A senior economist at the University of St Andrews has warned that Scotland’s hi-tech firms must grow through mergers and acquisitions to compete successfully on the world stage.
Current research at the University of St Andrews is casting new light on high technology clusters in Scotland.
The study investigates high profile firms in life sciences and microelectronics, as well as software, optoelectronics and digital media to analyse size, growth and optimality in each sector.
These new findings on Scottish companies emanate from the Centre for Research into Industry, Enterprise, Finance and the Firm (CRIEFF) in the University’s School of Economics & Finance.
Firms sampled ranged from vast multinationals like Panasonic, which are household names, to firms well known in the Scottish economy like the life sciences firm ProStrakan of Galashiels that develops prescription medicines.
The research has shown that the optoelectronics sector, to which technologies developed in St Andrews University have contributed, is one of the most impressive scientifically, with a lot of commercial potential to be realised.
Professor Gavin Reid, Director of CRIEFF, said “This work complements that done by government agencies, and other research centres. Whilst their approach is more ‘hands off’, we approached firms individually.
“That makes for a more detailed view of how these firms behave. Thus – unusually – we know a lot more, because of our research, about their performance, resources, collaboration & cooperation, embeddedness and innovation.”
Based on a detailed statistical and econometric analysis of over 800 firms, Professor Reid and his co-worker, Dr Vandana Ujjual of SPRU, Sussex University, are able to estimate what size these high tech firms will achieve.
Thanks to the study, Professor Reid is able to characterise Scottish high tech firms as being small, knowledge intensive, research intensive and internationalised.
The team found that economic factors such as costs and finance or firm specific factors like levels of skilled personnel were the principal impediments to the growth of many of the sampled firms. As such, the credit crunch may have some adverse effect on fundability of some high technology activity.
Professor Reid explained, “The credit crunch has mixed effects. To illustrate, in the energy sector, some firms developing wind energy technology (e.g. for use in the North Sea) have been hit by financial shortages, and the lower price of oil.
“On the other hand, many areas of microelectronics seem to continue to attract venture capital, and there the problem is more shortage of skills, than shortage of equity.”
The project has identified a gap between the sizes such firms will naturally achieve (which are typically small, about 100 employees, in the short run and about 1000 employees in the long run), and the size they need to achieve to fully exploit scale economies (which are typically very large – over 3000 employees).
Professor Reid continued, “Making this leap in scale from 100 employees to 1000, and then beyond to 3000 employees or more may require a takeover or merger, rather than organic growth.”
“Some firms, like ProStrakan, which went to initial public offering (IPO) in June 2005, have already started on this long road to large scale.”
Another key finding showed that ideas developed by Scottish businesses needed to be better safe-guarded.
Professor Reid concluded, “Ways of protecting ‘intellectual property’ – ideas developed by the firm that have potential marketplace value – ought to be explored more imaginatively.
“Firms often preferred just getting new products to market quickly, under the veil of trade secrecy, rather than using formal methods of protecting their intellectual property like patents, which were seen as the preserve of only the largest firms.
“It is also possible for small firms to patent, but they must balance that against the benefits of trade secrecy, which can be cheaper – and more effective – as patents can reveal your hand in a technological sense.”
The paper, “Firms in Scottish High Technology Clusters: software, life sciences, microelectronics, optoelectronics and digital media – preliminary evidence and analysis on firm size, growth and optimality” is available from the Press Office.
NOTE TO EDITORS:
Professor Gavin Reid is available for interview on firstname.lastname@example.org or on +44 (0)1334 462431.
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Ref: Scottish firms 10/12/08
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