During this period of great economic uncertainty, it's not surprising that those of us working in economic development and inward investment promotion sometimes feel like rabbits caught in the headlights - shocked and unsure of which way to turn.
Here's where we stand today (from a UK perspective): in the second quarter of 2020, the UK economy shrank by 20% - the biggest slump since records began. This is the second time we've had a 'worst recession since the 1930s' in just twelve years, and tomorrow we'll enter our second national lockdown.
Furthermore, irrespective of individual views on Brexit, it's a fact that our trading arrangements with our big neighbour, the EU, are certain only for the next eight weeks. Inward investment professionals will recall that many of the largest inward investments to this country since the 1990s were founded on a powerful national proposition: direct, unhindered access to a single market of 500 million people, combined with other key benefits including flexible labour and robust institutions. On top of all this, we're living through a period of rapid technological change, creating both threats and opportunities in sectors such as energy and transport.
For many of us, all this change and uncertainty has undermined national, regional and sector inward investment value propositions that have served us well for several years. With planes on the ground and uncertainty around regulatory alignment, what story do we tell to promote our aerospace cluster? With threats to just-in-time supply chains and revolutionary new technologies, how is our automotive sector proposition bearing up?
So far, so very uncertain. So what should we do?
Perhaps a good starting point is to remind ourselves that dealing with economic shocks, often without the best hand of cards, is what regional economic development has always been about. In the 1980s, structural change hit many of the UK's industrial cities, towns and villages hard. It was the job of inward investment professionals to attract new businesses based on value propositions - alignments between what their locations had to offer and what businesses needed - that responded to new, fundamentally changed circumstances; not on what they would have liked, or what had applied before.
So, our first conclusions should be, (a) that responding to economic shocks and tough times is central to what we do, and, (b) that it's almost certainly time for us to rethink our regional and sector inward investment value propositions to respond to the new reality.
Facing uncertainty...
But how can we develop new value propositions when everything's so uncertain - our sector strengths, access to markets, the ongoing relevance of our regional capabilities - based on factors including coronavirus, Brexit, and rapid technological change?
Here are a few ideas.
1. First of all, we need to ensure that we possess a deep, up-to-date understanding of our fundamental location advantages, based on factors that will continue to drive business location choice. If we know, for example, that our workforce profile and skills ecosystem are outstanding in the area of advanced manufacturing, that provides a solid basis for future inward investment proposals. In a changed economy manufacturers are likely to adapt to serve new, growth markets, but they will still need skilled engineers, apprentices and specialised R&D partners.
It's also important to remember that many established sectors are likely to bounce back. I'm sure I'm not the only one who's looking forward to a holiday in the sun, by plane, when this is all over!
2. Secondly (and related to 1), we need to use high-quality sources to stay on top of industry trends and developments, so we can identify new investment opportunities for our locations. Many of the regions our company has worked with have attracted investors in new growth industries based on capabilities built up over decades in 'legacy' sectors. For example, offshore oil and gas workers often have the transferable skills required by the fast-growing offshore renewables sector, while petrochemicals workers can be ideally suited to new, greener, 'circular economy' process businesses.
3. Thirdly, we should recognise that while our previously 'more stable' economy worked for some places, many others were left behind. And it could be that the economic changes brought about by coronavirus, in particular, create opportunities where previously there were few. For example, the pandemic has led many, including the UK government, to think more in terms of domestic supply chain resilience than simply cost efficiency. This could lead to the 'reshoring' of manufacturing, and new investment opportunities for industrial areas.
Also, as highlighted recently in this blog, the rise of 'hybrid working', which looks set to become the new norm, is likely to create opportunities for smaller towns and cities previously left behind as the big cities boomed.
As for those major cities, there's no doubt that lockdowns and remote working are seriously impacting areas of their economies including office-based sectors, higher education and hospitality. But it's equally certain that the creative, talented people working in those cities and sectors will adapt to survive, as they have to cope with the challenges of lockdown - thereby creating new sector strengths and location benefits. It may also be that cities develop in new ways that are less focused on central business districts and commuting, resulting in new quality of life propositions.
Conclusions
So, in summary, here are our recommendations for inward investment professionals in this time of great change and uncertainty:
- Understand your location's fundamental (and potentially transferable) strengths
- Scan the horizon for emerging trends and growth sectors
- Get ready for recovery - because it will happen!
- Accept and respond to change - because it's at the heart of what we do
- Get prepared to deliver results in a new world that isn't yet clearly defined, but will present growth opportunities
Author:
Nick Smillie
Managing Director
Clarity Business Strategies Ltd.
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