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

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