From Adam Smith creating the great ‘Wealth of Nations’, to Sir William Patterson conceptualising the Bank of England, Scotland has a rich history of innovation. In the first instalment of our two part series, we explored the first five of our top 10 technology driven sectors in Scotland, focusing on Energy and Low Carbon technologies, Financial and Business services, Food and Drink, Life Sciences and Healthcare and Sustainable Construction. Today we’re exploring the next five Scottish industries in our series, focusing on the Technology and Engineering sector, Creative Industries, Aerospace Defence & Marine (AD&M), Chemical Sciences and Tourism. Over the next few months we’ll be exploring each of the ten sectors in more detail, exploring the exact economic makeup of each industry and how technological innovation is redefining the way new products and services are brought to market.
New technological innovations are absolutely vital to the Scottish economy. Technology has altered every aspect of our personal and business lives, the way we communicate, manage our finances, the way we work, live and play. Technology represents a key driver for the Scottish economy as it continues to underpin vital advancements and innovations in public services such as education, healthcare and infrastructure.
There are more than 360,000 registered private companies throughout the whole of Scotland, with the more than 99% of these organisations being comprised of SME’s. The Scottish Government produced data that suggests between 2014 and 2015 the total number of companies increased by 8%. The vast majority of Scottish companies are SME’s and these small to medium sized enterprises account for 55% of all private sector employment and nearly 40% of all private sector turnover. As such it’s vital to the Scottish economy that more, new and successful companies are incorporated on a yearly basis in order to continue making a vital contribution to overall employment prospects and turnover.
In 2014 business expenditure on R&D was £905 million, representing 0.64% of the overall national GDP (the UK as a whole sits at 1.09%). Scottish R&D expenditure (or BERD: business enterprise research and development) is largely dominated by the manufacturing sector (£488 million), closely followed by the Services sector (£245 million), with ‘other’ sectors accounting for £175 million in spending.
The Technology and Engineering sector in Scotland incorporates sub-sectors such as advanced materials, high-value manufacturing, sensors and photonics, mobile software, electronics and high-value manufacturing (see our recent post on the Digital Clusters report here). The technology and engineering sector in Scotland employs approximately 170,000 people, with nearly 10,500 companies clustered within the industry. Examples of global companies within this high value sector include the likes of Rolls Royce, Oracle, BAE Systems, Cirrus Logic, Lockheed Martin, Thales and BAE Systems. On an annual basis the technology and engineering sector in Scotland exports approximately £7.7 billion and assists in contributing £13.7 billion of GVA (gross value add) to the wider Scottish economy. In terms of innovation, technology and engineering business expenditure on R&D is roughly £334 million per year. What’s striking about this particular sector is the representative GVA per head (£80,570), which is well above the national average when compared to adjacent industries. The capabilities of this sector are wide and diverse, but many companies are heavily invested in data capture, rugged design and engineering and real-world interfaces and informatics, which serve to assist innovation and growth across other key industries within Scotland’s economy.
The commercial application of new technological and engineering innovations is extremely diverse. Take game development for example. Scotland is now one of the top countries in the world for talent. From ambitious start-ups to established industry leaders, Scotland has been responsible for the development of world beating games such as GTA, Lemmings, Minecraft and Bloons. Recent reports suggest that the industry is now ‘surging’ having experienced dramatic growth in 2015.
Trade association Tiga indicated that the Scottish games industry’s “development headcount” grew by more than 25% in Scotland between December 2014 and March 2016. This represented growth at more than twice the UK average and also marked the second fastest growth in the UK after Wales. It’s estimated that Scotland’s 85 games companies now employ approximately 1,290 creative staff and the game development sector provides an additional 2,408 indirect jobs, according to Tiga’s research. The research also concluded that Scotland is home to 9.4% of the UK’s total games companies and 9.8% of its developer headcount. The Scottish Games Industry also has strong collaborative ties with leading academic game development initiatives such as DARE to be digital based in Dundee.
Key strategic markets include renewable energy, oil and gas, defence, marine and aerospace. There is also an emerging focus on digital healthcare, Internet of Things (IoT), big data, subsea engineering and sensor systems. World Class bases of academic research are directly connected to new innovation centres such as the Digital Health Institute and the Data Lab, further stimulating growth and collaboration across the Scottish technology and engineering sector.
The Creative Industries sector makes an important contribution to Scotland’s overall economy. In 2014 it’s estimated that 71,800 in Scotland in jobs directly related to creative industries, contributing £3.7 billion in GVA, with a turnover of £5.8 billion. Scotland currently has world leading companies across all areas of the creative industries sector, from globally recognised game development companies (see 4J Studios developers of Minecraft and Ninja Kiwi) and successful software development companies working across multiple industry sectors on an international level. Scotland possesses international centers of research excellence capable of designing, developing and launching world class software applications (see Kumulos acknowledged by Gartner) which facilitate further growth to the creative industries and Scotland’s economy as a whole. Not only that, but Scotland is well positioned in terms of public sector support (see the Scottish Enterprise High Growth Startup Unit) and enabling breakthrough innovations capable of competing on a global level through leadership training and account management. Scottish Enterprise has been responsible for promoting digital media innovation in a major way. The Digital Media Industry Leadership Group operates in close collaboration with the government, the broader public sector and creative industries to support ambitious growth projections for Scotland’s creative industries.
Scottish Enterprise now collaborate with key strategic partners such as Tech City UK (see Waracle’s recent blog post Tech City UK), Innovate UK and Creative Scotland and trade bodies such as the BBC, Channel 4, TIGA and PACT, as well as academic institutions such as Edinburgh’s School of Informatics and the University of Abertay, to facilitate the deployment of highly innovative new products and services to a global audience. Infrastructure plays a key role in the evolution of Scotland’s creative industries sector, and projects such as the Seabraes Yard District 10 offices in Dundee (made from old shipping containers), highlight the country’s commitment to driving the creative industries sector forward.
This sector represents a globally significant sector across the Technology and Engineering industries in Scotland. The Aerospace, Defence and Marine (AD&M) sector includes roughly 825 companies and employs nearly 40,000 staff. The AD&M sector utilises a highly skilled base of employees and produced revenues of over £5.5 billion in 2012 and the industry generates a GVA of around £1.8 billion to the Scottish economy. There are number of key defence companies involved within the sector including Raytheon Systems and Leonardo UK, and aerospace and MRO (maintenance, repair and overhaul) companies such as Vector Aerospace and GE Aviation. There are also now a growing number of wholly owned Scottish companies in the defence and aerospace sector in addition to world class players in the space industry such as Star Dundee and Clydespace.
Scotland’s shipbuilding and repair services companies account for over 40% of the UK industry as a whole, focusing primarily on the manufacture and support of specialist naval ships and complex vessels for niche international markets. The Glasgow area remains as a centre of excellence for commercial ship management and acts as the main supplier of officers to the UK merchant navy. Innovation represents the lifeblood of the AD&M sector, and companies ability to innovate in an agile and responsive manner, is key to providing a vital competitive edge when it comes to Scotland’s ability to deploy new products and services to a global audience.
The Chemical Sciences makes a significant contribution towards the wider economy in Scotland and represents one of the country’s top exporting industries. Between 2008 and 2013, international exports grew by an astonishing £3.8 billion (27%), whilst contributing 13.8% to international export volume. There are more than 12,000 employees within the chemical sciences sector, spread across at least 200 high growth companies, with Scottish Universities providing a significant number of new employees every year. In total, it’s estimated that there are more than 70,000 jobs reliant on the performance of the chemical sciences sector, with companies such as GlaxoSmithKline, FUJIFilm and Syngenta possessing key strategic operational centres in Scotland.
Chemical sciences innovation and R&D focuses on the design and development of new products, services and processes and accounts for 18% of overall business R&D expenditure in Scotland. These new technological innovations are underpinned by support from ScotCHEM, globally acknowledged as a world class research hub for the chemical sciences sector. The nationwide Research Assessment Exercise (RAE 2014) produced research suggesting that approximately 85-95% of academics working in Scotland’s top chemistry departments (WestCHEM & EastCHEM collaborations and Heriot-Watt) are recognised as being ‘World Class/Excellent’. Recent analysis also suggested that Scotland has successfully maintained a global top three position in terms of chemical sciences quality of research and output.
Tourism represents an essential sector in terms of underpinning the Scottish economy. In 2015 overnight and ‘day visitor’ expenditure reached a total of £8.9 billion from a total of 14.6 million visitors. Expenditure from overseas visitors reached £1.7 billion in 2015, as visitor numbers grew over 9% (with expenditure up 2%) between 2013 and 2015, underpinning the importance of overseas visitor numbers and expenditure per head. In terms of overall visitor numbers, Scotland’s top five international markets are USA, Germany, France, Netherlands and Australia. The Scottish tourism sector represents a critical contribution to the overall economy, making a significant impact on job creation and employment across a wide range of skills categories and age whilst supporting a broad range of different occupations. There are 196,000 jobs supported by the Scottish tourism sector via a total of 13,960 tourism focused businesses which represents 7.7% of all jobs in Scotland. Job creation via the Scottish tourism sector is especially critical for local, rural economies, where in some cases it provides as much as 15% of all jobs in certain areas. The tourism sector has a direct impact on Scotland’s overall profile on a global stage and provides vital support to other adjacent industries such as retail and food and drink.
When it comes to technological innovation in the tourism sector, there are some seismic global trends that are likely to cause disruption in the next few years. Disruptive ‘mobile-first’ startups such as AirBnB will continue to play a vital role when it comes to disrupting the tourism sector, as hotels seek to innovate in order to become more competitive. It’s also predicted that new methods of travel, driven by renewable energy sources, will also play a critical role in terms of making travel easier and more affordable. Other recent innovations include the use of Oculus VR (virtual reality) headsets to provide tours of interesting locations and hotels, enabling users to experience what’s on offer prior to making a purchase decision. This makes the process of planning for upcoming trips more pleasurable for consumers and provides businesses with a great opportunity to acquire new customers. If you’re a business operating in the tourism sector, it’s worth considering how new technologies will impact your business in the future and what you can do about it.
We’ve now covered 10 of the most significant sectors underpinning Scotland’s economic growth, from Technology and Engineering, to Energy & Low Carbon Technologies and many more, highlighting the vital role that innovation, and particularly technological innovation, play in transforming job opportunities and economic output. In the next few weeks and months we’ll exploring each industry in more detail and discussing how technology can continue to transform Scotland’s position as a world class leader in innovation. If you’re a business involved in any of the sectors we’ve covered, from Tourism, to Financial & Business Services, contact Waracle today to kick-start the conversation.