Unique positioning at the centre of several global trends is resulting in rapid growth for the UK as a market for information communications technology.
The UK is expected to be the largest market for ICT in the European Union in 2008, overtaking Germany with an estimated spend of €73 billion on technology products and services, according to the European Information Technology Observatory.
The UK’s ICT sector employs around 1 million people, and contributes £66.4 billion to the UK economy, around 6.4 per cent of the total. It is one of the fastest-growing sectors of the economy, having increased 124.8 per cent between 1992 and 2004, compared to 90.7 per cent for the whole economy in that period, according to the Office of National Statistics.
Part of this growth is driven by the fact that the UK has become a focal point for the convergence between media, telecommunications and information technology. UK-based media companies such as British Sky Broadcasting (BSkyB) and the BBC lead the vanguard in taking traditional media content onto the internet. UK mobile phone companies are experimenting with offering television and music over handsets, and fixed-line operators such as BT are pushing the boundaries on internet services.
Secondly, UK semiconductor companies are benefiting from huge consumer demand for portable gadgets like mobile phones and personal music players. UK chip companies have historically specialised in designing the low-powered chips used by these devices, and now find their expertise in great demand.
The UK’s software industry is buoyed by strong demand from London’s world-leading financial services industry, as well as by large-scale government projects.
A focus on these growing areas has created wide-reaching pools of talent and thriving support networks with the UK, which combined with the country’s well-known advantages of language and stable business environment, are making the country a fertile place for technology investment.
CONVERGENCE IN LONDON
The broadcasting and telecommunications industries are a huge business in the UK, generating an estimated £50 billion in 2006, according to Ofcom, the UK communications industry regulator.
The UK is home to globally important media companies, including the BBC, Reuters, BSkyB and Pearson, and world-leading telecommunications companies, such as Vodafone and BT. This puts the UK market at the forefront of many technological developments.
According to Ofcom, third generation mobile phone services are now available to 90 per cent of the country; 80 per cent of homes have digital TV; and more than 72 per cent are connected to an “unbundled” telephone exchange. Unbundling allows telecommunications companies to offer more competitive pricing and faster internet speeds.
More than 50 per cent of UK households have a broadband internet connection, and broadband penetration is due to be pushed further by BT, the UK’s largest fixed-line telecoms operator, which is investing £10 billion in developing the “21st Century Network” that will bring high-speed broadband access to all parts of the country.
All this makes the UK a key place for deal-making and a testing ground for cutting edge innovation as the lines between traditional media companies and telecommunications operators blur. This expertise in media and telecoms convergence is also attracting an increasing number of foreign IT companies to the UK. Ericsson, the Swedish maker of telecommunications networks, for example, is building a £60 million research and development centre in the West Midlands.
In 2006, foreign direct investments into London alone rose 40 per cent to a record 250, led by a number of Californian IT companies setting up offices in the capital.
Google, the internet search company, has based its mobile phone engineering team in London, and some of Google’s earliest deals to put search and its YouTube video sharing service on mobile handsets were with UK’s Vodafone.
“The talent pool in the UK is one of the best in the world. The relative maturity of the broadband and mobile markets in the UK also means we’ve got a great audience here for the products we develop,” says Shannon Maher, Google’s engineering site director for London.
Social networking companies Bebo and MySpace have also opened offices in the capital. MySpace’s London office has grown from a handful of employees at the beginning of 2006 to close to 100 staff by mid-2007.
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New media companies are also setting up in the UK. Skype, the service
which allows people to make free telephone calls over the internet, is one
of London’s biggest start-up success stories. Although technically
headquartered in Luxembourg, and founded by a Swede and a Dane, Skype was
essentially run out of London’s Soho. After selling Skype to eBay, founders Niklas Zennstrom and Janus Friis ploughed their profits back into founding Joost, an internet-only TV service, also run out of London. “Language is highly important, and it is a low-risk environment to establish a business,” said Nigel Wilcock, regional development director at Ernst & Young. Although countries in Eastern Europe are seeking to attract investors, he said, many companies are still uncertain about the regulatory regimes in these countries, whereas the UK’s long track record gives foreign investors comfort. “London is becoming a self-fulfilling prophesy,” Mr Wilcock says. “You can be close to companies employing the right people, coming up with ideas and purchasing products from you.” |
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HARDWARE:
MOBILE CHIPS AND PLASTIC DISPLAYS
The global hardware market is today dominated by the sale of portable gadgets, such as mobile phones and music players such as the iPod. The UK is one of the biggest European markets for consumer electronics, spending more than £11 billion on electronic goods in 2006. UK chipmakers are benefiting from the trend for mobile gadgets, as they have specialised in products with low power-consumption, which are ideal for this sector.
Cambridge is an important centre for the UK semiconductor industry. Microprocessors designed by Arm Holdings, a Cambridge-based microchip designer, have, for example, become the standard in mobile phones, and are found in around 98 per cent of the approximately 1 billion handsets sold each year. Arm, valued at around £1.8 billion, still does around a third of its research and development in the UK.
“Our culture in the UK is quite inventive. The education system tends to turn out people with a wide range of understandings from which to build expertise,” says Warren East, chief executive of Arm. “UK engineers are very good for customer support, for example, because making a technology applicable to a wide range of products requires creativity.”
CSR, which has a more than 50 per cent share of the market for Bluetooth chips that allow devices like mobile handsets and headsets connect to each other without wires, is also one of Cambridge’s silicon success stories.
Smaller semiconductor clusters have also formed around other universities. Edinburgh University, for example, spun out Wolfson Microelectronics, a £300 million company that provides chips that convert digital music files into the audio sound our ears can hear. Wolfson’s chips are included in Apple’s iPod music players.
Bristol is another important centre, dating back to the 1980s when companies like Inmos were developing pioneering chip technology in the region. A number of foreign companies, including STMicroelectronics, the French / Italian semiconductor company, and Japan’s Panasonic, have design centres in Bristol.
The South West region around Bristol and Bath is also producing a number of semiconductor start-ups, including Icera Semiconductor, which makes chips for 3G mobile phones, and PicoChip, which is developing chips for devices using WiMax high speed wireless communications technology.
The UK, and particularly Cambridge, is also at the heart of groundbreaking innovations in optoelectronics. This is in part due to the strength of Cambridge’s Cavendish Laboratory, which has produced not just 29 Nobel Prize-winners, but a number of companies such as Plastic Logic, which is developing electronic displays made out of plastic that could one day replace paper. Mass production of these displays is expected to begin in 2008.
Hitachi, the Japanese electronics company, has collaborated with the Cavendish laboratory since 1989, looking specifically at opto- and nanoelectronics.
Cambridge Display Technology is also pushing boundaries in optoelectronics by creating organic light-emitting diodes that could one day replace liquid crystal displays in our televisions and computer monitors. The company was bought in 2007 by Japan’s Sumitomo Chemical for $285 million.
SOFTWARE
The UK has a strong history of software development, which contributes around £3.71 billion to the UK economy each year, according to Ovum, the research group.
Software is also the leading sector in the UK for inward investment, accounting for 24 per cent of all foreign direct investment projects, according to figures from Ernst & Young. The leading investors are US companies, which invested in 90 software projects in 2006, and Indian IT companies which invested in 16.
Wipro, the Indian IT outsourcing company, for example, has more than 2,500 staff in the UK, including a development centre in Reading.
“The UK will continue to be an important target for software sector investment as a result of the high level of technical expertise in the country and its large captive audience,” said John Hughman, senior technology analyst at Ernst & Young.
The financial services companies clustered in London create a huge market for software companies, and have given rise to a number of substantial businesses. These include Misys and Smartstream, which provides 75 out of the world’s top 100 banks with software to automate back-office transactions.
Financial software is also the mainstay for Sage, the UK’s largest listed software company. The Newcastle-based group, which is valued at £3 billion, provides accounting software for 5.4 million mainly small and medium-sized businesses worldwide. Sage benefits from a steady stream of graduates from Newcastle University, which, like Southampton, Nottingham and Edinburgh, has a strong focus on software.
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Banks and other highly regulated businesses are also key customers for
Autonomy, the Cambridge-based search software company. Autonomy’s software
is used to search and organise unstructured data, such as emails, phone
calls and video clips. The same technology can also be used for consumer
applications, however, such as searching video. Autonomy recently spun off its consumer arm, Blinkx, which has technology that can help search and categorise video. While Google dominates text-based search, no-one has yet cracked the video search market and Blinkx stands a good chance of becoming a leader in this field. Games software, too, is something the UK has excelled at ever since the early days of the 1980s. UK developers have created hit games such as the Lara Croft Tomb Raider and Grand Theft Auto series, and there are still an estimated 150 games studios in the UK, although many are now under foreign ownership. The UK software sector is set to be strengthened further with the revision of patent laws aimed at making intellectual property laws more business-friendly, and cutting the cost of enforcing patents. HM Revenue and Customs is also making it easier for software companies to qualify for research and development tax credits, which have provided more than £1.8 billion of support to companies since 2000. |
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RESEARCH
The Engineering and Physical Sciences Research Council (EPSRC) spent £740 million in 2006/2007 on supporting students undertaking high-level research in sciences. This included £423 million on research grants, £155 million on studentships and £31 million on fellowships.
Overall, the UK spends around £3.4 billion a year on funding the sciences. This is on top of hefty research and development investment by UK companies. According to the Department of Trade and Industry (now BERR), the 800 largest companies in the UK spent £19.2 billion on research and development. Technology hardware companies accounted for £950 million of this, with software and services companies spending £930 million, and fixed-line telecoms operators (chiefly BT) spending £730 million.
Despite concerns about quantity, many employers still feel that that UK engineers represent a hallmark of quality.
“The potential talent pool is larger in Beijing or Bangalore. But in the creative, more high-end stuff, we still have the edge,” says Andrew Herbert, who runs Microsoft’s research centre in Cambridge.
The excellent reputation of universities such as Cambridge, Edinburgh, University College London and Imperial College, are a huge draw for companies, Mr Herbert says.
“Cambridge is a global brand – scientists around the world have heard about and feel it is a cool place to be.”
Microsoft has had a lab in Cambridge for 10 years, and the 100-researcher facility is still growing at around 5 to 10 per cent a year.
The universities have also attracted a network of venture capital companies, law firms and angel investors which can help foster technology start-ups.
In Cambridge, for example, venture capital investors such as Amadeus Partners have long pedigrees as the early backers of businesses like Arm Holdings, CSR and Cambridge Display Technology.
Overall in the UK, there are around 149 venture capital companies that invest in technology start-ups, including a few that are highly specialised in this field. These include firms such as Index Ventures, which were early investors in Skype, and Balderton Capital, whose portfolio includes Bebo, the social networking company and Setanta, the sports pay-TV company.
Some 517 technology-focused businesses received a total of £918 million in funding in 2006, an increase of 35 per cent on the previous year, according to the British Venture Capital Association.
UK universities are fostering similar communities by setting up centres to support early-stage, high-tech start-up companies. The Universities of Bath, Bristol, Southampton and Surrey, for example, have set up the SETSquared Partnership, aimed at creating spin-out companies from these institutions.
| The Bristol
environment has attracted Hewlett-Packard, which runs a 160-employee
research lab near the city, its largest research centre outside of the US.
Among other things the lab provides technology for Bristol-based animation
company Aardman, creator of the Wallace and Grommit films. In addition to university networks, the government’s system of Knowledge Transfer Networks have made the UK an attractive place for research, says Mr Sadler. They are groupings of university departments, company research laboratories and other interested parties that are brought together by the government to work on key technologies, such as security. “The BERR has really got its act together on this. We can move from new ideas to framework projects within three to six months, which is a real speed advantage,” Mr Sadler said. “The UK has been very good at being able to pick new areas for technology development and to kick-start work in that space.”
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SUMMARY
The UK faces several challenges to its status as a leader in technology. Emerging markets such as China and India are producing hundreds of thousands of science graduates each year, creating fertile ground for establishing research facilities, while many countries in Europe are offering favourable tax rates in order to attract inward investment in tech sectors.
The fact is, however, that not only do established technology companies, such as Microsoft, Hitachi and Hewlett-Packard, continue to base key research facilities in the UK, but new technology companies such as Google, MySpace and Joost are building operations in the country. This is testimony to the UK’s continued attraction as a base for technology businesses.
The traditional advantages of language, stable business climate, benign tax regime, proximity to key European markets and the UK’s own domestic appetite for technology are important enticements to companies.
UK universities such as Cambridge, Edinburgh and Bristol produce world-leading research in areas such semiconductors, mobile telephony and optoelectronics.
In addition, however, the UK has become a hotspot for convergence industries, with London’s Soho emerging as one of the key places where the media, telecommunications and IT industries do deals with one another.
Despite the inducements that may be on offer elsewhere, companies wanting to stay at the cutting edge of the converging ICT world cannot afford not to have a presence in the UK.
CONTACTS
British Computer Society
Web: www.bcs.org
Cambridge Wireless
Tel: +44-(0)1223-422365
E-mail: admin@cambridgewireless.co.uk.
Web: www.cambridgewireless.co.uk
Cavendish Laboratory
Web: www.phy.cam.ac.uk
Data Storage Network
Tel: +44-(0)1392-263614
E-mail: david.wright@exeter.ac.uk
Web: www.projects.ex.ac.uk/dsn
Electronics Leadership Council
E-mail: elc@dti.gsi.gov.uk
Web: www.electronicsleadershipcouncil.org
The Entertainment & Leisure Software Publishers Association
Tel: +44-(0)20-7534 0580
E-mail: info@elspa.com
Web: www.elspa.com
e-skills uk
Web: www.e-skills.com
Intellect
Tel: +44-(0)20-7331 2000
Web: www.intellectuk.org
JEMI UK Ltd (Joint Equipment and Materials Initiative)
Tel: +44-(0)131-650 7815
E-mail: m.scott@ee.ed.ac.uk
Web: www.jemiuk.com
Mobile Virtual Centre of Excellence
Tel: +44-(0)1256-316590
Web: www.mobilevce.com
Momentum
Tel: +44-(0)28-9045 0101
Web: www.momentumni.org
National Microelectronics Institute (NMI)
Tel: +44-(0)1506-424890
E-mail: info@nmi.org.uk
Web: www.nmi.org.uk
North of England Microelectronics Institute (NEMI)
Tel: +44-(0)191-293 7000
Web: www.nemi-cai.co.uk
Ofcom
Tel: +44-(0)20-7981 3000
Web: www.ofcom.org.uk
Photonics Cluster (UK)
Tel: +44-(0)121-260 6020
Email: info@photonicscluster-uk.org
Web: www.photonicscluster-uk.org
Scottish Optoelectronics Association
Tel: +44-(0)1506-497228
Email: soa@optoelectronics.org.uk
Web: www.optoelectronics.org.uk
SETSquared Partnership
Web: www.setsquaredpartnership.co.uk
UK Collaboration in Photonics and Optics
Tel: +44-(0)1506-497228
E-mail: ukcpo@optoelectronics.org.uk
Web: www.ukcpo.org
Welsh Opto-Electronics Forum
Tel: +44-(0)1745-535100
Web: www.wof.org.uk
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