Tech City growth stunted by talent shortage and lack of access to capital
Almost half of London’s Tech City businesses have said that they find a shortage of skilled workers the biggest challenge they face, according to a new report carried out by research firm GfK.
The ‘Tech City Futures‘ report highlights the impact that a shortage of skilled workers and lack of funding is having on the tech sector’s growth, which accounts for a significant 8.3% of Britain’s GDP and is expected to rise to 12% by 2016.
Tech City, also known as Silicon Roundabout, is a technology cluster located in Central and East London. Facebook, Google, Intel and Vodafone are among the 1,350 companies which have invested in the area.
44% of businesses report that a shortage of skilled workers was the biggest challenge they faced, while 77% said that a lack of skilled workers is restricting their growth, according to GfK.
The top five skills most in demand for Tech City businesses are coders and developers, marketing and PR, business development, web design and user experience specialists – and businesses are finding these vacancies increasingly difficult to fill.
On average, six people are recruited each year by Tech City businesses with 42% claiming that they find it ‘somewhat’, or ‘very difficult’, to retain their best talent.
The difficulties in staff recruitment and retention were having a clear impact with 94% of the business leaders interviewed saying they use temporary staff in their business, but only 17% prefer to do so.
One third of respondents believe that a lack of access to capital is also hindering their business, and a similar number (29%) said that as a consequence their company is missing significant business opportunities to expand.
Almost one fifth said that they are making people redundant.
The report makes it apparent that Tech City’s business leaders have mixed feelings about the effectiveness of the UK Government’s support. Whilst there are positive feelings about the area for encouraging young businesses, gaining support from Google and other large technology firms, and London’s tech sector overall, others feel there has been more PR than action from Government.
The ‘hype’ around the project is largely viewed as negative and blamed for pushing up rent and salaries, and attracting global firms that have poached the best talent.
“We’re hearing very mixed messages about the role of Government,” said TechCityInsider.net’s editor Julian Blake. “While many applaud the Tech City initiative for promoting the area and attracting big US corporates like Google, others are sceptical, believing that the Government is trying to take the credit for an economic success story that was happening anyway.”
Blake also explained that because there are not enough skilled developers to meet demand, startups are turning to temps, interns and recruitment from overseas as they lose out to the City and the US in what amounts to a ‘new tech brain drain’.
Though many of the startups around Tech City are in an early stage of development, they are still tackling complex funding requirements to fuel rapid expansion, according to Steve Leith, who heads up Grant Thornton’s early stage technology team in Tech City.
“Whilst there is an increasing flow of angel capital, we see a growing gap for businesses requiring investment of £500,000 to £2 million. This is in stark contrast to the development of the funding community in the US where the cycle of tech entrepreneurs reinvesting in startups is fully developed and the VC community has a greater appetite for risk.
“UK Government supported initiatives such as the MMC London Fund and GrowthAccelerator may prove part of the solution, but more will be needed to fulfil Tech City’s potential, and avoid a loss of talent and investment opportunities to the Silicon Valley dollar.”
Last year, Tech City came under fire after think tank Centre for London produced a report that highlighted the frustration some polices had caused. Plans to encourage businesses to move to the Olympic Park area were said to be potentially counterproductive and in reponse, Tech City said the report had “misconceptions” about their work.
The Centre for London report also predicted a skills shortage as well as an issue around mentoring for businesses. Despite “strong demand” for advice on business matters, “many companies had trouble accessing this advice in the neighbourhood.,” the report said.