Small businesses missing out on the power of business clusters

Surrounding yourself by competition might seem like a poor decision but it can actually increase your productivity 

Small businesses may be missing a trick by not choosing to start their empires in business clusters, according to a UK energy provider.
A survey of 500 business owners carried out by Opus Energy found that the majority of small business owners took no time at all to decide where to start up their business – with two-fifths (40%) choosing the most convenient location for them and more than half (51%) choosing the place where they live. But the firm suggests perhaps they should have taken the decision where to set up shop based on business clusters.
What is a cluster?
According to Opus Energy, business clustering is the process by which businesses operating in the same sector come together in close geographical proximity. But it claims that clustering is not a new phenomenon. Traditionally, in the UK, certain sectors have thrived in particular areas: the lace industry in Nottingham, or shoe production in Northampton, for example. More recently, the Thames Valley Technology Hub is the largest of its kind, while Tadworth is home to a significant cluster of pharmaceutical businesses.
The trend isn’t restricted to Britain either, with some of the most expansive examples of clustering including the Hollywood film studios and Silicon Valley. It might seem odd that, in today’s world of globalisation, localisation of business sectors is still worth considering.
Oracle, Silicon Valley
Opus claims that a perfect case study for how effective clusters can be is that of Toyota’s suppliers, who clustered around its manufacturing sites in Derbyshire, thus reducing supply chain costs, providing near non-existent transport expenses, better communication and greater efficiency.
And yet, many SMEs are missing out. 2016 saw a record high for businesses being founded (650,000 in fact) but a recent Opus Energy survey found that only 7% of SME start-up owners are choosing to start their business in a zone or cluster. More than one third of SME owners didn’t even know what a business cluster was.
Why are clusters beneficial?
Opus Energy says clusters create a pool of expertise, innovation and investment from which SMEs can benefit. These sorts of pools are encouraged by the Government and thus often profit from investment in excellent infrastructure and the most up-to-date technological innovations. The firm says clusters are particularly beneficial for SMEs since they are a ready assembly of new business, suppliers, resources and talent which can help vastly reduce costly recruitment and transport expenses.
What’s more, by definition a cluster’s main advantage is specialisation – within a zone dedicated to pharmaceuticals, for example, you will find business leaders in the same field, which provides excellent networking and partnership opportunities, as well as valuable insights into industry trends.
Yet, collaboration is not the only perk of relocating to a cluster. Local competition has been identified as a crucial benefit for SMEs operating in clusters. Surrounding yourself by your competition might seem a poor decision, but SME owners have agreed that this has a motivating effect, in fact increasing the productivity of their company.
Relocating your SME is undoubtedly something that owners need to seriously consider. But while a step into the unknown might seem scary, according to Opus Energy the benefits of being included among specialised businesses in a competitive and collaborative environment far outweigh any worries you might have about a change of scene.
To help entrepreneurs identify relevant business clusters they could join, Opus Energy has created an interactive map outlining the UK’s most successful business clusters, including key information such as costs, employment rates and average wages.
One of these is Edinburgh’s technology cluster, which employs 21,000 people, with an average wage of £37,308 and whose average premises costs £75.99 per square foot.
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