Introduction
The government is preparing an industrial strategy and it will focus on the sectors which offer the highest growth opportunity for the economy and business. Eight growth-driving sectors have been identified. Mickledore has considered the drivers of change in these sectors and the implication for business support and investment.
What are Professional and Business Services?
The professional and business services (PBS) sector encompasses a diverse range of industries that offer specialised support to companies and organisations. These services are often "back office" functions, like legal advice, accounting, marketing, and IT, that support other organisations.
The extensive use of IT in some service sector businesses is blurring the lines between companies that may be considered digital businesses and those categorised as within the PBS sector. Furthermore, businesses such as architecture practices may also be deemed to be in the creative industry rather than PBS.
Ignoring classification issues, however, this sector is very significant in the UK.
Drivers of change
The PBS sector is undergoing significant change, predominantly driven by technology, although product innovation and post-COVID people strategies are leading to differing business models in some organisations.
- Robotic process automation (RPA) is beginning to revolutionise how some services are delivered, particularly in routine data entry and reporting, and this has created further change when linked to analytical tools that can provide automated analyses.
- Revolutions in technology may be reducing the need for clerical staff in one area, but the automation of data is creating new business opportunities. The PBS sector comprises several service provisions that previously did not exist.
- New statutory or societal changes in how different aspects of business are monitored and how changes are implemented also create new service provision.
- As a predominantly office-based sector, COVID-19 forces businesses to reimagine their approach to people and skills. In general, the workforce of many PBS organisations is now spread more widely, with consequences for regional labour markets.
- The sector is also considered somewhat cyclical, with non-essential business services being the easiest to cut when businesses feel the pressure.
UK Position - opportunities and issues
The UK has a tremendous strength in the PBS sector. The UK transitioned to a services-led economy early, and even by 1970, services accounted for 56% of the UK's economic output. Today, an estimated 1.8 million businesses are operating in PBS-related activities, employing 9.2 million people. The sector accounts for 55% of all exports.
The critical mass of businesses in the sector, the wide-ranging experience of the UK, the regulatory and reporting systems, the education system and English as the language of business have all contributed to the UK’s success.
The UK wins almost one in five of all PBS sector foreign direct investment projects into Europe, and the proportion is far higher from some markets, such as the US, where the UK secures more than one in four projects, and Australia and India, where the UK secured more than half of all investments made in Europe.
The sectors envisaged to grow most significantly in the short and medium term are:
- Technology and Digital Transformation Consulting
- ESG (Environmental, Social, and Governance) and Sustainability Consulting
- Data Analytics and Business Intelligence Consulting
- Legal Tech and Alternative Legal Service Providers (ALSPs)
- Niche Management Consulting (with a focus on Digital & Energy with security emerging)
- Marketing Services (especially Digital Marketing and B2B Lead Generation)
The challenges for the UK are twofold. Firstly, will business models with more widely distributed staff threaten to hollow out those employed by businesses in the UK, with projects carried out by overseas staff members? Secondly, will automation erode employment more quickly than the demand for staff by new service deliverers requires?
Securing growth and investment at the local level
The PBS sector is all about ideas and people. Establishing businesses is generally less capital-intensive than in other sectors, and there are few critical location factors.
Any location seeking to develop the PBS sector is likely to need to be at the centre of transport (including public transport routes) to maximise access to talent, and the location will require a selection of suitable business accommodation. The presence of a University brings both ideas and people together and is another ingredient that can help drive success.
Momentum and success in the sector have often been generated by the critical mass of business activity, as demonstrated by the growth of the UK’s core cities. As a result, the less concentrated the business community, the more challenges the location will face, and the more effort will be required to create networking opportunities and business groups. Proactive work in such activities can help mitigate some of the deficiencies associated with a lack of scale.
Conclusion
The PBS sector continues to reinvent itself, and those areas with a critical mass of businesses continue to stimulate new ideas and growth through economies of agglomeration. The industry is the lifeblood of many locations in the UK, although it has become increasingly concentrated in urban areas. Its diverse nature makes it challenging to target proactively.
Nevertheless, towns and cities with a large population catchment area, and especially those with a significant higher education presence, are missing a trick if they haven’t developed a well-defined proposition on what their location can offer businesses in the sector.
Mickledore is an economic advisory business focused on strategy, investment, business cases and evaluation. We have worked on sector strategies across the UK. For more information or a discussion about specific local circumstances contact Nigel Wilcock at nwilcock@regionaldevelopment.co.uk