Welsh economy: further lessons from Aarhus and Mannheim

Mike Hedges presents further lessons from Aarhus and Mannheim for small and medium sized businesses in Wales

I intend to examine how two European cities, Aarhus in Denmark and Mannheim in Germany promote entrepreneurship and have GVAs above the European Union average. I will also consider some of the barriers to the growth of medium sized businesses and barriers to micro and small businesses growing into larger businesses.

The second city, in population, in Denmark is Aarhus and the second city in Wales is Swansea. Whilst Swansea which  is part of the West Wales and Valleys and the Swansea metropolitan area has, according to Eurostat, a GDP per capita of 75% of the European average, Aarhus has 107% of the European average, so what can Swansea learn from Aarhus and its economy?

Aarhus University which was founded in 1928 is Denmark’s largest, with a total of 44,500 students as of January 2013. In ranking lists of the world’s best universities, Aarhus University is placed in the top 100. The largest research park in Aarhus is INCUBA Science Park, focused on IT and biomedical research. The organization is owned partly by Aarhus University and partly by private investors and aims to foster close relationships between public institutions and startup companies. IT and biomedical research are two of the current main growth industries across the World.

Mannheim is Swansea’s twin city but that is where the similarity ends. The economic data for the two areas makes interesting, and as a Swansea resident, depressing reading. In Mannheim metropolitan region its GVA is 147% of the European average but in Mannheim city it rises to 210%, compare that to the Swansea Metropolitan region on 75% and the Swansea local authority area on 79%.

An institution affiliated with the University is the Mannheim Center for Entrepreneurship and Innovation (MCEI) that provides a founder and incubator platform for students, young entrepreneurs and investors. The institute is supported by the Mannheim Institute for Mittelstand and SME Research (IfM) and the Chair of SME Research and Entrepreneurship at the University of Mannheim.

Several successful startups have already been launched at the University of Mannheim or been initiated by former students, for example  according to local media sources , Payback (€500m exit to American Express), Delivery Hero (raised $1.4b funding), AUTO1 Group (raised $200m funding), StudiVZ (€85m exit to Georg von Holtzbrinck Publishing Group), Simfy (raised €30m funding), Goodgame Studios (initiating IPO), SavingGlobal (raised $32m funding), Synchronite (sold to LivePerson) and movilizer (sold to Honeywell).

The above helps explain why Mannheim was ranked eleventh in the top fifteen of the most inventive cities worldwide.

Turning to Wales, what medium sized companies tell me are their problems are include: the inability to secure funding on assets especially any held abroad; the limit of £5 million pounds on lending by the Commercial Bank of Wales does not meet the needs of medium sized enterprises; size of welsh government contracts, some put together in such a way as medium sized enterprises cannot tender for them; and the difficulty of raising working capital from commercial banks and the danger they will call it in at any time.

What small companies that have grown tell me their problems were include: finding premises that are expandable; needing to move continually as they grow; lack of readily available buildings; late payments; in construction the continuing growth of the sub-contractor and agency worker that distorts competition and makes it difficult for small firms to compete  and access to markets.

Is it any surprise that small and micro- breweries have been successful when large supermarkets and Wetherspoon’s have been keen to retail their products?

We need an economic strategy that works more closely with the Universities, either using Aarhus business park model or Manheim’s centre for innovation and entrepreneurship model. Whilst the term Technium has become synonymous with failure the initial idea of using it in Swansea to provide facilities for start-up companies spinning out of the university was a good one but labelling all advanced factories as Techniums was doomed to failure. The Welsh universities need to become drivers of the Welsh economy, promoting innovation and entrepreneurship.

Things that the Welsh Government can do are: provide larger loans through the commercial bank to medium sized companies; provide loans against assets, including overseas assets; let Government contracts of such size that medium sized Welsh companies can bid; and make it easier for micro companies to expand by supporting variable size and expandable units in industrial and commercial areas.

We in Wales are no less skilled, entrepreneurial and capable than anywhere else in the World. What we need are policies that work to support the growth of Welsh companies and establish new ones.

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Mike Hedges is Assembly Member for Swansea East

2 thoughts on “Welsh economy: further lessons from Aarhus and Mannheim

  1. There are a few other systemic differences to consider.

    The HE sectors in Germany and Denmark, through stronger governance, have proven to be less vulnerable to domination by cliques of self serving spivs and chancers in the higher echelons of university management. That reduces the number of duff decisions which matters.

    Government and Universities in those countries are less inclined to get involved in direct investment in fledgling businesses taking the view that this is not their core activity and if a business plan has legs the private sector will recognise it and fully fund it as required.

    The bias of their HE institutions is slanted more towards providing education in ‘useful’ subjects rather than churning out countless graduates in tree climbing and animal noises from flakey institutions funded by overseas student income or those running up massive debts with little prospect of paying them off.

    and, as I understand it, effectively no tuition fees for EU citizens so entrepreneurial spirit is not stifled by the worry of knuckling down to pay off debt.

  2. A little over ten years ago I was a member of a Welsh Government commissioned Task and Finish Group charged with looking at the role of Welsh HE in economic development. Interviewing the VC of one prominent university I enquired whether the VC thought the institution was adequately equipped to conduct so-called ‘third mission’ activities. Without a moment’s hesitation the answer I received was a resounding “yes”. When I asked why the VC was so confident I was told it was because a professorial member of staff was dedicated to the task. In response to my attempt to establish why this much respected academic was suitable for the challenge I was informed it was because they owned an expensive car! Fleetingly it occurred that the VC, known for their serious side, was demonstrating a well-disguised sense of irony but sadly they were not. The scene was beyond parody.

    I applaud your intentions Mike but until the time that ‘third-mission’ activities are taken seriously and staffed by individuals with appropriate experience the ability of Welsh HE to achieve its potential will remain unfulfilled.

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