Will Tech City turn out to be Cockney rhyming slang?

In November 2010, David Cameron announced plans to support the evolution of a high-tech area in East London. From Old Street to Stratford, an area based on what had started out as “Silicon Roundabout” (a grouping of 15 high tech companies) would emerge to foster new technologies and those dependent on the use of innovation in their core businesses.

Large technology vendors such as Cisco, Google and Intel came out in support, and BT has committed to rolling out super-fast broadband to the area in advance of other parts of the UK.

Barclays Bank and Silicon Valley Bank have committed to provide financial services to companies setting up in the area. Loughborough University and Imperial College, London have both signed up as academic partners to make available their research skills to companies setting up in the Tech City.

All this sounds great. The UK has a good record of setting up initiatives that enable many organisations to benefit from a high concentration of hi-tech firms in one place, including Silicon Glen in Scotland and Silicon Fen in East Anglia. A mix of academia, existing large commercial entities and new, dynamic innovative firms is good for all – surely?

The problems come as we face a time of deep financial uncertainty and belt-tightening. Announcements on Tech City have dried up somewhat, and nearly a year down the line, one site purporting to be Tech City (www.eastlondontechcity.com) is at best sparse and in reality a poor advert for what should be a world leading initiative.

With a © 2010 marker, and only the most basic of information available, it is a Marie Celeste of a site. Even the up-to-date news is just a feed of things that may just, possibly, come under the aegis of Tech City – things happening in nearby Canary Wharf, statements on hi-tech by politicians and news on the use of technology at the Olympics leading up to 2012.

Little of this, however, bears any direct relationship to Tech City itself. Another site (www.techcityuk.com) is far more informative – but isn’t the first site a person will find if Googling “Tech City” (it’s the third, after the one above and a UKTI page).

Building a hi-tech hub in London brings with it a whole set of other problems as well. Even if BT does manage to put in super-fast broadband across the area, the problem is that the whole of the Greater London conurbation is short of bandwidth. It may be possible for high speed communications to take place between those in Tech City itself – but information transfer to others around the world may be constrained by the lack of sufficient bandwidth from London to elsewhere.

Then there is the problem of the availability of skills. Sure – London has a very large population with a broad mix of skills. However, unlike other hi-tech economies, such as Germany or the US that value such skills, the UK tends to view them as geeks or nerds and they get paid relatively badly (a technology, software engineer or electronics engineer gets on average £37,500 per annum, according to Totaljobs.com).

So, trying to buy property or commute into London to work in Tech City will not be possible for many with average technical salaries. However, if the companies involved in Tech City up their pay to attract the right skills and make it affordable for them to live close to the Tech City itself, then their cost base goes up, and competing with similar facilities in, for example, India or China will become impossible.

On top of this will be the costs of constructing the data centres required – with real estate costs being as they are in London, unless the government is willing to heavily subsidise land and building costs, such facilities will not be affordable in the short term.

Also, unless new energy generation facilities are built, the whole system will be subject to the vagaries of the UK’s national grid system; creating a high-availability system around multi-linked grid power is not easy – nor cheap. Better to build community combined heat and power systems close to the areas of need – and yet this requires more high-cost real estate.

Much better to look outside of London and set up such a capability in a lower cost area, where complete infrastructure (global bandwidth, data centres; along with roads, transport, housing, etc.) are all far more affordable. The Midlands, the North East or the North West would benefit from such an injection not just of infrastructure but of high-skilled jobs.

Each area has strong academic credentials from numerous local universities. Each has its own international airport or airports and good road and rail infrastructures. According to UK Land Directory, the cost of land just outside one of the main provincial cities would be around a fifth of that within London. Housing costs are discounted by around the same amount.

The growth of the South East of the UK has led to considerable strain being placed on it. The infrastructure is incapable of sustaining growth at such a rate. Those in other parts of the UK are sucked into the South East on the promise of jobs – yet find the cost of living prohibitive, and often the jobs prove to be elusive.

Creating a large centre of excellence in the provinces could help turn this around – pulling highly defined skills out from London, and also enabling lower cost-base mid-tech companies to join in and participate as customers of and suppliers to the hi-tech companies.

I believe Tech City is being quietly being side-lined as the harsh realities of financial needs are brought into focus. However, the UK needs such capabilities if it is to act not just as a hot house for innovation (an area that it has excelled in for many years), but also as a nursery for world-class companies to follow in the footsteps of ARM, Autonomy, Sage and newcomers such as Shazam.

Only through the provision of a hi-tech, low cost environment can we hope to not only maintain but grow inward investment. Tech City may well turn out to be Cockney rhyming slang – let’s hope that the basic idea does not go the same way.

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Clive Longbottom is founder of Quocirca and is a highly respected and globally recognised industry analyst, covering a range of business and technology areas. Clive’s primary coverage area is business process facilitation. Clive has been an ITC industry analyst for over 15 years. Clive has worked with a range of large and small analyst companies, including META Group (now Gartner) as VP Europe. Clive has a B.Sc. (Hons) in Chemical Engineering from the University of Aston in the UK.