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Keep your friends close, your enemies ‘Cluster’

Sarah Musgrove
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Small businesses may be missing a trick by not choosing to start their empires in business clusters, according to new research from Opus Energy. From Sarah Musgrove – Editor in Chief at Opus Energy.

A survey of 500 business owners found that the majority of small business owners took no time at all to decide where to start up their business – with two-fifths (40 per cent) choosing the most convenient location for them and over half (51 per cent) choosing the same place where they lived. So, are SME’s missing out by not being based in a business cluster? 

What is a cluster?
Business clustering is the process by which businesses operating in the same sector come together in close geographical proximity. Clustering is certainly not a new phenomenon. Traditionally, in the UK certain sectors have thrived in particular areas, the lace industry in Nottingham, or shoe production in Northampton, for example.

More recently, the Thames Valley Technology Hub is the largest of its kind, whilst Tadworth is home to a huge cluster of pharmaceutical businesses. This is not restricted to Britain either, some of the most expansive examples of clustering include the Hollywood film studios and Silicon Valley. It might seem odd that, in today’s world of globalisation, localisation of business sectors is still worth considering. Surely fast transportation, technology and networks have made business location redundant?

Clusters are an opportunity not to be ignored by SMEs. A perfect case study for how effective they can be is that of Toyota’s suppliers, who clustered around its manufacturing sites in Derbyshire, thus reducing supply chain costs, providing near non-existent transport expenses, better communication and greater efficiency. And yet, many SMEs are missing out; 2016 saw a record high for businesses being founded; 650,000 in fact, but in a recent Opus Energy survey only 7 percent of SME start up owners are choosing to start their business in a zone or cluster. Over one third of SME owners did not even know what a business cluster was. 

Why are clusters beneficial?
Clusters create a pool of expertise, innovation and investment from which SMEs can benefit. These sorts of pools are encouraged by the government and thus often profit from investment in excellent infrastructure and the most up to date technological innovations. Clusters are particularly beneficial for SMEs, as they are a ready assembly of new business, suppliers, resources and talent which can help vastly reduce costly recruitment and transport expenses.

What’s more, by definition a cluster’s main advantage is specialisation – within a zone dedicated to pharmaceuticals, for example, you will find business leaders in the same field, which provides excellent networking and partnership opportunities, as well as valuable insights into industry trends. Yet, collaboration is not the only perk of relocating to a cluster. Local competition has been identified as a crucial benefit for SMEs operating in clusters. Surrounding yourself by your competition might seem a poor decision, but SME owners have agreed that this has a motivating effect, in fact increasing the productivity of their company.

Relocating your SME is undoubtedly something that owners need to seriously consider. Whilst a step into the unknown might seem scary, the benefits of being included among specialised businesses in a competitive and collaborative environment far out way any worries you might have about a change of scene. To help entrepreneurs identify relevant business clusters which they could join, Opus Energy has created an interactive map outlining the UK’s most successful business clusters, including key information such as costs, employment rates and average wages.

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