British Automotive Industry Cluster in West Midlands

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We propose recommendations applicable over different timespans which primarily focus on the creation of a strong position in high value-added products by increasing expenditure in R&D and reducing regulatory constraints (among others). In the meantime, significant emphasis should be put on developing vocational skills to reduce the labor market inadequacies in terms of skills supply and firms demand.

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Country Analysis

The United Kingdom of Britain and Northern Ireland (UK) is a political union made up of four countries: England, Scotland, Wales and Northern Ireland with overseas territories including Gibraltar, Falklands and Saint Helena.

In 2015 the population was 64.5 million people. Greater London (9 mio), Manchester (2.6 mio) and Birmingham (1 mio) are the most populated cities (Economist Intelligence Unit, 2016). London is the capital of UK and the most important financial center in Europe with the main administrative institutions in UK. The official language is English, but there are also some regional languages: Scots (about 30% of the population of Scotland), Scottish Gaelic (about 10% in Scotland), Welsh (about 20% of the population of Wales), Irish (about 10% of the population of Northern Ireland) and Cornish (some 6% in Cornwall) (CIA, 2016).

The form of State is a parliamentary monarchy, with a legal system based on Statute and Common law (no written constitution). Scotland is an exception having its own system. The head of State is the Queen Elizabeth II (since 1952) who maintains a close relationship with 15 other Commonwealth countries. The national government is headed by the prime minister who is appointed by the monarch with the support of the House of Commons (Economist Intelligence Unit, 2016).

The UK has a strategic location on major air and sea routes between North America, Scandinavia and continental Europe, which facilitated the expansion of the British empire in the 17th and 18th centuries. Currently, the UK economy is among the 5th largest in the world (IMF, 2016) and 2nd largest in Europe after Germany (ibid) rapidly progressing from a position known as ‘the sick man of Europe’ in 80’s.

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Economic performance

The British economy is dominated by service sector composing almost 78% of its GDP, followed by industry (21%) while agriculture represents less than 1% (Oxford Economics, 2016). In 2009, the GDP decreased by -4.2% due to the high exposure to financial and insurance services. The economy started to recover from the economic crisis since 2012 with a steady growth led by private domestic demand averaging a rate of 1.8% over the last five years (2011-2015) (IMF, 2016).

- UK economic Performance

[pic 1]Source: The World Bank, 2016

The global competitiveness report (Schwab, K., Sala-i-Martin, X., & Brende, B, 2015) ranks the UK in the 10th most competitive economies in the world.

- Global Competitiveness performance

[pic 2]

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Source: Global Competitiveness Report (Schwab, K., Sala-i-Martin, X., & Brende, B, 2015)

The UK is among the 10th largest export economies in the world and the 5th most complex economy according to the Economic Complexity Index (The Atlas of Economic Complexity, 2014). In 2015, exports of goods and services represented 15.9% and 11.9% of GDP respectively (IMF, 2016).

- UK Trade Overview

[pic 4]

[pic 5]

Source: ITC, 2016

- Economy overview

[pic 6]

Source: Group elaboration based on IMF data on 2016

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National Diamond

- UK National Diamond

[pic 7]

Source: Prepared by the Group

In the macroeconomic level, the diamond model analyzes the indirect forces that stimulate the development of clusters and trigger economic growth, which influence the competitiveness of the country (refer to figure 4). Each pillar in the diamond plays a unique role in supporting the competitiveness of the nation and helps the country to assess the segments in which they need to improve in the future in order to achieve higher competitiveness (Porter, 2008). The figure 4 above summarizes the five pillars of the UK diamond that are interconnected to each other. In the following chapters we will breakdown the strengths and weaknesses of each of them.

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Factor Conditions

Capital Resources: The UK is the leading financial center in the world, and is supporting big player industries with abundant capital resources and financial services (CIA World Fact Book, 2016). However, the UK needs to have a strategy to increase long-term capital investment and foreign investment. Other than that, there is difficulty accessing finance for start-up and small medium enterprises since the UK has the weakest score (14.1 out of 10) in the problematic factor for doing business (Schwab, K., Sala-i-Martin, X., & Brende, B, 2015).

Employment: The large number of highly skilled workforce, stable employment rate overtime, attractive wage level, and good supply of qualified labor are among the key advantages of the UK labor market, which attract immigration flows. Those advantages increase firms’ productivity and efficiency, contributing to higher competitiveness.

Labor productivity rate (Real output per unit per labor input) increased from 99.8% in 2012 to 102.2% in 2015 (Eurostat, 2016). UK’s hourly labor cost per hour for the whole economy (excluding agriculture and public administration) is 25.5 € per hour, lower than in Germany (32.2€) and France (35.1€).

Knowledge Resources: One of the indicators to determine whether a country has good education level is based on the government expenditure on education. While many other EU countries have decreased their public spending on education during the financial crisis between 2008 and 2010, the UK has increased its public spending on education to 8%