The Business End

Other people's business

Bringing high tech business to the North East

Putting in place the infrastructure for new kinds of business requires vision and leadership.

By Paul Callaghan Published 24 July 2012 11:58

The sun sets behind the Tyne Bridge. Photograph: Getty Images

Everyone knows the phrase "coals to Newcastle". This is a tale of "software to Cambridge". From Newcastle. When I started my business thirty years ago it seemed far-fetched. There were less than 10 technology businesses in the whole of the North East. Now there are over 300, from software to computer games to cloud computing. Only London has a higher rate of high tech start ups. So we are doing our bit for "rebalancing" the economy.

The obvious questions are why and how? The simple answer is that while some industries depend on capital to get going, for technology companies it is people. Software and computer games are by their very nature "weightless" products that can be sold in every corner of the world over the internet without any significant transport costs – the exporter’s dream. If you can sit a talented programmer or a creative designer in front of a computer, they can be producing saleable products that are instantly exportable.

The greatest asset for any region is its universities. The greatest problem in the North East is raising the aspirations of our own population to go to them. In a global competition for talent, you need places "where talent wants to live". This means that you need to have a buzzing music and cultural scene – Newcastle has been voted one of the world top party cities - good affordable housing and easy ways to get to work. Tyneside and the rest of the region has a justifiable reputation as a great place to be and this has been fostered over the last decade by a combination of strategic, long-sighted public investment in creative and cultural infrastructure like the Sage Gateshead, and the establishment of organisations like Generator who support the music industry and make events happen.

University involvement and partnership with business has grown by encouraging graduate internships and establishing "hatcheries" nurturing embryonic businesses. Publicly-funded initiatives like Sunderland Software City and Digital City on Teesside have been able to provide guidance, mentoring, premises, and networking for new business. Organisations like North East Access to Finance help fund the growing numbers of start-ups and high growth companies.

I chaired the Regional Development Agency until it was closed this year. Its founding idea – that public and private sectors need to support each other - is right. Here are three things that would make the biggest difference in the next ten years. Firstly, there needs to be more productive and innovative partnerships between the private sector, the universities and the public sector. Each offers different elements to the mix. Entrepreneurial ideas and drive, a trained and educated workforce coupled with innovative research and development in the right "connected" locations are the fundamental building blocks for this industry. Secondly businesses like this need finance. Often UK banks are reluctant to lend to this sector so we need to create small grants that allow clever people to test ideas and then more substantial equity investments as businesses mature and develop. Finally we need vision, leadership and role models. People who see what the North East's economy could look like and have the ambition, drive and determination to make it happen. The region has changed much since the dark days of the Likely Lads, what we need for the future is tomorrow’s Bob and Terry having Masters degrees in software engineering and creating world-leading software.

Paul Callaghan is Chairman of Leighton, the North East-based technology, software, media and communications group that he founded.

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3 comments

Wed, 2012-07-25 20:58 — James S (not verified)

If by "long-sighted public investment in creative and cultural infrastructure" you mean long-sightedness as in the visual impairment you are entirely correct. Put in its simplest terms local businesses are put out of business by this type of subsidy, they need to make money to survive and what is worse is that the government takes tax from them and spends it on such things putting them out of business.

Any organisation which receives funding from government has no need of making a profit and that puts them at a great advantage over a business which needs to make profit to be able to re-invest them in itself merely to survive.

There were concert venues in the North East long before the Sage was built and some of the venues that previously held concerts no longer can or do because of this sort of government sponsorship.

Fri, 2012-07-27 17:38 — Mogwai (not verified)

Can you clarify which or how many businesses have been put out of business by investment in 'creative and cultural infrastructure'? I ask because based at least on the two examples given (Generator and The Sage Gateshead) far more money has been brought in to the region's economy as well as jobs created and local supply chains strengthened than has gone on supporting them. I know at least two major businesses that have relocated to the region who include the quality of cultural infrastructure as their reasons for doing so. I speak to numerous businesses who have found recruiting staff from outside the region easier since the cultural regeneration of the region of which these two organisations are a huge part. In short these organisations (and many others) have underpinned and strengthened the region. They put the region back on the map.

As for you final point about music venues, could you clarify which ones have closed as a result of The Sage Gateshead opening? If anything in the last 10 years as well as The Sage Gateshead we have seen a growth in new private sector venues from the small scale like The Cluny to the large scale national music chains like the Newcastle Academy. In turn we have seen a growth in promoters, media companies and other peripheral services as a result of this venue growth. In addition the quality of The Sage Gateshead and other cultural infrastructure venues have attracted artists would never have come to the region before. They are also developing the talent of tomorrow with widespread engagement programmes, many of which are funded by sponsors and trusts and foundations not taxes. I have seen first hand the effect some of these activities have had on people with a range of issues not least installing in them confidence and drive to better themselves, something every economy needs.

Don't get me wrong I don't think widespread subsidy is good and much of it is wasted but I think in this instance your research is lacking and your dislike of taxes is clouding some fantastic achievements and benefits for the region economically and socially which the private sector would not have gambled on.

Wed, 2012-07-25 09:59 — Andrew Westgarth (not verified)

Great article however I'd like to raise a point about this sequence of sentences - "The greatest asset for any region is its universities. The greatest problem in the North East is raising the aspirations of our own population to go to them. "

I think the biggest problem with this is that aspiring students are actually being priced out of taking that extra step as opposed to not having the desire to go to University. With fees from all of the North East Universities now lying at in the region of £9K per annum most are discouraged. Yes I've heard the arguments that it's just another loan and won't be paid off for years but I don't agree with that view point. In a region of high unemployment and low wages, I can understand students who feel uncomfortable taking on £27K of debt for a three year course and then associated living costs etc, say at a rough estimate a minimum of £4K per year so over three years that leaves a potential student with £39K of debt hanging around their neck before they embark on a career and then face the battle of additionally saving 10% deposit for a mortgage on their own property which a good career in Technology should also enable them to achieve. One possible solution could be closer ties between degree courses and industry, with industry taking away some of the financial burden in return for qualified staff and option to recruit from a talent pool.

I studied at the University of Sunderland, graduating 10 years ago this year, and have achieved moderate success in the North East Technology industry however I was one of the first years of intake to start to pay tuition fees. Not a huge amount back but it was still significant enough for me to have to take out a student loan to cover the cost of my tuition fees. I worked 39-52 hour weeks in a retail store in order to pay my way through University and to afford to complete my studies. As youth unemployment is so high this is highly unlikely to be an option for many local students.

In addition I think another issue we need to face is that the current curriculum for Technology in schools is turning students off the subject well before they reach the decision point of their GCSE options and subsequent A Levels. Schools, despite Mr Gove's proposed changes to the curriculum, are not equipped to teach Technology for the future, with extremely antequated IT suites, none Technical teachers, opinions that the changes mean that they no longer have to teach IT or that they can just hand out iPads for children to fulfill the requirement for IT curriculum - yet more consumption and not creation. This is a national problem and ever more Industry needs to get involved at grass roots levels through STEM initiatives and other avenues.

The activity in the North East is fantastic and I'm proud to live and work in the North East however I fear without addressing these issues the success will not be sustainable for generations.