst UK GDP increased by 50% during the same period. This is reflected in significant income increases for legal firms in recent years. As one example, DWF reported turnover of £55 million in 2007, compared with just £18 million in 2000. For most firms, the increase has been achieved through a mix of organic and incremental growth. Across the sector, mergers and acquisitions have played in important role in growth and are predicted to continue to do so. Recent examples include the merger of Pinsents with Masons in 2004 and the merger of Addleshaw Booth and Co with Theodore Goddard in 2003. The legal services sector is geographically concentrated (see graph below), with over a quarter of firms and over 40% of private practice solicitors based in London and the Southeast. Despite this geographical concentration, there is evidence from the consultations undertaken for the 2008 SubSector Study (note that this is not a comprehensive survey) that some London-based business is routed back to regional offices. As an example, Halliwells route business services, employment, tax, pensions and banking functions through their Manchester office.

Market share of largest UK law firm s (2003/04)

Scotland 2% Nationals 15%

Other 8%

Magic Circle' London f irms 39%

Other large London f irms 36%

Key trends reported by the sector in recent years include: Decline in number of law firms •

•

• •

The number of law firms operating in England and Wales is continuing its long-term decline (see graph below). According to the Law Society, the number of private practice firms fell to fewer than 9,000 in 2006 from over 10,100 in 1998. This reflects the trend for mergers and acquisitions described above, with many former small private practices acquired by mid-tier organisations. Historically the number of solicitors in private practice in England and Wales has increased more than threefold since 1970 and by over a half since 1990. Total employment in law firms in England and Wales increased by nearly a third over the past decade. Data from the Law Society shows that the number of solicitors with practising certificates increased by 3.6% in 2005. Overall, the number of solicitors in the UK has doubled to 104,543 since 1989. Solicitors outside private practice represent a major source of employment. Those registered in England and Wales and employed in organisations other than private practice numbered over 20,000 in 2003. The majority of these work in commercial / industry, local government and the Crown Prosecution Service. Barristers in independent practice in England and Wales totalled nearly 15,000 in 2006, a figure which increased by over 50% in the proceeding decade. The fall in the number of companies has been driven primarily by a reduction in the number of smaller firms. Sole practices and two-to-four partner firms accounted for 87% of all law firms in 2006. Despite this, the larger firms continued to employ the majority of solicitors and generate most of the sector’s revenue. The top four firms accounted for one-third of the £10.8 billion of turnover of the largest 100 firms in 2005/06.

Private practice solicitors firm s 10400 10200 10000

no. of firms

9800 9600 9400 9200 9000 8800 8600 8400 8200 1998

1999

2000

2001

2002

2003

2004

2005

2006

Rising costs • •

Staff account for by far the largest part of the costs facing law firms. With large numbers of solicitors working for a smaller number of firms, declining rates of revenue growth have been insufficient to sustain previous levels of profitability across the profession as costs increased. The impact of rising costs on the profits of the top 100 firms has been affected by this trend. The combined profits of the top 100 stagnated between 200/01 and 2003/04. A number of companies have reduced headcount, shedding staff at all levels. However, economic growth in 2004/05 and 2005/06 coupled with buoyant levels of M&A activity, meant that profit margins were re-established prior to the current downturn.

Overseas trade In the case of legal services, exports are generated from a number of sources: • • •

Law firms, including those originating in England and those firms with an office in the UK; Barristers providing services to foreign clients, particularly the members of COMBAR (Commercial Bar Association); and Legal services provided by lawyers employed by other organisations, which are not themselves legal entities.

Exports generated from providing legal services should be offset against any imports of legal services – those purchased by clients in the UK from providers of legal services overseas. In practice, the data on exports captured by official surveys are not yet comprehensive: • •

•

Based on a survey of the international law firms from the UK, exports were estimated at £1,802 million in 2003, three times that of 1995. Exports of COMBAR member sets totalled £95 million in 2003, having risen from £35 million in 1994 when they were first compiled. All barristers undertaking work on behalf of foreign clients are members of COMBAR, though a few member sets do not provide figures for one reason or another. The final figure is likely to be higher. Exports generated from lawyers in other organisations totalled £550 million in 2006, of which around half was due to activities of patenting agents. The other half is largely attributable to internal billings related to legal services provided by companies to their overseas subsidiaries.

Taking account of imports (mainly related to billings from business other than law firms to law firms based overseas) of £403 million, net exports of UK legal services stood at £1,495 million. The Northwest market scale and position Growth in the legal sector in the Northwest outstripped the GB average between 2000 and 2006, such that the region now accounts for more one in eight jobs in the legal services sub-sector. Employee jobs – Legal Services Location 2000 2003 Great Britain Northwest Gtr Manchester Merseyside Lancashire Cheshire Cumbria Source: ABI, ONS

247,832 27,774 13,550 6,372 4,663 2,070 1,119

255,308 30,024 15,124 6,402 4,768 2,485 1,247

2006 285,869 35,488 17,451 8,633 4,942 3,039 1,423

% Change 2006 15 28 29 35 6 47 27

At one end of the spectrum, the trend for mergers and acquisitions which began in the 1990s has continued; by 2006 there were 114 businesses with more than 50 employees, compared to 87 in 2000. Smaller practices, nonetheless, make up the vast majority of firms. The ONS data shows that four in five of the region’s practices have fewer than 10 employees; i.e. they are micro-businesses. The vast majority of these practices carry out a wide range of legal work, usually for private clients. Legal aid work is a significant share of company income in Lancashire, Cheshire and Cumbria highlighting the importance of the Carter Review to sustainability in the medium term.

Surprisingly, this share has not changed significantly since 2000 although the Legal Services Act (Clementi report) and competition arising from non-legal specialists is expected to result in consolidation of the sector – already multinationals such the Halifax are offering legal services, in some cases using third party suppliers. On the other hand, the creation of multi-disciplinary practices, i.e. lawyers and other professional services practices operating under one partnership, provides an opportunity for some SMEs to secure new income streams. Overall, any consolidation in the SME sector is likely to have its greatest impact outside the larger financial centres. Leadership and management of smaller practices was highlighted by consultees as an issue in these changing times, particularly when it comes to adapting to increasing competition and new business structures. No. of business units by employee numbers, 2000 – Legal Services Location 1-10 11-49 50-199 Over 200 Total Great Britain 22,548 4,096 561 99 27,304 Northwest 2,376 527 79 8 2,990 Gtr Manchester 1,140 6 207 41 1,394 Merseyside * 578 106 20 706 Lancashire * 280 121 13 414 Cheshire * 299 55 * 357 Cumbria * 79 38 * 119 Source: ABI, ONS. *precise number suppressed due to confidentiality. Totals may not equal sum of breakdown due to suppression.

No. of business units by employee numbers, 2006 – Legal Services Location 1-10 11-49 50-199 Over 200 Total Great Britain 24,888 4,425 707 132 30,152 Northwest 2,708 602 98 16 3,424 Gtr Manchester 12 1,327 236 46 1,621 Merseyside * 655 124 28 811 Lancashire * 345 120 13 478 Cheshire * 308 81 7 396 Cumbria * 73 41 * 118 Source: ABI, ONS *precise number suppressed due to confidentiality. Totals may not equal sum of breakdown due to suppression.

Within the Northwest, the legal sub-sector continues to grow in strength. From 2000 to 2006, employment growth in the region greatly exceeded that in comparator locations, allowing the Northwest’s market share to increase. Across the region employment grew by 28%, including an increase of 35% in Merseyside and 47% in Cheshire. The larger legal practices are heavily concentrated in Manchester and Liverpool, with many companies having their primary Northwest base in Manchester. Stakeholders interviewed for the 2008 Sub-Sector Study indicated that the development of new offices outside the core cities is not a priority, and the focus is on expansion of the existing business bases. Significant bases in the region include 450 staff members in Cobbetts’ Manchester office, Halliwells with 850 staff in Manchester and a further 150-200 in Liverpool, and Hill Dickinson offices accommodating 600 staff in Liverpool, 150-170 in Manchester and 70 in Chester.

Legal practices elsewhere in the region are generally much smaller and focus on markets within the Northwest, although some larger players are evident, e.g. DWF and Napthens in Preston.

Disaster law specialists based at Pannones; Litigation law through the Halliwells Liverpool office; Insurance law across a series of practices’ Liverpool offices; Maritime law in Hill Dickinson’s Manchester and Liverpool offices; and Sports law at Brabners Chaffe Street.

Services offered from Northwest offices do not tend to be solely locally or regionally sourced. Instead, they often serve a national market, particularly where specialisms are evident and are being developed in further depth. The opening of the Civil Justice Centre in Manchester is a recent development which provides an opportunity to develop business amongst the region’s practices. The legal sector plays an important role in AIM flotations and other corporate finance advisory services. As Manchester has established itself as the second city in the country, behind London, for handling AIM transactions, Manchester-based law firms have benefited and are likely to continue to do so in future. As an example, Pinsent Mason’s London office routes AIM work to the Northwest due to the specialism that has developed here. There is also potential for the region to position itself to benefit from emerging developments within the region and nationally, whether this is related to new business locations or wider trends in the economy. In terms of skills, the Northwest, in common with other regions, is experiencing an over-supply of LPC students relative to the number of training places. Consultees of the 2008 Sub-Sector Study also highlighted growing competition between firms for experienced individuals (2-5 years PQE). Within the region, consultees based outside Liverpool and Manchester identified challenges in securing a sufficient calibre of candidate relative to Manchester and Liverpool.

Development of high-quality premises at Spinningfields in Manchester has proved attractive to the legal sector. A number of Manchester offices have relocated to the new premises, with allowances made to accommodate planned business growth. As an example, Halliwells has taken 180,000ft² within the development, providing scope for 25% staff growth over the next three years from their current base of 850 employees. Other firms, notably Cobetts, have taken high-quality premises on the edge of the city centre, taking 110,000ft² of space at 58 Mosley Street, whilst the Barbirolli Square development adjacent to the Bridgewater Hall has accommodated another cluster of legal firms occupying high-quality premises (although Pinsent Masons are moving out). As well as catering for local needs, the Spinningfields development, and other high-quality premises, may help to provide a more attractive location proposition than the previous property offer. Legal practices do not report any difficulties with the recruitment of graduate trainees. Attracting experienced professionals presents a greater challenge, however, due to competition for staff within the region and difficulties attracting staff to the north of England from London and the Southeast. A focus on raising the profile of the Northwest offer was suggested through consultation to focus on quality of life and the lower cost of living. Promotion of existing business specialisms, emerging markets and the availability of high-quality premises (such as those at Spinningfields) may help to challenge existing perceptions. The scale of legal activity in the Northwest provides a strong foundation for further growth. Expansion of existing services and a focus on new and emerging areas of specialism provide an opportunity for the sector’s further development. This process may be assisted by further mergers and acquisitions, allowing market share to be increased and expertise to be bought into existing organisations of significant scale. Summary SWOT Analysis Strengths

Weaknesses

Largest number of practices outside London and the Southeast. Cost competitiveness against London and Southeast. Growing awareness and reputation overseas, e.g. China. Concentrations of expertise and specialisms e.g. maritime law in Liverpool, AIM advisory and other corporate finance work Expanding cohort of barristers.

Absence of Magic Circle firms and limited potential for attraction. Reliance on regional markets, particularly outside the main commercial centres. Variable leadership and management across smaller practices. Recruitment difficulties amongst practices outside Manchester and Liverpool.

Growing number of larger practices with a national and international profile. Opportunities

Threats

Short-term demand for corporate recovery And associated services. Spin-off benefits from Manchester’s Civil Justice Centre. Continuing growth of private equity and other commercial activity.

Increasing competition from London practices. Efficiency savings/job losses in existing companies in region. Potential for further mergers and acquisitions to result in job losses.

Build on existing specialisms and identify new areas of work for the development of new specialisms associated with investment in the region, e.g. BBC relocation and intellectual property law.

High competition for experienced staff across the country may limit the potential for business growth in the Northwest.

Increased competition from non-legal specialists arising from the Clementi review and new business structures.

Property services National market size and trends ‘Real Estate services’ is an umbrella term used to cover a wide range of property-based functions. The specific service sector areas could be broadly categorised as follows: •

Real Estate Advisory

This includes the services offered by surveying companies that offer a range of agency, valuation, planning and property management functions. Companies in this area range from small practices engaged in local ‘estate agency’ services through to large-scale multinational companies that trade in international property markets. •

Cost Management and Project Management

Businesses which have a background in quantity surveying but over the years have diversified into project management and risk management services. Again, size can vary from very small to very large. •

Design and Engineering Services

Typified by architects, civil, structural and mechanical engineers, but also including smaller niches such as town planning, landscape design and acoustics/environmental engineering. Northwest market scale and position The property services sector has changed and evolved considerably since 2000, with the business base expanding by more than 50%. Growth has been experienced across the region, although the sector remains proportionally small in Merseyside. The other distinguishing feature is the importance of the SME sector – 94% of business units have fewer than 10 employees.

Number of business units – Property Services Location 2000 2003 2006 Great Britain Northwest Greater Manchester Merseyside Lancashire Cheshire Cumbria Source: ABI, ONS

51,882 4,579

60,763 5,539

72,128 7,006

% Change 2006 39 53

1,870 709 881 807 312

2,195 860 1,073 985 426

2,687 1,075 1,492 1,213 539

44 52 69 50 73

2000-

No. of business units by employee numbers, 2000 – Property Services* Location 1-10 11-49 50-199 Over 200 Total Great Britain 49,146 2,480 227 29 51,882 Northwest 4,304 250 23 2 4,579 Gtr Manchester 1,770 90 10 * 1,870 Merseyside 656 51 * * 709 Lancashire 826 49 * * 881 Cheshire 761 40 * * 807 Cumbria 291 20 * * 312 Source: ABI, ONS. *precise number suppressed due to confidentiality. Totals may not equal sum of breakdown due to suppression.

No. of business units by employee numbers, 2006 – Property Services* Location 1-10 11-49 50-199 Over 200 Total Great Britain 69,293 2,408 358 69 72,128 Northwest 6,737 238 25 6 7,006 Gtr Manchester 2,577 88 18 * 2,687 Merseyside 1,020 52 * * 1,075 Lancashire 1,463 28 * * 1,492 Cheshire 1,174 36 * * 1,213 Cumbria 503 34 * * 539 Source: ABI, ONS. *precise number suppressed due to confidentiality. Totals may not equal sum of breakdown due to suppression.

The employment data presents a mixed picture. Whilst growth in GM and Cumbria has been above the GB average, employment in nominal terms in Lancashire actually fell between 2000 and 2006. This suggests that there has been a degree of concentration of activity in Manchester in particular. Number of employees – Property Services Location 2000 2003 Great Britain Northwest Greater Manchester Merseyside Lancashire Cheshire Cumbria Source: ABI, ONS

2006

215,961 18,953

235,310 22,648

260,923 23,181

% Change 2000-2006 21 22

7,321 3,014 4,001 3,347 1,270

10,077 3,107 4,039 3,741 1,684

10,460 3,113 3,381 3,599 2,628

43 3 -15 8 107

In considering future prospects for the NW market in this area, the following evidence has been brought together in respect of the NW marketplace. • There are now a large number of international businesses with offices in Manchester and Liverpool. Businesses in the region have all grown significantly over the last 10 years.

• New entrants have been particularly evident in the real estate services sector – e.g. Cushman and Wakefield, Jones Lang LaSalle, Drivers Jonas and Colliers International. • Whilst businesses have a Northwest presence and focus, they have operating units and functions with national and international ‘reach’, e.g. BDP and EC Harris are building a hospital in Kiev and BDP are also working in Libya on a Universities project. • Companies are ‘exporting’ pockets of expertise from the region into international markets but then recruiting locally to execute projects. • There is a significant and growing hub in Liverpool as well as Manchester, and smaller but also significant hubs in Chester, Warrington, Preston and Carlisle. • Local estate and commercial property agents and architects can be found scattered across the region – these are essentially local market businesses. • Recruitment and retention has been a challenging area across the whole of this area. New market entrants have increased competition and salaries have risen beyond inflation rates. There are skill shortages in certain areas, notably civil and structural engineering, and cost management. • People are being recruited from across the globe. For example Davis Langdon have a bespoke training operation in Manila and other companies have very cosmopolitan staff profiles with South Africans, Australians and Far East nationals well represented. • Before the recent downturn, most businesses were planning for further growth. Davis Langdon wanted to take its Manchester operation from 100 to 400 over the next few years. Others had more modest but still strong projections – Cushman & Wakefield (who went from six to 44 staff in three years) plan to be 65-70 strong in two years time (30-40% growth). Drivers Jonas’s employment levels have gone from 0-80 people in 10 years, and the company aims to add at a rate of 10% p.a. over the next three years. These projections are likely to have been downscaled, and in some cases reversed, in response to current market conditions. Growth has been fuelled by a number of factors, notably: • • • • • •

Strong national property market and construction industry; Need for higher skill sets and more sophisticated approaches to development; Outsourcing from the public sector and government; More demand generally for consultancy services; Growth in the export market; Building centres of excellence in the NW. For example, Drivers Jonas have the largest town planning consultancy business outside London based in Manchester; and • Outsourcing of London-based functions to regional offices – e.g. shopping centre management, portfolio valuations, HR, finance, IT etc. Future prospects and trends In looking at the future market over the near and medium term the following points are worthy of note: • The market will shrink over the next one to two years, principally as a result of the credit crunch but also because of a ‘cooling off’ of what has been a very strong property market. This has already been apparent in both the investment market and the wider construction sector – there were only 18 new starts on site in 2007 in central Manchester, for example, compared with 27 in 2006.

• However the fundamental strengths of the Northwest in this sector are likely to remain in place over the medium term. • Companies will continue to look to a wider marketplace for opportunities to sell services – Europe, Middle East and Asia, much of which will be serviced from a NW location. • Companies will continue to compete for market share. Some consolidation is expected as smaller businesses are put under pressure by larger practices able to offer a wider range of services. • The trend for outsourcing of property service functions, particularly by the public sector, is set to continue as specialist services are not maintained, but rather bought in on a short-term, project specific basis. • Skills remain under pressure, as evidence being presented to the Commons Select Committee points towards a ‘missing generation’ of professional staff in the 30-40 age bracket. This is an under-represented age cohort across the area, which is now being addressed through more training, and better recruitment/retention at the younger end of the age spectrum. SWOT Analysis Strengths

Weaknesses

The NW market has become highly diversified and has strengthened significantly over the last decade. The sector has added a large number of skilled people to the NW workforce over the last decade.

The sector is market-sensitive and the current downturn could impact on jobs and growth prospects. High dependence on investment in new technology – particularly in the design sector. This can be capital intensive and difficult to finance for smaller businesses.

Companies based in the region export services across the UK and internationally. The overall scale of the NW market and projected growth in demand for real estate services will underpin future development of the sector. Opportunities/Challenges

Threats

Continuing to grow market share in a more challenging environment over the next two years and more.

Highly competitive market and smaller businesses could be vulnerable if the trend towards using bigger firms continues.

Companies based in the region export services across the UK and internationally.

Recruitment National market size and trends The recruitment industry covers a wide spectrum of human-resource related activities including: • • • • •

recruitment (matching a candidate to an employment opportunity) consultancy training outsourcing outplacement.

The recruitment sector has experienced substantial growth in the past decade, outstripping the service sector average. In 2006, the sector generated GVA of £24.5 billion in the UK, with 1.2 million individuals out on assignment in any given week and 700,000 individuals placed in permanent employment. It is estimated that agency workers now account for 4.5% of the UK workforce, with growth of more than 6% per annum in the past 10 years– there are now almost 1.3 million temporary agency workers compared to 650,000 in 1996. The sector is highly dynamic and diverse. Data based on surveys commissioned by the Recruitment and Employment Confederation (REC) indicates that there were 10,426 recruitment businesses in the UK in 2006, of which two-thirds are single site agencies. At one end of the spectrum, there a number of long established international generalist agencies and HR service companies that have a major presence in the UK as a part of a global network such as Adecco, Manpower, Randstad, Kelly Services, Hays and Michael Page. These agencies operate across a number of sectors and activities. Whilst the international and national agencies account for a growing share of industry income, more than seven in 10 UK recruitment businesses are less than 10 years old, with almost three in 10 businesses less than three years old. Low barriers to entry are a key feature of the industry. Northwest market scale and position The Northwest accounts for 9% of the UK recruitment sector, based on the data on business sites collected by the ABI. This share accords broadly with the REC survey of the recruitment industry. Within the Northwest, almost half of agency sites are in Greater Manchester, although the actual number has fallen between 2000 and 2006. The most striking feature is the relatively small share of the sector located in Merseyside, which is significantly lower than the sub-region’s share of the wider economy. Number of business units –Recruitment Location 2000 2003 2006 % Change 2000-2006 Great Britain 21,132 21,955 23,656 12 Northwest 2,417 1,919 2,227 -8 Greater Manchester 1,209 931 1,024 -15 Merseyside 190 198 261 37 Lancashire 265 299 336 27 Cheshire 611 417 518 -15 Cumbria 142 74 88 -38 Source: ABI, ONS

Determining the exact number of people employed in the recruitment sector is challenging, as the data generally combines core agency staff with workers on assignment. From the REC survey, 83% of agencies in the North (NW, Y&H, NE, Scot, NI) possessed 10 or fewer core staff, with only 2% employing more than 40 staff. The ABI data provides a useful insight, however, into the wider growth of the recruitment sector and agency working. Growth in the region has more than trebled the rate seen across GB as a whole, with all five sub-regions seeing significant expansion. Number of employees* –Recruitment Location 2000 2003 2006 Great Britain 685,326 671,611 761,662 Northwest 56,017 72,853 79,456 Greater Manchester 29,365 38,124 36,327 Merseyside 6,062 8,193 10,070 Lancashire 6,734 8,423 10,232 Cheshire 12,390 17,467 20,831 Cumbria 1,465 644 1,996 Source: ABI, ONS. *employees and agency workers

% Change 2000-2006 11 42 24 66 52 68 36

The Northwest is well represented amongst the international and national agencies. Some of the key players include: • • • • • • • •

Brook Street – Manchester, Liverpool, Preston, Rochdale, Warrington. Rullion – Altrincham, Manchester, Warrington, Stretford, Liverpool Randstad – Manchester, Salford Quays, Chester, Liverpool, Warrington Blue Arrow – Liverpool, Manchester, Preston, Stockport, Warrington Badenoch and Clark – Manchester Penna – Manchester Manpower – Liverpool, Manchester, Preston, Stockport, Warrington, Wigan Reed – Manchester, Liverpool, Altrincham, Stockport, Preston, Warrington, Lancaster, Carlisle, Chester

Besides the large players, the Northwest is home to a substantial number of agencies, many of whom service a primarily regional market. Examples include WWB, which has grown from three people in 2001 to 20 now, and Job Wise, an agency specialising in administration, call centre and secretarial positions with branches in Altrincham, Stockport, Warrington, Manchester, Oldham, Liverpool and Bolton. Whilst there is a tendency for agencies to focus on their own market, e.g. Manchester agencies on Greater Manchester, Leeds agencies on West Yorkshire, there are many specialist and niche agencies based in the Northwest who will serve national and international agencies. No. of business units by employee numbers, 2000 – Recruitment Location 1-10 11-49 50-199 Over 200 Total Great Britain 15,058 3021 2,244 809 21,132 Northwest 1,829 325 200 63 2,214 Gtr 30 Manchester 933 138 108 1,209 Merseyside 7 121 36 26 190 Lancashire 8 168 65 24 265 Cheshire 18 488 67 38 611 Cumbria * 119 19 * 142

Source: ABI, ONS. *precise number suppressed due to confidentiality. Totals may not equal sum of breakdown due to suppression.

No. of business units by employee numbers, 2006 – Recruitment Location 1-10 11-49 50-199 Over 200 Total Great Britain 15,781 4,093 3,084 698 23,656 Northwest 1,433 404 316 74 2,227 Gtr 659 Manchester 186 138 41 1,024 Merseyside 151 53 46 11 261 Lancashire 204 67 58 7 336 Cheshire 357 85 63 13 518 Cumbria 62 13 11 * 88 Source: ABI, ONS. *precise number suppressed due to confidentiality. Totals may not equal sum of breakdown due to suppression.

On average, agencies in the region cover three business sectors, with secretarial/clerical and professional/managerial sectors being covered by more than 30% of agencies. One in four agencies in the region provide services to the accounting and financial services sectors, with evidence of increasing specialisation particularly amongst agencies providing executive search and selection, talent management and other services. Agencies providing recruitment services for other recruiters is another growth area, with one in 12 agencies now actively providing this service. Within the financial services sector of recruitment, the majority of agencies specialise in providing both temporary and permanent placements – only 3% of agencies working in this sector offer only temporary positions. This is partly a reflection of the diversity of the financial services sector. Overall, the recruitment sector in the Northwest is mature with a number of well established agencies, particularly in the technical/engineering, customer services, construction and secretarial/clerical sectors. The region has a good mix of established agencies and newer entrants, the latter having grown on the back of expansion of the economy and the more sophisticated requirements of, and skills shortages faced by, many businesses. Role of the industry in supporting the wider FPS sector The growth of the recruitment sector in the Northwest has occurred in tandem with the FPS sector, and it clearly plays a key supporting role to FPS operations in the region. In a relatively compressed labour market, the expertise, contacts and support provided by agencies has enhanced the ability of FPS companies to recruit high-calibre staff. Consultations with recruitment and HR agencies as part of the Sub-Sector Study identified a number of challenges in meeting client requirements which have a wider resonance for the FPS sector. These include: • Securing senior /executive level personnel is very time consuming – narrow market. • Lack of clarity on career progression within the Northwest often cited as a key barrier to an individual relocating to the region. • Lifestyle factors are an increasingly important factor in senior recruitment, with varying perceptions of the Northwest offer.

As well as provide recruitment functions, the industry supplies a wide range of HR consultancy and support services to businesses and public sector organisations in the region. Future prospects and trends The recruitment sector’s performance in the Northwest is highly correlated with the wider economy. After a period of sustained growth, the current economic uncertainty is expected to result in a much more mixed picture. There does not, however, appear to be a consensus on where the sector is headed, although the majority of consultees retain their growth aspirations and consider that the sector as a whole will grow. Data on placements and appointments from the first three months of 2008 suggests that the market is holding up well. This said, more difficult trading conditions in the short term is likely to lead to rationalisation among some smaller agencies, particularly more recent entrants who have a limited number of clients. In considering the future prospects of the recruitment sector, the following issues are pertinent: • • • • • • • •

Whilst the recruitment industry is spread across the region, Manchester has developed as the hub and first entry point for many agencies, particularly those looking to service national and international market from the Northwest. Outsourcing, temporary contracts and other flexible employment patterns will continue to drive growth in the recruitment sector, although probably at a slower pace than recently. Trends such as online recruitment will potentially have a big impact on the structure of agencies – NOSRA reported a 40% increase in online recruitment between 2006 and 2007 – although its effectiveness is still unproven. The sector itself is facing increasing skills shortages, with difficulties reported in recruiting graduates as well as experienced advisors. Promoting the sector as an attractive career path for graduates was highlighted as a priority. The poor image of parts of the industry will prove difficult to change, related in part to a lack of company and professional accreditation. The REC is aiming to raise standards through its Code of Professional Practice and Code of Ethics. Many of the generalist firms are looking to expand their portfolio into higher value specialist services, which could result in consolidation. Whilst many recruitment firms have changed and diversified, a significant proportion remain dependent on traditional commission-based recruitment services and are vulnerable to market pressures. Many of the Northwest’s largest firms handle their HR functions from locations outside the region (linked often to HQ locations), which restricts opportunities for specialist Northwest agencies.

Implications for the Northwest The recruitment sector in the region should see further growth in the medium term, even though conditions will be much more difficult over the next couple of years. Demand for staff is anticipated to continue, although many companies are cutting down on permanent positions and offering many more temporary contracts, with staff remaining on Agency books. With respect to the wider FPS sector, the research has demonstrated the importance of maximising investment in quality of life issues if the Northwest is to attract and retain the best talent.

Many of the challenges facing the industry in the Northwest are common to agencies elsewhere. As a highly dynamic and diverse sector, any direct public sector intervention needs to be highly focused. Potential areas include promoting links via bodies such as ProManchester, increasing the industry’s profile amongst graduates and promoting the uptake of corporate standards and individual accreditations. SWOT Analysis Strengths All of the key national agencies have a presence in the region.

Weaknesses Limited differentiation of the Northwest ‘product’ against competitor locations.

Manchester is a key hub of activity and acts as a service base for the north of England and further afield for many agencies.

Lack of HR functions in the region restricts further growth.

Lots of new entrants to the industry bringing new ideas and expertise.

Poor perceptions of the industry remain a barrier.

Growing skills shortages, experienced advisors.

particularly

for

Opportunities

Threats

Staff retention remains the major challenge for many companies.

The recruitment industry is highly cyclical, with some commentators forecasting that the industry will face a major downturn over the next two years. No overarching corporate standard.

Boost the profile of Northwest agencies – ‘you don’t have to go to a London agency to recruit senior people’. Develop company and individual accreditation to enhance image – link to REC scheme. Role of the public sector in raising awareness – develop links with inward investment agencies. Continued growth in temporary/flexible employment contracts.

London influence grows in strength, driven by wider corporate changes.

Appendix 4 – Full Action Plan STRATEGIC THEME Marketing

OBJECTIVES

DETAIL OF REQUIRED ACTIONS

1. Raise the profile of the Northwest FPS sector: in the region, nationally and internationally

Issue: Whilst the region’s FPS sector has a growing profile, awareness of the breadth and depth of expertise is not as strong at it could be. Action: 1.1 Develop sectoral and sub-sectoral propositions for the Northwest, highlighting key sub-regional strengths and general infrastructurerelated benefits and developing bespoke marketing materials (drawing wherever possible on existing materials to develop an overarching Northwest perspective) for (1) selling the region’s sector strengths locally to retain business in the Northwest and increase trade out of the region – new (2) marketing the Northwest as an inward investment location – enhance existing activity 1.2 Undertake a marketing campaign within the Northwest to retain FPS business in the region. This will require increased engagement with RCOs for other key RES sectors (e.g. via fusion events). – new 1.3 Undertake a highly targeted marketing campaign within the UK to promote NW FPS strengths and expertise, involving PR, participation at sector events/exhibitions, public affairs focused on key target audiences within the UK (especially London), building upon established links with the City of London through events and networking opportunities – enhance existing activity 1.4 Host specialist events and conferences to demonstrate thought leadership and encourage collaborative activity across sub-sectors – enhance existing activity 1.5 Identify mobile FPS events/conferences which could be attracted into the NW – new

Investment

2. Encourage investment

further

inward

1.6 Ongoing participation in, and influencing of, the Chancellor’s Financial Services Sector Advisory Board – existing activity Issue: Inward investment provides a key opportunity to grow the sector in the NW. The region has a strong track record in securing inward investment, but the market remains highly competitive and there is a need to proactively promote the region’s/ sub-regions’ offer. Action: 2.1 Proactively target potential inward investors from key target regions including: the US, India, Western Europe, the Gulf States, Australia. This will be implemented via: •

Development of a highly targeted sales/lead generation programme in key target markets. This may require engagement with senior decision makers in UK as well as overseas operations – enhance existing activity

2.2 Assistance to existing investors in the preparation of business cases to inform reinvestment decisions – enhance existing activity 3. Attract investment from the rest of the UK

Issue: Firm location strategies are being reviewed regularly, with supporting functions becoming increasingly centralised in one location. Cost differentials with London provide an opportunity to secure greater inward investment and other relocations from the Southeast. Action: 3.1 Proactively target inward investment opportunities from elsewhere in the UK, including the relocation of back-office or other functions from London, the Southeast or other higher cost locations. This will be implemented via: • • •

Liaison with senior decision makers in major firms to increase awareness of the Northwest offer – enhance existing activity Engagement with providers of advisory services – enhance existing activity Support existing businesses to secure expansions/ investment by developing strong location propositions – enhance existing activity

STRATEGIC THEME Skills

OBJECTIVES 4. Expand the supply of qualified professional and technical staff to meet the current and future needs of the sector

DETAIL OF REQUIRED ACTIONS Issue: Whilst there is a plentiful supply of graduates, primary research indicates that a number of businesses experience difficulties in recruiting and retaining high-calibre, commercially aware graduates. Action: 4.1 Develop linkages between firms and regional universities in order to enhance the employability of accountancy and finance graduates available to Northwest firms. This will be implemented via: •

An expanded programme of tasters and placements for accountancy and finance students – enhance existing activity • Support from experienced staff to students during their studies e.g. through project assessments – enhance existing activity • A review of course curricula to identify the scope for additional learning in commercial awareness, client management and other business skills – enhance existing activity 4.2 Work with the region’s HE institutions and other providers to help boost the supply of finance and related graduates available to Northwest businesses. This will be implemented via: • • •

Tailoring of existing degree and other courses to maximise alignment with sector needs as well as exemptions from professional exams – enhance existing activity Support for the establishment of new specialist courses, e.g. aspects of commercial and investment banking – new Encouraging collaboration between careers services and recruiters to increase graduate retention in the region – existing

Issue: There is an identified gap between the availability and demand for mid-tier staff in the accountancy, insurance and banking sectors, e.g. with AAT, ATT and other core qualifications. Some of the lack of supply relates to outmoded perceptions of the industry. Action: 4.3 Where there are known gaps actively promote accountancy, banking/finance and insurance as an attractive career option within schools, sixth form and FE colleges and other bodies. This will be implemented via: • • •

Development of case studies setting out career routes and the qualifications ladder – enhance existing activity Undertake a programme of school visits/career service liaison – enhance existing activity Promotion of better links between employers and FE colleges to assist recruitment – enhance existing activity

Issue: Attracting experienced professionals presents a significant challenge because of competition for staff within the region and difficulties attracting staff to the north of England from London and the Southeast. A focus on raising the profile of the Northwest’s offer is necessary in order to compete with other locations. Action: 4.4 Develop and deliver a plan to attract and retain experienced mobile individuals in the FPS sector with a particular focus on legal services, banking and finance. This will be implemented via: • •

Preparation of enhanced marketing materials for use by recruitment consultants, businesses – new Establishment of champions (experienced individuals who have returned to the Northwest) for the region who can acts as advocates – enhance existing activity

STRATEGIC THEME Skills

OBJECTIVES

DETAIL OF REQUIRED ACTIONS Issue: There is an identified need for support to SMEs in developing leadership and management skills to enable businesses to respond to the substantial new challenges and competitive pressures brought about by regulatory and market changes. Action: 4.5 Support effective leadership and management development amongst SMEs (especially middle-tier and smaller legal and accountancy practices and IFAs), enabling them to diversify and respond to market challenges. This will be implemented via: •

Providing targeted additional support for business – enhance existing activity • Developing links between SMEs and appropriate management consultancy support – enhance existing activity • Promoting examples of successful practice changes e.g. establishment of partnerships with other professional services – new Issue: There are a large number of small players, many of which are unable or unwilling to invest sufficiently in training. A wide range of evidence indicates that greater levels of training provision in the small business sector would increase/improve efficiency and competitiveness. Action: 4.6 Address skills gaps in SMEs in the FPS sector. This will be implemented via: • •

Support for expansion of FE-based and other training – enhance existing activity Support for in-house training and CPD with small brokers and other SMEs – enhance existing activity

Issue: The FPS sector, especially legal services and accountancy, is considered to lack diversity as far as the workforce is concerned, which may inhibit growth. Action: 4.7 Work with the Ethnic Minority Business Forum and the NW Women’s Forum to identify actions to encourage a more diverse workforce.

STRATEGIC THEME

Innovation and enterprise

OBJECTIVES

DETAIL OF REQUIRED ACTIONS

5. Increase the level of innovation and enterprise taking place in the region

Issue: There is a strong correlation between innovation and productivity in services. However, levels of innovation vary significantly across the five sub-sectors, with much activity and decision making currently taking place outside the region, given the location of HQs of the larger FPS businesses. There is also evidence of low levels of innovation amongst SMEs in the region. There is a need to raise awareness of the benefits of innovation in the FPS sector in the region and of the support available to companies to encourage innovation. Action: 5.1 Develop and deliver an FPS component of the Northwest Innovation Policy. This will be implemented by:

• • •

Carrying out a mapping exercise to develop a better understanding of the range of innovation activities taking place in the region and expertise in academia – new Promote the availability of funding and other support to boost innovation activity – existing Promoting stronger industry/academic and B2B collaboration – enhance existing activity

5.2 Explore the use of lean techniques in the FPS sector Issue: Low levels of enterprise in the Northwest. Action: 5.3 Identify specific actions within the context of the Enterprise Culture Strategic Framework in the Northwest to encourage entrepreneurship in FPS in the region. Markets

6. Increase NW businesses’ market share of regional, national and international FPS business

Issue: There is anecdotal evidence that the region’s legal practices win only a modest share of contracts let by larger public sector bodies as well as corporates in the region. There is a need to improve awareness among purchasers as well as to help the sector to be more competitive in bidding for business. There is also evidence of leakage of consultancy work, which needs to be quantified. Action: 6.1 Work with major regional public sector organisations to increase procurement of legal services from within the Northwest. This will be implemented via: • • •

Establishing the extent of the problem, the degree of leakage and why it is happening – new Setting up of panels and other activities to enable Northwest firms to compete more effectively – enhance existing activity Supporting firms to bid for contracts – new

Issue: Whilst export volumes have been increasing, the Northwest accounts for only a modest share of UK FPS exports. Export markets are forecast to grow strongly in the medium term, providing a range of opportunities for Northwest businesses. Action: 6.2 Increase number of inward delegations and trade visits from key target markets – e.g. BRIC countries – enhance existing activity

STRATEGIC THEME

OBJECTIVES

DETAIL OF REQUIRED ACTIONS 6.3 Encourage more FPS businesses to export. Target markets to include: BRICs, USA, Eastern Europe, EU. This will be implemented via:

• • •

Greater coordination of UKTI activity and other partners e.g. subregional partnerships – enhance existing activity Boosting the uptake of UKTI scheme amongst FPS firms e.g. Passport to Export, OMIS – enhance existing activity An expanded programme of trade missions and match making events – enhance existing activity

Issue: There are a number of niche areas which may grow significantly in the future, e.g. credit products, emissions trading, Islamic banking, ethical finance.

Markets

There is a need for the region to position itself to maximise the potential for new activity in these areas. Action: 6.4 Explore the potential for the exploitation of growth areas in banking (and associated professional services) in the Northwest. There is a need to undertake specific studies in the following areas, to inform further public sector intervention – Islamic finance, carbon emissions trading, ethical banking. Each study will involve:

• • •

Consultation/research with leading industry players and academics – new Development of an options assessment of each niche which can inform the next stage – new Preparation of an initial strategy and set of propositions which can be implemented quickly where appropriate – new

Issue: According to the DTI’s research, a critical success factor for industry sectors or cluster initiatives is ‘networking partnership’. There is an opportunity to strengthen and stimulate the development of FPS networks in the region. 6.5 Grow membership of existing FPS networks in the Northwest – existing 6.6 Explore potential for supporting similar networks to Pro-Manchester and Professional Liverpool – new Issue: The scale and number of deals being conducted in the region is still significantly below London and the Southeast. There is a need for businesses to ‘export’ services more widely to entrepreneurial areas in the UK and also potentially overseas. Action: 6.7 Assist the advisory community in the Northwest to win international merger and acquisitions work. • Support for international engagement – enhance existing activity • Marketing and promotion within the UK – enhance existing activity Issue: A number of sectors in the region are forecast to grow significantly, e.g. culture and media, thereby generating additional and new demands for F and P services. The FPS offer in the NW should therefore be strengthened to capture new market share. Action: 6.8 Support the expansion of specialist services, e.g. intellectual property law, sports, disaster law linked to growth sectors. This will be implemented via:

• • • •

A mapping of existing capabilities in the region against future growth areas – new A periodic review of future growth /trends in other key sectors which could influence the demand for other FPS services – new Engagement with FPS firms to explore growth plans and associated recruitment – new Hosting of B2B events involving cluster organisations for other

STRATEGIC THEME

OBJECTIVES

DETAIL OF REQUIRED ACTIONS •

Support

7. Provide businesses access to the right support

sectors – enhance existing activity Establishment of bespoke courses/seminars involving education providers, e.g. College of Law and law firms

Issue: The provision of one-to-one business support to SMEs in the FPS sector is important to help them grow. Innovation, skills development, international trade and marketing are some of the business issues which the targeted service of Business Link can support. Action: 7.1 Promote the Information, Diagnostic and Brokerage service which Business Link provides in order to increase coverage of the FPS sector in the Northwest – enhance existing 7.2 Provide one-to-one business support to FPS business – existing Issue: Reforms to the status of IFAs pose significant challenges to the region’s intermediary sector. The vast majority of firms are SMEs, with more than 70% operating as micro-businesses. As a result, many businesses require support to help them develop their business plans. Action: 7.3 Support intermediary firms to develop their business plans. This will be implemented via: • Additional, targeted activity with the intermediary sector by BLNW brokers involving business reviews – new • Hosting of a series of intermediary events to inform firms about the support and options for the future – new • Examination of new business models e.g. mutual intermediary groups which can be disseminated as case studies – new Issue: Some specialist services are outsourced or purchased outside the region or sub-region when they could more effectively be delivered locally if the correct supply chains and procurement arrangements were in place. SMEs in particular need support in opening up potential business opportunities in new markets, or in promoting their services in marketing channels and at events that would be outside their own scope. Action: 7.4 Support smaller firms to grow market share through supply chain development and access to markets outside the region. This will be implemented via:

• •

Matching SMEs to opportunities, e.g. creative industries – enhance existing activity Assistance to SMEs to promote their services to potential clients outside the region – enhance existing activity

Issue: The insurance sector in the region retains a number of operations which are vulnerable to relocation elsewhere. Given the speed of change in the sector, there is a need to ameliorate the potential for further consolidation by engaging with key firms to support diversification and other strategies. 7.5 Assist existing investors to move up the value chain. This will be implemented via:

• • Infrastructure

8. Ensure that the sector has the right infrastructure to support its growth

An comprehensive approach to aftercare with existing firms – enhance existing activity Encouragement of stronger links between operations in the region and those elsewhere – new

Issue: Demand for high-quality accommodation is evident across the region as financial institutions search for new premises e.g. RBS moves in both Manchester and Liverpool. There is some evidence to indicate that small, niche financial service practices have found it difficult to locate the right space at the right price. Action: 8.1 Work in partnership with the private sector to ensure the provision and availability of a variety of property offers to meet the needs of the

STRATEGIC THEME

OBJECTIVES

DETAIL OF REQUIRED ACTIONS banking, insurance and legal services sectors – including Grade A space in Liverpool, Manchester, Preston and Chester as well as the development of Grade B+ and Grade B space in other, potentially non-central, locations where cost-conscious operations can be encouraged to set up ‘back office’ functions. This will be implemented via:

• • • •

Monitoring of demand and supply for property types in key locations – existing Influencing the supply of new premises through planning frameworks and other mechanisms – new Ensuring that major developments, e.g. a new CBD in Preston, can meet the sector’s needs – new Engaging with key developers to influence the shape and flow of development – extend existing

Appendix 5 – Glossary ABI

Annual Business Inquiry – Annual employer survey carried out by the Office of National Statistics Agency in this report, refers to the NWDA AIFA Association of Independent Financial Advisors BBA British Bankers’ Association BERR Department of Business, Enterprise and Regulatory Reform BLNW Business Link Northwest BPS Business and Professional Services BRIC Brazil, Russia, India and China (sometimes known as the BRIC countries or BRICs) CII Chartered Institute of Insurers COMBAR Commercial Bar Association CPD continuing professional development DTI Department for Trade and Industry EMBF Ethnic Minority Business Forum FA financial advisor FDI foreign direct investment FPS Financial and Professional Services FSSC Financial Services Skills Council GDP Gross Domestic Product GVA Gross Value Added. The contribution to the economy of each individual producer, industry or sector in the UK. It is a key measure of the economic value generated by all sectors of the economy. HE higher education IFP Institute of Financial Planning LPC Legal Practice Course MCA Management Consultancies Association NSAFS National Skills Academy for Financial Services NW BPS Investment Group NWDA-coordinated working group involving SRPs, SRCOs, UKTI, BLNW NWDA Northwest Development Agency NWUA Northwest Universities Association ONS Office for National Statistics PwC PricewaterhouseCoopers PQE professional qualifying exams REC Recruitment and Employment Confederation RES Regional Economic Strategy SME Small to medium-size enterprise SRCO Sub-regional Cluster Organisation – currently Pro-Manchester, Professional Liverpool SRP Sub-regional Partner UKTI UK Trade and Investment (government department) WE Women’s Enterprise

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