SUPERFAST BROADBAND - THE ROAD TO NOWHERE OR A ROAD TO OPPORTUNITY FOR WALES?

Last week, Superfast Cymru - the high-speed broadband infrastructure being developed by the Welsh Government and BT - announced that over 100,000 homes and businesses in Wales are expected to have access to high speed broadband by the end of 2013 as a direct result of the project.

The significance of the rollout of this network should not be underestimated, especially given that a recent study from the National Institute of Economic and Social Research (NIESR) suggested that businesses in the so-called ‘digital economy’ comprise 14 per cent of all companies and 11 per cent of all jobs in the UK.

In fact, whilst there is a temptation to consider digital businesses as being predominantly based within high technology industries, the increasing use of digital tools and platforms within other sectors means that the digital economy is widening its net every year.

Yet despite the fact that the very nature of the digital industry means that businesses can flourish in any part of the country, the NIESR report shows that it remains focused very much around London and the South East of England.

And whilst this may seem to show that digital companies flourish within larger urban areas, a more detailed analysis of the data actually shows that there is a distinct and unexpected pattern of development within smaller towns and cities such as Basingstoke, Newbury, Poole, Bournemouth and Brighton (see below).

Given this, there is no reason why Newport in South Wales could not, with the right support and incentives, be developed as the main digital centre of excellence in Wales given its proximity to other highly concentrated digital regions along the M4 corridor in England.

Given the problems that the city has faced in recent years, a focus on becoming a "Digital City" could revitalise and regenerate this once great centre of commerce and build on its string relationship with Sir Terry Matthews and his companies.

However, it is not all good news for the potential of digital developments in Wales.

What is particularly worrying is that the further west you travel, the more Wales becomes a digital desert in terms of businesses operating in this fast growing sector of the economy.

Whilst the study also shows that rural and isolated locations such as Aberdeen are flourishing in the digital age, similar areas in Wales with a strong university presence have very few businesses operating in the digital sector.

Certainly, a lack of strategic vision by higher education during the last decade means that there has been a dearth of new digital businesses within the university towns of rural Wales such as Aberystwyth, Bangor and Carmarthen. This is despite the fact that successful companies such as Gaia Technologies and Accountis in Gwynedd have clearly demonstrated that you can create a world-class digital business within a rural location.

And whilst higher education institutions in Wales continue to reiterate their support for entrepreneurship, there is little evidence of a strategic imperative on developing entrepreneurship within students whose subjects encompass digital technology, a situation that needs to be changed quickly if rural Wales is to benefit from the new technologies that will now become more accessible through a rollout of high speed broadband capabilities.

Therefore, whilst BT and the Welsh Government are putting in the infrastructure for the next digital economy, is there the danger that this could end up being a superhighway to nowhere if other mechanisms are not put into place to support the digital industry in Wales?

One of the few success stories of the first round of European Structural Funding was the creation of Opportunity Wales as a vehicle for ensuring that small businesses in Wales took full advantage of the new technologies being developed for the internet at the time.

During its operations, it helped nearly 12,000 businesses across Wales to increase their e-commerce through its support programme. More importantly, through working with partners across Wales, it changed the perceptions of smaller firms of e-commerce and its application to their current business operations.

And whilst we have had another digital revolution since then, especially in the use of social media platforms that have significantly changed the operations of many firms, there has not been a similar support organisation developed in the last few years to ensure that our firms make the most of these new opportunities within their business.

Therefore, with two thirds of Wales qualifying for yet more billions of pounds of European Structural Funding, should a chunk of this funding be used, in partnership with the private sector, to establish an Opportunity Digital Wales within our economy?

With the money available to incentivise new relationships, I believe that global companies such as Microsoft, Google, Apple, Cisco and Samsung could be attracted to develop a new alliance with the public and university sector in Wales that focuses on developing skills and opportunities at the cutting edge of digital technology amongst Welsh businesses and young people.

Certainly, with the UK Government continuing to focus on developments such as “Silicon Roundabout” in London to drive forward a digital revolution at a national level, such partnerships cannot come quickly enough if Wales is to close the divide with the rest of the UK and, more importantly, start developing the cutting edge digital firms of the future.

THE GLOBAL INFORMATION TECHNOLOGY REPORT - LESSONS FOR WALES?

Last week, the World Economic Forum (WEF) published their annual Global Information Technology Report which measures the extent to which various nations are developing their Information and Communications Technology (ICT) capacity and its impact on competitiveness, as well as economic and social capacity.

It does this by examining a number of factors including the friendliness of a country’s market and regulatory framework in supporting high levels of uptake, and the degree of a society’s preparation to make good use of an affordable ICT infrastructure. 

It also looks at the efforts of individuals, business and government to increase their capacity to use ICT and the broad economic and social impacts accruing from this. As with all detailed reports from the WEF, there are some mouth-watering statistics for those looking to see where the next growth areas are going to develop.

For example, the study finds that mobile broadband is currently generating a tremendous $1.3trillion in annual revenues. More importantly, more than 80 per cent of broadband connections by 2016 will be mobile, with the major growth over the next five years occurring in emerging countries.

But what is of real interest are the national comparisons, which rank different countries across a range of variables. According to the study, those that are most successful in the World at leveraging ICT are all small nations, and Sweden, Singapore, Finland and Denmark have all fully integrated ICT in their competitiveness strategies to boost innovation within their economies. In fact, Sweden’s performance is rated as “remarkable” by the authors, ranking first in four key areas namely infrastructure and digital content, individual usage, business usage, and economic impacts. In addition, Singapore leads the in terms of political and regulatory environment for ICT as well as the business and innovation environment.

Whilst ranked 10th in the World, the UK continues to improve its performance across the board as compared to previous studies, with sophisticated and innovative businesses that are highly adept at harnessing the latest technologies for productivity improvements.

However, given the fact that there are regional disparities across the UK in the provision and access to ICT, it may be a worthwhile exercise for the Welsh Government to benchmark our nation using the methodology adopted for the Global Information Technology Report, especially given the relative success of other smaller economies.

One of the major conclusion from the report is that it recognises that there will be increasing challenges for economies around the World as smart devices continue to become a greater part of everyone’s lives. Indeed, policymakers will need to consider an environment in which the internet can be accessed immediately, people and organisations can contact each other instantly and, as a result of new developments such as social media, fundamental transformations in all areas of society will take place.

As discussed, the fact that the management of information (commonly known as ‘big data’) will be an integral part of these changes, the team behind the new £40 million supercomputer known as HPC Wales may need to reconsider its use in the future as a tool for assisting business to manage these trends rather than just being a tool for academic research, and how ICT can be leveraged to create competitive advantages for the economy as well as increasing social well-being.

Indeed, the report presents an insightful case study how the exponential growth in big data could lead a transformation of both the public and private sectors. With the right approach, Government can utilise this information to target policy, strategy, and investment so as to reduce costs and improve impact measurement. Businesses can also analyse the vast amount of data it gathers to respond to key influencers, manage risks, strengthen brands and increase customer knowledge.

But to do this properly, we need to carefully examine how we are developing and training the workforce of the future. Eric Schmidt, the head of Google, recently expressed his surprise in a recent article that computer science wasn't being taught as standard in British schools. In fact, he simply couldn’t understand why the Information and Communication Technology (ICT) curriculum was teaching children how to use software products such as word processors and spreadsheets but providing little insight into how that software was created.

And this lack of focus on developing skills within schools for what is undoubtedly the key industry of the future having an effect on university entry into the subject. For example, data from the Welsh Government shows that whilst the overall number of Welsh domiciled students has increased by 1 per cent between 2003 and 2011, the numbers studying computer science has fallen by 25 per cent.  In fact, there were only 350 Welsh students studying computer science at a postgraduate level in 2011.

Given this, how are we going to create a strong industrial cluster in this area, as is the aim of the Welsh Government, if the number of students being trained to develop the software and hardware has fallen by a quarter and shows no sign of recovery?

Therefore, the one question for politicians and policymakers in Wales that has still to be answered properly is how ICT can be fully integrated into an economic strategy so that organisations and businesses can capitalise on the new opportunities emerging in this area. Certainly, we cannot as a nation afford to be left behind in this area, especially as it offers a means by which we can reduce the prosperity gap with other parts of the UK.

A BUDGET FOR JOBS AND GROWTH? ONLY IF THE WELSH GOVERNMENT WANT IT TO BE

When I began my academic career in 1992 at Durham University Business School, I worked on a project that, on every Budget Day, would look specifically at the Chancellor’s financial proposals and their implications for the small firm sector.

In an age where tweeting was the noise made by a canary in a Warner Brothers cartoon and the fax machine was god, we spent time huddled around televisions trying to work out exactly what the implications were for the entrepreneurial community as the Chancellor spoke from the House of Commons.

Our analysis would then be written up by teams of academics and edited into one report. This would then be printed off overnight in the North East of England before being flown down to London first thing in the morning where TSB, the sponsor, would distribute to their clients at a morning press conference.

How different the response to the Chancellor’s budget has been this year, with both politicians and pundits racing each other to be the first out with a tweet on the results of the budget without even any careful and measured contemplation of the details.

In fact, barely had the Chancellor taken his seat that the Welsh Government had rushed out a statement stating that “This is a disappointing budget for Wales. It's not a budget for jobs and growth”.

Given that they had less than two hours to digest the detailed statements from the Treasury, one would have imagined that this behaviour was a hostage to fortune, especially given that, as in all budgets, the devil is always in the detail.

More relevantly, I have always considered that any new programme or initiative announced by the Chancellor is a chance for Welsh business to ensure, with the support of Welsh Government, that it takes full advantage of any new opportunities.

For example, the further reduction in corporation tax will mean that the UK will, by 2014, have the most competitive rate in the whole of the G7. Given this, the task for the Welsh Government is to link its own offering to this national indicator and ensure that the ‘brand’ for Wales attracts more businesses to this region rather than any other.

But it is not only in areas such as corporation tax in which Wales can sell itself. The interventionist approach by the UK government to various parts of the economic system could also reap real dividends for the Welsh economy if only we take full advantage of them. Let’s take finance for small firms.

The Government has provided up to £20 billion to support business under the National Loan Guarantee Scheme (NLGS). It has also announced £1.2 billion for the Business Finance Partnership (BFP) to develop new forms of non-bank finance. Surely, as one of the only regions with its own government owned bank in the form of Finance Wales, ministers could put forward a coherent strategy so that these funds, along with the money already held by Finance Wales, could create a far bigger source of funding for Welsh firms?

The UK Government also announced an ambition to more than double annual UK exports to £1 trillion by 2020, expanding not only the role of UK Export Finance but doubling the support to UKTI. Given that Wales has enormous potential through its manufacturing industry for international trading, but one of the lowest proportion of active exporters of any region, this presents a real opportunity for Cardiff Bay to work with Whitehall to get more Welsh firms to trade overseas.

But there is also support for specific Welsh industries. Take, for example, the 100 per cent per cent capital allowances for plant and machinery at the Deeside enterprise zone. This could, if supported by other programmes in training and skills development from the Welsh Government, make North East Wales the engine room of advanced manufacturing once more, certainly in comparison to other competing parts of the UK and after years of decline.

Indeed, there is now a massive opportunity for Broughton to bid for the £60 million UK Centre for Aerodynamics that will support innovation in aerospace technology but only if the Welsh Government works closely with the Wales Office to come up with the best plan possible to secure this within our borders.

The new corporation tax reliefs for industries such as the video game, animation and high-end television could potentially help the further development of these sectors in Wale, especially if serious attention is paid to ICT and the creative industries in the same way that the Minister for Business has recently courted the biosciences industry.

Indeed, that sector should be boosted by the introduction of a reduced 10 per cent rate of corporation tax for profits attributed to patents and similar types of intellectual property. Now all it needs is for the Welsh Government to announce a specific enterprise zone for this industry in Swansea that is centred on the Institute for Life Sciences.

Therefore, apart from political brinkmanship, can the Welsh Government really say that this was not a budget for jobs and growth? Certainly, it could be a self-fulfilling prophecy if it refused to take full advantage of the opportunities for boosting Welsh industry at a time when we need to punch above our weight as a nation to not only attract companies to invest here, but to grow and develop those businesses with real potential for job creation.

TURKEY AND THE DIGITAL ECONOMY

Last week, I was honoured to be speaking at a conference in Istanbul on the future of the digital economy in Turkey.

Attended by around 500 businesspeople, the event brought together speakers from government, academia and industry to discuss how this fast growing sector was having an impact on the economy.

 Unlikely as it seems, Turkey has been one of the rare economic success stories of the last couple of years as the rest of the World emerges from recession.

Led by its charismatic leader, President Recep Tayyip Erdoğan, the country’s relative wealth grown by six per cent in 2011 whilst its neighbours to the west have been in the doldrums. In fact, whilst much of the European Union looks set to fall back into recession next year, the Turkish economy looks set to grow again in 2012, albeit at a rate of three per cent.

There are numerous reasons to explain this growth, such as the fact that the country has a diversified industrial base, a fairly stable political environment and a strong domestic market. Of course, there remain a number of key factors that could be a drag on the Turkish economy if they are not resolved. These include limited access to capital, especially for young people, as well as a lack of an entrepreneurial culture. There are also difficulties in hiring and firing, with Turkey ranking among the most difficult countries in this element of business.

Despite these issues, the digital economy continues to grow in Turkey, and whilst the e-commerce market in 2010 was worth £10.4 billion, it had already hit £6.8 billion in the first six months of 2011. In addition, the twenty largest Turkish e-commerce companies have grown by an average of 60 per cent in the last twelve months.

And investors are beginning to take notice of Turkey as a fast emerging market in this area after years of neglect. For example, online specialists eBay recently acquired 93 percent of Turkey’s largest auction site, GittiGidiyor, in a deal which valued the company at £137 million.

The microchip maker Intel has also made its first investments in Turkey this year, backing a leading online media company Nokta as well as the shopping site Grupanya. In addition to corporate takeovers, venture capitalists and business angels are also taking a closer look at the Turkish economy. Kleiner Perkins, one of Silicon Valley’s major venture capital firms, recently invested £17 million into Trendyol, a large private shopping site whilst social gaming site Peak Games, seen as company to watch by analysts, attracted £8 million from various investors.

So why is this all coming together now?

First of all, Turkey has around 35 million Internet users, ranking the country as twelfth in the World and the fifth largest in Europe, after Germany, UK, Russia and France. In addition, not only do Turks spend more time online than the average European, they are also more interactive when they get online, being the fourth most active in the world on Facebook and the eighth most active on Twitter. In terms of online shopping, the availability of credit and easy logistics are key to the development of one of the fastest growing sectors of the digital economy.

In Turkey, there is 62 per cent credit-card penetration rate among consumers, second only to the UK in Europe, and there is a group of shipping firms is already active that can deliver products anywhere in a radius of more than 350 miles around Istanbul within 24 hours. More importantly, it is expected that the digital economy will continue to develop at a faster rate than many other nations in this country of 73 million people.

Consider the fact that half of Turkey’s population are under the age of twenty eight, ensuring that a digital culture where social media is part of the majority of the population’s everyday lives will become embedded very quickly. It is also worth noting that despite the relative lack of broadband penetration, the use of the social networking has developed at a rapid pace.

With plans for considerable investment in the country’s high-speed communication capability over the next few years, the demand for new products and services will grow even further. With the relentless march of social media affecting everyone’s daily lives, the digital world is changing quickly and who would have thought that a country at the edge of Europe would be seen as being one of the leading advocates in embracing the new opportunities of the future.

Certainly, Turkey will be an economy to watch over the next few years, not only as a political exemplar to those nations emerging from the Jasmine Revolution in the Arab World but also as a place where a major digital revolution is taking place. I can only hope that Welsh business will take advantage of this and develop trade links with a vibrant nation that is making great strides in the development of its economy.

ISTANBUL NOT CONSTANTINOPLE

Another week, another continent!

However, I am really excited to be here in Turkey for the very first time to speak at the Digital Economy e-commerce summit, to be held over the next couple of days in Istanbul.

There are over 300 delegates at this conference and, given Turkey's economic growth and the fact that it is in the global top ten of internet usage (with 27 million internet users), the event should be one that creates considerable debate as to how this nation develops in the future.

I am particularly looking forward to the speech by David Rowan, editor of Wired magazine, on the ten trends that are going to change the digital economy in the future.

Also, as I am sharing the stage tomorrow with Zafer Çağlayan, the Turkish Minister for the Economy, it will also create an opportunity to see whether we can link in Welsh fast growth firms into this growing economy.

More on this later.