Cios research, development and innovation framework evidence base

Cornwall and Isles of Scilly Research, Development and Innovation: Evidence Base

Future Economy

Future Economy

Conditions for Growth Conditions for Growth

Growth for Business

Growth for Business

Future Econo

November 2015

This document was prepared by Amion Consulting Ltd in partnership with the C&IoS LEP and Cornwall Council

Cornwall and Isles of Scilly Research, Development and Innovation Evidence Base Report

Contents 1

2

3

4

Introduction ..................................................................................................................... 1 1.1

Overview ....................................................................................................................................... 1

1.2

Innovation, Research and Development and Smart Specialisation .............................................. 1

1.3

Methods used ............................................................................................................................... 3

1.4

Analytical framework .................................................................................................................... 5

1.5

Structure of the report .................................................................................................................. 6

Context ............................................................................................................................. 7 2.1

Introduction .................................................................................................................................. 7

2.2

The importance of Innovation and R&D ....................................................................................... 7

2.3

EU and national policy context ..................................................................................................... 8

2.4

Cornwall and the Isles of Scilly context ....................................................................................... 10

2.5

Other European funding opportunities ...................................................................................... 15

2.6

EU best practice .......................................................................................................................... 16

Smart Specialisation – Agri‐tech ..................................................................................... 30 3.1

Introduction ................................................................................................................................ 30

3.2

Evidence from previous research ............................................................................................... 34

3.3

Agri‐tech in Cornwall and the Isles of Scilly ................................................................................ 36

3.4

Markets – competition and demand .......................................................................................... 40

3.5

Enterprise .................................................................................................................................... 45

3.6

Knowledge creation .................................................................................................................... 48

3.7

Capital ......................................................................................................................................... 51

3.8

Strengths, Weaknesses, Opportunities and Threats ................................................................... 54

3.9

Conclusions and implications ...................................................................................................... 55

Smart Specialisation – Digital economy .......................................................................... 59 4.1

Introduction ................................................................................................................................ 59

4.2

Evidence from previous research ............................................................................................... 59

4.3

Digital economy in Cornwall and the Isles of Scilly ..................................................................... 61

4.4

Markets ....................................................................................................................................... 62

4.5

Enterprise .................................................................................................................................... 68

4.6

Knowledge creation .................................................................................................................... 70

Cornwall and Isles of Scilly Research, Development and Innovation Evidence Base Report

5

6

7

4.7

Capital ......................................................................................................................................... 74

4.8

Strengths, Weaknesses, Opportunities and Threats ................................................................... 76

4.9

Conclusions and implications ...................................................................................................... 77

Smart Specialisation – e‐health and e‐wellbeing ............................................................. 82 5.1

Introduction ................................................................................................................................ 82

5.2

Evidence from previous research ............................................................................................... 83

5.3

e‐health and e‐wellbeing in Cornwall and the Isles of Scilly ....................................................... 84

5.4

Markets – competition and demand .......................................................................................... 84

5.5

Enterprise .................................................................................................................................... 92

5.6

Knowledge creation .................................................................................................................... 97

5.7

Capital ......................................................................................................................................... 99

5.8

Strengths, weaknesses, opportunities and threats .................................................................. 102

5.9

Conclusions and implications .................................................................................................... 104

Smart Specialisation – Marine Technology ................................................................... 108 6.1

Introduction .............................................................................................................................. 108

6.2

Traditional Marine Industries ................................................................................................... 109

6.3

Conclusions and implications .................................................................................................... 118

6.4

Offshore renewable energy ...................................................................................................... 121

6.5

Conclusions and implications .................................................................................................... 140

Smart Specialisation – Space and Aerospace ................................................................ 145 7.1

Introduction .............................................................................................................................. 145

7.2

Space ‐ context and evidence to date ....................................................................................... 145

7.3

Space ‐ markets ......................................................................................................................... 151

7.4

Space ‐ enterprise ..................................................................................................................... 156

7.5

Space ‐ knowledge creation ...................................................................................................... 156

7.6

Space – capital .......................................................................................................................... 159

7.7

Aerospace ‐ context and evidence from previous research ..................................................... 162

7.8

Aerospace ‐ markets ................................................................................................................. 167

7.9

Aerospace ‐ enterprise .............................................................................................................. 172

7.10

Aerospace ‐ knowledge creation .............................................................................................. 174

7.11

Aerospace – capital ................................................................................................................... 176

7.12

Strengths, weaknesses, outputs and threats ............................................................................ 179

Cornwall and Isles of Scilly Research, Development and Innovation Evidence Base Report

7.13

8

9

Conclusions and Implications .................................................................................................... 180

General Innovation and R&D ........................................................................................ 184 8.1

Introduction .............................................................................................................................. 184

8.2

Evidence from earlier research ................................................................................................. 184

8.3

Innovation in C&IoS .................................................................................................................. 186

8.4

Issues ......................................................................................................................................... 191

8.5

Strengths, weaknesses, opportunities and threats .................................................................. 200

8.6

Conclusions and implications .................................................................................................... 201

Next steps .................................................................................................................... 203

Cornwall and Isles of Scilly Research, Development and Innovation Evidence Base Report

1

Introduction

1.1

Overview

Cornwall Council, on behalf of the Cornwall and the Isles of Scilly (C&IoS) Local Enterprise Partnership (LEP), appointed AMION Consulting, in association with ICF International, JOHT Resources Ltd and Catalys, to design and develop a Smart Specialisation and Research and Development and Innovation (RD&I) Framework for the 2014‐20 C&IoS European Structural and Investment Fund (E SIF) Programme.

The commission entailed a two stage process: 

a review of evidence concerning the current status and opportunities and needs associated with RD&I activity and its development in C&IoS; and



the subsequent production of the Investment Fund Framework which will identify activities to be supported through E SIF both across the identified smart specialisation sectors and general innovation across all sectors. The Framework will serve as a base document from which ‘calls’ for projects to be supported by European and other funds can be developed and subsequent responses assessed.

This document reports on the first stage of that process.

1.2

Innovation, Research and Development and Smart Specialisation Innovation enhances productivity, output and the development of new products and processes.

It is therefore a key enabling force for economic growth. It is also an important potential contributor to economic transformation, leading to a more knowledge‐based and higher value economy. The presence of, and ability to access, research expertise (including through higher education institutions (HEIs) and other research centresE SIF) also plays a key role in developing and maintaining a skill base and providing a sustainable innovation ‘ecosystem’.

The innovation system in the UK has been characterised by relatively low R&D expenditure compared to other global economic powers. Whilst particular strengths can be identified in areas such as university‐business collaboration and the quality of higher education, the overall level of investment in innovation by businesses lags behind international competitors. However, the UK’s research base continues to top international benchmarks, including its research systems, intellectual assets and academic entrepreneurship. Within this context, public sector innovation support continues to play a central role.

In C&IoS, the 2007‐13 Convergence Programme was developed to address a number of problems that held back innovation performance in the area. These included very low levels of business engagement with innovation and R&D activities; a relatively weak innovation and research infrastructure; and the area’s peripherality which resulted in a dependency upon local markets and a consequent relative lack of exposure to competitive forces. Significant investment was made in innovation support ‐ in particular by creating a number of infrastructure assets, such as the Wave Hub and Innovation Centres.

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Cornwall and Isles of Scilly Research, Development and Innovation Evidence Base Report

While progress was made under the 2007‐13 Convergence Programme and Rural Development Programme, much remains to be done. As part of the process for developing the 2014‐20 E SIF Programme, the C&IoS LEP has identified two approaches for achieving the necessary step change: (i) Development of a ‘Smart Specialisation’ investment strand. Smart Specialisation is an internationally recognised approach to addressing new growth opportunities. It is based on regions identifying a limited number of priorities for investment where they have an identified competitive advantage based on their physical, knowledge and enterprise assets.

The C&IoS LEP has identified five markets where the area has an existing asset base and where there is potential global growth. These are: 

Agri‐tech;



Digital economy;



E‐health and E‐Wellbeing;



Marine technology; and



Space and aerospace.

A Research and Innovation strategy for Smart Specialisation (RIS3) is a prerequisite in order to receive funding from the European Regional Development Fund (ERDF).

The European Commission established a Smart Specialisation Platform (S3P) to assist the development, implementation and review of RIS3 strategies. The guidance sets out six steps: 

analysing the innovation potential;



setting out the RIS3 process and governance;



developing a shared vision;



identifying the priorities;



defining an action plan with a coherent policy mix; and



monitoring and evaluating.

In C&IoS the first four steps have already been undertaken. This current phase of work will aid completion of the process and involves in particular the review of the identified priorities and the definition of an action plan. (ii) Encouraging a general uplift in R&D spending across the business base, with a focus on high‐ growth and high‐growth potential companies (in terms of jobs and Gross Value Added (GVA)) ‐ the ‘Growth through Innovation’ investment strand1.

1

It is acknowledged that improving innovation across the business base will improve productivity more widely. The ESIF also supports this through a number of strands

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1.3

Methods used The approach adopted has built upon previous work. The methodology adopted has aimed to be as inclusive as possible and to ensure the active involvement of key stakeholders in policy development. This will help ensure both the relevance of policy and the widest possible ownership and awareness of the aims, scope and content of the resultant framework.

A. Desk research to review evidence to date regarding: 









Business and other needs in terms of: 

scope of relevant exising business activity;



skills needs;



infrastructure needs;



external advice and support needs;



market intelligence needs;



access to finance needs; and



collaboration and networking – both between businesses and with HE institutions and other sources of appropriate expertise.

The effectiveness of existing approaches to, and possible delivery gaps in, the development of RD&I in C&IoS including: 

activities pursued and outputs achieved under the the Convergence Programme period from Convergence and other funding such as Rural Development funding as well as other existing models of RD&I support in C&IoS such as TSB and Innovate UK; and



the capacity and capabilities of existing HE and other ‘hubs’ of expertise.

The wider policy framework including: 

UK government policy and key reports such as the Industrial Strategy and the Catapult Initiative, the Innovation and Research Strategy for Growth and the Witty report; and



EU policy such as the new regional policy framework and the need to ensure appropriate links with the EU identified Key Enabling Technologies initiative and relevant frameworks with regards to state aid.

Approaches elsewhere (including in comparable European regions – as outlined in Appendix A) to developing RD&I capabilities and activities and the potential for: 

replication and adaptation ; and



new partnerships and collaboration.

Previous evaluation findings – as well as our own work as part of the Convergence Programme thematic evaluation, this has included the results of earlier evaluations of ERDF‐

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Cornwall and Isles of Scilly Research, Development and Innovation Evidence Base Report

funded Innovation projects – such as the Innovation Centres; European Centre for Environment and Human Health, Knowledge Escalator South West; and SWIAP. B Economic and business data analysis including: 

Overall economic, business structure and innovation analysis;



Mapping businesses against the five smart specialisation markets using the Financial Analysis Made Easy (FAME) database and Business Register and Employment Survey (BRES) data;



Further review of our earlier business survey (undertaken as part of the Convergence Programme evaluation) including the mapping of activities against the smart specialisation areas and the analysis of business needs.

C

Consultations

One‐to‐one consultations have been held with relevant stakeholders to explore what is needed to build Innovation and R&D culture and activities within the C&IoS business base and how this can best be embodied in the new framework. Consultees included: 

Cornwall Council;



members of the C&IoS LEP Board and its Future Economy Board;



Cornwall Development Company;



Cornwall Business Partnership;



Higher Education (HE) and Further Education (FE) Institutions;



businesses and networking bodies in each of the Smart Specialisation areas; and



relevant business support providers.

D Workshops A series of workshops were held with businesses and other key stakeholders. One for each of the five Smart Specialisation themes. A further workshop was held to consider general business innovation issues and another specifically for the Isles of Scilly.

There were 10 ‐20 attendees at each workshop session with business invitees identified through a combination of LEP contacts and the business survey and database. Other attendees included HE and other research bodies as well as relevant sector representatives. The lists of invitees can be found in Appendix B. The main purpose of the workshops was to discuss the appropriateness and relative importance of the emergent propositions and identify any gaps in the ‘package’. This included discussions about the following questions: 

What are the current markets served by C&IoS businesses in the Smart Specialisation areas?

What and where are the potential markets? Are they, growing, accessible, highly competitive?

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Cornwall and Isles of Scilly Research, Development and Innovation Evidence Base Report

1.4



What helps and what hinders investment in research and development and innovation? Is it, access to capital, skills, uncertainty, growth aspirations?



What are the key knowledge and innovation infrastructure assets? Can they be made more useful?



What ‘support’ is needed to stimulate greater and more effective RD&I?

Analytical framework The report sets out an assessment of the current status within C&IoS of each of the Smart Specialisation areas and also assesses the level and nature of RD&I more generally. In particular it uses location quotients to explore the extent to which the area has an existing base of activity and, by implication, appears to enjoy some level of competitive advantage.

In terms of analysis of the issues impacting upon the development and growth of each of the specialisation areas, as well as overall innovation and R&D activities, the framework for analysis is provided by an Innovation and R&D ‘eco‐system’ based on a 2009 NESTA Report (‘The wider conditions for innovation in the UK’). The framework identifies the key components that interact and determine levels of innovation and R&D activity within any given economy. These involve knowledge creation, enterprise, capital and markets (see Figure 1.1).

Figure 1.1: The Innovation and R&D Ecosystem Demand

Market access

Markets Inward investment

Networks

Business opportunity‐led research

Knowledge creation

Enterprise

Innovation infrastructure

Commercialisation of research

Capital Finance Source: AMION Consulting adapted from ‘The wider conditions for innovation in the UK’, NESTA 2009

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Skills

Cornwall and Isles of Scilly Research, Development and Innovation Evidence Base Report

The diagram also indicates those areas where public policy interventions might stimulate activity within the system. These areas include: 

business‐led research;



networking;



innovation infrastructure;



entrepreneurship skills;



commericialisation of research;



finance availability;



skills availability; and



market development and access



inward investment.

These provide the structure and objectives for the Investment Framework.

1.5

Structure of the report The report continues in eight sections as follows:  Section 2:

reviews the context to the research. In particular, it considers the important of RD&I, the European Union (EU) and national policy context and the C&IoS context, along with EU best practice;

 Section 3:

assesses the agri‐tech Smart Specialisation area in C&IoS;

 Section 4:

examines the digital economy Smart Specialisation area;

 Section 5:

considers e‐health and e‐wellbeing;

 Section 6:

assesses the marine technology Smart Specialisation area;

 Section 7:

analyses space and aerospace;

 Section 8:

Examines general innovation and R&D in C&IoS; and

 Section 9:

sets out the conclusions and recommendations of the evidence review.

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Cornwall and Isles of Scilly Research, Development and Innovation Evidence Base Report

2

Context

2.1

Introduction

This section reviews the general economic and broader policy context for development of the RD&I Framework for the C&IoS European Structural Investment Fund (E SIF) programme 2014‐ 20; also including the Growth Programme element of the and European Agricultural Fund for Rural Development (EAFRD) programme. Firstly, it briefly considers why innovation and R&D are seen as important.

2.2

The importance of Innovation and R&D Innovation can be defined as change within a business or industry to introduce or create new products, processes and services whilst research and development entails the discovery of new knowledge about products, processes, and services, and the application of that knowledge to create new or improved products, processes, and services that address a market need. An innovation driven economy is also identifiable by the development of entrepreneurial skills and the formation and growth of new businesses. Increasing collaboration between key partners within the innovation eco‐system is an important feature of innovative businesses and economies. Improving the UK’s innovation performance has been a key component of this and preceding Governments’ plans for growth.

A large body of evidence shows that innovative economies are more productive and faster growing. They deliver higher returns on investment and increased living standards. They are better at responding to changing circumstances through redeploying old activities and jobs.

They are more able to find solutions to global challenges such as reducing dependence on fossil fuels, helping people live longer and healthier lives.

A major 2009 report by NESTA (‘Business Growth and Innovation’) found that innovative businesses grow twice as fast, both in employment and sales, as businesses that fail to innovate.

This reflects earlier investment by fast‐growing firms in innovative resources and in development of innovation‐related capabilities. The wider effects of business innovation and growth on social and economic outcomes go however beyond their own productivity, employment and innovation growth. High‐growth firms generate spillovers in their regions, creating jobs over and above their direct effect on employment. High‐growth firms also continue to invest in innovative activity after their initial period of growth.

Innovation, therefore, drives the competitiveness of businesses and regions in the global economy. In technology‐based sectors, research is a primary driver of innovation, and research can also discover and exploit new technologies, sometimes giving rise to new industries. In other sectors the rapid adoption of technologies and the development of intangible assets are essential to innovation, sometimes transforming existing industries. In others collaborative activity and strong clusters is also a factor. It is critical to efficient and effective policy making and delivery that successful business models from within and from outside the region are identified, understood, fostered and monitored to maximise the benefits for all.

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Cornwall and Isles of Scilly Research, Development and Innovation Evidence Base Report

2.3

EU and national policy context Both the EU and the UK Government recognise technological development to be at the heart of future economic growth. This is evidenced by a number of strategies and policies including the following: 





Europe 2020 Flagship Initiative ‐ Innovation Union (EU, 2011) – This identifies a need for a more strategic approach to innovation across the EU, with innovation being an overarching policy objective. The Strategy sets out a number of recommendations, including: 

continued investment in education, R&D, innovation and ICTs;



raised standards in universities, improved skill levels and the attraction of top talent from abroad;



facilitation of research across the EU;



exploitation of the ERDF to develop research and innovation capacities across Europe, based on smart regional specialisation strategies; and



more cooperation between science and business.

‘Guide to Research and Innovation Strategies for Smart Specialisations’ (European Commission, 2011) – this promotes a strategic approach to providing targeted support for economic development. This approach comprises five broad elements: 

a focus on key national / regional priorities, challenges and needs for knowledge‐ based development;



building on strengths, competitive advantages and potential for excellence;



support for technological as well as practice‐based innovation and stimulation of private investment;



involvement of stakeholders; and



an evidence base and effective monitoring.

UK Innovation and Research Strategy for Growth (BIS, 2011) sets out the Government's plans to boost economic growth by investing in innovation and research across the UK. Key actions included: 

Rebranding of Technology and Innovation Centres as "Catapult Centres" with the aim of transforming innovative ideas into products, processes and systems by encouraging collaboration between research and business and facilitating open innovation;



Innovation Inducement Prizes ‐ to stimulate innovation;



Open Data Institute ‐ to make publicly funded research freely available;



SME innovation ‐ including grants for market and prototype development activities; help for technology‐focussed SME's to compete for contracts which may be 8

Cornwall and Isles of Scilly Research, Development and Innovation Evidence Base Report

procured by the Government; extension the Launchpad initiative be expanded to other parts of the UK to encourage the growth of more innovation clusters; 

Investment in the Designing Demand Programme is to be doubled to £1.3 million a year. This is a mentoring scheme run by the Design Council to help SMEs deliver improved products, services and brands to enhance their growth potential;



£25 million is being used to help companies develop large‐scale prototypes in order to attract investors; and



Increased R&D Tax Credit relief to 225% from April 2012.



Encouraging a British Invention Revolution – Sir Andrew Witty’s Review of Universities and Growth (BIS, 2013) – this identified a need for HEIs to make facilitating economic growth a core strategic goal. It recommended stronger links between LEPs and HEIs in relation to ensuring that ERDF funds are directed towards innovation. It also recommended stronger links between SMEs and HEIs in relation to strengthening economic performance.



Eight Great Technologies (BIS, 2013) – these relate to technologies identified by the government as being vital for the future of the economy, with a number also being relevant to Cornwall’s smart specialisation sectors2. The eight technologies are:





big data and energy‐efficient computing;



satellites and commercial applications of space;



robotics and autonomous systems;



life sciences, genomics and synthetic biology;



regenerative medicine;



agri‐science;



advanced materials and nanotechnology; and



energy and its storage.

‘Our Plan for Growth: Science and Innovation’ (HM Treasury, BIS, December 2014) – this set the aim of being the best place in the world for science and business. The plan has 6 elements: 

deciding priorities;



nurturing scientific talent;



investing in scientific infrastructure;



supporting research;



catalysing innovation; and



participating in global science and innovation.

2

A review of relevant policies and strategies in undertaken as part of the evidence for each of the smart specialisation markets

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Cornwall and Isles of Scilly Research, Development and Innovation Evidence Base Report

2.4

Cornwall and the Isles of Scilly context

2.4.1

Economic performance

C&IoS lags behind other UK comparators on a number of key indicators and faces a number of economic challenges. These are reflected in Cornwall’s position on the UK Competitiveness index, (at 314 out of the 379 local authorities) and in terms of, for example: 

Gross Value Added (GVA) – C&IoS is the second weakest economy in the UK context, at 66.3% of the UK average GVA per capita (2011);



Enterprise numbers – Enterprise numbers remained static between 2008 and 2010, but have subsequently grown at a modest rate. The overall stock, however, declined (2008‐2011);



Self‐employment levels – C&IoS have a high percentage of self‐employed ‐ 20.7% of 16‐64 year olds. The proportion is 1.5 times higher than the UK average (2011);



Size of enterprises ‐ 99.8% of the 21,105 enterprises in C&IoS (2012) are SMEs, with some 88.6% micro enterprises (1‐10 employees). C&IoS have a lower proportion of large companies than other parts of the UK; and



Economic activity ‐ 27.2% of people aged 16‐64 are economically inactive in C&IoS. This equates to 89,800 people, and is higher than the UK figure of 23% (2011).

Given the close relationship of economic growth with innovation and R&D levels already referenced, it is also not surprising that:

2.4.2



In 2009 R&D spend in C&IoS was 0.19% of GDP ‐ the lowest of all other UK NUTS2 regions (2011). The UK R&D spend in the same period was 1.85% of GDP;



43.2% of C&IoS employees (2011) were employed in knowledge intensive industries. This compares to 53.7% in Great Britain, placing Cornwall and the Isles of Scilly amongst the lowest NUTS2 regions (only Cumbria has a lower percentage); and



R&D tax credit receipts are also low while levels of patents are 42% below the national average (2009).

European Structural and Investment Funds (E SIF) in C&IoS C&IoS were classified by the European Union as an Objective One region in 2000. This enabled access to over £350m (€498m) funding. Despite the improvements this brought, during the next round of EU funding in 2007, C&IoS were identified as having a relatively weak economy when compared to the European average and was subsequently awarded ‘Convergence’ status worth £415m (€579m) over the period 2007‐2013. During the Objective One period there was also £110 million of European Agricultural Guidance and Guarantee Fund (EAGGF) funds (some of which was used for the RD&I agenda). From 2007 to 2014 there was also £50 million EAFRD funding from the Rural Development Programme for England (RDPE).

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Cornwall and Isles of Scilly Research, Development and Innovation Evidence Base Report

The programmes relating to both programme periods recognised the importance of the knowledge base generally and the role of innovation and R&D in particular to the area’s economic future.

The Objective One Programme had made some progress in terms of accelerating the scale and quality of innovation and R&D in Cornwall and the Isles of Scilly by: 

developing a knowledge asset base (including the Combined Universities in Cornwall involving the University of Exeter, Plymouth University, the then University College Falmouth, the Cornwall College Group including the then Truro and Penwith Colleges and Cornwall College, Duchy College);



developing global markets and promoting the development of higher value activities in Cornwall;



establishing a group of innovation focused companies willing to invest in the area; and



attracting highly skilled people and increasing the pool of young, talented people3.

The Convergence Programme aimed to build on the previous Programme and enable C&IoS to compete as a centre for creativity, innovation and R&D by identifying and supporting areas where, by building on existing strengths, it could develop specialist areas of expertise and knowledge capable of attracting investment and talented people. The Priority for Innovation and R&D aimed to deliver three strategic objectives which were to: (i)

increase the intellectual capital of Cornwall and the Isles of Scilly through investments in the knowledge infrastructure and research capacity in higher education; increasing and where necessary supporting business investment in R&D and increasing HE/business collaboration;

(ii) improve the productivity of companies through increasing the rate of innovation and the economic benefits arising from the pull through and exploitation of knowledge (R&D and other intellectual assets) including product and process improvements. Building understanding of drivers of innovation and using these to lever increased innovative behaviour by companies; and (iii) increase the number of high value added and innovative new start businesses.

The Convergence Programme funded a broad range of projects across four strands of activity: 

Stimulating R&D by building intellectual capital through enhanced research capacity at higher education institutions (HEIs), providing support to encourage the exploration of new ideas and provide ‘proof of concept’ funding. Specific examples of projects included the Environment and Sustainability Institute (ESI) at the University of Exeter’s Penryn Campus and the European Centre for Environment and Human Health (ECEHH) projects at the University of Exeter’s Truro campus;



Supporting ideas, innovation and knowledge by linking companies to University and HEI expertise and supporting the management and use of knowledge within businesses to

3

Cornwall and Isles of Scilly Convergence Operational Programme 2007‐13

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Cornwall and Isles of Scilly Research, Development and Innovation Evidence Base Report

generate business‐led innovations, and product and process improvements. Specific examples of projects included the South West Innovation Accelerator Project (SWIAP) and the Knowledge Escalator South West (KESW) project; 

Innovation and incubation involving the provision of new and enhanced facilities to address the shortage of specialist support available to companies and individuals. Specific examples include the three Cornwall innovation centres4 (the Pool Innovation Centre, Tremough Innovation Centre and the Health & Wellbeing Innovation Centre based at Treliske in Truro) and the Academy for Innovation & Research (AIR) at Falmouth University; and



Environmental goods and services and the development of initiatives particularly focused on Environmental Technologies and Renewable Energy, which could develop a major new industry in Cornwall and the Isles of Scilly. Specific examples of projects include the Wave Hub construction and development projects.

There was a particular focus on large‐scale capital investments thereby increasing the innovation asset base. As well as a substantial investment in the sub‐region’s broadband capacity (the subject of a separate, bespoke project evaluation), the Programme funded some major facilities which have been responsible for helping to attract academics, students and funding opportunities that would not otherwise have come to Cornwall, promoting business / HEI collaboration; and providing important workspace in innovation centres to support the development of innovation amongst local SMEs. European Structural Fund investments created 24,707 jobs across Cornwall and the Isles of Scilly over the past two programme periods. However, despite the improvements this funding brought, the region has been classified as a Less Developed area with an allocation of €603.7 m new funding for the period 2014‐20 , plus a further £16m of EAFRD. The C&IoS E SIF Strategy for 2014‐20 consists of three key areas of activity: 

Conditions for Growth ‐ investments which will address barriers to growth in infrastructure and human potential;



Growth for Business ‐ investments which will accelerate increases in productivity and competitiveness in businesses; and



Future Economy ‐ investments which will capitalise on C&IoS’ strengths and unique characteristics to exploit new and emerging markets.

The Future Economy strand will be the primary focus for addressing the development of innovation and R&D activities and capabilities. This will involve the following Investment Priorities: 

Investment Priority 1a: Enhance research and innovation infrastructure and capacities to develop excellence and promote centres of competence. Actions to be supported may include:

4

A separate evaluation of the Cornwall Innovation Centres was completed by CM International in 2015 and provides more detail on the three Cornwall Innovation Centres.

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Cornwall and Isles of Scilly Research, Development and Innovation Evidence Base Report







specialist infrastructure, facilities and centres – including enhancements to science parks and improved access to them (digital/physical);



investment in the development and upgrading of innovation space – to act as a platform or host for innovation;



improved incubation space;



shared research laboratories and facilities (8 great technologies);



development of enterprise, innovation and technology hubs and centres of excellence; and



development and upgrading of appropriate test facilities and deployment of infrastructure.

Investment Priority 1b: Promote business investment in research and innovation by increasing investment in R&I by SMEs – particularly in sectors and technologies identified through SMART specialisation – and SMEs engaged in knowledge exchange and collaborations with research, public institutions or large enterprises to help bring new products to market. Actions to be supported may include: 

SMART Specialisation collaborative and contract research and development;



support for commercialisation of new products/processes/initiatives;



innovation vouchers – SMEs;



business/public procurement led programmes to stimulate demand for new or improved services, processes or products;



schemes stimulating and enabling graduate start‐up and spin out from research;



technology support and knowledge transfer programmes;



development of a support environment ‐ promotion of networks and industry groups; and



grants, loans and equity stakes to support prototypes, new concepts, new products;

Investment Priority 3d: Supporting the capacity of small and medium‐sized enterprises to grow in regional, national and international markets and to engage in innovation. Actions to be supported may include: 

provision of referral routes to support;



development of growth strategies and associated leadership and management coaching;



attraction of new enterprises;



entering, establishing and expanding in new domestic and international markets;



investment readiness;

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

advice, consultancy, mentoring and peer to peer support indigenous and inward investors;



events, trade fairs and missions;



grants for productive investment; and



access to finance advice and consultancy.

Through the E SIF development process the C&IoS LEP has identified two approaches for achieving the necessary step change in Innovation and R&D activity: 

a Smart Specialisation investment strand ‐ a focus upon enabling growth in five identified markets where C&IoS has an existing asset base and where there is potential global growth; and



a Growth through Innovation investment strand – to provide a general uplift in R&D spending across the business base, with a focus on high‐growth and high‐growth potential companies (in terms of jobs and GVA5).

Table 2.1 sets out the ERDF allocations that have been agreed by local partners for each of the investment strands6. In addition to the allocations identified under PA3d, it is useful to note that PA3 also provides for funding of 5 million euros to support the use of Financial instruments to encourage growth across the business base. No specific allocation has been made to research and development and innovation activity.

Table 2.1: E SIF RD&I Funding Allocations* Activity

Investment Priority

ERDF

FUTURE ECONOMY FE1. To drive growth in our region’s economy through RD&I investment to support our business base (existing and new) in integrating into the supply chains of key identified global markets where we can have a significant competitive advantage

1a

0

£78million7

1b

GROWTH FOR BUSINESS G4B2. Growth through innovation

3d

£37million8

*Provisionally £1million of EAFRD funding has been allocated to supporting innovation

5

As noted above investment in innovation across the business base is supported through a number of ESIF strands The MA can vary the allocations across the Investment priorities during the delivery of the ESIF Programme Using an exchange rate of 0.8562 8 Using an exchange rate of 0.8562 6 7

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The E SIF programme is expected to support a wide range of RD&I interventions directly involving private sector organisations. Any public assistance provided will need to be State Aid compliant. Appendix A discusses the provisions of the relevant State Aid frameworks under which aid can be provided.

2.5

Other European funding opportunities In 2011 NESTA9 proposed a taxonomy of framework aspects for innovation. Table 2.2 sets out the framework conditions identified in the report and provides an overview of relevant European Union programmes across these framework conditions. In particular, there are significant opportunities associated with the €80 billion Horizon 2020 Programme. The potential European funding sources are described in further detail in Appendix A. The Appendix also considers the opportunities for combining research and innovation funding.

Table 2.2: Wider framework conditions for innovation

Description

Inputs

Outputs

Public research base

Universities and public sector research enterprises (PSRE).

Gross R&D expenditure, Business Expenditure on R&D (BERD), Higher Education Expenditure on R&D (HERD)

Consumer demand

Consumer demand for new technologies, buyer sophistication, i.e. level to which consumers demand complex products and can assess quality of these Firm‐level technology absorption, engagement in innovation activities with suppliers

Consumer needs, income, preferences, habits, price of substitutes and complements, co– creation and co‐ design

Number of peer‐ reviewed articles and grey literature, number of cited articles and grey literature, number of patents or co‐patents held by universities and public sector research enterprises Consumer demand and sophistication

Business 1011 demand

Demand‐side innovation policies – from public procurement of innovation, to standards and regulations, to lead

R&D activities and capacity in firms, innovation activities with suppliers

Relevant EU programmes/ frameworks Horizon 2020

n/a

ERDF, Horizon 2020

9

NESTA (2011), Measuring Wider Framework Conditions for Successful Innocation Jacob Edler (2007), “Demand‐based Innovation Policy” , Manchester Business School Working Paper, No. 529.

11 NESTA (2011): Measuring the nature of demand for innovation in the UK: The challenges of an indicator approach. Innovation Index Working Paper. https://www.nesta.org.uk/sites/default/files/kcfinder/files/8.MeasuringthenatureofdemandforinnovationintheUKThechallengesofanindica torapproach.pdf 10

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Table 2.2: Wider framework conditions for innovation

Description

Business environment and competition

Level of competition between businesses

Entrepreneu rship

Dynamic with which economies create new businesses

Availability of high quality human capital Access to finance

The stock of accumulated experience, skills and abilities of the labour force Available loans and venture capital for different start up stages and capital needs of firms Physical infrastructure, knowledge intensive business services (KIBS), IT services

Infrastructure and services

2.6

Inputs

Outputs

Relevant EU programmes/ frameworks

markets and user‐/ consumer‐driven innovation initiatives, consumer receptiveness and demand to/ for innovation

EU competition framework, SME framework

Entrepreneurial SME policy, encouragement of spinoffs In setup and funding for R&D Investments in Higher Education Institutions (HEIs) and vocational training and education Financial infrastructure and legal framework for investments

No. of start‐ups, spinoffs

ERDF, ESF

Extent to which available skills meet local skills demands

ESF

Higher diversity and number of available loans and financials products for firms

ERDF, Horizon 2020

Investment in infrastructure and growth hubs

Better and cheaper access of firms to knowledge and physical infrastructure to build R&D capacity

ERDF

EU best practice The Joint Research Centre (JRC) of the European Commission has published a number of relevant guidance documents, which include a wide collection of best practice advice on the programming and management of Smart Specialisation programmes. These guidance documents include in particular: 

Guide on research and Innovation Strategies for Smart Specialisation (RIS3 Guide). Including a number of practical tools for policy makers in Annexes: http://s3platform.jrc.ec.europa.eu/s3pguide;

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

An ‘assessment wheel for policy makers, which serves as a self‐assessment tool of the progress made in drafting and designing a smart specialisation strategy: http://s3platform.jrc.ec.europa.eu/ris3‐assessment‐wheel;



A guide on Enabling synergies between European Structural and Investment Funds, Horizon 2020 and other research, innovation and competitiveness‐related Union programmes , http://s3platform.jrc.ec.europa.eu/documents/10157/267027/Guide%20on%20synergies_e n.pdf ; and



Policy brief on smart specialisation and innovation in rural areas: https://ec.europa.eu/jrc/en/publication/eur‐scientific‐and‐technical‐research‐ reports/smart‐specialisation‐and‐innovation‐rural‐areas‐s3‐policy‐brief‐series‐no‐092014.

Further guidance is provided on the JRC’s website.12 Policy makers and managing authorities can also identify the Smart Specialisation intentions of other Member States and regions via the S3Platform13 their sectorial and cross‐sectorial regional industrial strength via the European Cluster Observatory14 and cluster organisations and other SME intermediaries active in or interested in the building of European Strategic Cluster Partnerships via the European Cluster Collaboration Platform15. The above sources are used below to provide a review of best practice and to identify comparator areas.

2.6.1

Saxony ‐ Best practice in programme preparation and management In terms of preparing and implementing a Smart Specialisation Strategy, the approach taken by the state of Saxony in Germany has been highlighted as a best practice example by the Joint Research Centre. Figure 2.1 summarises Saxony’s approach to programming and programme management.

12

http://s3platform.jrc.ec.europa.eu/guides;jsessionid=ZJ7VVkFNJGJs5lgrgWB0czdTKpv17MgrdVly2g0Xdwh1NKxMp6WY!2491139!1428424013548

13

http://s3platform.jrc.ec.europa.eu/activities http://www.clusterobservatory.eu/index.html

14

15

http://www.clustercollaboration.eu/

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Figure 2.1: Overview of programming approach – Smart Specialisation strategy Saxony

Source: Saechsisches Staatsministerium fuer Wirtschaft, Arbeit und Verkehr (2013): Innovationsstrategie des Freistaates Sachsen.

Saxony’s strategy focussed specifically on four key areas, which address cross‐cutting issues rather than support for specific sectors:16 

Support for a modern and innovative economy, including support for innovation capacity in companies, strengthening value chain oriented business and science parks as well as support for technology driven start‐ups;



Strengthening scientific outputs and efficient public‐private cooperation, including the formulation and strengthening of value propositions for universities, support for high‐ potential scientists and an improved commercialisation of research outputs by industry;



Human Capital and society, focussing on improving the regional skill base and immigration of highly‐skilled personnel, as well as societal acceptance of technological innovation and aligning technological innovation to societal needs of the region; and



Cross innovation, which looks specifically at linking up key enabling technologies and strong innovation drivers which have an established industrial base in the region and can fertilise other sectors and diverse products across the value chain.

In addition to these aspects, the programme specifically targets high‐growth sectors with specific support such as environmental technologies and resource management, renewable energies, mobility and logistics, health and nutritional science.

16

Saechsisches Staatsministerium fuer Wirtschaft, Arbeit und Verkehr (2013): Innovationsstrategie des Freistaates Sachsen.

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2.6.2

Smart specialisation in rural areas A Joint Research Centre publication on Smart Specialisation17 in rural areas highlighted a number of aspects which are of key importance to rural areas, similar to C&IoS. First, it emphasises the need to look beyond agricultural technology support. Second, it emphasises a different notion of rural innovation which has emerged, contrary to past policies for specialisation in rural areas which mainly introduced new technologies for the agriculture sector. Recent experience shows that innovation in rural areas mainly came from diversification into other activities than agriculture.18 Innovation programmes in rural areas might need to adopt a broader definition of innovation which goes beyond patents, R&D spending and high‐ profit activities, allowing a stronger focus on social innovation, organisational and marketing strategies.

A recent OECD publication19 also questioned the role of universities in rural innovation and looked specifically at the cases of south west and north east England. It is assumed that innovation and added value is generated in close spatial proximity to universities as a natural incubator, providing support structures for discovery, intellectual and commercial ventures.

However, places such as the north east of England have attempted to spread the benefits of universities beyond an urban centre to rural areas. Emphasis in Newcastle’s Science City initiative is therefore placed on establishing connections and linking the wider region’s knowledge infrastructure with designated “innovation connectors”, which are locations that have been identified as having the greatest potential for using innovation to stimulate economic development, effectively business clusters with a clear geographical and sectoral focus. The major challenge of this setup seems to be to establish strong awareness in businesses, e.g. by linking “innovation connectors” into established business networks and forums. CIoS Agri‐Food sector has attempted to create a mechanism that starts to make these links, ie, the Cornwall Agri‐Food Council (CAC), and could form the basis of an S3 structure for the sector.

2.6.3

Potential EU comparator areas EU regions that share similar characteristics to C&IoS and/or that focus on the same priority sectors (i.e. ‘leading’ regions in the priority sectors) have been identified. These comparator regions are used to compare performance as well as identify potential areas for collaboration (in terms of the latter it is not necessary for the regions to share similar characteristics).

International comparators can be identified using a number of different approaches. A convenient metric can be drawn from the Regional Innovation Scoreboard annual reports, which groups regions into four groups: innovation leaders, innovation followers, modest innovators and moderate innovators.

The Innovation Union Scoreboard does not include the region of C&IoS, but rather the South West region (NUTS level 3). The annual report of the Innovation Union scoreboard 2014 groups the South West region with innovation followers, ie. regions performing between 90% and 120% of the EU average. Given the relatively poor performance of C&IoS compared with other

17

Joint Research Centre (2014): Smart Specialisation and Innovation in Rural Areas. S3 Policy Brief Series No 09/2014.

OECD (2014). Innovation and Modernising the Rural Economy.

19 Ibid.

18

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parts of the South West Region this is not considered to be an appropriate base for identifying comparators. Therefore, the Innovation Union Scoreboard does not seem to offer viable tools to identify comparator regions.

Another approach would be to filter manually by similar key sectors and related smart specialisation areas (via Eurostat, macro‐regional strategies and the above‐mentioned types of platforms and networks) or have related public procurement needs, similar levels of R&D investment compared to overall GDP. A quick analysis of regions with an initially low share of R&D investment compared to overall GDP which have experienced a steep climb in Eurostat data is presented in Table 2.3.

Table 2.3: Best practice regions ‐ by growth in relative R&D investments Region

Total intramural R&D expenditure as % of GDP(Eurostat)

Key industries

Characteristics of regional R&I system

2009

2010

2012

Podkarpackie, Poland

0.37

0.97

0.95

Forestry, agriculture and tourism

No research universities, no large industry

North Eastern Scotland, United Kingdom

1.7

1.49

2.9

Agriculture, fisheries, oil

Large cities (Aberdeen and Dundee) and a number of research universities. Large structural differences to C&IoS.

Jihovýchod, Czech republic

1.62

1.69

2.16

Agriculture, mechanical engineering

Large cities and a number of research universities. Large structural differences to C&IoS.

Cumbria, United Kingdom

0.47

0.77

1.12

Hi‐tech industries, large One university and strong industrial companies such industry base. Large structural as nuclear processing , and differences to C&IoS. aerospace

Drenthe, Netherlands

0.4

‐

1.28

Agriculture, tourism

No research universities but a number of universities of applied sciences, no large industry

Midtjylland, Denmark

1.19

2.52

2.72

Environmental and energy technologies, tourism

Strong industrial and research base, multiple universities. Large structural differences to C&IoS.

C&IoS

0.19

0.18

0.24

Agriculture, marine technology, digital economy, space and aerospace, e‐health, tourism

Growing but limited presence of research universities20, no large industry

Source: Eurostat, total intramural R&D expenditure (GERD) by sectors of performance and NUTS 2 regions [rd_e_gerdreg].

20

University of Exeter, Falmouth University and Plymouth University through the Combined Universities in Cornwall (CUC) partnership.

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Further possible lines of comparison include: 

the type and size of business and key industries;



lack of large Higher Education (HE) volumes;



a relatively closed regional market and low levels of export;



comparable geographical features (peninsula, no large urban areas); and



specific innovations with regards to programming E SIF funds and designing funding instruments under the E SIF priority on innovation, research and technological development.

Eurostat’s structural business statistics (SBS) aggregate data on national level and exclude important comparator sectors, such as fisheries and agriculture, therefore it is not possible to conduct a comprehensive comparison along the type and size of key industries using primary quantitative data from Eurostat.

The European Cluster Observatory assigns a star rating to clusters across NACE 2.0 (Nomenclature statistique des Activités économiques dans la Communauté Européenne) sectors in Nuts 2 regions. The Observatory has also published a report highlighting strong clusters in innovative regions.21 Similar challenges concerning the relative lack of HEI provide a good further comparator. The UNICREDS project, in which Cornwall Council and the Combined Universities of Cornwall were a lead partner, looked at how different models of higher education can benefit regional economic development. The project involved a number of potentially relevant comparator22 regions, with which established contacts can be assumed.23 2.6.4

S3 platform specialisation mapping The S3 platform is a tool that assists EU countries and regions to develop, implement and review their Research and Innovation Strategies for Smart Specialisation (RIS3). The S3 platform also provides an integrated dataset of specialisation areas in 176 EU regions. Based on the smart specialisation areas identified in C&IoS, the following EU and non‐EU regions have been identified as potential comparators (see Table 2.4).

21

Stockholm School of Economics (2011): Strong Clusters in Innovative Regions. http://www.clusterobservatory.eu/common/galleries/downloads/Strong_Clusters_in_Innovative_Regions_Report.pdf 22 Project partners included South Bohemia (Czech Republic), Västerbotten (Sweden), the Bulgarian Ministry of Regional Development and Public Works and the Jajdu‐Bihar County (Hungary).

23 http://www.unicreds.eu/general/partners.html

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Table 2.4: S3 platform ‐ comparator regions by area of specialisation Smart specialisation area

Agri-tech

Digital economy

EU priority

Research & Innovation Capabilities

 Sustainable innovation  Agriculture, forestry & fishing  Public health & security  Nature & biodiversity

 Digital Agenda

 Information & communication technologies (ICT)

 Services  Tourism, restaurants & recreation

EU and non‐EU regions (NUTS regions)

        

Ipeiros

             

Flemish Region

Galicia Pays de la Loire Corse Guadeloupe Western Netherlands Lubelskie Northern Ireland Ireland

Praha Moravskoslezsko Rheinland‐Pfalz Schleswig‐Holstein Castilla y León Centre Alsace Franche‐Comté Languedoc‐Roussillon Martinique Lubelskie Centro (PT) Região Autónoma dos Açores

 Vojvodina  Uppsala län  Östergötlands län E‐health

 Digital Agenda – e‐  Manufacturing & health

industry

 Information & communication technologies (ICT)

 Human health & social work activities

22

      

Midtjylland Alsace Languedoc‐Roussillon Martinique Lubelskie Wales Ireland

Cornwall and Isles of Scilly Research, Development and Innovation Evidence Base Report October Marine technology

• Manufacturing &

• Blue growth

industry

• Energy production & distribution

Space and aerospace

• Aeronautics & space

• Manufacturing & industry

• Public administration, security & defence

• Services

• • • •

Hamburg

• • • • • • • • • • • • • • • •

Praha

Weser-Ems Schleswig-Holstein Møre og Romsdal

Baden-Württemberg Bremen Cantabria Castilla-La Mancha Andalucía Haute-Normandie Midi-Pyrénées Piemonte Lombardia Campania Puglia Sardegna Umbria Lazio Podkarpackie

Source: Eye@RIS3 http://s3platform.jrc.ec.europa.eu/eye-ris3

2.6.5

Relevant Joint Research Centre peer reviews A further qualitative approach to identify international comparators are the peer reviews published on the Joint Research Centre’s website.24 These are conducted using a common methodology and have covered around 70 regions since 2012.

Relevant peer reviews from possible comparator regions include:

24

•

Kujawsko-Pomorskie, Poland, 4-5 July 2013 (comparably low R&D investment as share of GDP, different industries and different HEI infrastructure), http://s3platform.jrc.ec.europa.eu/9th-peer-review-4-5-july-2013

•

Pomorskie (Zachodniopomorskie), Poland, 7-8 February 2013 (comparable geographic features, some overlap in key sectors, comparable low R&D investment as share of GDP) http://s3platform.jrc.ec.europa.eu/documents/10157/62973/Pomorskie_3S_280113_final_ with_comments.pdf

http://s3platform.jrc.ec.europa.eu/peer-review

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2.6.6



South Ostrobothnia, Finland, 6‐7 November 2014 (comparable focus sector agricultural technology, comparable HEI infrastructure), http://s3platform.jrc.ec.europa.eu/baiona‐ november‐2014



Friesland, Netherlands, 31 January 2012 (comparable sectors agriculture and marine, comparable HEI infrastructure), http://s3platform.jrc.ec.europa.eu/peer‐review‐310112



North East, Romania, 10‐11 April 2014(comparable sectors and R&D investments), http://s3platform.jrc.ec.europa.eu/documents/10157/385414/Presentation%20NE%20RDA %20for%20per%20review%20Novi%20Sad%20%2004%2004%202014_FINAL.pdf



Puglia, Italy, 3 May 2012 (key sector agriculture and tourism, similar geographical feature and R&D investments ), http://s3platform.jrc.ec.europa.eu/c/document_library/get_file?uuid=a86c2df9‐7c3f‐49e7‐ b0c0‐03e14017d4e2&groupId=11362



Algarve, Portugal, 5 July 2013 (key sectors tourism and related services, low R&D investments, similar geographical features), http://s3platform.jrc.ec.europa.eu/documents/10157/187136/Presentation_Algarve.pdf

Comparator regions – shortlisted candidates A triangulation of the above analyses has identified three comparator regions for further analysis, as follows: 

Podkarpackie, Poland;



Drenthe/Northern Netherlands, Netherlands; and



South Ostrobothnia, Finland.

(i) Podkarpackie, Poland The region is dominated by the following industries: aerospace, electrical machines, chemistry and food. Almost 70% of industrial production of the region comes from these branches together.

The formulation of a smart specialisation strategy built strongly on existing clusters and the Podkarpacka Innovation Council, which brings together business, research and government representatives. Among the clusters in the region are: an Association of Polish Aerospace Industry Entrepreneurs Group “AVIATION VALLEY” ‐ a unique high‐tech cluster, associating over 110 companies (www.dolinalotnicza.pl ), the Eastern Poland IT Companies Cluster, the Eastern Casting Cluster KOM‐CAST, the Podkarpackie Renewable Energy Cluster.

The Smart Specialisation and ERDF Operational Programme are embedded in a more long term regional development strategy, which is available online in English.25 The total amount, as part of the Regional Operational Programme of the Podkarpackie Region 2014‐2020 and the

25

http://monitoruj.podkarpackie.pl/Grafika/Menu%20boczne/Dokumenty%20strategiczne/Region%20Development%20Strategy.pdf rd [accessed 3 July 2015].

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Operational Programme for Eastern Poland 2014‐2020, is €1.182 billion from ERDF and €473.85 million from ESF funding.

Priority actions for funding include: 

Mobility: Technologies and products of the aerospace industry. Multimodal, sustainable transport;



Climate and energy: Renewable energy sources and technologies associated with them.

Balanced and intelligent construction (buildings, neighborhoods, cities). Biodegradable plastics. Electrical machinery industry;



Sustainable tourism: Cognitive tourism. Leisure tourism, eco‐tourism, rural tourism.

Adventure tourism. Health tourism. Business tourism. Culinary tourism, Religious tourism;



Health, food, nutrition: Organic, regional and traditional food. Healthy, optimized, non‐ GMO diet. Preventive medicine. Care for the elderly; and



ICT: High speed Internet access

The regional government has also developed a detailed monitoring system, to measure progress in the chosen priority areas. These include e.g. domestic and international sales in sectors related to the aviation and ICT industries, the percentage of passive, zero‐energy and energy plus dwellings; the share of renewable energy in total energy production; overall life expectancy.

The Operational Programme 2014‐2020 can be found online, but is at the moment only available in Polish.26 However, a detailed ex‐ante evaluation of the RIS3 has been commissioned and conducted my Metis in 2013 and has been made available to the study team.

Contact for further enquiries: Marcin Galak, Regional Innovation Strategy, Marshall’s office, Regional Government Podkarpackie, Tel.: +48 17 747 64 52, email : m.garlak@podkarpackie.pl (ii) Drenthe (Northern Netherlands), Netherlands The province of Drenthe is the fourth smallest province of the Netherlands with 2,680 km2. As of 2012, it had 490,807 inhabitants (2.9 per cent of total Dutch population). Its regional GDP of €12.72 bn is 2.2 per cent of Dutch GDP (2010). The annual growth rate of regional GDP was 1.2 per cent between 2005‐2010, which is below Dutch average for the same period (2.3 per cent) and shows a decrease between 2008‐2010.27 At 0.4 per cent of GDP in 2009, Drenthe had the lowest research and development (R&D) intensity of all of the Dutch provinces (national average 1.82 per cent) together with Friesland (0.8 per cent) and Zeeland (0.63 per cent).28 Private contributions of 86.8 per cent of gross expenditures on R&D (GERD) were extremely high compared to the Dutch average (57 per cent of GERD). This can be explained by the fact that the province has no research universities.

According to recent Eurostat figures, the regional GERD rose to 1.28 per cent in 2012.

26

http://www.rsi.podkarpackie.pl/Aktualnosci/Documents/RSI_woj.%2520podkarpackiego_2014‐ rd 2020%2520_Konsultacje%2520spoeczne.pdf [accessed on 3 July 2015] DG Research Regional Key Figures Database, 2010.

28 DG Research Regional Key Figures Database, 2010.

27

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In drafting a smart specialisation strategy, Drenthe has joined forces with the neighbouring regions of Friesland and Groningen and developed a joint Smart Specialisation strategy for Northern Netherlands.29 The strategy has embedded sectoral specialisation in a number of societal challenges relevant for the region. These societal challenges include: 

health, demography and welfare;



food security, sustainable agriculture and bio‐economy;



reliable, clean and efficient energy; and



clean and safe water.

The implementation of the strategy is built on five main strands: 

a results‐oriented approach: in the inception phase of the new funding period, the three regions involved will define the societal effects that the strategy aims to achieve, along with key societal challenges tackled and specific growth and employment targets;



diligent monitoring and evaluation: a combination of quantitative and qualitative monitoring and evaluation tools are being used, built on bundling and coordination of regional surveys already conducted, including labour market surveys, regional disaggregation of national statistics on high growth sectors, qualitative monitoring on the regional scale, project‐level monitoring, as required for European programmes;



regional collaboration: aiming at creating synergies between the high number of SMEs and large enterprises, specific support for universities of applied sciences and vocational education institutions ; and



national and international collaboration, including partnership with Northern German regions implementing the new Interreg programme and participation in the RIS3 network, managed by the European Commission’s Joint Research Centre.

The Operational Programme itself focuses mainly on SME support and improving their uptake of innovation.30 This is based on a needs assessment conducted by Panteia, which established that the percentage of SMEs who are developers and leaders is significantly smaller than on national average (see Table 2.5).

Table 2.5: SME Innovation Pyramid, Northern Netherlands

Netherlands

Provinces of Northern Netherlands

Innovation leaders

5%

2%

Innovation developers

17%

12%

29

Northern Netherland Provinces (2013), Northern Netherlands Research and Innovation Strategy for Smart Specialisations (RIS3) http://www.snn.eu/upload/documenten/europa/ris3/draft‐ris3.pdf [accessed 3rd July 2015].

30 Northern Netherland Provinces (2014), Operational Programme. European Development Regional Fund 2014‐2020. Prioritising innovation and a low‐carbon economy. http://www.snn.eu/upload/documenten/subsidies/subsidieprogrammas/op‐efro_summary_web.pdf [accessed 3rd July 2015].]

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Innovation adopters

19%

13%

Innovation followers

34%

43%

Non-innovators

25%

31%

Source: Panteia (2013, Innovatie in het MKB in Noord-Nederland [Innovation in the SME Sector in the Northern Netherlands].

The Operational Programme seeks to address this by tackling two main perceived obstacles to innovation: 

small businesses appear to be insufficiently capable of exploiting existing knowledge and/or generating knowledge, and



small businesses are insufficiently successful when it comes to valorising knowledge, which involves converting knowledge into new products and services.

Three main priorities have been set by the Operational Programme to address these shortcomings. 





Strengthening of human capital – including actions to: 

support clusters of businesses and education institutions to develop demand‐driven curricula that facilitate the alignment of demand for and supply of highly skilled workers (in the form of business training programmes and work placement programmes for tutors, for example);



develop structures that allow corporate R&D facilities to be used by education institutions;



support E‐portfolio systems that provide an overview of and enable the exchange of knowledge and experience within and between clusters (digital curriculum vitae with additional information about skills, references, feedback, etc.); and



set up of structures that are analogous to Centres of Expertise, or additional activities undertaken by existing Centres of Expertise and research groups.

Fostering knowledge development – including actions to: 

Support knowledge development and research by businesses working in partnership with knowledge institutions or other businesses;



assist small businesses with the acquisition of new knowledge; and



enable staff exchange among small businesses, or between small businesses and large businesses or small businesses and knowledge institutions for the purpose.

Promoting valorisation – including: 

innovation processes aimed at the development of new products, concepts, technologies and services;



testing of innovative applications in a practical environment with a view to valorisation of new technologies provided that the testing is a logical part of the innovation process; and 27

Cornwall and Isles of Scilly Research, Development and Innovation Evidence Base Report



valorisation of products and services that involves the creation or improvement of testing ground facilities designed to support innovation processes conducted by or involving the corporate sector.

Contact for further enquiries: Danny Kerstholt, T +31(0)50 5224 964, M +31(0)6 4129 2847, E‐ mail kerstholt@snn.eu , www.snn.eu (iii) South Ostrobothnia, Finland The region of South Ostrobothnia (Etela‐Pohjanmaa in Finnish) covers an area of 13,444 km2 with a population of 193,977. The region has a highly educated population, with 85.6 per cent of the 20‐59 olds having completed post secondary school qualification.31 The intramural R&D expenditure of the region was 0,66 per cent in 2014.32 The region invests in a series of ‘skill and service entities’ which will support company growth and internationalisation. These are: 

Start‐up and grow‐up! – International cooperation with other regions to support creation and growth of start‐ups;



Go global! – International cooperation in smart specialisation sectors; and



Get talent! – Investments in education to improve the region’s skill level.

Similar to C&IoS, South Ostrobothnia has a large proportion of SMEs. However only a small number of regional companies show significant growth or internationalisation trends. Export as a proportion of production was under 10% in 2012.

In the preparation of South Ostrobothnia’s Strategy for Smart Specialisation, different skill sectors and their aligned operations were identified, combining the views of business concerning sectors with development potential and that are growth seeking, and the development possibilities identified by education and training organisations.33 This mapping exercise resulted in the following smart specialisation sectors: 

sustainable food systems and new solutions for the bioeconomy: New systems and solutions for agrotechnology, new solutions in the field of bioeconomy and high added value, food systems and expert services, consumer oriented and unique products for the food stuff sector, food safety in the foodstuff production chain;



smart and energy efficient systems: User friendly and smart machines and instruments, new health technology applications, thermal management, smart and efficient logistical systems, new solutions of metal and wooden construction; and



regeneration of service and experience production: Welfare and event tourism, event production, networked welfare services.

31

Presentation at the Peer Review Workshop of the Joint Research Centre’s Smart Specialisation Platform 6‐7 November 2014. http://s3platform.jrc.ec.europa.eu/baiona‐november‐2014 [accessed on 29 April 2015].

32 Ibid.

33 Regional Council of South Ostrobothnia (2014), South Ostrobothnia. Smart Outstanding. Strategy for Smart Specialisation. http://www.epliitto.fi/images/B_64_South_Ostrobothnia_Smart_and_Outstanding_Strategy_for_Smart_Specialisation.pdf [accessed 3rd July 2015].

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Contact for further enquiries Jaako Hallila, Manager of International Affairs, Tel. +358 40 3565 630, Regional Council of South Ostrobothnia, Finland, jaakko.hallila@etela‐pohjanmaa.fi.

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3

Smart Specialisation – Agri‐tech

3.1

Introduction

3.1.1

Context

Agri‐tech (and Agri‐Science34) is probably the longest established of all Smart Specialisation sectors in Cornwall, with roots that go back several centuries to the Agricultural Revolution of 1750 onwards. Cornwall and the Isles of Scilly’s distinctive agriculture, based on its climatic advantages and mix of growing conditions, is already “specialised” in that dairy production and speciality cropping predominate economically and are rightly the starting point for thinking about a Smart Specialisation approach to the Agri‐Tech sector.

The UK has historically been a global leader in agricultural science and technology and therefore leading businesses and knowledge base institutions are well placed to compete globally, both in terms of physical and knowledge products. The Agri‐food sector is “Export” focused – an important indicator of suitability for the Smart Specialisation approach. 44% of SW primary agricultural sector output is supplied to businesses within the region (mostly producers), while the remaining 56% is sent outside the region. Only 28% of their output is then supplied in region. The majority of food produced in Cornwall will be consumed elsewhere and only a small fraction of the county’s food demand is likely to be locally supplied, reflecting the fact that Cornwall is no different from the rest of the UK, in that food is supplied through a complex set of global interactions. A more recent change (strength) in the industry is the interconnectedness of many of the businesses involved in the Agri‐food chain, with many of those connections going way beyond the boundaries of Cornwall & IoS. Many Agri‐food businesses in Cornwall are now parts of national/EU/global businesses, which was not the case 20 years ago. Examples include Dairy Crest (national brand that owns Davidstow Creamery), Sharps (owned by Molson Coors), Cornish Orchards (owned by Fullers), and Rowe Farms (owned

by Greenvale AP). Even if these businesses are not headquartered in C&IoS they do have a significant local stake and there are significant opportunities to attract at least some part of their research activities. Table 3.1 summarises the competitive advantages of UK and Cornish Agri‐tech.

34

Both Agri‐tech and Agri‐Science are specified in the Witty Report.

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Cornwall and Isles of Scilly Research, Development and Innovation Evidence Base Report

Table 3.1: UK and Cornwall Agri‐Tech competitive advantage UK

Cornwall & IoS

1. Knowledge and Status of UK Agri‐science

Internationally renowned research institutions, such as Rothamsted and University of Exeter

2. Livestock Production & Knowledge, inc.

Genetics

Dairy Genetics, longstanding research stations at North Wyke, Rosewarne & Trenoweth, IoS. Disease Management ‐ Exeter, North Wyke (also a key topic for wider South West partnerships including Bristol Veterinary School)

3. Agri‐environment & Resource Management

Internationally renowned Land Remediation expertise at Eden Project (in partnership with Plymouth University) Exeter Centre for Ecology and Conservation also has expertise on Land Remediation.

4. EU & Commonwealth Market and Scientific “Agricultural Soft Power”

Rural Business School curriculum including Internationally renowned “Challenge of Rural Leadership”

Underpinned by highly skilled workforce, institutional knowledge, strong science and research base

Cornish Agri‐food sector represents 29% of all employment

Productivity in the Agri‐food sector is fundamentally linked to knowledge. The huge ranges in primary productivity on Cornish farms are not readily explained by growing/production conditions. The difference between the uppermost and lowest quartiles can best be understood by knowledge and its intelligent application; supported by investment in human, natural and physical capital.

3.1.2

Defining the Agri‐tech sector The Agri‐tech sector is difficult to define due to the numerous direct and indirect connections to the core Agri‐food supply chain. Agri‐food can be defined as a strategic sector from which substantial social and environmental benefits flow in addition to economic benefits. A SIC led approach, therefore, does not define the sector adequately leading either to too wide, or too narrow, a definition and thus requiring an alternative approach or approaches.

Put simply, Agri‐tech can be seen as the range of hard and soft technologies that underpin the Agri‐food sector (including science and knowledge). This issue is explored further in Sections 3.3 and 3.4.

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3.1.3

The challenges for Agri‐tech The C&IoS Smart Specialisation Framework is being established at a time when the Agri‐food sector is facing an unprecedented set of challenges. These challenges include: 

climate change and resource use challenges;



changing market demands;



disease management;



increasing global competition – and falling commodity prices, for example, for dairy;



challenge of feeding a global population of 9 billion – along with growing demand for food from emerging markets, such as China and India;



niche food category growth, for example, functional and local foods;



competing land use requirements – between, for example, energy vs. food; and



resource management challenges in the face of changing climate

At the same time, land use decision making structures appear to be shifting significantly. There are indications that the traditional model of the self‐contained family farm is changing, with an increasing number of farms no longer farmed by their owners, but now farmed under various types of licence, partnership or agreement. This appears to be resulting in a small number of larger farms now being responsible for a larger proportion of land management and production decisions. Although the family farm is still a resilient model and remains widespread, some sector commentators are also noting an increased role for intermediaries and advisors, such as, Agronomists, Managers and Contractors.35 At the same time, many of these new relationships are led by other family farm units, although the process of growth this implies means that more family members are employed, more labour is taken on by these farms, and that more external advice is sought. This means that engagement regarding land use innovation may also need to change, as increasingly, this small number of farm and food business decision makers and the intermediaries who support them are taking or informing an increasing proportion of production decisions. It is possible that this might make the introduction of Innovation into the sector easier, as long as programme has a good understanding of where influence and decision‐making now lies. Academics working in this field have indicated that there is surprisingly little data and research regarding decision‐making in the sector in C&IoS, and that it would benefit from further research.

3.1.4

Economic contribution of the Agri‐food sector The Agri‐food sector is one of the largest components of the C&IoS economy, when Agri‐tech is viewed together with agriculture and its upstream and downstream connected sectors within the supply chain. The interconnected nature of these sectors mean that Agri‐tech also has

35

Academic Researchers are noting substantial change is taking place in relation to the role of the family farm. At the same time they accept that little research has been done and the data is unreliable. We therefore conclude the decision‐making structures in Cornish Agriculture and the position of the family farm is overdue empirical research.

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spillovers into many other sectors from high specification (& high value) engineering and renewable energy, to tourism and health.

The annual turnover of C&IoS Agri‐food sector is £1.4bn (Cornish Agri‐Food; 2012). C&IoS generate some 3.5% of national Agri‐food GVA. Figure 3.1 compares the C&IoS GVA derived from Agriculture (with fishing). It shows that since 1995 Agriculture GVA has remained generally constant, while that for Cornwall as a whole has doubled.

Figure 3.1: Agriculture’s nominal contribution to the Cornish Economy 1995 – 200836

The Primary sector experienced no overall growth at all over this period in nominal terms while the county’s economic output grew steadily. It is apparent that from 2005 the sector was recovering from previous declines, having fallen between 1996 and 2001.

As a result, primary agriculture’s share of the county’s GVA has fallen from 6% in 1995 to 3% in 2008. This compares with a fall from 2% to less than 1% for the UK as whole. Although at the national level some agricultural sectors have experienced improved output prices since 2008 and the contribution of the Agri‐food sector to GVA has increased slightly, Primary Agriculture’s share in this has declined.

Cornwall’s contribution to UK agriculture GVA has been fairly constant over time at close to 2%.

When using the wider sectoral definition, the Agri‐food sector provides 17.8% of GVA. When compared to its share of employment (29.1%), this shows the relatively low average value per

36

Sources ONS, via Cornish Food Economy, University of Exeter, CRPR Research Report No.32

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Cornwall and Isles of Scilly Research, Development and Innovation Evidence Base Report

job of this sector. The figure of 17.8% compares with 8.3% nationally. (Cornish Food Economy, University of Exeter, CRPR Research Report No.32).

3.2

Evidence from previous research

3.2.1

Conclusions from Catalys 2013 report According to the evidence collected for the Catalys report, Agri‐tech was regarded as an appropriate focus, with its strong strategic and place based fit. Questions however existed regarding the sector’s market, delivery and progress fit, in the longer term. The Agri‐tech focus was intended to build on existing strengths in developing Agri‐food and drink as a theme in C&IoS . Agri‐tech is intended to take forward aspects of this earlier focus to greater levels. The Smart Specialisation Theme of Agri‐tech is seen as a contributor to a wider Agri‐tech development programme developed for the SIF. Further clarifications were sought regarding: 

the potential global market opportunities that C&IoS could focus on and their potential to lead agricultural practice and supply chain developments; and



how C&IoS can co‐ordinate with other players in the UK to ensure that it is fully integrated into the delivery of the UK strategy.

The link to wider innovation support and strategy was made clear, in particular the position of the UK Agri‐tech strategy.

3.2.2

Knowledge creation and public research The place of PPRE, FSLRA and the AHDB37 were highlighted, together with the focus of joint research at that time, on cereal production, brassicas, animal health and upland management.

The report identified the importance of looking for knowledge based inputs, not only from local research activities but also from working with partners from elsewhere (for example, Devon and the SW, East Anglia, Northern England) and through work with agri‐tech platforms within the Horizon 2020 programme led by the AHDB. This was seen as vital because agriculture needs innovation to meet its challenges and therefore needs to capitalise on RD&I programme support.

It concluded that areas for further investigation should: 

clarify research that has come out of C&IoS institutions and how it has been used; and



clarify the focus of RD&I areas that could be capitalised on by C&IoS businesses.

Further findings were that:

37

PPRE – Peninsular Partnership for the Rural Environment; FSLRA – Food Security and Land Research Alliance; AHDB – Agriculture and Horticulture Development Board.

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Cornwall and Isles of Scilly Research, Development and Innovation Evidence Base Report



Intensive development over the previous (Objective One and Convergence) programme periods had contributed to a sector worth over £3bn per annum.



The innovation infrastructure explored at the time of the report is still in place. The key question identified at that time remains relevant, i.e. the degree to which the Environment and Sustainability Institute (ESI) can support the Smart Specialisation Theme and help drive economic development. The routes to sectoral engagement for other elements of the C&IoS innovation infrastructure being clearer, such as the work of Rural Business School and North Wyke, with their long standing culture of sectoral engagement.



The Agri‐tech SMART programme was seen as an opportunity with its proposed Farming and Food Business Escalator programme. Access to finance was also seen as a challenge.



The report identified the competitive advantages of C&IoS in relation to its climate, which have led to very diverse agriculture sector with experience of exporting to a global market.

The following areas were identified for further investigation:

3.2.3



add the competitive edge beyond climate; strength of livestock, scale of agricultural production and processing sector compared to elsewhere;



clarify the opportunities for further exporting from C&IoS ; and



discuss how C&IoS could work with developing countries (given that these will be an emerging market).

Nigel Jump Strategic Economics (NJSE) work on sectoral definition The NJSE report made a helpful contribution to the discussion on sectoral definitions. As previously discussed, the definition of the Agri‐tech sector is complex and a number of approaches exist. If the Witty Agri‐Tech/Agri‐Science definitions were to be adopted, the choice of themes available to C&IoS would be narrowed to only include the Dairy industry.

The NJSE report broadens the definition to support sectors, but excludes crop and animal production, which could preclude direct engagements between farmers and researchers.

Neither of the definitions specifically includes Resource Management and this could be partly addressed by widening the scope of SICs covered to include environmental consulting services.

However, SICs are a particularly poor fit to these activities, as they could be put under engineering, waste and remediation, research and potentially a number of other headings.

Finally, Aquaculture has been left within the wider sectoral definition, as the supply chains interlink as do life science research capabilities. Resource Management Efficiency developments could equally apply to aquaculture, water and land management38.

38 If the NJSE definition is widened to include environmental consulting services, and the two SIC definitions that weren’t taken forward from the Witty report (SIC 01000; 03200), the most recent estimate for employment in the sector is 690 (2013).

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Cornwall and Isles of Scilly Research, Development and Innovation Evidence Base Report

3.3

Agri‐tech in Cornwall and the Isles of Scilly This section explores the strategic importance of the sector, employment data and the structure of the sector and the innovation Infrastructure from which it benefits.

3.3.1

The strategic significance of the Agri‐food sector (including employment) Recognition of the strategic significance of the sector is key to understanding its importance.

The sector is significant for a number of factors, as it: 

provides primary and secondary food for the population;



occupies 90% of the land surface;



has far‐reaching responsibilities for resource management (particularly significantly in terms of Smart Specialisation), and



represents a large share of employment.

Therefore, simply viewing Agri‐food from a GVA perspective is insufficient, due to its upstream and downstream effects. Also, a large proportion (nearly a third) of C&IoS employment relies directly or indirectly on the sector. These responsibilities go far beyond the simple use of these resources for Agri‐food production, as its soil, air, water and energy management practices have impacts (both positive and negative) across the wider economy and society.

3.3.2

Sectoral employment Some noteworthy observations made by the team at University of Exeter in the 2012 Cornish Agri‐food economy report include: 

agriculture is responsible for about three times as much employment in Cornwall as it is generally in Great Britain;



over one third of Cornwall’s manufacturing employment is in food and drink processing compared to only 15% in Great Britain’s manufacturing as a whole;



Cornwall is particularly well represented (in employment terms) in the processing and preserving of meat and production of meat products and the manufacture of bakery and flour based products and to a lesser extent in the manufacture of dairy products;



45% of the county’s wholesaling employment is food and drink related compared to only 21% in Great Britain as a whole; and



employment in supermarkets outnumbers employment in specialist food retailing by a margin of 5.4 to 1 but this is actually a stronger specialist food presence than the GB equivalent figure of 6.5 to 1.

The data on employment needs to be assessed carefully, due to the large number of different sectoral definitions that exist. For example, based on a slightly extended version of the NJSE definition total employment in the Agri‐tech sector in Cornwall and the Isles of Scilly is

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estimated to be 690. Table 3.2 provides an interpretation of the broader Agri‐food sector employment, showing a relatively even spread across the food supply chain.

Table 3.2: Agri‐food Sector Employment39

Whole economy

Non agri‐ food

Core agri‐ food

Secondary food

Food related

1:

Agriculture, forestry and fishing (A)

12,400

12,400

2:

Mining, quarrying & utilities (B,D, and E)

2,900

2,900

3:

Manufacturing (C)

18,300

11,800

6,500

4:

Construction (F)

12,100

12,100

5:

Motor trades (Part G)

4,300

4,300

6:

Wholesale (Part G)

8,200

4,500

3,700

7:

Retail (Part G)

28,600

14,700

2,200

11,700

8:

Transport & storage (inc postal) (H)

8,500

8,500

9:

Accommodation & food services (I)

26,700

15,800

10,900

10: Information and communication (J)

2,600

2,600

11: Financial & insurance (K)

2,800

2,800

12: Property (L)

3,600

3,600

13: Professional, scientific & technical

9,800

9,800

14: Business administration & support

9,200

9,200

15: Public administration & defence (O)

9,000

9,000

16: Education (P)

20,100

20,100

17: Health (Q)

27,500

27,500

18: Arts, entertainment, recreation &

12,000

12,000

218,600

155,400

24,800

27,500

10,900

100%

71%

11%

13%

5%

(M)

services (N)

other services (R,S,T & U)

Column Total

Percentage of whole economy

39

Source: Cornish Food Economy, University of Exeter, CRPR Research Report No.32

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According to this data the Agri‐food sector supports 29% of Cornish employment; 11% of which is core Agri‐food, with the remainder in processing and retail. These figures could be reinterpreted to show that 19% are in fact customer facing, with only 6% in Primary Agriculture.

The fact that Agri‐food is of greater importance to the Cornish economy than for the UK as a whole can be seen from the fact that Agri‐Food employment in C&IoS is double the national average (29.1% vs. 15% for the UK).

In addition, employment in Cornish Primary Agriculture is three times the UK average (in line with the position on GVA).

The Agri‐tech employment quotient, of between 2 & 3, is also significantly positive (BIS, Andrew Witty Review of Universities and Growth; October 2013).

3.3.3

Agri‐tech Research and Development and Innovation Infrastructure Agri‐tech Innovation cannot be solely viewed from a C&IoS perspective as there are also important connections at regional, national and EU levels. It is not the purpose of this report to document all such connections, however, the following gives an idea of the breadth of these other levels of support: 

North Wyke – is part of the internationally renowned Rothamsted Research. The research station is based at Okehampton in Devon and is a pre‐eminent national centre for grassland research. N Wyke is actively involved in wider partnerships, for example, with RBS on the proposed Centre for Innovation and Excellence in Livestock (CIEL; see below). N Wyke holds regular events and discussion groups for the industry and works on a number of specific collaborations (although it is thought that few farmers engage with these groups). Most recently, the centre has invested £3m in establishing Farm Platform, a long‐term field‐based research initiative funded by BBSRC and supporting research into Beef and Sheep systems;



Sustainable Intensification Platform (SIP) – led by University of Exeter, nationally funded; 5 centres, including N. Wyke and Duchy Future Farm;



Agriculture and Horticulture Development Board (AHDB) – producers pay a levy to the AHDB in order to support sectoral development, promotion and research. For example, most research done on behalf of Cornish Bulb Growers is carried out through this mechanism (and mostly outside the county);



Environment and Sustainability Institute (University of Exeter) – established by the University (supported by the Convergence Programme) at the Tremough site, Penryn, the centre provides an interdisciplinary facility to tackle environmental challenges. It includes research capabilities for UAVs (drones), wave power and pollinators, inter alia;



Food Innovation Centre, Duchy College – a facility established to support food and drink businesses with the product development and business support;



Teagle – a private sector agricultural engineering business with a significant research function;

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

Centre for Innovation and Excellence in Livestock (CIEL) – A partnership between N Wyke, RBS and other main sources of Livestock research and innovation, have been awarded the status of national centre for livestock innovation, along with funding from the UK Agritech Council. The award was made in September 2015 and consequently detailed plans are yet to emerge. However, it is very likely that Farm Platform and Future Farm will play a central role;



University of Exeter ‐ a wide range of relevant competences distributed across a number of faculties. This includes the College of Life and Environmental Sciences, including the Centre for Ecology and Conservation which is based at the Penryn Campus; and the Centre for Rural Policy Research; and



European Innovation Partnership (EIP‐AGRI) – aiming to bring farmers, researchers and other Agri‐food supply chain stakeholders to focus on real world agricultural problems.

This short summary shows that significant support already exists for Agri‐tech/Agri‐food chain innovation. The clear inference to be drawn is that any support from C&IoS S3 budgets should add value to those things that are already happening. An example might be to extend the Farm Platform principle in Cornwall from the North Wyke site by establishing similar field‐based research for the dairy sector, adding value to the beef and sheep focused work undertaken by Rothamsted.

3.3.4

Agri‐tech focus within C&IoS Smart Specialisation Programme It is important to strike a balance between breadth and focus at this stage in the development of the S3 programme. Given the large size of the Agri‐food sector in C&IoS and its fundamental connections to many other sectors, it is important to set meaningful boundaries for Smart Specialisation. At the same time, a five year programme would be unwise to specify the field of search and encouragement too narrowly, as innovation that drives productivity improvements could come from any part of that supply chain.

Agri‐Tech has been set as a thematic priority, not simply because the narrowly defined priority represents the most realistic opportunity for Smart Specialisation, but more importantly, for the productivity and competitiveness benefits that successful innovations in this sector can have across the Agri‐food supply chain. C&IoS approach to Agri‐tech Smart Specialisation should aim to work within a broad definition, being led by judgments on the functionality of the innovation proposed and the difference it will make to the sector, rather than binary sectoral definitions.

Smart Specialisation Innovation in Agri‐tech occurs at the interface between real supply chain businesses and knowledge base institutions and could be driven from any point in the supply chain. For instance, it could be driven by issues relating to primary production, such as disease management and precision production, upstream market pull factors, downstream environmental or inputs innovation. A wide sectoral definition is necessary that encompasses all the above sectors as primary production, secondary processing, food supply chain, machinery and engineering, energy, land‐use choices and resource management are all germane to C&IoS ’ Smart Specialisation approach to this strategically important sector. Adopting wider sectoral definition will necessitate intelligent governance and management of the Smart Specialisation support to ensure the choices made are best value for C&IoS and the sector.

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3.3.5

C&IoS Agri‐Tech Smart Specialisation themes The evidence collected mostly supports the priorities chosen by the E SIF process. The one exception was the “Plant Health” priority, which was discussed at the workshop and it was concluded that it should be more precise and more supply chain‐focused, in line with the other two priorities (see below).

The priorities also reflect the range of the sector, whilst being focused on those areas where innovation can make the most difference. The need for balance referred to in the previous section is also is reflected: 

animal health and welfare in dairy cattle;



resource efficiency in the production process; and



improving the productivity of Speciality Crop Production (formerly Plant health).

3.4

Markets – competition and demand

3.4.1

Overview and market parameters As previously discussed the Agri‐tech sector is broadly a support function of the wider Agri‐food sector. Agri‐science also plays a supporting function from a largely research perspective.

The appetite and therefore the market for Agri‐tech by Agri‐food sector businesses is variable.

This variability is due to a number of factors relating to the attitudes and motivations of business decision‐makers. Interest in innovation‐related investment can also be affected by level of education, ability to invest, size of enterprise, experience of previous investment, as well as the availability and appropriateness of information provided to sector businesses and businesses’ capacity to absorb and process such information.

The market for Agri‐tech innovation is further defined by a wide range of market conditions (for example, price, volatility, security of supply, changing tastes and regulation) that act upon the Agri‐food sector. These market conditions include those for: 

primary agricultural products, such as crop and livestock products sold direct to consumers with minimal processing, for example, potatoes, fresh meat, cut flowers and bulbs;



secondary “processed” product, encompassing all food stuffs, including processed products, such as sausages, cheese and other dairy products and consumer ready products such as pasties and ready meals;



consumer facing food provision, for example, through retail, food service and other hospitality;



market segmentation, including speciality niche development, such as the markets for functional foods, nutraceuticals and “local food”;



costs and availability of agricultural inputs, such as fertilisers, pesticides, herbicides, machinery and equipment; and 40

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

societal expectations of the sector, for example, provision of amenity and tourist “facilities”, resource management, waste management.

In addition, Agri‐food supply chain is subject to a range of global factors, which will fundamentally change the food system. According the UK Agri‐tech Strategy, “In the next 20 years, the global food system will face challenges that are unprecedented in the history of agriculture.”

Cornwall also faces its own challenges, including: 

access to markets – cost is added due to its relatively “peripheral” location;



amenity concerns and tourism “conflicts”; and



competition for land between agricultural and non‐agricultural uses.

Given this wide range of requirements on Cornish Agri‐food sector businesses it is unsurprising that sector businesses struggle to manage this range of requirements; particularly smaller businesses, who comprise a significant majority of sector and investment in RD&I is consequently low.

Despite this, even in the primary commodities market growth is possible – if “prepared, export oriented and competitive” (quote from Head of German Dairy Farmers). The strong position of the more efficient Cornish dairy producers bears this out.

Taking advantage of these opportunity for growth and success in the Agri‐food markets is primarily a function of knowledge of supply, production and markets. Increasing Agri‐food Productivity is fundamentally linked to the effective employment of knowledge. The following sections explore the supply and demand side drivers.

3.4.2

Key supply‐side drivers of Agri‐tech innovation The need for innovation in the sector is as great now as at any time in recent history. The reasons for this can be summarised as: 

Balancing demands – farmers have a wide range of issues to consider and regulation to understand and with which to comply. It is often challenging for producers to navigate these competing demands, particularly for small farms. Support from advisors and membership organisations is crucial and producers have long relied on such support.

Meeting these new challenges requires that farmers increasingly look beyond the strict boundaries of the sector for answers; for instance, to innovation support. Dairy UK note the dairy sector is technologically complex and requires continual technological development to maintain product safety, improve efficiency and sustainability. Market growth is likely to be a combination of demand and supply driven approaches;



Product development – the Agri‐food sector requires constant innovation in terms of the product that is brought to market. Consumers are influenced by novelty and producers and retailers in the very competitive food sector are constantly looking for innovations that provide a market edge. Product Innovation is not limited to the secondary processing, but

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Cornwall and Isles of Scilly Research, Development and Innovation Evidence Base Report

includes primary products, for instance, functional foods including milk and organic products; 

Rising costs and declining availability of inputs – (for example, inorganic fertilisers are rising in price, whilst prices for goods from the farm are not). The availability of essential minerals such as Phosphate is declining with some estimates of “Peak Phosphorus”, after which point availability can only decline, being reached in 2030. Supply constraints will have a continued upward pressure on prices and downward pressure on margins, further reducing agriculture profits;



Carbon footprint of agriculture – according to ONS, the Agri‐food chain is responsible for 15% of the UK’s Greenhouse Gas emissions, with 50% of those emissions generated through production. Ruminant production and tillage based crop production are both strong contributors to the “Carbon Footprint” and research will need to intensify to help reduce these levels considerably, if UK carbon targets are to be met40;



Disease management – one of the biggest challenges for businesses in the sector is the management of animal and plant diseases. The Foot and Mouth epidemic of 2001 showed how profound an effect animal disease can have on the economy as a whole. The largely negative public response to the bovine TB control measure of trial badger culls also show how politically sensitive disease control can be. In addition, existing disease control practices are now in question, such as prophylactic use of antibiotics. Also, the list of licenced agro‐chemicals is declining, as the number currently in use are banned at a faster rate than substitutes can be brought forward by the industry. One such are neonicotinoids, implicated in bee decline. These widely used chemicals are effective against a broad range of insect pests, with no ready replacements;



Resource efficiency will also be a driver of market growth. There will be growing demands for greater efficiencies in yields due to impacts on land, energy and water resources. The Agri‐food supply chain is a resource intensive sector with heavy use of natural and synthetic resources. Focused initiatives to drive Resource Efficiency throughout the supply chain could bring significant benefits. Other aspects of Resource Efficiency include integrated approaches to weed, disease and pest management and waste and Greenhouse Gas reduction in products and processes in the food chain;



Precision farming – an important element of resource efficiency is managing inputs, so that only the minimum is used. This can be challenging, particularly as information required for efficient use of pesticides and herbicides is based on early identification of problems. For instance, a crop pest infestation may only be recognised once they have spread leading to the need for far more (and more costly) chemical treatment. Innovations that enable farmers to monitor and spot problems early, such as may be possible by coupling UAVs and mobile technology could be of wide benefit;



Common Agriculture Policy (CAP) – is the key policy instrument in the agricultural sector.

The CAP has many supporters, who believe it has a positive to benign effect in maintaining family farms, promoting green actions by farmers and maintaining the quality of life in rural

40

Acording to the report “Cornwall 2008 Greenhouse Gas Inventory”, core agriculture’s (i.e., narrower than the Agri‐food chain definition adopted in this report) contribution to the county’s greenhouse gas emmissions is 16%.

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areas. Its critics see it as having distortionary effect on the markets related to land and farming; and provides perverse incentives to the sector, undermining its competitiveness; and 

3.4.3

Agri‐environment – one of the key elements of the CAP is the Agri‐environment system, indeed, in the longer term, as support payments decline, the Agri‐environment system may be the only remaining source of state support to agriculture. In the next programme period further research is required in developing evidence based approaches to valuing ecosystem goods and services.

Key demand‐side drivers of Agri‐tech Innovation The market for Agri‐food products is increasing year on year and the market place is becoming more segmented. Cornish producers are already focused on export, both within the UK and further afield, and export markets are changing at a particularly fast rate.

Food, energy and non‐food sectors are all dynamic markets, where product innovation is essential to meet consumer expectations. The previous section discussed the importance of sector information; enabling the producer to compete as an informed player at the dynamic “interface” between producers and their markets. Consequently, a range of supply side drivers need to be understood in order for the producer to position themselves intelligently: 

rising incomes in emerging markets – demand from developing/emerging economies for “western” foodstuffs, including burgeoning dairy demand in China (although increasingly met from their own domestic sources);



increasing Domestic Food Market Segmentation – including parallel growth of discounters and premium retailers;



the bio‐economy could contribute over $1 trillion of Gross Value Added (GVA) in OECD countries by 2030, 36% coming from primary agricultural production;



there will be growing demands for greater efficiencies in yields due to impacts on land, energy and water resources;



food security is an issue of international concern; the global food system will experience an unprecedented confluence of pressures over the next 40 years;



rising population will be a key driver of demand. The UN forecasts that global food production will need to increase by over 40% by 2030, and 70% by 205041. The world market is noted as increasingly likely to shape the UK dairy commercial environment42 (important to Cornwall). Global demand for dairy products is predicted to grow by 15% between 2012 and 2020, equivalent to an annual growth rate of almost 2%;



the global market for agricultural inputs is currently estimated at $400bn with prospects of high growth;

41 42

http://www.un.org/waterforlifedecade/food_security.shtml Dairy UK White Paper 2012

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3.4.4



the UK Agri‐tech Strategy states that the UK has been a world leader in agricultural sciences and is therefore well placed to continue working on the global challenge of ‘sustainable intensification’ (doing more for less); and



global demand for dairy is predicted to grow by 15% between 2012 and 2020.

The importance of market information Accurate market information is critical to successful innovation. Important sources of Agri‐food “big data” are available from a number of sources. One of the best known is Dunhumby, who have access to the Tesco Clubcard data and provide briefings on consumer trends.

The understanding of consumers, consumer behaviour and trends is critical to effective Agri‐ food sector development. Consumers have wide range of choice and are very mobile, with relatively low levels of loyalty. Consumer Science offers such insights and an appreciation of its lessons is one precursor to effective innovation.

Further information on the factors around the long term future of the food supply chain are the subject of investment in the UK Agri‐Tech Strategy. The Strategy will support the establishment of the Centre of Agricultural Informatics and Metrics on Sustainability (AIMS) at the Rothamsted site in Harpenden, supported by a national partnership, which will become a primary source of this type of data, recognising the proliferation of ‘big data’ and importance of performance indicators to understand and achieve sustainable intensification on farm. The data available to researchers and the sector as a whole will soon be increased as Defra plans to release more sector data. Cornish Agri‐food researchers and businesses now have an opportunity to engage in the commercial exploitation of this data.

3.4.5

UK Agri‐tech strategy and related investments The UK’s current status draws on investments in the earlier decades. The Agri‐Tech Strategy aims to reverse this decline.

Funding of £160 million total Government investment (£10m for DfID). This is made up of:



£60m ‘Agri‐Tech Catalyst’43 administered through Innovate UK and BBSRC for academic/industry partnerships, including SMEs. There is a rolling funding call for applicants;



£90m over five years to set up Centres for Agricultural Innovation, aligned to sector priorities, to help businesses develop, adopt and exploit new technologies and processes.

They will be national focal points and sources of expertise and training accessible to farmers and advisers; and



£10m Centre for Agricultural Informatics & Metrics of Sustainability (AIMS).

43

https://connect.innovateuk.org/web/biosciencesktn/agri‐tech‐catalyst

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3.4.6

Other relevant commitments: Sustainable Agriculture and Food Innovation Platform (SAFIP) ‐ £90m government investment over five years (2010 – 2014) in the Innovate UK Sustainable Agriculture and Food Innovation Platform (SAFIP). This initiative (co‐funded with Defra (£30m) and BBRSC) supports industry led R&D to stimulate innovation across the food chain.

Agri‐food Knowledge Transfer Partnership ‐ A new £2m TSB‐led Agri‐food supply chain themed Knowledge Transfer Partnership initiative opened in June 2014 in partnership with Defra, Research Councils and other government departments. The scope is innovation for consumer health, wellbeing and choice; improving productivity, resource efficiency and resilience in the supply chain; and assuring safety and security across the supply chain.

Global Food Security programme ‐The Global Food Security (GFS) programme helps coordinate food‐related research and associated activities across the major public sector funders (Research Councils, government departments, devolved administrations and the TSB). GFS is coordinating Action 1 of the Agri‐Tech Strategy, and maps spending on Agri‐tech research across the public sector.

Sustainable Intensification Research Platform‐Defra is investing £4.5m over three years in the Sustainable Intensification Research Platform. This will bring together a range of experts, stakeholders and policymakers to investigate means of increasing food production in England and Wales while reducing environmental impacts and enhancing ecosystem services.

3.5

Enterprise

3.5.1

Defining sector enterprises With a sector as broad ranging as Agri‐tech/Agri‐food/Agri‐science, there is little point in attempting to count the number of businesses. The range in business size also makes this even less meaningful. The following example demonstrates how misleading it can be to use standard approaches to counting businesses: The dairy sector – according to AHDB there were 469 dairy farms in Cornwall (with 132,000 dairy cattle) in 2013. Although a number of smaller processors exist, such as Trewithen, Callestick and Rodda’s, the majority of the milk produced is purchased by Arla (the largest dairy Co‐op in the EU) and/or the Davidstow Creamery, run by Dairy Crest – who are headquartered in Surrey.

3.5.2

Engagement by sectoral businesses in previous programmes Agri‐food sector businesses have a successful track record of engagement in previous programmes. For example, The Objective One programme provided initial guidance to 2,023 rural businesses and in depth support to over 120 rural businesses up to September 2008. In addition to this, projects to support Agri‐food businesses secured over £68m for projects as diverse as cheese processing and machinery sharing.

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3.5.3

Agri‐tech sectoral characteristics The sector requires a broad range of higher value skills and disciplines – engineering, science, natural resource management, e.g., soil and water, animal husbandry, crop management, project management, diversification, customer orientation and finance. Some of these disciplines are “core” sector skills, whilst some such as soil science are generic and others are shared with other sectors, for example, customer orientation.

Whilst there is a good track record of engagement in discussion groups and other knowledge interactions, it is also true that the majority of sector businesses currently have low levels of awareness and low levels of interactions with the knowledge base. In innovation theory terms, the sector has a number of larger businesses, which are “early adopters” and engage with RD&I and this is particularly true in the dairy and speciality crop sectors. A larger number of farmers do not engage in this way and the beef and sheep sector is a sector where engagement in RD&I is currently low, despite the proximity of N Wyke and the significant need to address issues with significant science element, i.e., the management of diseases such as Bovine TB. There are important spillover effects as new technologies and processes developed in Agri‐tech have applications in other manufacturing sectors. One such sector is large scale engineering, as agricultural engineering skills are generic and can be deployed in the renewables and automotive sectors. This is demonstrated by Teagle’s, an agriculture machinery and engineering company that has branched out into other areas of high specification engineering including high spec automotive. Another important spillover is the attractive environment provided for the tourism sector and the role it plays in resource management, e.g., ensuring clean safe water supplies.

The financial position of many farms is weak and, particularly in the small to medium size range, there is a great dependence on CAP payments, which can account for 50% of income. Many such farms are not making profits but simply living on overdrafts and capital value. The sector is losing these weaker operators when they choose to leave the industry or following financial crisis.

Looking further into the trends within the dairy sector; dairy farmer numbers are undergoing a long term decline. This is an industry‐wide international phenomenon and is a consequence of improving productivity in the sector. At the same time, the increase in average herd size is also a long‐term trend, although the rate of increase is now falling. Productivity improvements mean that the sector still produces sufficient milk for the market, with fewer farmers and fewer cows.

3.5.4

Culture and practice of business collaboration with the knowledge base The agricultural sector has a well‐established culture of knowledge base engagement through discussion groups and the long standing practice of “agriculture extension”, i.e., the deliberate process of knowledge transfer to the “field”. Cornish Agri‐food sector businesses are well used to this sort of knowledge transfer, although distance from the main centres of agricultural research probably limits the extent of knowledge transfer; a factor that Objective One and Convergence Programmes have sought to overcome. Sector businesses tend to be interested in

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engineering technological innovation and in chemical innovation. There tends to be less interest in issues such as environmental impacts of agrochemicals, marketing and consumers.

Cornish businesses are also accustomed to sourcing innovation and knowledge‐based support from outside the county. This is particularly the case with small speciality sectors, such as the bulb growers. Growers in this sector provide a levy for research, promotion and marketing to the Horticulture Development Council; HDC, (now in the process of being absorbed into the Agriculture and Horticulture Development Board; AHDB). Growers can choose to engage in additional research and discussion groups.

Rural Business School has undertaken extension activities in the last RDPE programme, such as the SWARM Hub (South West Agriculture and Resource Management), North Wyke holds a series of events to help farmers understand their work and to receive input from the industry regarding research plans.

The Objective One and Convergence Programmes and RDPE have supported Discussion Groups on a wide range of agricultural sector improvement activities. They were popular with the farming sector and were thought to be effective. Comments were made in the consultation process that this practice has been lost and farmers missed the opportunity to meet in this way.

Whilst these Discussion Groups came to an end with the wind down of the previous programme, some groups do still meet and discuss the issues faced by the sector. Examples include the Dairy Co discussion group, Sou’Westers Horticultural Group and the “Huers” group which meets three to four times per year for sector wide discussion.

The Food sector elements of the Agri‐food supply chain are however less used to such collaboration and knowledge exchange. Although there is evidence of local food producers working together to encourage “cluster” relationships, for instance, the Bodmin Food Cluster brings together local producers and is developing its ideas for a Food Innovation Hub. The Bodmin Food Cluster has also promoted engagement with University of Exeter researchers, who have been successfully deployed with local businesses to tackle knowledge based issues, for instance in tackling food technology questions.

The Convergence Programme has also supported local producers in tackling materials sourcing.

Through this support Ginsters’, for example, have been able to increase substantially the proportion of local raw materials that are included in their products.

The Agri‐food sector is in a state of substantial structural change, with a process of amalgamation and agglomeration going on, much of it unseen. There are now substantially fewer active farmers in the real sense. Many sectors, particularly those that require high levels of capital investment, such as potatoes and dairy, are now dominated by larger farming “companies”, which are consequently fewer in number. Land is licenced in a variety of ways in order that subsidy payments can be maintained by the “nominal” farmers, whilst the main farming activities are undertaken by this small number of large concerns. Consequently, a small number of influential (sometimes new) players now make a large number of agricultural decisions.

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Table 3.3: Enterprise enablers and barriers Enablers

3.6

Barriers

Appetite and evidence of innovation and investment by Agri‐tech businesses

Lack of business awareness of market opportunities to prompt RD&I

RDPE – grants for agricultural developments innovation and skills

Perceived and real bureaucratic challenges

Active and well established business networks that are active in the sector – Cornwall Agri‐food Council, NFU, CLA; all engaged in Agri‐Tech

Decline in business networking and discussion groups, although some sectors, such as dairy still retain good numbers of groups.

Experience of extension (Agri‐tech innovation) support schemes to build on – e.g., SWARM – South West Agriculture and Resource Management; (although there is a need to evolve these mechanisms to meet current concerns).

Age profile of land owners – tend to be the oldest generation in control of the real estate – risk averse

Investment in innovation and new technology has the potential to reach a number of sectors – spill‐over effects

Limited to higher level businesses

Knowledge creation Cornwall and IoS benefits from a broad spectrum of knowledge assets and networks, with important connections to wider regional and national research and knowledge. The following section summarises these assets.

3.6.1

Knowledge base institutions One of the defining features of the sector in Cornwall is the wealth of knowledge, research and training institutions. Most have been introduced previously: 

Rural Business School (Duchy College, Rosewarne, Bicton College), including Food Innovation Service at Duchy and Horticulture capabilities at Rosewarne; now working in formal association with Cornwall College;



North Wyke – although in Devon, the N Wyke site is part of the research infrastructure that supports Cornish Livestock Production through its Beef and Sheep focused Farm Platform. N Wyke is the leading site globally for temperate livestock management systems, including field by field input‐output monitoring. It is a primary source of livestock “Big Data”;



Falmouth University – although the University is primarily focused on a Creative Industry syllabus, there is potential for inter‐disciplinary research;



University of Exeter – the Exeter based researchers retain a strong interest in Cornwall, and Cornish Agri‐tech, with active researchers across a number of faculties. For example, 48

Cornwall and Isles of Scilly Research, Development and Innovation Evidence Base Report

reflecting the strength of UoE’s expertise in this area, Cornish Agri‐Food Council twice commissioned Centre for Rural Policy Research (CRPR) at UoE, working with Cornish Food and Drink, to produce a report on the Cornish Food Economy; ; as well as significant disease transmission research on badgers and TB and bats and rabies; 

Environment and Sustainability Institute (ESI) Interdisciplinary research and innovation centre at Tremough campus – also run by University of Exeter;



Plymouth University – Plymouth are active in innovation support and run several relevant programmes, such as the Enterprise Solutions Team and the Growth, Acceleration and Innovation Network (GAIN); and



Eden Project – the Eden Foundation has a significant research capability with regard to Horticulture and land remediation with a global reputation.

Another notable strength of Cornwall’s Agri‐tech/Agri‐food knowledge base organisations is that collaborative partnerships are already in place between many of these institutions, through for example the Peninsular Partnership for the Rural Environment (PPRE) and the Food Security Land Rural Alliance (FSLRA).

PPRE is a collaboration between Duchy College, N Wyke, and the Universities of Exeter and Plymouth. Amongst other achievements, PPRE has been responsible for establishing the SWARM Hub (South West Agriculture and Resource Management Hub), which provided online support on resource management issues to farmers (funded through the EAFRD 2007‐13 Programme).

FSLRA involves most PPRE partners with the addition of the Universities of Bristol, Bath and Cardiff. This is primarily a platform for collaboration between researchers, but also has the capacity to engage the wider industry. The University of Bristol has important capabilities in the Veterinary School, for example in addressing animal disease and welfare, identifying new tools in the fight against key diseases such as Bovine TB. 3.6.2

Knowledge assets Cornwall benefits from some long established knowledge base institutions, which represent a great resource for the region, particularly the long established research facilities at N Wyke and the relatively new ESI (Environment and Sustainability Institute; University of Exeter) facility at Tremough. In addition, the body of research undertaken through the Universities of Exeter, Plymouth and Falmouth and other research institutions, together with the resident MSc & PhD students, Post Docs and Principal Investigators represents a significant resource of knowledge assets for Cornish Agri‐food chain. Rosewarne is also historically a research centre, and whilst little research is undertaken there now, the data and the plots from which they were derived represent a potential resource.

Agri‐tech and Agri‐science depends on long run data and the fact that Rosewarne and N Wyke both have over 50 years each of continuous monitoring data on which to base new research.

The fact that these research stations are still in place (albeit under different management) is a significant advantage to the sector, as any future research can be undertaken against the backdrop of many decades of directly comparable data. Although, the term “Big Data” did not 49

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exist when these Research Stations were set up (by MAFF and Fisons’ respectively), this is what has been established at these sites and it is a critical resource.

The research assets of North Wyke have been further developed by the establishment of the “Farm Platform” at N Wyke. Farm Platform has established 3 beef “herdlets” at N Wyke, which are managed separately, enabling different treatments to be examined in parallel. This is supported by monitoring stations positioned on every single field, enabling that inputs and outputs to be monitored in great detail. RBS has established a parallel initiative ‘Future Farm’ which establishes similar capacities for the dairy sector.

In September 2015, it was announced that Duchy College and North Wyke have secured agreement from the UK Agritech Leadership Council to be the South West node of the UK Agritech Centre for Innovation Excellence in Livestock and Dairy. This is a significant development for Cornwall and IoS and should influence RD&I investment in this sector, as it further strengthens the SW capabilities in livestock research and innovation. The implications of this announcement are that the UK government, via the Agritech Leadership Council, will be supporting applied research and knowledge exchange in livestock management in Cornwall. In terms of Smart Specialisation, this confirms and further strengthens the priority already indicated towards the livestock sector.

One further specific example of Cornwall’s knowledge assets is the Farm Business Survey. This is a national agricultural “big dataset”, and is the most authoritative dataset of Farm Business metrics available in the UK. Rural Business School plays a leading role in the collection and analysis of this data, which means Cornwall‐based researchers are on hand to assist Cornish Agri‐food/Agri‐tech businesses to gain an understanding of industry metrics and can offer national comparators. As the FBS has been running uninterrupted since 1936, it is also “long run” data. RBS partners in the delivery of FBS include the UK’s leading agricultural research institutions, such as Reading, Newcastle and Cambridge Universities.

3.6.3

Knowledge base institution collaboration Cornwall benefits from knowledge base collaborations; and PPRE and FSLRA have been referred to in the preceding sections. This demonstrates that the culture of collaboration between knowledge base institutions is already well established. Another positive indicator is that the knowledge base institutions are already well networked into national partnerships, such as the Rural Business Research partnership that delivers the Farm Business Survey, amongst many others. A further significant collaborative innovation initiative is the Sustainable Intensification Platform. Running from 2014‐12017, it is led largely by University of Exeter in the South West and is the largest specialist group of its kind in the UK. Rural Business College, which is itself a collaboration between colleges, has established a further partnership with Cornwall College, deepening the collaboration further between HE and FE institutions. It is evident from past activity and from the consultation that research institutions can use Cornwall as a laboratory from which to lead practice nationally and internationally. The challenge for the programme will be to demonstrate how this can be turned more clearly to the benefit of the Cornish economy. Finally, the Intermediaries – such as the highly qualified

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agronomists and advisers, should be connected into the innovation networks, so that support targeting can benefit from their insight.

3.6.4

Knowledge sharing and leadership The previous sections show that the culture of knowledge sharing is relatively well established in Cornwall and the Isles of Scilly in the Agri‐food/Agri‐tech sector. It does also make it clear that the sector is changing and that knowledge transfer and innovation support will need to be responsive to these changes.

Cornwall and IoS is fortunate in having a leadership group where these issues can be discussed; the Cornwall Agri‐Food Council (CAC). The CAC is a Stakeholder group that effects coordination and communication between the industry, the knowledge base and the public sector. Although Cornwall has a wide breadth of knowledge based institutions and networks, none is directly tasked with providing focus for the RD&I for Cornwall as a whole.

Table 3.4: Knowledge base summary of enablers and barriers Enablers Barriers Cornwall is well served with Animal and Plant Diseases – poor disease status research/innovation and teaching institutions, reduces marketability, regulation reduces agro‐ e.g., RBS, ESI, Eden chemical availability Established relationships with high level Lack of awareness of knowledge and research expertise in the wider SW & national capabilities and opportunities for collaboration knowledge base – e.g. University of Exeter, N amongst majority Wyke, Rothamsted, AHDB Existing leadership and collaboration Leadership & collaboration could be partnerships are strengths, e.g., PPRE, FSLRA, strengthened further to bring research & CAC innovation priorities closer to the sector Wide range of innovation/knowledge assets, Access to “new decision makers” – ,i.e., e.g., Farm Platform, Future Farm, FBS Intermediaries, contractors Emerging national programmes – e.g. UK Agri‐ Sector dominated by large numbers of micro‐ tech programme & centres such as AIMS & CIEL SMEs & sole traders ‐ time poor & low levels of business investment, inc. innovation

3.7

Capital

3.7.1

Introduction For the Agri‐tech sector the innovation infrastructure is intimately connected to the knowledge base infrastructure. For example, Rural Business School encompasses the resources for knowledge creation, support for innovation and support for skills development. The same is true for other PPRE and FSLRA partners, such as Universities of Exeter and Plymouth.

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The development of an innovation culture can also be supported through generic business support interventions that also apply to Agri‐Tech, for example, SWMAS, UKCES and KTPs44.

3.7.2

Investment and Access to Finance Access to finance for the Agri‐food sector is generally the same as for other sectors, although some different rules apply for primary and secondary processing (so called Annex 1 and 2 products) and grants for their production should satisfy agricultural state aid rules.

The Rural Development Programme for England (RDPE) includes capacity to make grants to Agri‐ Food sector businesses, including innovation.

Farm businesses are fortunate in that although land ownership carries burdens, it can also be used as collateral in loan and overdraft security for innovation investments made by land owning producers.

3.7.3

Investment in innovation The support enjoyed by this sector has already been discussed, in particular the UK Agri‐Tech Strategy and the extent to which RBS and others are collaborating on their CIEL proposal for Agri‐Tech Strategy support.

Further support is available from the Countryside Productivity Scheme (part of the RDPE).

Known the EIP‐Agri, they are part of the EU’s coordinated support for Innovation (EIP = European Innovation Partnership). EIP‐Agri grants is aimed at collaborative groups of farmers, researchers and Agri‐food businesses, amongst others.

It is also notable that sector businesses are making direct investments in innovation and development, such as: 

Davidstow Creamery ‐ £34 million investment in novel approaches to milk separation and treatment, to produce a de‐mineralised whey product;



Trewithen Dairies – has invested in updating its facilities to maintain its BRC Grade A factory accreditation (first gained in 2005);



Cornish Bulb growers – in addition to their investment in research through the Levy Boards, also invest in additional research through AHDB and HDC; and



Agricultural Levy Boards Many farmers make investments in research through payments to the Boards; which are coordinated through the AHDB.

The support enjoyed by this sector has already been discussed, in particular the UK Agri‐Tech Strategy and the extent to which RBS and others are collaborating on the Centre for Innovation and Excellence in Livestock (CIEL) which has been awarded UK Agritech Council support in September 2015.

44

SWMAS – South West Manufacturing Advisory Service; UKCES – UK Commission for Employment and Skills; KTP – Knowledge Transfer Partnerships

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Looking forward to the investment that might be made through the programme, it will be critical that any smart specialisation investment is made in the framework of an appropriate governance and advisory structure. This should engage public and private sector (including research institutions) and build where possible on existing structures. See section 3.7.5 on governance and networks.

3.7.4

Skills Skills for business led Agri‐tech Innovation are largely limited to the larger businesses and intermediaries.

Innovation support programmes, such as those run through the universities and outside providers can support skills. Examples include Oxford Innovation and work carried out by the University of Exeter across Agri‐food and related sectors.

Rural Business School focuses on more practical level skills. In partnership with Cornwall College and Bicton Earth Centre they are now offering a wide range of sectoral courses in traditional and growth areas, such as renewables installation. Practical skills investment needs to be delivered alongside investment in innovation and entrepreneurship, to promote the creation of opportunities for growth.

CPD of researchers, practitioners and advisors could be developed to provide basic training and benchmarking in innovation skills.

3.7.5

Governance & Networks Effective innovation, according to the S3 model, relies on networks that operate within a system of governance. Cornwall has governance systems in place including the Cornwall Manufacturing Forum, Cornwall Agri‐Food Council and local branches of the CLA and NFU. The challenge will be in ensuring that they form an effective network for S3.

Table 3.5 : Capital enablers and barriers Enablers

Barriers

Appetite and evidence of innovation and investment by agri‐tech businesses

Lack of business awareness of market opportunities to prompt RD&I

RDPE – grants for agricultural developments innovation and skills

Perceived and real bureaucratic challenges

Active and well established business networks that are active in the sector – NFU, CLA; engaged in Agri‐Tech

Decline in business networking and discussion groups

Experience of extension (agri‐tech innovation) support schemes to build on, for example, SWARM – South West Agriculture and Resource Management

Age profile of land owners – tend to be the oldest generation in control of the real estate – risk averse

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Investment in innovation and new technology has the potential to reach a number of sectors – spill‐over effects

Limited to higher level businesses

3.8

Strengths, Weaknesses, Opportunities and Threats

3.8.1

SWOT Overview The following review shows that whilst the sector is well served by innovation infrastructure it is undergoing significant structural change and is facing an unprecedented range of challenges.

Strengths

Weaknesses

 C&IoS have strong climatic advantages, with its mild  Cornwall’s locational disadvantages and therefore climate, that gives long growing season, little frost and excellent grass growth.

 Encouragement from government through Agri‐ Tech Strategy and Innovation Strategy 

Witty supports Agri‐tech focus in Cornwall (moderately)

 CAP payments mean the production sector has some underpinning through state investment

greater challenges in accessing markets

 Cornwall firms’ low historic levels of investment in RD&I

 Low GVA of Agri‐food employment  Small Dairy farms, of which Cornwall has many, face particular challenges

 Majority of Cornish Farmers are “hard to reach”

 Rural Productivity is set to grow – facilitated by  Most Agri‐Tech will be led from outside Cornwall,

therefore collaboration is key and collaboration is generally hard to sell to the farmers who are often independent and socially isolated

digital infrastructure investment (Defra)

 C&IoS retains strong labour market in Agri‐food  C&IoS Institutions and networks that support  Land ownership and succession challenges often innovation are stronger and more collaborative than in many other areas

mean that land use change decisions can be stuck, pending generational issues

 C&IoS knowledge institutions have global reputation  Amenity concerns and Tourism “conflicts”  C&IoS institutions already have a strong culture of  Knowledge institution Partnerships are supplier partnership, which will be vital to success in S3 (however see Weaknesses)

driven and need to be broadened to include greater industry representation for success in S3

 C&IoS strength in Land Remediation (through Eden and UoP) Opportunities

Threats

 Growing demand for food

 In the next 20 years, the global food system, of



challenge of feeding 9 billion – increasing demand from growing population; and



niche food category growth relevant to Cornwall’s capabilities, for example, functional and local foods

 Market growth is possible – if “prepared, export

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54

which C&IoS agri‐food is a part will face challenges that are unprecedented in the history of agriculture45, such as: 

climate change & resource use challenges;



changing market demands;



disease management; and

Cornwall and Isles of Scilly Research, Development and Innovation Evidence Base Report

oriented and competitive” (Head of German Dairy Farmers)

 Resource Management challenges in the face of changing climate

 Cornish based knowledge resources are marketable nationally and globally

 Cornwall & IoS’s unique location is an opportunity for trials and piloting

3.9

Conclusions and implications

3.9.1

Markets



increasing global competition.

 Resource Management challenges in the face of changing climate

 Declining range of options for Agro‐Chemical treatments of pests, weeds and disease

 Land use choices are not solely at the behest of the agricultural sector; constraints exist beyond the sector

There is a wide range of local, regional, national and global markets for Cornish Agri‐food products.

Innovation will play a key role in the ability of the Cornish Agri‐Food supply chain to play a strong part in these markets. Whilst the market for Cornwall’s Agri‐food products is likely to remain strong, the question for the economy of Cornwall is where value is best gained by producers, processors and retailers. Focusing solely on the primary product would continue to drive down margins and consequently value for the sector. While it is true that certain primary product still carry a premium, particularly in horticulture, bulbs and speciality crops, these markets are mature. Future growth and therefore the focus for innovation support should go on maximising the value that can be added to the product and marketing Agri‐tech “products” that can be easily exported, such as knowledge, high value genetics and high value engineering and technology should be an increasing focus for the future.

Cornwall already has a reputation as a place where Agri‐tech ideas can be developed and tested. This well‐established reputation, founded on its strong collaborative network of knowledge based institutions, and its wide range of growing conditions and climatic advantages, together with its self‐contained, peninsular location mean it is a good place to promote innovation and from which to market its successful outcomes.

Markets will continue to exist for Cornwall’s excellent range of primary products, and the resource efficiency priority should for example help these businesses to focus on productivity and cost reduction, which should have widespread sectoral benefits. The Dairy sector priority will assist this vital sector to focus on innovations that will continue to promote its competitive advantages.

The final consumer markets into which Cornish Agri‐food products are sold are highly segmented, both in terms of product “values” (i.e.: health and other factors attached to product) and their financial value. This means that whilst a wide range of opportunities exist, good consumer/ marketing knowledge is necessary for a SMEs to successfully exploit such opportunities.

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3.9.2

Enterprise Although the Agri‐food supply chain in Cornwall nominally includes large numbers of small producers, the absolute number is declining, while production is either steady or increasing.

The process of modernisation in the agricultural sector has been proceeding over decades and is likely to continue further.

For instance, whilst there were 469 farms in the dairy sector in 2013 (AHDB), it is likely that the bulk of production came from the 10% largest and most efficient units. These larger units depend on a small number of management staff and external advisors, who often advise a number of farms. Consequently, a small number of advisors and decision makers are making an increasing number of decisions regarding the majority of production. Although the actual numbers are hard to pin down, the sector is well served with networks and many of these decision makers can be readily reached.

There is a good track record of sector businesses meeting to discuss issues of common concern.

This was developed successfully through a series of discussion groups that were supported by the previous programme. Although the programme discussion groups no longer take place, the culture of discussion is well established within the sector and some still occur independently.

This experience can be built on to the benefit of the S3 Agri‐tech priority. However, it will necessitate broadening of the sectoral focus to include upstream and downstream elements of the supply chain. This should build on the experience of businesses that have a track record of working with the knowledge base.

In addition to the evidence collected regarding business networking, there is evidence of more formal clustering taking place, for example, Bodmin Food Cluster, where food businesses are promoting collaboration in the Eastern end of the county.

3.9.3

Knowledge base Cornwall benefits from a wide range of research, knowledge and innovation infrastructure including HE & FE institutions and research stations. In addition, organisations such as the Eden Foundation offer an unusual added dimension to Cornwall’s research capabilities. Greater engagement between Eden and the Research Institutions could benefit both parties, given the respective strengths in communications and research.

The knowledge base organisations have a culture of cooperation, which is borne out by the existence of PPRE and FSLRA. In both cases these partnerships go well beyond the county’s boundaries and help to reinforce an outward looking perspective by researchers. These local partnerships continue to serve Cornwall well, as with the development of CIEL, the Centre for Innovation and Excellence in Livestock, where existing partnerships were the foundation for the establishment of this national initiative, which will lead to Cornish institutions playing a lead role in national innovation in this sector.

There is also a reasonable level of existing collaboration between knowledge base organisations and SMEs. This is a pre‐requisite for a functioning Innovation Infrastructure and is based on: 

researcher culture – Agri‐food researchers are used to working “in the field” alongside farmers; 56

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3.9.4



farmer culture ‐ the experience of decades of “Agricultural Extension” means that farmers expect knowledge exchange from sources that they respect;



a network of local agricultural research and training institutions – in most areas of England the network of Agricultural Colleges has been dismantled and Defra has also largely withdrawn from direct involvement in field based research. In Cornwall the colleges remain relatively intact, with Rosewarne and Duchy College providing a strong Agri‐food offer, coordinated through the Rural Business School and augmented by their alliance with Cornwall College. The former Defra/MAFF centres has been taken over by interested institutions, as has happened at Rosewarne;



a growing HE offer – the universities, in particular Universities of Exeter and Plymouth, have a longstanding interest in the county’s Agri‐food sector. Plymouth have active research in soils and animal behaviour. In Exeter’s case the researchers are spread across a number of Exeter‐based departments; particularly the researchers collaborating through UoE’s Centre for Rural Policy Research. This capability is now augmented by the facilities at ESI on Penryn Campus; and



role of Intermediaries – intermediaries such as agronomists, contractors and advisors play an important role, advising farm and food businesses.

Capital Cornwall benefits from greater than average Agri‐food sector human capital, due to the significantly higher proportion of employment in Agri‐food and its supporting services. Those working in the sector are often self‐motivated and entrepreneurial and relatively resilient to economic shocks. The long term contraction of the core agricultural work force is in response to productivity gains and is not paralleled by loss in productivity. Historic reductions in agricultural workforce have however been balanced by increases in downstream employment. Innovation and investment is happening both in response to programmes and independently; future programme development should aim to encourage a wider range of the workforce to become engaged. The development of human capital will need to cater for the key role played by advisors, agronomists and contractors.

The sector also benefits from existing financial resources, and any S3 programme would need to avoid duplication and plan to build on these resources. These include:



Defra core RDPE Growth Programme resources (for knowledge transfer, not research);



RDPE funded European Innovation Partnerships – EIPs (several – at least 5 – bids made from Cornwall);



wider Research Council investments (for example, £3m investment at N Wyke), and the UK Agri‐tech strategy; and



private investment (for example, recent investments at Davidstow and Trewithen).

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3.9.5

Implications The Cornish Agri‐food sector needs higher levels of technology and knowledge based development in order to meet the challenges it faces.

There is a need for Agri‐food sector business‐driven innovation and collaboration. This is not stated in order to downplay the importance of the knowledge based institutions in this process.

Innovation is a core function of HEIs and other research institutions; however it is a question of orientation. Cornish Agri‐food sector businesses are closest to their markets and range of competition factors discussed above. They are fundamentally oriented towards those markets and success or failure is totally based on the quality and accuracy of that orientation. Research institutions are interested in wider economic success; they also have other drivers.

Hence, industry‐research partnership will be at the heart of future approaches, both in terms of the S3 approach for C&IoS as a whole, but also at the theme and project level. The excellent knowledge transfer apparatus that already exists should be developed (transformed) so that it becomes genuinely a two way process of research‐industry engagement, promoting partnership through the sort of operational groups established with EIP support that could bring the best expertise closer to the C&IoS Agri‐food sector.

Effective Smart Specialisation for this sector will be based on more effective communication, networking and dissemination from knowledge base institutions to the industry, and vice versa.

It will also need to engage new decision makers with growing importance – e.g., contractors, managers, advisors, agents and agronomists. Such engagement is fundamental to shaping a common research and innovation agenda, as far as practicable. Governance and Leadership is fundamental and the Future Economy Board, CAC and the LEP need to be clear about leadership in relation to Smart Specialisation for this sector in C&IoS .

Broad based innovation support is crucial, so that the sectorally focused support can operate effectively within a hierarchy of “step up” support. This support should include facility for discussion groups and opportunities for the Agri‐sector and researchers to engage in genuine two‐way dialogue regarding needs and priorities.

Sectoral connections should also be made, i.e., in some sectors the sub‐priority area should be seen as an intermediary, as well as priorities in their own right. For example, although the Beef and Sheep sector is not a sub‐priority, it will be important to ensure learning from the dairy sector is shared in ways that can benefit these related sectors in topics such as grass sward management and optimisation, for example, High Sugar Grasses, animal diseases and animal behaviour‐related innovation.

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4

Smart Specialisation – Digital economy

4.1

Introduction

The global economy is rapidly becoming a digital one. Reflecting this the ‘digital economy’ is one of five smart specialisation markets proposed for the C&IoS European Structural and Investment Fund 2014‐2020. It is also one of the eight ‘great’ technologies identified by national government in its industrial strategy46 and is a key focus for EU policy. Digital technologies have and will continue to drive rapid and far reaching economic and social change as more people become connected and businesses across the full range of sectors become digitalised. The scale and pace of change offers significant opportunities for innovation and business growth.

There are many metrics to show the growth of the digital economy – such as the number of mobile devices owned, e‐commerce growth and numbers employed amongst many others.

There however remains a fundamental problem of measurement stemming largely from the problem of definition. The historic Information and Communications Technologies (ICT) which focused on computer hardware and software is no longer sufficient. The EU47 notes that ‘because of the ever‐changing technologies of the ICT sector and because of the widespread diffusion of the digital economy within the whole economy, it can no longer be described as a separate part, or subset, of the mainstream economy’.

4.2

Evidence from previous research This evidence report builds upon work previously undertaken by Catalys in September 2013 and Strategic Economics Ltd in 2014.

4.2.1

Catalys The Catalys report in September 2013, presented information on the smart specialisation themes in line with the EU’s six steps guidance for their development. It reviewed and tested the evidence available for the themes, making use of information already collected by partners.

The report highlighted a number of key knowledge creation assets and foci that were nationally recognised and relatively accessible to C&IoS enterprises amongst which were: 

Computing capability:



Data Science;



Smart Systems;



Information/data and Creative Digital48;



PhD research;

46

UK Industrial Strategy Digital Agenda for Europe 2010 48 48 Referred to in the Catalys Report as Information/data and the arts : 47

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

Digital games and interactive systems: and



Cyber Security.

In terms of the business base the report noted there were in the region of 1,035 information economy businesses accounting for 4.6% of all businesses and employing 5,100 people. Whilst noting the key areas of activity there was no analysis available at the time of the markets in which C&IoS were mainly engaged.

The report also noted the opportunities presented by the roll out of superfast broadband in growing the digital economy in what is a largely rural location49.

With regard to capital ie finance and skills it was noted that further work was needed to identify how to effectively facilitate access to finance to support businesses operating or starting up in these markets.

The report identified that information economy opportunities are likely in all sectors. In particular it highlighted potential growth in the following markets 

Digital games‐ growth of 100% between 2010‐2016 and worth $53billion;



Smart grid‐ $20billion by 2014;



Big data‐£42billion by 2020; and



Digital (targeted customer) marketing‐ £74billion by 2017.

The review and testing of the digital economy smart specialisation theme (referred to in the Catalys report as the Information Economy) confirmed its potential for inclusion noting however that, as the UK Information Economy Strategy sets out, the information economy is better seen as an ecosystem rather than a sector, encompassing software, IT services, communications and data management. Hence the strategy needs to focus on enhancing competitiveness built on use of ICT, supported by skills and digital infrastructure developments. Key areas identified by the report for further investigation included; potential for digital games, connectivity needs and the potential for direct jobs and GVA business benefits from space/satellite50.

4.2.2

Strategic Economics (SE) SE were commissioned to pursue the Catalys Report recommendation that further scoping work be undertaken to test the potential for jobs and GVA growth potential from the smart specialisation themes. The SE report noted however that ‘there are no existing models or robust data sources for many of the Smart Specilaisation sectors chosen by C&IoS partners. By their nature, these sectors involve new technologies and processes that are innovative and therefore not captured by current statistical sources and other intelligence’. Thus the analysis took the approach of synthesising through assumption, experience and judgement and discussion with local partners a new approach to a quantitative and qualitative future for each sector.

49

It is noted that that not all rural areas (i.e. 1%) will have access.

The analysis does suggest that the digital economy cuts across all sectors and this is developed further in this Evidence Review particularly in relation to big data analytics and market potential in space, e‐health and e‐wellbeing, agritech and the marine tech sectors.

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The report noted that, whilst the digital economy is a relatively mature one globally and the UK has a small but strong presence, the e‐digital market in C&IoS, despite some strengths in niche areas, overall could be classed as ‘nascent/emerging’. Similarly the asset base for C&IoS in this specialisation is categorized as ‘partial’. Setting these market characteristaions against more general economic trends and policy focus the report concludes that the Digital economy market has a stronger than trend growth potential with the potential to deliver positive returns quickly relative to other sectors.

4.3

Digital economy in Cornwall and the Isles of Scilly Development of the smart specialisation strand for the digital economy was a feature of the ERDF Convergence Programme 2007‐2013. The Programme supported the construction and operation of Falmouth University’s Academy for Innovation & Research (AIR), which focuses on the Digital Economy and Sustainable Design, as well as the 3 Innovation Centres. Towards the end of the ERDF Programme a Digital Incubator called Launchpad Games was also funded at Falmouth University. This pilot created an intensive hot house environment to develop graduate start‐ups in the high growth Games and Gamification sectors in partnership with industry and regional businesses. In addition £132m was invested in a collaboration between Cornwall Council, BT and EU providing superfast broadband infrastructure across C&IoS with an expectation that 95% of homes and businesses will be connected by 2015. A second phase (Superfast Extension Programme) supported by central government building on this investment has recently been announced with plans for 99% coverage/connectivity to homes and businesses by 2020. A separate Convergence project Superfast Cornwall Fund provided grants of between £1,000 to £50,000 to businesses funding up to 50% of the cost of businesses developing innovative activities requiring the use of the superfast broadband to grow their businesses.

As a direct result of the infrastructure investments undertaken, a number of innovations and collaborations have been initiated with HE institutions and businesses and communities across the region. However, whilst the strategic infrastructure provision has been led and managed centrally, the development of the digital economy has also been driven by those involved in the sector at an operational business level as well as by the Higher Education sector linking with C&IoS businesses and communities. The Digital Penninsula Network, Software Cornwall and the Digital Meet Up Groups are all examples of business led networks with membership across C&IoS as well as across ICT activities. Falmouth University is recognised as a leader in the creative sector and has a strong focus on digital content, games/gamification and smart systems design. The University of Exeter, as part of the Combined Universities of Cornwall based at Penryn campus has a particular focus on big data particularly related to Met Office weather forecasting, as well as agri tech pest and disease forecasting models. Plymouth University have a Cyber Threats Research Group that is pioneering group work with data development and software design organisations across the globe, including NATO, to undertake threat assessments for ship‐based operations. This is the largest research group of this type in the country.

Gaming/gamification, data aggregartion,data analytics and data security are key market sectors for growing the digital economy.

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Set against these positive signs is however the limited current size of the digital economy sector in C&IoS in terms of the number of businesses and employment. Moreover, recent ONS statistics show that 20% of adults in Cornwall have never used the internet‐ higher than both the regional and national average51.

4.4

Markets

4.4.1

Scope The market for digital technologies is increasing and at a rapid pace. As noted above defining the activities and therefore the markets that comprise the digital economy is becoming an increasingly difficult task as more and more traditional commercial activities become digitised, (the digital drift) for example ONS figures show on line retail sales in the UK accounted for approximately 10% of all retail sales by value in August 2014. Definitions are also made challenging by the creation of new markets enabled by the development and widespread use of digital technologies such as pervasive media52, big data analytics, cyber security, and robotics. A recent report by the National Institute of Economic and Social Research53 notes that SIC based definitions of the digital economy miss a large number of companies in architectural activities, engineering and scientific and technical consulting as well as software. The government recognises the limitations of SIC codes in measuring the digital economy54. To enable capture of activity based on using digital technologies this evidence report uses a wide definition of the digital economy ‐ comprising software, applications, digital content, data collection, analytics and security ‐ regardless of the sector in which it is being used or applied.

The potential market growth from the application of digital technology across all sectors is important to recognise and particularly in the context of the smart specialisation markets for C&IoS E SIF; i.e. marine tech, e‐health, space and aerospace and agri tech. There are many cross overs where development in digital technology capability will help grow other markets, some of which are set out below.

4.4.2

Space The Satellite Applications Catapult has identified the maritime sector as a key area. The primary focus of this programme is to unlock the UK potential of satellite applications and services to facilitate delivery of end‐to‐end solutions in maritime applications. The Catapult is focussing its attention on working with end‐users, industry and academia in two specific technology areas, one of which is: 

building a data integration and situational awareness software platform that brings together the best technologies in data acquisition, data management, data analysis,

51

Labour Force Survey 2013 Pervasive Media is any experience that uses sensors and/or mobile/wireless networks to bring you content (film, music, images, a game…) that’s sensitive to your situation – which could be where you are, how you feel, or who you are with eg audio guides at tourist attractions, a list of restaurants when you are visiting a new city 53 Measuring The UK’s Digital Economy With Big data 54 The Government attached a warning to this estimate: ‘we may not have an exact picture of the number of businesses in the information economy, or its employment, or the value it brings to the UK economy.’

52

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information publishing, dissemination, visualisation and interaction design into a reusable technology stack with associated documentation. They will make this available to UK businesses to rapidly prototype and deliver solutions.

The Crown Estate recently55 published a major new modelled dataset for the UK’s offshore wind resource, more accurate than previous versions and informed by a 30 year time horizon. The modelling was undertaken by the Met Office using their Numerical Weather Prediction high performance computer capabilities, The new wind data provides a higher resolution picture of the UK’s offshore wind resource to help inform offshore wind farm planning and development.

The Crown Estate report that by making the dataset freely available on their Marine Data Exchange to different marine users we hope to contribute towards the sustainable development of the seabed to unlock value and help reduce the costs of offshore wind.” This dataset adds to the major collection of surveys and technical information already available through the Crown Estate Marine Data Exchange.

4.4.3

E‐health and e‐wellbeing The Department of Health has stated that; Healthcare, in common with other areas such as banking, travel and commerce, is being improved and transformed by the rapid growth and capability of telecommunications and information technologies. The e‐healthcare revolution is now allowing clinicians, patients and their families to use laptops, tablet PCs and smart phones both to collect and retrieve information and to access support, ushering in the world of digital health.

Faced with increasing demands on healthcare systems, driven by higher expectations of their citizens, the rising burden of the long‐term management of non‐communicable diseases and ageing populations in need of care, many healthcare providers see that digital health offers a fresh approach to delivering healthcare.

Services such as telecare, telehealth and mobile healthcare all offer more efficient and effective healthcare delivery with the patient or service user at the core. These services are important to assisted living programmes that are increasingly necessary to support elderly and vulnerable people.

Similarly, information systems, often described as eHealth, are increasingly holding large datasets which assist with clinical decision making, health service management and medical research.

4.4.4

Agri‐tech The digital technology potential to address key challenges within the agriculture sector has been recognised by academia, government and farm businesses. The UK Strategy for Agricultural Technologies published in July 2013, committed £90m to establish centres for agricultural innovation. The aim of the agri‐tech strategy is to encourage businesses to develop, adapt and

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exploit new technologies. In the strategy it was agreed that the first centre would be for agricultural informatics and sustainability metrics.

In Budget 2015 the government announced £12 million funding to establish The Centre of Agricultural Informatics and Metrics of Sustainability (AIMS)56. The focus will be to enable food to be produced more efficiently and sustainably whilst creating jobs and growing the UK economy by integrating data across the whole food chain, and then using smart analytics (statistics, visualisation and modelling) to identify the solutions that would otherwise evade insight. The scale of investment required and the associated risk means that business needs to act collectively to capitalise on these new opportunities.

4.4.5

National and international context The UK is generally recognised as one of the strongest digital economy markets in the world thus presenting strong opportunities for digital technology companies in their home markets. A recent report by the Boston Consulting Group 57 reported that the UK retained its position as the largest Internet economy in the G20. The sector, the report stated had seen strong growth since 2010 and was now (2015) the UK’s second biggest economic contributor with a contribution of £180billion ‐ up from £120 billion in 2010. The ONS reported in 2014 that 38 million UK adults accessed the internet everyday with 74% buying goods and services on‐line.

Access to the internet using a mobile phone more than doubled between 2010 and 2014 from 24% to 58%.

The recent NIERSC report estimated the number of digital businesses to be between 269,000 and 471,000 accounting for almost 15% of all registered UK companies. The Tech Nation 2015 report58 reported an estimated 1.46 million people were employed in digital companies across the UK and that a million jobs were advertised in digital technology companies in 2014. It further reported that tech companies and clusters were forming across the UK and the sector was strong and growing as evidenced by: 

50% of businesses formed since 2008;



15% of total UK companies formed in 2013‐2014 were digital companies;



expected growth in employment by 2020 of 5.4%; and



74% of digital companies were based outside of London with a strong representation in the south west ‐ Bristol and Bath were recently identified as ‘one of 21 UK Tech Cities’ with over 56,000 employees, the largest cluster in terms of employment outside of London.

The UK (as reported by Innovate UK) has world class strengths in communications especially wireless technologies, software development, computing and data analytics, cyber security and user experience and service design. As well as driving opportunities in the home market, there

56

The Centre for Agricultural Informatics and Sustainability Metrics (AIMS) has been proposed by a consortium comprised of leading industry and academic partners. Rothamsted Research, the University of Reading, Scotland’s Rural College (SRUC) and the National Institute of Agricultural Botany (NIAB).

57 BCG May 2015 58 Tech Nation Powering The Digital Economy 2015

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is also significant export potential – particularly given that the UK is second in the global export trade in film, television, music, books, news and education.

A large number of factors are driving the growth in digital technologies ‐ including increasing technology literacy and demand from individuals and organisations and increasing device ownership and usage as well as new opportunities created by technological advances in hardware processing and application.

The amount of data created and stored each day is rising – 90% of the data in the world today was created in the last two years. With the increase in the availability of both data and computing power, as well as advances in mathematical science and algorithms, business sectors across the economy have the potential to be transformed by data, analytics, and modelling.

Data comes from the activities of individuals and organisations, from the world around us, and from our historic records. “Big Data” refers to ways of handling data sets so large, dynamic and complex that traditional techniques are insufficient to analyse their content.

There are clearly many and significant market opportunities for digital entrepreneurs and established enterprises going forward. However, while it is generally accepted that the initial barriers to entry are low for some activities; the characterisation of the next big Google or Amazon being started with an idea and a laptop is also accepted as not the norm. There remain a large number of barriers that inhibit sustainability and growth for digital entrepreneurs. These include: 

market information ‐ individuals and small businesses do not have detailed market knowledge and potential for their product or service;



business size ‐ digital businesses are typically small and do not have wide ranging business skills;



business scaling ‐ success can be quite dramatic with entrepreneurs facing a rapidly growing customer base that requires moving from start‐up mode into scale up mode. Managing a growing business in terms of regulations, marketing, customer service, IP management and financing can be beyond the skill set of the entrepreneurs whose main focus and strength is in digital innovation;



competition ‐ low barriers to entry increase the potential competition as does the openness of data and ability to copy ideas, the low switching costs for consumers and the willingness of consumers to try new untested technologies. Success can be short lived;



access to superfast connectivity (availability and cost) ‐ the content richness of applications requires more bandwith to ‘transport’ product/service. Not all businesses and equally importantly customers have a reliable access to this level of internet service;



intellectual property ‐ recognising opportunities (and needs) for IPR requires detailed knowledge but it can be expensive. Addressing and managing these issues can be a challenge for any company on a tight budget and with limited human resource and technical expertise;

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4.4.6



R&D to commercialisation timescale ‐ long timescales from development of concepts, prototypes to commercially viable product and services can mean that entrepreneurs cannot see an idea through to a successful business venture;



speed of ICT change ‐ technology moves at an incredible speed, and keeping up with the changes can be a challenge for startups who need to be anticipating the next wave of major opportunities the digital technologies offer. Although companies should strive for innovation, they can easily become distracted by new projects, markets and technology, losing sight of their niche market that makes them valuable;



regulatory framework ‐ technology is geographically blind but operating across borders requires knowledge of different regulatory frameworks;



skills/talent ‐ rapid expansion requires the recruitment of new talent. This can be difficult in a market where everyone is looking for the same type of technology skills; and



access to high performance computing (HPC) capability.

Policy Both national and EU policy stress the strategic, economic and social importance of developing the market for the digital economy. Both recognise that achieving strong sustainable growth is highly dependent on a thriving information economy.

Key UK policy initiatives have included: Information Economy Strategy 2013 The Strategy focuses on creating the environment in the UK that allows information economy businesses large and small to innovate and thrive. The vision is for a thriving UK information economy enhancing national competitiveness, with: 

a strong, innovative, information economy sector exporting UK excellence to the world;



UK businesses and organisations, especially small and medium enterprises (SMEs), confidently using technology, able to trade online, seizing technological opportunities and increasing revenues in domestic and international markets; and



citizens with the capability and confidence to make the most of the digital age and benefiting from excellent digital services. Long term success will be underpinned by: 

a highly skilled digital workforce (whether specialists who create and develop information technologies, or non‐specialists who use them); and



the digital infrastructure (both physical and regulatory) and the framework for cyber security and privacy necessary to support growth, innovation and excellence.

The strategy outlines actions to transform Government procurement to assist small companies to access the £7billion per annum Government spends on IT as well as focusing on developing next generation broadband (5G).

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The Innovate UK Digital Economy Strategy 2015‐2018 The Innovate Strategy aims to help UK businesses to innovate using digital technology and has five objectives: 

encouraging digital innovators ‐ helping them to develop confidence and connect to their customers;



focussing on the user ‐ ensuring that solutions are well fitted to the markets they address;



equipping the digital innovator – driving the development of new capability where it is needed;



growing infrastructure, platforms and ecosystems; and



ensuring sustainability ‐ linking technical capabilities with an understanding of social impact and the commercial, legal and regulatory context of innovation.

UK Innovate have £120million to implement the strategy over the next four years.

Government’s Digital Strategy ( November 2012) The ambition is to deliver digital public services that are so good that people opt to use them.

The strategy is founded on the premise that digital services should serve the needs of the users, rather than reflect the internal structure of government, and that this requires a revolution, not an evolution, of the approach towards the use of information and technology within government.

UK Next Generation Network Infrastructure Deployment Plan59 Under this Plan Broadband Delivery UK (BDUK) (part of the Department for Culture, Media and Sport) is delivering over £1 billion of investment in improving broadband and mobile infrastructure to: 

provide superfast broadband coverage to 90% of the UK by 2016;



provide basic broadband (2Mbps) for all by 2016;



provide superfast broadband to 95% of the UK by 2017;



explore options to get near universal superfast broadband coverage across the UK by 2018;



create 22 ‘SuperConnected Cities’ across the UK by 2015; and



improve mobile coverage in remote areas by 2016.

At the EU level, the Digital Single Market was highlighted as the second priority area in the political guidelines issued by the President of the European Commission, Jean‐Claude Juncker, for the 2014 ‐ 2019 Commission. The potential of digital technologies to enable competitiveness, entrepreneurship and innovation was also highlighted in the Entrepreneurship 2020 Action Plan.

The digital economy features in various initiatives at the top of the political agenda:

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

industrial policy for the globalisation era;



the Innovation Union;



the Entrepreneurship 2020 Action Plan (2013);



the Small Business Act for Europe (2008); and



the Digital Agenda for Europe which aims to achieve:



the entire EU to be covered by broadband above 30 Mbps by 2020;



internet speeds of 100 Mbps to half of all households by 2020; and



33% of Small and Medium‐sized Enterprises (SMEs) to make online sales by 2015.

The constant evolution of the digital sector and the continuous emergence of new services, applications, and products means that compatibility between systems is more important than ever. The EU works to ensure that ICT markets remain open and consumers have choice by promoting ICT standardisation, which helps guarantee the competitiveness of the European ICT industry.

4.5

Enterprise As previously noted, there are difficulties in measuring the size, scale and economic contribution of the digital economy. BRES data indicates that the business base for technology companies is relatively low in C&IoS with just over 2,200 employees in employment in 2013.

This equates to just 1.1% of all employment compared to 2.4% for the South West as a whole and 2.6% for England.

There has however been a significant increase of over 60% in C&IoS on the 2009 figure of 1,373 – a significantly greater increase than that pertaining regionally and nationally.

Table 4.1: Digital Technologies – employment change 2009 to 2013

Employment

% of total employment

Location Quotient

% change in employment

Location Quotient

2013

% of total employment

2009 Employment

1,373

0.6%

0.3

2,212

1.1%

0.4

60.6%

45,016

1.8%

0.8

58,091

2.4%

0.9

29.0%

549,833

2.3%

‐

637,203

2.6%

‐

15.9%

C&IoS South West England Source: BRES, Nomis

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Figure 4.1 shows the distribution of digital technology companies across England and vividly demonstrates the concentration of such activity in the Thames Valley and M3 corridor areas.

Figure 4.1: Location quotient analysis for the UK

Sources vary in their estimates of the number of digital businesses in C&IoS ‐ The Digital Penninsula Network research suggests some 700 digital businesses, whilst the C&IoS Strategic Economic Plan indicated there were over 1,000 small and micro businesses in the digital sector.

There is also no data to indicate the extent of physical clustering of digital technology businesses in C&IoS, but there is evidence of strong and growing networks driven by businesses themselves and actively involving other key organisations and individuals such as the universities.

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Cornwall and Isles of Scilly Research, Development and Innovation Evidence Base Report October There may be potential for clustering around the Cornwall Innovation Centres 60. To date while they have attracted businesses in the (or related to) technology sector, there is no evidence yet of businesses locating outside but in the locality of these Centres or of businesses expanding and growing out of the Centres to form physical clusters. While the Centres have so far had only a limited sectoral focus, they are increasingly seeking to target their occupancy. PIC is promoted as providing …“business acceleration facility that welcomes start-up and existing businesses from a range of sectors.” TIC sells itself as supporting… “enterprises that have ambition to develop and grow particularly from the creative, media, eco and environmental sectors.” HWIC, finally, sets itself the aim of welcoming “knowledge based business within sectors that support health and/or wellbeing.” Further, HWIC’s contractual objectives include an even more ambitious objective to “generate an internationally significant Cluster of Health and Wellbeing-focussed companies and organisations”.

4.6

Knowledge creation

4.6.1

Public research, networks, leadership The EU and UK national government in line with their policy focus of growing the digital economy are providing substantial support financially and organisationally to enhance the knowledge base and to open this up to SMEs to encourage further research and development and innovation.

The Digital Catapult is a key resource available to digital technology businesses across the country that provides support through use of facilities and shared space to meet and showcase as well as to share expertise. The Digital Catapult’s vision is to rapidly advance the UK’s best digital ideas from concept to commercialisation to create new products, services, jobs and value for the UK economy. The Catapult seeks to collaborate with start-ups and small businesses, large businesses, the research and academic community, other catapults and the wider Innovate UK family. It regularly puts out Open Calls to digital technology businesses as a means to connect and collaborate. As well as the HQ in London’s Kings Cross there are Centres at Brighton, North East & Tees Valley and Yorkshire.

In the South West Bristol and Bath have been identified in a recent report by Tech City 61 as having the largest cluster of technology companies outside of London. The report notes that ‘Bristol & Bath has produced some huge digital companies in recent years and the cluster is now an established supplier of world-leading technology firms and entrepreneurs. Such is the success of the area that global giants Aardman Animation, Amazon (iMDB) and Hewlett Packard are all based there.

As well as large digital companies operating in mature industries, Bristol & Bath has produced some highly innovative and successful startups in recent times. From Imaginarium’s motion capture, to Maplebird’s development of micro-robotics ‘ultra-sonic’ reactive technology from Ultrahaptics, and 3D printable artificial limbs from Open Bionics, creative innovation lies at

60 61

Cornwall Innovation Centres Evaluation Stage 2 report CMI April 2015 Tech Nation March 2015

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the heart of this thriving cluster’. The report highlights data management and analytics, EdTech as well as software development as the three most notable sectors.

Across the South West more generally, there are key centres of knowledge creation with world class reputations, covering: 





Computing capability: 

High‐powered performance computing capacity exists in the University of Exeter’s ESI. For example, UoE collaborates with the Met Office in climate science that plans to upgrade its supercomputing capability. There is likely to be potential to access very large environmental data sets as part of government policy to open up access to their big data sets.



Plymouth University has capacity and expertise in GPU computing and partnerships with companies such as NVIDIA.

Data Science: 

UoE research capability in generating and analysing large scientific data sets in a range of scientific disciplines including mathematical modelling and predictive capability for life sciences, engineering and geotechnics, environmental resources (e.g. wave energy), human and animal population behaviour.



Existing academic and research capability in generating and using large data sets in the University of Exeter in Cornwall, including in the ESI, clean technologies, the natural environment, social sciences as well as the life sciences (Centre for Ecology and Conservation) and also the University of Exeter Medical School’s European Centre for the Environment and Human Health which accesses and interprets large population data sets to underpin a number of key areas of research.



Both Falmouth and Exeter Universities have experiments underway which may lead to innovations in the deployment of smart technologies. Falmouth is collaborating with Cornwall Council and BT on the use of ‘smart’ technologies within care‐homes as a follow‐on from the county’s participation in the Whole Systems Demonstrator project.

Falmouth is collaborating on the TSB Internet of Things programme working with Westminster Council, IBM, EDF, University of Bristol, SH&BA and others on interoperable service applications;

Cyber security

Plymouth University have academic strength in the research field of cybersecurity, digital forensics and wireless, mobile and optical networking. The Centre has established relationships throughout industry and advises commercial and public sector organisations in relation to technical and human aspects of cyber security such as ; 

active authentication, non‐intrusive biometrics, intrusion detection and response, awareness and culture and research into security and usability

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



Information/data and Creative Industries 

Falmouth University’s Academy for Innovation & Research (AIR) Studio, Plymouth University’s IDAT62 and the Pervasive Media Studio in Bristol form part of a regional backbone of like‐minded studios for a growing community of researchers and businesses innovating in the creative application of technology.



Cornwall‐based PhD research supervised jointly across Falmouth, Plymouth and Exeter Universities includes commercial, cultural and social organisations to bring an inter‐ disciplinary approach to the impact of the Information Economy, from new business models, communication strategies and the convergence of design and traditional crafts such as ceramics and boat‐building to instrumenting spaces to improve the quality of interactions between people, and buildings and the spaces in‐between.



Falmouth University and Plymouth are investing in combined creative ‐technical skills such as digital games and interactive systems. Falmouth’s Autonomatic research group has pioneered the integration of digital design, manual craft practice and 3D manufacture using the IE infrastructure to combine the manual skill and feel for materials of traditional craft with digital production technologies. IDAT is undertaking research on the Internet of Things to provide a platform for increased audience engagement, participation and feedback for partners including Cornwall Mining Heritage, Plymouth University’s Interactive Systems Studio (ISS) which is pioneering interactive training simulations and iOS app developments



In May 2014 Falmouth University was awarded 2.4million euros via the European Research Area (ERA) programme to expand its Digital Games research. The FP7 funding has been used to fund a Chair in Digital Games63 as well as to recruit a team of Research Fellows with specialist skills in games technology. The University have stated that the focus of the funded activity will be ‘on the fruitful crossover of digital games and computational creativity research. In particular, investigating how artificial intelligence techniques can be used for advanced procedural content generation, automated game design and creative empowerment for game designers’. The purpose of ERA programme is to increase the competitiveness of European research institutions by bringing them together and encouraging a more inclusive way of working.

Robotics and Neural Systems Plymouth University have academic strength in the research field of cognitive robotics and neural computation. The main areas of research are; 

the application of mathematical and computational modelling, brain imaging, visualisation and cognitive modelling

62 iDAT is an Open Research Lab for playful experimentation with creative technology. The aim is to co‐create and share technological prototypes and practices, that push and challenge the boundaries of digital arts and creative media practice. The main focus is on making 'data' tangible, playable and readily available as a material, to generate new meaning and inform participation, audience engagement and innovation in the arts.

Post now held by Professor Simon Colton

63

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4.6.2



the investigation and understanding of the interaction between humans and intelligent systems, with an emphasis on language and non‐verbal communication;



the use of computational and robotics modelling methods to investigate cognitive functions; and



humanoid robotics and human‐robot interaction (for children and the elderly).

Clustering and networks The Tech City report noted in relation to the Bristol and Bath digital cluster ‘with all the new companies and employees in the cluster, it is vital that there is a strong set of support networks available to digital entrepreneurs, and Bristol & Bath has an abundance. Bristol & Bath Science Park, SETsquared, Engine Shed, The Guild, BathSPARK, TechSPARK, WebStart Bristol, Bristol Games Hub and Invest Bristol & Bath provide startups in the area with extensive industry specific support opportunities’. In relation to the benefits of networks and support for clusters their survey of companies across the UK found that 65% of all digital businesses claimed to be part of a cluster. Of these: 

77% of companies report having a network of entrepreneurs to share experience and ideas;



54% claim their cluster helps build a regional reputation and attracts talent;



33% believe cluster helps attract inward investment from private and public sectors;



40% believe cluster helps secure access to affordable workspace eg co‐working, science parks; and



access to talent and broadband are key location determinants.

*Tech City: Tech Nation Report 2015

Examples of networks operating in C&IoS include: 

The Digital Penninsula Network is one of a number of clusters of technology companies operating in Cornwall and the Isles of Scilly and the longest running, having been set up in 1999. Membership ranges from the small to the medium sized company and includes software developers, website designers, computer games designers, animators, hardware system installers and computer technicians amongst others. The network offers members networking events, training, tendering services as well as training and acts as a voice to articulate the views of ICT/Digital businesses;



Cornwall Digital Meet Up Group is an on‐line forum for connecting anyone interested in the digital economy from software developers, app designers to on‐line marketeers and business development with a digital economy focus. The main aim of the Group is to start building a stronger community of people working in digital industries in the far Southwest UK. The Group has over 600 members and regularly runs off‐line meet ups for professional networking and development as well as ‘advertising’ workshops and training courses open to all. The site also connects with other Meet Up groups in different regions and has links with Pool Innovation Centre, Academy for Innovation and Research at Falmouth University,

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Software Cornwall and others such as Unlocking Potential who facilitate workshops for the Group; and 

Software Cornwall was formed informally in 2012 by a group from the software sector in Cornwall collaborating to support the growth of the industry locally. Since then it has become a collaborative group of software development enterprises, education providers and business support organisations based in Cornwall working together to grow the software engineering sector. In April 2015, the organisation became a not‐for‐profit organisation which it is intended will be funded through membership, sponsorship and accessing support funding streams. The organisation has a vision of helping Cornwall become the most productive global location for software development by promoting and supporting software growth and excellence in the sector.

4.7

Capital

4.7.1

Infrastructure C&IoS have invested heavily in innovation infrastructure particularly through the Convergence Programme. Key assets created include: 

Superfast broadband ‐ a total of £53.5m of funding was provided by the European Regional Development Fund (ERDF) in the roll out of the project, making it the largest single Convergence investment, while an additional £78.5m was invested by BT. The initial target was to connect 80% of homes and businesses and this was increased to 95% by March 2015.

With the support of Broadband UK, Cornwall Council, BT and partners are rolling out the Programme to connect 99% of homes and business in Cornwall & Isles of Scilly by 2017 with superfast (24+mbbps).

It was, however, noted that for some digital technology business activity significantly greater broadband speeds are need and as data content becomes only richer the access requirement will only increase. The nature of the business activity however is such that individual businesses only need access to such high speeds for short periods of time and therefore make on‐going subscription uneconomic.



Academy for Innovation & Research ‐ a £9million investment in facilities and equipment and revenue to support research & development designed to raise levels of business innovation, competitiveness and productivity in Cornwall. AIR also has a focus on assisting existing digital businesses through its Studio and Sandpit facilities but also in incubating new digital businesses, in particular with industry through its pilot Launchpad incubator.



Alongside these infrastructure assets sit the three Innovation Centres and in particular Pool Innovation Centre which has attracted a number of digital technology companies amongst others and supports the Cornwall Digital Meet Up Group64. In addition the HWIC and Environmental Sustainability Institute (ESI) all contribute to creating potential source of

64

CM International Evaluation Report 2015 noted the 3 Centres did not have a targeted occupancy policy

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assets to support the development of businesses involved in creating digital technology and those who could benefit from its application.

It is worth noting that, apart from the superfast broadband which is across C&IoS, the physical assets are largely clustered around Falmouth and Pool. The Digital Penninsula Network provides a small amount of space to act as a Hub in the far South West and the Porthmellon Innovation and Enterprise Centre provides potential space on the Isles of Scilly but there appears less obvious physical hubs in other parts of Cornwall most notably in the northern part of the county.

At a recent workshop of businesses and other stakeholders the perception by businesses was that the focus of the centres of excellence differed to a reasonable extent with the existing business base which was more software and systems development rather than data analytics, gamification and/or cyber security. It was also noted that some of the Universities and other centres of excellence had a ‘research’ rather than commercialisation focus. Levels of collaboration have also been hampered by the fact that the Universities have been operating in C&IoS for a relatively short period of time and that many of the digital technology businesses operating in the area are small.

4.7.2

Skills A qualified pool of labour is an essential input into any business. The nature of digital technology businesses means by definition that much of the workforce has to have a high level of qualifications in particular skills sets. Consultations with stakeholders repeatedly raised the issue that locally it is difficult to recruit and retain qualified staff. This lack of suitably qualified staff is recognised as a national barrier to growing technology companies and indeed in supporting the digitisation of more traditional businesses. Some positive signs however are appearing led by the digital companies themselves; the universities (in particular Falmouth University) which are increasing the number of graduates in the area; and through certain Convergence Programme activities including support for a number of collaborative PhD projects. Plymouth and Exeter Universities also offer a number of relevant under and post graduate computer courses related to information secturity, games development and systems.

They are also due to soon offer a Masters degree in Data Analytics. 'Software Cornwall and Cornwall College have co‐created a new software development pathway in the BSc in Computing Technology, validated by Plymouth University.'

Another positive feature which can be further capitalised is that the Universities in Cornwall are amongst the highest in the UK in attracting new students into their region. This student mobility is an asset to Cornwall, which means retaining graduate talent is as important as ensuring students acquire the relevant skills

4.7.3

Finance There is a substantial number of Funds and opportunities for businesses to access funding to support research and development. At an EU level there are over 100 relevant initiatives including the Horizon 2020 fund which is perhaps the best known. At a national level the R&D tax credit scheme is aimed at encouraging more research at an individual company level and as 75

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noted above the UK National Digital Catapult regularly issues Open Calls for research (usually collaborative). Initiatives are many and varied so there is likely to be something to fit a wide range of research interests both broad and niche. However awareness of what is available is more of an issue as are requirements to identify partners and complete application forms. This can be a particular barrier for small and micro firms.

A recent report for Cornwall Council and the C&IOS LEP found that ‘companies, particularly in specialised and technology‐based sectors, need much more than just finance to succeed. They need (inter alia) an infrastructure of advisers, relevant suppliers and (where relevant) a technology knowledge base where they can thrive. Companies may need much more money than can be found from a single, regional, publicly‐backed scheme, so they need access to finance from larger private sources which may not be close. As such, a fund cannot, in and of itself, initiate sectors on their own; they can only support and promote an environment where companies exist, can grow and succeed.

4.8

Strengths, Weaknesses, Opportunities and Threats

Strengths

Opportunities

 EU & National Policy Focus (and associated  Global and UK growth in new markets regulatory & funding support)

 Local world class research USP in growth areas (see opportunities)

 Environment and Lifestyle  Innovation infrastructure ‐ including Superfast coverage (existing and planned), Innovation Centres  Networking leadership and engagement

  Physical environment  Supercomputer access

o Big Data (and data security)‐ across many sectors, o gaming and gamification applications ‐ across many sectors, o Pervasive media o software development Digitisation of traditional market sectors extends growth market

 Funding  Digitisation of public administration/ services  Digital literacy and demand by general public and corporations

 Strength in digital technologies can create and grow markets in other C&IoS smart specilaisation sectors

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Weaknesses

Threats

 Lack of collaboration between business base  Skills base not growing to meet business 

and centres of excellence locally and nationally  Mismatch of research/commercialisation foci of businesses and centres of excellence 

demand Continued lack of IP exposes companies to competition and low barriers to entry Entrepreneurial and innovation culture

 Clear path to route to growth stagnates  Access to ‘affordable’ use of specialist  Internal resource of business prevents equipment

 Access to ‘affordable’ use of ultra fast  Lack of physical hubs across C&IoS to encourage networking and collaboration

 Gaps in support across all stages of the

investment in increasing awareness of market opportunities singly and in collaboration

 Lack of awareness of funding and research

innovation cycle from incubation/new start  ups to supported grow on space for digital businesses moving out of the Innovation Centres and other new start‐up/incubation space.

and development collaboration Market, collaboration focus is restricted to C&IoS

 Market visibility of C&IoS Digital CV  Limited Smart sector specific business support

4.9

Conclusions and implications

4.9.1

Markets The C&IoS digital economy ranges from being described as ‘nascent’ to as ‘emerging’ when considering its key market segments – i.e. big data, the internet of things, software development and content generation including gaming and associated equipment and services.

Some segments such as software development and content generation show more signs of development than others such as the ‘internet of things’. The perception is that Big Data analytics is largely restricted to the universities and a very small number of businesses although University of Exeter report that they have recently drawn up a list of 116 technology based businesses in Cornwall with whom they have integrated, that they understand, use/analyse data in sophisticated products and services.

In contrast the global market and the UK market for a number of these segments are mature.

However they will continue to grow creating substantial growth opportunities. The growing ‘born digital’ trend for traditional businesses is also a growth market that creates new market opportunities, for example FinTech is a new niche sector marrying the traditional financial services strength of cities such as London, Edinburgh and Belfast with their developing digital expertise.

The digitisation of public services in a drive to reduce cost and speed up delivery and effectiveness of services is also a growing market as evidenced for example by the process of paying a road fund license, now being entirely digital. The government is also encouraging the 77

Cornwall and Isles of Scilly Research, Development and Innovation Evidence Base Report

use of e‐digital in health care and well being, education and social policy administration.

Combined with and driving the increasing digital literacy of the population the ‘born digital’ trend is only set to grow.

The analysis shows however that whilst some businesses in C&IoS are positioned to take advantage of the growth opportunities, others are not aware of the opportunities and/or are too small to have the resource available to investigate and develop markets domestically or internationally. Also, the C&IoS digital CV needs to be promoted to raise awareness of experience and capability by larger national and international companies and others seeking digital services and products.

Implications for the support framework include:

4.9.2



market opportunities awareness raising for digital economy sub sectors; gaming/gamification, cyber security, data analytics and relationship to other key sectors e‐ health, agri tech, satellite communications and marine;



promotion of C&IoS offer/brand development‐ events, literature, networking;



physical hub in key digital clusters, nationally/internationally; and



support research into technologies to extend superfast broadband to remaining 1% of C&IoS.

Enterprise There are clear digital hubs or ‘Tech City’ clusters around the world and within the UK. The benefits of these to increasing technological experimentation and advancement and growth for the companies involved is well documented. Whilst the C&IoS business base mirrors other cities in terms of being largely classified as micro and small in terms of employees per business, the quantum of numbers of businesses and employees as a whole in C&IoS is not in a UK context recognised as a top tech cluster. The sector is however growing strongly in C&IoS with over 60% growth between 2009 and 2013. There is a strong base to work on but more needs to be done to make businesses aware of opportunities and enable them singly or collaboratively to pursue them. .

Implications for the support framework include: 

access to 'affordable' use of specialist equipment such as high performance computing;



access to dedicated Smart sector specific business support;



support for the development of collaborative business to business proposals;



support on IP forms (trademarks, patents etc) and relevance to products/services and application to UK Patent Office;



advice and guidance on scaling a business from ‘one good idea/product’; and



research and diagnostic support to identify the potential for new innovative applications/technologies.

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4.9.3

Knowledge creation Digital businesses are creators of new knowledge as are local and national and EU businesses, HEIs and research institutions. To maximise growth, greater awareness of the scope and findings of relevant research is needed and of opportunities to carry out or contribute to further new knowledge creation.

Key implications for the framework include:

4.9.4



promote funded exploratory and near market research opportunities available to businesses either singly, with other local businesses;



promote funded exploratory and near market research opportunities with national and EU HE institutions and research facilities;



greater awareness of the wealth of technical knowledge and support available from dedicated facilities such as the ESI and other Innovation Centres locally and nationally such as the Digital Catapults;



greater linkages with Innovate UK’s knowledge transfer networks and knowledge transfer partnerships; and



support to increase understanding of IPR for individual business product and service development and when working in joint ventures.

Capital Innovation infrastructure The innovation infrastructure has many strengths including the natural environment of C&IoS. The reach and speed of Superfast Broadband connectivity across the region is highly prized but for some content rich applications it is insufficient if companies are to compete with other digital clusters particularly London as a media, gaming and creative arts. In the Falmouth/Penryn there is a concentration of physical and intellectual resources that could be built upon. The innovation Centres have proven popular but lack of grow on space could hamper the freeing up of space and the growth of existing businesses.

Implications for the framework include: 

access to 'affordable' use of ultra fast broadband;



initiatives to retain the talent pipeline in the region including the high volume of graduate students coming from outside the region;



development and growth of physical hubs across C&IoS to encourage networking and collaboration; and



supported incubation, new start‐up and grow‐on space (for businesses moving out of the Innovation Centres and other new start‐up/incubation space).

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Skills Scaling up a new start business can be a real barrier to growth as entrepreneurs are often ‘tech‐ focused’ and lacking in the business skills required. A supply of skilled labour is needed to maintain and grow market share. Digital entrepreneurs by their nature are likely to be highly technically qualified, to maintain and grow their business they need a supply of labour with the right attitude as well as the right skills. A survey of Digtal businesses in C&IoS65 found that ‘many businesses are confident of their own technical and craft skills, but struggle to recruit additional staff with those skills. This may be in part a reflection of the difficulties faced by micro‐businesses in training up appropriate staff. It is also worth noting that across Europe reports have indicated that an over‐concentration on degree level qualifications is causing a shortage of technical skills. Interestingly, there is currently virtually no take up of apprenticeships in this sector which is one of the government’s key initiatives to address possible skills shortages. In addition, many businesses highlight marketing skills as a particular area of weakness, which may be connected to their perception that a ‘limited market’ is a significant barrier to growth’.

Implications for the framework include: 

create pipeline of skilled labour; immediate, medium and longer term;



promote careers and appropriate course choices in schools, FE and HE. Provide showcasing and experience opportunities for schools, FE and HEI students and staff in digital businesses;



encourage exchange opportunities between research institutions within and without C&IoS and businesses based in the region;



skills interventions that are demand led and tailored to the needs of individual businesses ‐ particularly those responding to new technological developments in the industry; and



intensive business and technology support to entrepreneurs alongside practical related general business skills for those with an idea and via responses to industry and large business specific technology challenges.

Finance There are many financial supports for businesses and private sector investor interest is increasing. However, there are so many potential funding opportunities with associated terms and conditions that no one small company can ‘afford’ to invest the resource to become expert.

Also there is a lack of understanding of what constitutes a good deal for an entrepreneurial business on the tipping point of growth but needing a sizeable cash investment and on occasions investor expertise.

Implications for the framework include: 

increase access to and awareness of suitability of different types of growth funding particularly equity, loans and other sources such as crowdfunding;



support to understand appropriateness of different digital media income streams;

65

Identification of Creative and Digital Skills Needs in Cornwall and the Isles of Scilly,July 2013, Perfect Moment

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

guidance on writing funding applications (particularly collaborative bids); and



how to deal with IP (also in a collaborative development venture).

The Digital economy is one that could substantially reward investment in the sector. Whilst supply chains are typically not long and businesses are typically not large, such businesses tend to cluster and attract new business start‐ups and relocations. Additionally as a predominantly people based, capital light industry, it has the capability to scale quickly and generate new jobs on the back of rapid growth. The high skill level and associated GVA generated by businesses and the lack of carbon footprint due to the use of digital technology to supply products and services remotely means that the operating characteristics of the businesses aligns with the sustainable growth policy objective long held by communities and government alike.

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5

Smart Specialisation – e‐health and e‐wellbeing

5.1

Introduction

E‐health and e‐wellbeing is one of the five smart specialisation themes proposed for the C&IoS E SIF. The ‘e’ element is the use of digital technology as an enabling technology for innovative solutions to meet health and wellbeing needs and opportunities and deliver better health outcomes. The theme within the E SIF is looking to deliver business benefits through RD&I that are relevant both to the enabling technologies of digital businesses involved and to the businesses/customers/clients involved who are seeking the health and wellbeing outcomes66.

While the E SIF gives a focus to e‐wellbeing, terms are not specifically defined. A very general distinction can be made between ‘e‐wellbeing’ as being a diversity of activities that enable people to develop and keep good health and healthy lifestyles and avoid developing medical conditions or manage those they may have, and ‘e‐health’ which involves working with those who do have medical conditions in order to diagnose/manage/treat these. In practice, there is a gradation of scales at work here which might be more difficult to separate out cleanly as e‐ health or e‐wellbeing (see Figure 5.1, intended to be indicative only67).

Figure 5.1 Scope of health and well‐being

Health (and wellbeing): e.g. acute care Health and wellbeing: e.g. diagnosis and treatment

Health and wellbeing: e.g. managing conditions and health issues (Health) and wellbeing: e.g. promoting , improving and maintaining good health and healthy living/lifestyles, health in the workplace, preventing health issues and ill health, managing risk of conditions

The E SIF gives a focus to e‐wellbeing in its discussion of the smart specialisation theme. This has been done with a view to the potential market opportunities where e‐wellbeing was perceived

66 If an alternative method of calculation is used which uses the APS dataset to establish the proportion of health sector employment that is defined as an IT occupation and use this as a scalar applied to the figure of 11476 in table 5.1, then use the UK input‐output tables to examine the potential for supply chain links the definition of the e‐health sector is reduced from 11,476 to 434.

Other aspects of the ESIF could also contribute to wellbeing e.g. support for employment initiatives with economic wellbeing consequences. This Smart Specialisation theme is focused on wellbeing and its related health outcomes.

67

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as having market opportunities which are broader and potentially more productive within the E SIF time frame than those for e‐health. However this was not intended to be at the exclusion of e‐health opportunities.

5.2

Evidence from previous research This evidence report for e‐health and e‐wellbeing builds on the work previously undertaken by Catalys in September 2013 and Strategic Economics Ltd in 2014.

The Catalys report in September 2013, presented information on the smart specialisation themes in line with the EU’s six steps guidance for their development. It reviewed and tested the evidence available for the themes, making use of information already collected by partners.

The review and testing of the e‐health smart specialisation theme at that time confirmed its potential for inclusion. It highlighted two general points to address: 

understanding and articulating the business efficiency dimension of e‐health and e‐ wellbeing and how this could be a contributor to business growth; and



engaging further with the NHS to explore how innovation ideas might be adopted.

The Catalys Report made a specific recommendation about further scoping work needed to test the potential for jobs and GVA growth potential from the smart specialisation themes. This work was subsequently carried out by Strategic Economics Ltd using a SIC code approach to aid definition of the relevant business sectors. The report however recognised the great difficulty in taking an SIC based approach for e‐health because it does not easily or exclusively fit any SIC definition.

However, in order to make some calculation, the report used the SIC codes for ‘hospital activities’ and ‘other human health activities68’ as its starting point. The study concluded that the e‐health market should be viewed as ‘nascent/emergent’ in terms of maturity, with C&IoS having a limited to partial presence of assets and near trend growth potential. It suggested –e‐ health as a high risk, high reward emerging technology.

Whilst the report did not calculate job creation and GVA by each smart specialisation theme, it did give two sets of figures to represent all five themes, one inclusive of e‐health and one exclusive of e‐health. Although this does mean the calculations specifically for e‐health can be deduced69, as the report suggests these are not necessarily a fair reflection of the smart specialisation theme because of the baseline definition used70.

68

SIC codes 86101 and 86900 respectively.

e‐health Jobs created (number) GVA (£m) Businesses created (number) 2015 ‐ 2020 108 31.8 6 2015 ‐ 2025 223 81 9 70 This was done recognising that the SIC definition includes all mainstream health delivery, much of which may be only very loosely related or not at all related to e‐health technology development.

69

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5.3

e‐health and e‐wellbeing in Cornwall and the Isles of Scilly Development of the smart specialisation strand to date has been in large part through an informal group of interested organisations – public, private and voluntary sector ‐ who might commission, use and develop e‐health and e‐wellbeing solutions. The e‐health and e‐wellbeing stakeholder group is facilitated and supported by the European Centre for Environment and Human Health (ECEHH), part of the University of Exeter Medical School.

E‐health and e‐wellbeing is seen as a particular strength for development by the stakeholder group for reasons including: 

C&IoS has a relatively simplified governance structure (NHS and local government), so that if e‐health and wellbeing can be made to work in this situation, it has potential for transferability into areas with more complex governance structures and to other rural areas facing similar issues;



it has a highly engaged and innovative voluntary sector, delivering services, active in volunteering, supporting community activities and social interaction and working in this arena;



it already has the ageing population that other areas may be heading towards – so can act as a test bed and provide the exemplars for transferability when related to care and health for older people;



the experience and reputation that C&IoS already has in innovative health and wellbeing through its research and knowledge centres and the businesses who are active in this field; and



a highly developed IT infrastructure through extensive superfast broadband coverage; an important enabler and resource.

The theme has also been catalysed by activities and investments, for example, the establishment of ECEHH using Convergence funding, the research work being undertaken through the Plymouth University; and the major changes taking place in health and care services provision.

E‐health and e‐wellbeing is seen as a growing market area with large potential that is, as yet, not specifically targeted as a market opportunity. It is the combination of local expertise and local/national/international interest in use of digital technologies to improve health outcomes that prompts C&IoS to identify this as a smart specialisation theme.

5.4

Markets – competition and demand

5.4.1

Demand trends and Influencing Factors As the Strategic Economics Ltd report observed, the e‐health and e‐wellbeing smart specialisation theme is highly inter‐dependent with developments in the digital sector. The report noted the business innovation opportunities are as likely to reside in the digital sector as

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in businesses in the health and social care sectors directly71. The report highlighted that different market sizes coupled with the stage of technological and commercial maturity of assets in Cornwall and the Isles of Scilly shapes the relative growth potential of smart specialisation themes. In the case of e‐health and e‐wellbeing, it is classified as a nascent market– one with a relatively immature existing value chain locally but with major growth potential although with attendant risks. As the Strategic Economics report also points out, key determinants of market growth will reflect political, social and economic pressures for cost savings and efficiencies in healthcare provision and for greater accessibility of services.

5.4.2

Push and Pull factors The potential market for e‐health and e‐wellbeing is subject to a range of pressures. It is worth reviewing the difference between push and pull factors that might influence its development as they have different implications for how market opportunities might develop.

Pull factors are those led by ‘consumers’ in terms of goods, services and information that they might demand; whilst push factors are those where ‘suppliers’ or technology are pushing goods and services towards consumers. Factors identified through research and consultations include:

Potential pull factors

Potential push factors



Growing use of mobile technology, apps  and other digital developments for health, fitness and other wellbeing purposes



Ageing population living longer and wanting to be healthy and active



Health providers, as purchasers of health products, needing to find more efficient health solutions and working practices in order to manage the growing numbers of people using services and the limited budgets available

Significant policy pushes towards e‐health in order to achieve greater efficiency and effectiveness in medical care, and in the face of budget constraints; and towards preventative work (prevention rather than cure) in healthcare

 Opportunities for integration/inter‐operability of data and systems around health, wellbeing and social care – e.g. to share information, link data sets to source better data on health, wellbeing and social care issues and outcomes, and use data in innovative ways to improve services

 Greater opportunity to give consumers management of their personal health, health data sharing, and personal health and care budgets

 Digital technology already being used in health, wellbeing and care situations

71

Business innovation opportunities could relate to other sectors as well such as sport and recreation ‐ see 5.5.1

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5.4.3

Pull factors: demand, trends and influences (i) Use of mobile technology A report published in 2014 by BCC Research72 indicates a global mobile health (mHealth) market that is projected to grow to nearly $21.5 billion by 2018. While the USA is the largest global market currently, Europe is projected to be the largest market by 2018. It suggests growth is driven by evolution in smartphone technologies, increased wireless coverage and remote treatment and monitoring of prevalent chronic diseases. It also points out the opportunity for mHealth to improve healthcare access in developing countries. The World Health Organisation (WHO) is supporting the development of mhealth through its Global Observatory for e‐health.

However there continues to be a need for solid evidence of efficacy. The GSM Association, who have a ‘Mobile for Development mHealth programme’, note that whilst there are many mhealth services in the marketplace, few demonstrate scale replicability or significant impacts. Issues in achieving this are identified as fragmentation of services, lack of scale across all mobile networks, limited replication and misalignment of the value proposition between mobile and health stakeholders73.

In Europe the EU Digital Agenda for the Future identifies mobile health as an emerging and rapidly growing field, with some 100,000 mhealth apps available globally of which around 70% are targeted at individuals and wellbeing/fitness and 30% at health professionals for diagnostics, monitoring etc. A Commission Green Paper on mobile health74 also cites reports specifically on mobile health apps, identifying very rapid recent market growth, spurred by smartphones. It also noted that this specific market is ‘dominated by individuals or small companies, where 30% of mobile app developer companies are individuals and 34.3% are small companies (defined as 75 having 2‐9 employees)’ . The Green Paper also notes issues associated with market development including: 

data protection including security of health data;



the need for compliance with the Medical Devices Directives76 where relevant to a mobile app;

72

BCC Research LLC, 49 Walnut Park, Building 2, Wellesley, MA 02481, Telephone: 866‐285‐7215; Email: editor@bccresearch.com, the source and publisher for a report Mobile Health (Mhealth) Technologies And Global Markets. March 2014. Information taken from a press release about the report http://www.bccresearch.com/pressroom/hlc/global‐mHealth‐technologies‐market‐projected‐to‐reach‐nearly‐$21.5‐ billion‐2018 73 http://www.gsma.com/mobilefordevelopment/programmes/mhealth/programme‐overview 74 European Commission Green Paper on mobile health (mhealth), COM(2014) 219 final, 75 Green Paper page 7, quoting information from IDC "Worldwide and U.S. Mobile Applications, Storefronts, Developer, and In‐App Advertising 2011‐2015 Forecast: Emergence of Postdownload Business Models".

76 This is being updated and a revised Directive is expected in 2015

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

ensuring safety – there are some emerging app certification schemes which includes the NHS online health apps library (see http://apps.nhs.uk/)77;



a lack of standards internationally that could support interoperability of mhealth devices, limiting the ability to scale up operations and achieve economies of scale; and



a need/opportunity for apps to do more than just provide information – investing in RD&I to develop more advanced mhealth solutions.

In England the National Information Board Framework for Action indicates growing demand for digital health and care services e.g. 40 million uses of NHS Choices every month of which 12.5% are by care professionals; over 350,000 individuals signed up to the Dr Thom online sexual and general health services of Lloyds Pharmacy. It also highlights that whilst 59% of all citizens in the UK have a smartphone and 84% of adults use the internet, only 2% report any digitally enabled access with the NHS78. It sets out that over the next decade there will be a growing number of over 65s, with smartphones and access to broadband, who have good health and care as a major priority and will be ‘enthusiastic and expectant users’ of digital health care technologies.

In 201179, NHS Direct handled over 10.5million assessment episodes of which 14% were via mobile devices. There were also some 25 million website visits monthly (2012) by UK citizens to over 500 health and wellbeing websites, of which NHS Direct accounted for over 50% of website visits80. In the context of increasing pressure on resources and funding gaps in health services, there is clear potential for digital technology to support innovations leading to service change.

C&IoS already has experience in this, for example with the delivery of services through telecare and telehealth by BT Cornwall81.

Use of mobile technology and other digital solutions has applicability in a range of health related situations beyond the health and care services per se. For example they could be used in workplace health related interventions – an example is piloting use of e‐health interventions to reduce the effects of prolonged sitting of employees on the mean arterial pressure (a risk factor for cardio vascular disease), discussed in an article in 2014 based on work in Tasmania82.

Another example is use of mobile technologies and GPS to support older people in making confident and safe use of public transport, supporting their wellbeing, the subject of a

77

There is a growing body of work on health related apps e.g..  The National Information Board intends to develop recommendations on kitemarking for medical apps in 2015 (its work stream 1.2. – see https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/433170/NIB_WS_1_2.pdf; and

https://www.rsm.ac.uk/sections/sections‐and‐networks‐list/telemedicine‐ehealth‐section/section‐meeting‐reports/mainstreaming‐ medical‐apps.aspx.  The BSI has recently issued a Code of Practice (PAS 277: 2015 Health & Wellness apps ‐ Quality criteria across the life cycle ‐ Code of Practice. BSI (2015));  PatientView have an international website of reviewed health apps at http://myhealthapps.net/

78

Reference given as: Ipsos MediaCT (2014). Tech Tracker Quarterly Release: Q4 2103. Available from: https://www.ipsos‐ mori.com/DownloadPublication/1630_IpsosMediaCT_Techtracker_Q4_2013.pdf.

79 National Pathology Programme. Digital First: Clinical transformation through Pathology Innovation. NHS England. 2014 80 It is worth noting that Health on the Net runs a Code of ethics/certification scheme for on‐line health and medical information (http://www.hon.ch/HONcode/Patients/).

81 BT Cornwall is a partnership between Cornwall Council, Cornwall Partnership NHS Foundation Trust, Peninsula Community Trust and BT for a range of services including telehealth and telecare. Its ALFI (Assisted Living for Independence) service supports people with long term conditions to remain safe and well in their homes. It supports over 12,000 people in C&IoS. Cornwall is also the national operational hub for BT’s remote healthcare service delivery.

82 http://www.ncbi.nlm.nih.gov/pmc/articles/PMC4219517/

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transnational assisted living programme pilot project in which the UK has a partner83. The potential scope of using mobile technology for health and wellbeing is quite extensive. (ii) Ageing population Given the growing numbers of older people in the population, the need for older people to stay healthy and thus reduce the need to engage with health and social care at a time when these services are under great strain and reducing budgets is increasingly identified as both a requirement and an opportunity. The fact that Cornwall and the Isles of Scilly already has an above average ageing profile is suggested as an opportunity for it to act as a pilot for new ideas that other areas, yet to hit the higher ageing structures, could learn from and potentially replicate.

The number of older people likely to require care is predicted to rise by over 60 per cent by 2030. Incidences of hospital treatment for over 75s has increased by 65 per cent from 2004 and someone over 85 is 25 times more likely to spend a day in hospital than someone under 65.

There are clear needs for digitally enabled innovations in support of health and care of older people.

Cornwall already has a national pilot project looking at alternative methods of service delivery – Living Well84 – which, although not specifically technology based, is showing the way for new service delivery and which could in the future, incorporate innovative digitally enabled tools.

C&IoS could be well placed to develop its potential for pilot activities in connection with the older age group and innovations in health, wellbeing and care services and solutions.

There also appears to be potential for use of digital technology in enabling health, wellbeing and care solutions for young people; for example when linked with opportunities such as digital gaming which could appeal to a younger audience; availability of information and access to support through mobile solutions in relation to mental wellbeing; or through use of telehealth to support preventative work with children to lead to healthier lifestyles and greater wellbeing.

Again, Cornwall has current experience in health initiatives for young people such as the Headstart Kernow85 project (which includes digital elements). Such projects could develop/expandthe digital dimension. (iii) Health and care providers and more efficient health and care solutions At the UK level, there is a wealth of policy and guidance targeted at improving efficiency and reducing costs in the NHS including through use of digital technology. There are emerging examples of use of digital technologies to support more efficient health solutions. For example a 2014 NHS England report on use of digital technology in pathology innovation86 found that around 95% of clinical pathways rely on efficient, timely and cost effective pathology services where the use of digital technology could deliver major benefits.

83

http://www.aal‐europe.eu/projects/assistant/. The Assistant Project – Aiding sustainable senior travellers to navigate in towns, in which Travel and Transport Research Ltd is a project partner.

84 One of 14 Pioneer projects funded by the Cabinet Office, nationally.

85 http://www.cornwall.gov.uk/health‐and‐social‐care/children‐and‐family‐care/cornwall‐childrens‐trust/working‐together/headstart‐ kernow/?page=35873 86 National Pathology Programme. Digital First: Clinical transformation through Pathology Innovation. NHS England. 2014

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Consultations for this study have however identified some significant challenges in progressing digitally enabled innovations – particularly in the NHS ‐ linked to systemic issues such as organisational structures, governance, procurement and commissioning processes. Similarly there are issues in the primary care sector, e.g. standards and supplier arrangements managed through the Health and Social Care Information Centre (HSCIC). However discussions note there are other ways into health related organisations e.g. private health providers, voluntary sector organisations or working with intermediaries as a middleman between supplier and customer.

There are also examples of successes within the NHS itself. The potential for social innovations is very relevant here e,g, around organisation, governance and service delivery and including greater citizen participation.

There is also great potential within the care sector. For example there are a range of initiatives using digital technology to enable people to stay in their own homes. NHS England has produced a Technology Enabled Care Service toolkit aimed at encouraging commissioners to take advantage of technology opportunities such as telehealth, telecare or remote monitoring87.

The EU has an Ambient Assisted Living Joint Programme (now part of Horizon 2020) which is seeking to create a better condition of life for older adults through the use of ICT88. There are also other strands of work through the EU Innovation Partnership and Innovate UK89.

Given its ageing population, C&IoS has over 350 registered care providers of which two thirds are care home providers and the rest provide domiciliary care90. There are opportunities for digital further technology innovations to enable health and wellbeing benefits for people in receipt of care, building on initiatives such as the Skype on Wheels initiative, developed by Plymouth University, for care home residents to keep in touch with their families thus improving their wellbeing.

5.4.4

Push factors; demand, trends and influences (i) Policy drivers The EU has had an interest in e‐health for some time, with a first e‐health Action Plan in 2004.

The latest Action Plan for 2012‐202091 notes that ‘eHealth and wellbeing are areas with high growth potential and possibilities for innovation notably by unlocking effective health data exchange’. It was selected in 2007 as one of six sectors in a Commission ‘Lead Market’ initiative and where a subsequent evaluation of the initiative in 2011 noted that political willingness to make it happen had been a barrier to its development although the markets for all six sectors still showed ‘marked potential for further growth’92. The 2012 – 2020 Action Plan still identifies the market potential of e‐health as strong stating that ‘the wellbeing market enabled by digital technologies (mobile applications, devices) is rapidly growing. The convergence between wireless communication technologies and healthcare devices and between health and social

87

Technology Enabled Care Services Resource for Commissioners. NHS Commissioning Assembly, January 2015 http://www.aal‐europe.eu/about/objectives 89 E.g.http://ec.europa.eu/research/innovation‐union/index_en.cfm?section=active‐healthy‐ageing; https://connect.innovateuk.org/web/assisted‐living‐innovation‐platform‐alip/who‐we‐are 90 Care Sector Business Skills Analysis March 2015: Institute of Public Care, Oxford Brookes University for Cornwall Development Company 91 Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions. e‐health Action Plan 2012‐2020 ‐ innovative healthcare for the 21st century. Com 2012, 736 Final.

92 Final Evaluation of the Lead Market Initiative, July 2011, Centre for Strategy and Evaluation Services and Oxford Research 88

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care is creating new businesses. Redesigning the delivery of care and the 'silver economy' are highly promising markets’. The Action Plan therefore proposes four objectives: 

achieving wider interoperability of ehealth services;



supporting RD&I in ehealth and wellbeing to address the lack of availability of user friendly tools and services;



facilitating uptake and ensuring wider deployment; and



promoting policy dialogue and international co‐operation on e‐health at the global level.

In the UK, there are some very strong drivers for developing the e‐health agenda, built around more efficient and effective services, greater user access to information and control of personal information and care, at no greater cost (or preferably less cost) to the providers. The policy rhetoric discusses the increasing importance of health prevention (which aligns with e‐ wellbeing) in this, although the focus of (financial) attention seems mainly e‐health.

The following are some key policy initiatives: 

BIS Strategy for the UK Life Sciences, December 2011; convergence of digital and healthcare technologies recognised as an opportunity;



Innovation Health and Wealth: Accelerating adoption and diffusion in the NHS. NHS, December 2011: challenges the NHS and industry partners is to pursue innovations that genuinely add value but not cost;



Digital Strategy: Leading the Culture Change in Health and Care. Department of Health, December 2012: internal DoH digital strategy about how it can become a departmental exemplar of digital use within Whitehall;



Care Act 2014: places a duty on local authorities to promote an individual’s wellbeing, seeks to integrate health and social care support provision, and introduces a statutory basis to personal care budgets. Although not specifically related to digital enabling tools, the potential is for digital technology to support this policy agenda; and



NHS Five Year Forward View, October 2014: gives a very strong push on preventative actions and proposes exploitation of the ‘information revolution’93.

These policy drivers towards e‐health and e‐well‐being ‘solutions’ are also evident in health and wellbeing strategies for Cornwall and the Isles of Scilly where in many respects the pressures are still greater given ageing demographics: 

Cornwall Health and Wellbeing Strategy 2013 – 2015, Cornwall Health and Wellbeing Board which sets out three Outcomes around healthy living, quality of life and addressing health inequalities;



Isles of Scilly Joint Health and Wellbeing Strategy (draft), 2013, Isles of Scilly Health and Wellbeing Board which notes the lower level of health inequalities but issues affecting

93

One initiative following on from this and potentially very relevant to C&IoS is the NHS England Test Bed Programme –to evaluate the real world impacts of how different technologies combined with innovations in service delivery can provide better care and better value. Five test beds in the NHS are to be supported; see http://www.england.nhs.uk/ourwork/innovation/test‐beds/

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health and wellbeing including high rates of fuel poverty, problems and cost of accessing health services on the mainland and the expensive and logistical difficulties of delivering services on the islands; and 

NHS Kernow (covers Cornwall and the IoS) which has 10 priority or outcome areas around which it is grouping its activities, including improving lifestyles, addressing long term conditions and improving mental health and wellbeing. The ‘Starting Well, Living Well, Ageing Well’ Integrated Plan 2014 – 2018, has also been developed as a transformational plan and intended to be a ‘whole person, whole system’ approach.

(ii) Health and social care integration The potential for the use of digital technologies in this field is well articulated by the National Information Board (NIB), a new body in England bringing together health and care representatives from the NHS, Public Health, Local Government, social care and others, to develop strategic priorities for data and technology in health and social care94. Opportunities driving change, flagged up for the UK include: 

the impetus of the NHS Five Year Plan;



changing commissioning and contractual arrangements for services through CCGs, Local Authorities and Health and Wellbeing Boards;



installation of high speed broadband and 4G services; and



private sector investment in technology for the care services.

The NIB Framework sets out targets (e.g. all patient and care records will be digital, real‐time and interoperable by 2020) and NIB will be developing road maps to deliver across 10 themes reflecting the focus of NIB’s remit during 2015.

The recently approved (July 2015) Cornwall Devolution Deal is also very relevant here as this intends to work towards greater integration of health and social care, in recognition of the demographic challenges Cornwall faces and the need for efficient use of public funding. The Devolution Deal will see Cornwall Council, Council for the Isles of Scilly, NHS Kernow and other local partners work with national partners to develop a business plan to move towards integration of the two services. Digital health and wellbeing innovations could be very valuably linked with this. (iii) Health and wellbeing awareness and making use of big data ‘Big data’ provides the opportunity to overlay health data with other factors such as environmental conditions or housing conditions (and including non health data sources e.g. weather data), to identify health and wellbeing related issues, develop awareness and potential for solutions. An example of its application is a current project funded through the Medical Research Council and involving staff at ECEHH, connecting databases on climate, environment and human health to develop a new database and analysis platform to help advance health outcomes – a project which could prompt commercial collaborative innovations. Such projects

94

Personalised Health and Care 2020: Using Data and Technology to Transform Outcomes for Patients and Citizens. A Framework for Action.

National Information Board, November 2014

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have jobs potential not just in terms of researchers required but also in terms of potential for subsequent spin out and business development.

Big data could also have potential in making links between use of health and care services or equipment, reporting on health outcomes, collating information into anonymised data sets to explore trends in conditions and their management or for use in other innovative ways to improve health and wellbeing and associated products and services. For example where people are using wearable health and care technology, an individual’s health data could be monitored in real time, promoting positive trends and identifying danger signs for the individual whilst also contributing to public health monitoring through anonymised big data. A group of GP Practices in West Cornwall is piloting data sharing tools to enhance patient care and reduce non‐essential hospital admissions. The Queensland Sports Technology Cluster95 in Australia has developed a digital e‐health tool for handling time series sensor data for sport and health96. Use of data could also be linked with other smart technologies such as robotics, use of sensors and mechatronics, leading to new opportunities for e‐health and e‐wellbeing.

Whilst recognising there are some practical challenges to this (e.g. concerning data protection), big data management is seen in policy and consultations as having market potential to improve health and wellbeing outcomes. It could also link to social innovations.

5.4.5

Markets – some conclusions The business innovation opportunity centres on the ways in which digital tools can help deliver improved health and well‐being. There are also important opportunities for social innovation .

Whilst a significant push in policy terms (nationally) is from the public sector and NHS in particular, the potential for business participation could come from a range of sectors and into market areas related to both push and pull factors. There are market opportunities for e‐health and e‐wellbeing activities which include, but are not just related to the health and care sectors.

From an E SIF perspective there is a need to articulate and promote the opportunities to C&IoS businesses. The challenge will be to evidence health outcomes whilst also evidencing the economic benefits for businesses. Facilitating a shared understanding of health and economic outcomes will be essential to development of this market opportunity.

A further consideration in development of the market and its associated business opportunities will be the standards and regulatory requirements that might need to be met by new products (and which is subject to change, for e.g. in relation to health related apps). Consultations suggest there are time implications that might need to be factored into the speed at which businesses could progress through the innovation value chain from R&D to commercialisation.

This might be a practical consideration for delivering ERDF outputs within the Programme timeframe.

5.5

Enterprise

95

Works with Australia's elite sporting bodies to transform sporting organisations with the aid of technology http://adat.qsportstechnology.com/about

96

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5.5.1

The e‐health and e‐wellbeing business base The SIC definition of e‐Health and e‐wellbeing is difficult. The following table is confined to ‘hospital activities’ and ‘other human health activities’. It is highly likely that only a small proportion of employment in these sectors relates to e‐Health or e‐wellbeing.

BRES data indicates that these sectors accounted for 5.5% of employment in Cornwall and the Isles of Scilly in 2009, below the proportion for both the region and England as a whole.

However, between 2009 and 2013, employment in the sub‐region increased by 16.3% to nearly 11,500. This rate of increase exceeded the regional and national rates, as shown in Table 5.1 below.

Employment

% of total employment

Location Quotient

% change in employment

England

Location Quotient

South West

% of total employment

C&IoS

2013

Employment

Table 5.1: Health – employment change 2009 to 2013

2009

9,869

4.7%

0.9

11,476

5.5%

1.0

16.3%

138,190

5.6%

1.0

156,738

6.5%

1.1

13.4%

1,317,086

5.5%

‐

1,415,556

5.8%

‐

7.5%

Source: BRES, Nomis

In practice, the above definition excludes what an e‐health and e‐wellbeing sector might encompass and where the business benefits might accrue, particularly to secure the ERDF outputs. There is significant overlap with the digital sector (described in more detail in section 4). The latter has in summary been growing quite significantly in C&IoS but is at a lower level of representation in the local economy than nationally.

There are also links into a number of other sectors. The work of the European Centre for Environment and Human Health (ECEHH)97 indicates a range of other business sectors with which the Centre has been working. As well as the health and environment sectors these include design and manufacturing (e.g. children’s play equipment), ICT (e.g. developing apps, visualisation tools), service providers such as a housing association, and activity and sports providers (e.g. outdoor activities such as surfing). This suggests that health and wellbeing as a ‘market area’ is of potential interest to a wide business base98 While the the number of C&IoS businesses developing applications and systems and/or supplying into clinical, care and wellbeing settings may not be large, there are a number of successful examples. These moreover have experience and skills which could be beneficial to others – for example, in order to meet EU Medical Devices Directive requirements. Examples include:

97

ECEHH was set up with ERDF funding through the Convergence Programme. It is located in the Knowledge Spa at Treliske in Truro and also has an important laboratory presence in the ESI at the Penryn campus. ECEHH is part of the University of Exeter.

The same business sectors for Cornwall and Isles of Scilly account for 66% or just under 14,000 businesses. It should be noted that ECEHH’s engagement with these sectors is not specific to e‐health and e‐wellbeing though.

98

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

Carnego Systems, optimising the performance of buildings facilitated through use of digital tools and systems and who have been working with a local housing association in RD&I on the links between health and housing99;



Buzz Interactive, a creative technology company who developed a mobile app to record symptoms of Menieres Disease (an inner ear condition);



fffunction, a digital design company who number ECEHH and Healthspan amongst their clients;



Made Open, a strategic communications and digital innovation company who developed an online toolkit for use in Cornwall’s Living Well project;



My Clinical Outcomes, a web based system for use by patients and clinicians supplied to some health service providers nationally;



Sullivan Cuff Software/INR Star, suppliers of anticoagulation management software to health services providers nationally, together with user support; and



Microtest, a national primary care clinical systems supplier ‐ whose GURU management tool is being used by RCHT for example.

In addition, when considering the C&IoS business base that is relevant to development of the sector, the followingare also very relevant and important:

5.5.2



voluntary and community sector organisations engaged in health and wellbeing and also in care service delivery and some of whom are active in RD&I – e.g. the Living Well project involving Age Concern Cornwall and Volunteer Cornwall and engaged in social innovation of a new model for health and social care, which other UK clinical commissioning groups are beginning to take up;



private sector health and care providers in C&IoS ‐ including care homes – and Registered Social Landlords; and



primary care providers i.e. the network of GP Practices.

Business clusters There is no specific formal C&IoS Business Cluster or network for e‐health and e‐wellbeing.

Businesses engaged in the digital technology aspects of e‐health and e‐wellbeing may be involved in business networks such as Software Cornwall, the Digital Meet‐Up group or the Digital Peninsula Network. There are also physical groupings of digital businesses in business premises (e.g. Jubilee Wharf in Penryn, Tremough Innovation Centre) and the Health and Wellbeing Innovation Centre at Treliske acts as a cluster of businesses related to health and wellbeing (although not specifically to its ‘e’ dimension).

Greater business clustering for businesses active in e‐health and e‐wellbeing would assist the sector to achieve growth and presence. However consultations also indicate some of the

99

Case studies of this research, plus those of Buzz Interactive, Made Open (see under Sea Communications) and My Clinical Outcomes can be found on the ECEHH website

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hurdles that developing clustering might have, in terms of sharing business experience. As the market competitiveness of digital small businesses is significantly built on their intellectual assets then there may be issues around how open digital companies are to sharing knowledge.

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5.5.3

Supply chains Supply chains in e‐health and e‐wellbeing are currently limited – there seems almost a direct relationship between the business and the end‐client/consumer. Opportunities however potentially exist for greater collaboration between SMEs across sectors to address procurement or commissioning opportunities or initiate research and development.

There is also a need for collaboration between business/client/commissioner/user to inform the focus of R&D and innovation so that it addresses a proven need and market where possible.

From the business perspective, such a ‘demand chain’ collaborative approach would give some certainty that commissioners are committed to using innovations developed and that therefore there is a real market opportunity. It is also seen as vital to ensure that the process starts with the health and wellbeing problem that needs addressing, and not with a digital solution and then seeing where it can be applied.

Consultations for this study have identified some businesses supplying into a national market and the potential to extend this e.g. supplying into different health and care providers.

Consultations also identified some interest in trading internationally whilst development of new niche products and services could also have international market potential. However consultations noted some reservations and comments on trading internationally:

5.5.4



different health and care systems internationally may make this difficult; although with a comment that because the USA healthcare system is led by insurance companies, there could be a stronger and quicker route to market there than through the UK public sector routes. At the European level there is recognition of the potential of e‐health in helping countries deal with growing pressures on their healthcare systems100. Consultations also acknowledge the potential to learn from international experience, for example, Scandinavia, Australia;



the cost of making initial connections and trade missions is high for SMEs who need financial support for this e.g. through UKTI schemes; and



getting into markets in developing countries in particular (for example, with mobile health tools) could be problematic for SMEs without a partnership with a large company, for example, telecommunications supplier (this point would require further investigation to test its reality; as well as the potential for local partnerships).

Attitudes to Innovation and Entrepreneurship Knowledge of RD&I experience specifically in the e‐health and e‐wellbeing field is very limited given that this is a newly developing sector. Consultations have identified a number of issues that could affect business attitudes to innovation in this particular theme:

100

For example a 2014 report Strategic Interoperability in Germany, Spain & the UK: The Clinical and Business Imperative for Healthcare Organisations. HIMSS Europe (Healthcare Information and Management Systems Society – a global organisation focused on achieving better health through information technology)

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

lack of C&IoS business recognition of the opportunities in the e‐health and e‐wellbeing theme because this is not a market that is readily obvious, for example, around data management opportunities;



a need to manage the risks of entering new markets and the associated cost/time to reach sales;



potential concerns around sharing ideas and so losing competitive edge; but also recognition of the opportunity for B2B networking to make best use of existing expertise;



lack of understanding about the culture, operation and language of some potential ‘customers’ (notably public sector) for example, businesses may not know about the service delivery side;



businesses may not be able to assess behavioural change ‐ but this may be needed to be able to sell an innovation and scale up market penetration especially into public sector customers. Finding routes or resources /expertise to monitor and evaluate RD&I to evidence health and wellbeing outcomes could be an important requirement, to be successful in commercialising products/services;



the slow speed of decision making in relation to some ‘customers’ (public sector);



lack of business knowledge and understanding of public sector procurement and commissioning processes; and



current procurement and commissioning arrangements that do not encourage/allow early collaborations to define problems and develop collaborative solutions101. This could be a real barrier. Recent EU legislative changes to procurement in the public sector has introduced ‘innovation partnerships’ which could be one catalyst102 to help new commissioning approaches, something which the SW AHSN is investigating.

Finding ways to raise the market opportunities of and de‐risk business entry into this smart specialisation theme are both seen as important for raising the opportunities and levels of RD&I in businesses.

5.6

Knowledge creation Sources for knowledge creation relevant to the e‐health and wellbeing specialisation theme include103: 

Higher Education Institutes including: 

the University of Exeter with a Medical School linked into the National Institute of Health Research and National School of Public Health and research centres that include the Institute of Health Research . The ECEHH, part of the UoE Medical School

101

Principally related to public sector commissioning and procurement.

See ‘A brief guide to the EU Public Contracts Directive 2014. Crown Commercial Services, February 2015. The Directive allows for competitive dialogue and innovation partnerships as two commissioning processes more on a collaborative basis (Articles 30 and 31 of the Act) 103 Sources of knowledge creation extend beyond C&IoS and give potential to build on activities and initiatives from elsewhere 102

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and its Institute of Health Research, is based at the Knowledge Spa in Truro and has laboratories at the ESI in Penryn. It works at an international level in its research areas of environment and human health and is involved in a range of research projects in its own right, nationally and internationally, as well as working with businesses through the knowledge exchange and PhD programmes it has had in place and which have supported R&D business collaborations;





the ESI, one of UoE’s research institutes and based at the Penryn campus, focused on interdisciplinary research related to problems and solutions for environmental change, in order to enhance people's lives by improving their relationship with the environment. Whilst its research focus is not specifically on health104, there is complementarity and potential linkages between its focus and that of e‐health and wellbeing;



Plymouth University, working in an inter‐disciplinary way across the University. As well as Plymouth University Peninsula Medical and Dental School, and Schools of Nursing, Allied Health Professions, and Psychology, it works in robotics, computing, engineering, and design amongst other disciplines. Research areas include e‐health implementation and impact studies, computer assisted health behaviour change; social robotics; telehealthcare, sensors and wearable devices; big data and GIS; and creative technologies and health and wellbeing; and



Falmouth University encompassing the Academy for Innovation and Research (AIR), already discussed in Section 4 and with the potential for its specialisms to support e‐ health and e‐wellbeing, for example, design procedures used in digital gaming.

Other Research Centres/Programmes: 

Royal Cornwall Hospital Trust (RCHT) has its own R&D department responsible for its strategy, management, infrastructure and governance related to its research and development activities;



Horizon 2020 includes e‐health research as part of the personal health and care theme within the ‘Health, Demographic Change and Wellbeing’ overall heading (although consultation feedback suggests that the scale of funding and complexity of application makes it difficult for an SME to get involved); and



NHS Innovations South West ‐ a not for profit company which supports innovation capability and capacity building in NHS organisations (and can also provide consultancy to non NHS clients)105. It also provides nationally accredited training on innovation and change management. NISW is a member of the Health Innovation Alliance, the national NHS innovation hub network and so has the potential for linking C&IoS into wider activity and organisations.

104

Research foci are clean technologies, natural environment and social science and sustainability http://www.nisw.co.uk/

105

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

Networks: 

the South West Academic Health and Science Network (SW AHSN) ‐ one of 15 such networks in England, licenced by Government in 2013 for a five year period with a remit to sustain and improve the healthcare system by finding solutions to needs.

Amongst it’s activities is a championing of the Small Business Research Initiative for Healthcare (see under Finance below). SW AHSN has potential opportunities for building wider collaborations beyond C&IoS and into a wider potential health and care public sector led market106;



PenCLAHRC – the National Institute for Health Research (NIHR) Collaboration for Leadership in Applied Health Research and Care in the South West Peninsula ‐ a collaborative partnership between universities and NHS organisations, focused on improving patient outcomes through applied health research. Both Plymouth and Exeter universities are members as are Kernow Commissioning Group and RCHT. Recent research projects include e‐health examples e.g. a Teentext project (developing use of a text messaging intervention to reduce repetition of self harming in young people), and an impact study into the effect of an internet based treatment for post natal depression;



SW Peninsula Clinical Research Network – Clinical Research Networks are the NIHR’s focus for clinical research within the NHS and undertake research across 30 clinical specialisms. The SW Peninsula CRN is one of 15 networks nationally and is hosted in the SW by the Royal Devon and Exeter NHS Foundation Trust. The SW Peninsula CRN is one of the partners that the RCHT, for example, works with through its R&D department; and



5.7

Capital

5.7.1

Skills

Innovate UK’s Digital Health Special Interest Group, part of the Health Tech and Medicines Knowledge Transfer Networkis looking at where the key opportunities for digital solutions are and where interventions would help establish a UK leadership.

This could be a valuable network for C&IoS to connect into.

The skills needed to underpin development of the theme encompass the range of health, wellbeing and care disciplines, digital and IT expertise plus business and commercial skills. While consultations indicate the need for some specific skills development areas they also highlight the need for ‘translational skills’ – i.e. the skills needed to work across different disciplines, with new technologies ‐ which may be outside the usual professional skills training programmes.

Some initiatives have developed, including through the Convergence Programme, which show an opportunity for development and/or begin to address specific skills needs of this theme.

These include:

106

AHSNs are working with Government and NHS England on a Test Bed Programme –combining different technologies with innovations in service delivery. Five test beds in the NHS are to be supported; see http://www.england.nhs.uk/ourwork/innovation/test‐beds/

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

PhD business collaborations ‐ whilst few of the current cohort of collaborations are specifically e‐health or e‐wellbeing related PhDs107, they illustrate an opportunity for business collaboration in R&D which has both higher level skills and business development benefits;



Using technology in health and care sectors ‐ the Convergence Programme has supported the development of health and social care vocational training, with the establishment of a skills escalator project. It has been developed by the C&IoS ‘Excellence in e‐health and e‐ care’ group which is looking at the full pathway of skills development from low level through to degree level. Truro & Penwith College has also developed a telehealth induction programme for ALFI108, together with BT Cornwall. It is a modular course and will roll out to new employees as BT Cornwall expands its national hub work outside the county;



Software development ‐ software engineering and programming is identified as a big skills gap in C&IoS109. This is important for e‐health and e‐wellbeing development, where part of the market opportunity could be in the area of innovative software development to support e‐health and e‐wellbeing initiatives and approaches. Truro‐Penwith College are working on an apprenticeship programme to Level 4 with Software Cornwall to help address this skills gap, which could start in September 2015; and



Business skills in collaborative working ‐ a need for businesses and health and care practitioners to have/develop the skills and expertise for working on collaborative projects and looking at innovative approaches and which could include leadership, negotiation, collaboration and an understanding of wellbeing/health prevention. For example, Plymouth University developed a pilot on‐line collaborative learning project called ‘Stakeholders Online’, bringing patients and professionals together to discuss mental health issues, opportunities and solutions using web‐casts and an anonymised online discussion forum110.

For healthcare professionals participation was counted as CPD. This could provide a model with the involvement of businesses to introduce new ideas and discuss approaches with practitioners and users.

Given the work already done and in progress on skills development, there is an opportunity to look at the potential of ‘exporting’ new skills programmes beyond C&IoS as a market opportunity. Further skills development needs/opportunities could relate to those relevant for social innovations; and to the large healthcare student population in C&IoS including their involvement in clinical placements/working at the community level, which could be a focussed opportunity related to e‐health and e‐wellbeing.

107

Plymouth University had a Superfast Cornwall PhD study looking at the impact of superfast broadband and other interventions on the uptake of e‐health in Cornwall 108 Assisted Living for Independence, BT Cornwall’s telehealth and telecare programme.

109 See research commissioned by Software Cornwall: Cornwall – A Place to Develop Software. Produced by the Cornwall College group on behalf of Software Cornwall, 2014.

110 http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3676147/

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5.7.2

Finance Access to finance to progress RD&I is identified by businesses as an issue both in general terms and in relation to support at each stage of progression from early stage R&D through to commercialisation.

The existing Convergence Programme has funded one successful R&D scheme specific to health and wellbeing – the In Residence and Follow on Scheme . This was introduced by ECEHH in part as a way of de‐risking SME involvement in early stage R&D through financial support. The scheme could provide businesses with up to 12 days of funding for their time to engage in R&D with the Centre over 3 months, matched by academic researcher time. The In Residence scheme was intended to develop an idea or undertake some initial research with Centre academics, which identified novel research opportunities for both parties and supported innovation, new knowledge and economic opportunities. Follow on projects were broadly expected to roll out of In Residence work. What is relevant in this scheme, as well as its de‐risking approach, is that the scale of funding is small but has been sufficient for a first stage of R&D to test innovation potential.

There are other national/EU schemes which could also support health and wellbeing RD&I although consultations have not identified that these have been sought or used in C&IoS .

These include the Bio‐Medical Catalyst, Small Business Research Initiative for Healthcare, NIHR Invention for Innovation (i4i) translational funding scheme, DoH/Wellcome Trust Health Innovation Challenge Fund and EU Innovation Partnership Funding (which includes Horizon 2020), and Knowledge Transfer Partnerships111. The NIHR and DoH/Wellcome Trust schemes are intended as complementary to provide early to later stage R&D and the i4i Programme has been reviewed with conclusions including that it is a ‘rare funder of high‐risk early innovation’ in the UK112.

Consultations for this study have also raised a number of concerns about financing support for SME involvement in RD&I, including access to working capital to enable a business to expand and grow and a need for early stage risk capital.

Business experience has been that existing funding opportunities have taken them some distance in early stage R&D but still with a need to secure funding for further work to commercialise the R&D. This would suggest that it is important for there to be a continuum of financial support available that can support progress through the innovation value chain, within an E SIF timeframe.

5.7.3

Innovation Infrastructure The existing support infrastructure for innovation and R&D in e‐health and e‐wellbeing includes: 

a considerable capital and revenue investment in relevant knowledge centres through Convergence funding – e.g. ECEHH, AIR, ESI and the Knowledge Spa Treliske;

111

Plymouth University notes using these related to e‐health The NIHR Invention for Innovation Programme ‐ a review of progress and contribution to innovation in healthcare technologies. RAND Europe, April 2015 for Dept of Health.

112

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

a range of health teaching and research facilities which include: 

University of Exeter Medical School Truro campus;



Plymouth University School of Dentistry located in purpose built facilities;



Plymouth University Faculty of Health and Human Sciences Cornwall Campus; and



RCHT R&D, Learning and Development and Quality, Safety and Compliance departments;



the Health and Wellbeing Innovation Centre; and



Superfast Broadband – which provides essential infrastructure for this smart specialisation theme

Consultations suggest that the need now is not for further major capital investment but to capitalise on the investments already made – although consultations also suggested there could be a need for some further more limited investments such as assistance with equipment for specific businesses, or creation of co‐labs i.e. co‐located communities of small businesses that can work together.

5.8

Strengths, weaknesses, opportunities and threats The following table provides an overview summary of the strengths, weaknesses, opportunities and threats associated with development of the e‐health and e‐wellbeing theme.

Strengths

Weaknesses



Strong national and EU policy drivers,





Cornwall Devolution Deal



C&IoS already projects/initiatives

Policy drivers heavily related to the NHS (in England) and clinical settings rather than the broader wellbeing arena





Existing e‐health and e‐wellbeing stakeholder group; business networks in the digital sector in C&IoS; and other networks such as SW  AHSN

Low levels of data utilisation and a lack of understanding of data accessibility and opportunities for use

has

national

pilot

Growing mobile and broadband coverage  and associated mhealth agenda globally

Low existing use of digitally enabled access with the NHS in England



Growing awareness of health, wellbeing and  care issues



Ageing population

Complex, risk averse and slow commissioning practices/ procurement requirements in the public sector (and some large private sector businesses)



Examples of businesses in C&IoS working in  e‐health and e‐wellbeing locally and nationally



Active third sector participation through charities and voluntary sector organisations that are employers



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Limited scale of the existing business base already working in this field



Limited awareness amongst C&IoS businesses of the market opportunity Gaps in skills availabilty ‐ including to support mainstreaming of new ways of working with digital technologies into health, wellbeing and care practice

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

Experience of knowledge exchange in health  and wellbeing, for example, through the work of ECEHH



Considerable recent development and experience in relevant academic research  and development activities in C&IoS including PhD business collaborations



Experience in an early stage R&D funding scheme in C&IoS, to de‐risk business involvement in health and wellbeing RD&I



Significant recent investment in relevant R&D facilities and innovation workspace in C&IoS; and in superfast broadband



C&IoS skills development group in place, working to meet known gaps including through innovative routes

Opportunities



 

Lack of a local coherent and structured financial support pathway to enable progression from early stage RD&I to full commercialisation Public sector services being re‐structured and subject to political pressures and external funding constraints/reductions

Threats

Pressures for new ways of health and care  service delivery; and potential for social innovations (including through Cornwall Devolution Deal)  Use of Big Data and data sharing opportunities Use of gaming and mobile devices e.g. supporting children and young people in health and wellbeing



Opportunities for C&IoS to test new  products/services – e.g. digitally enabled health and care for older people



Exploration of international markets for mobile tech products/services



Early stage collaborations (business/ customer/ commissioner/user) to develop a  shared understanding of opportunities and collaboratively generate solutions that will be used





Bringing businesses together to share experience and sell the market opportunities to others; and potential for involvement of  businesses from across different sectors

 Building on existing national pilot projects and growing the potential for more national and local pilots – which could include pilots around commissioning and collaborating on

103

Data protection, data governance and security issues, and meeting standards and quality assurance requirements A need for active leadership from public sector health and care providers, and a need to change commissioning cultures to facilitate collaborations and innovation, at a time of acute financial and managerial pressures A need for significant facilitation resources as without these it will be very difficult to develop business collaborations, R&D and share expertise and knowledge exchange.

The speed of change in the technology available for e‐health and well‐being solutions is considerable The risk, cost and time of participating in and progressing RD&I to reach commercialisation, Fear of losing individual business competitive edge may be a barrier to business networking and collaboration Lack of public sector funding support and likely diminishing public sector budgets in the future, making shared initiatives to de‐ risk business participation in RD&I more challenging if there is no public sector matched funding available.

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RD&I as well as targeting specific health and care challenges for RD&I work.

 Skills development including to support translational skills to facilitate collaboration and support RD&I; and to ‘export’ innovative skills development programmes beyond C&IoS

5.9

Conclusions and implications

5.9.1

Conclusions (i) Markets As the Strategic Economics report has pointed out e‐health and e‐wellbeing is very much a nascent market especially in terms of push factors. While there is a lot of evidence to indicate the potential for market opportunities, it is not possible to scope the exact extent of market share that could be achieved. Much of the RD&I developments are still in early stages of development with the scale of potential still being explored. There are some significant challenges to be overcome too (some particularly related to the health sector); for example related to organisational structures, governance and leadership, procurement processes, data security and quality assurance. There is however a growing global marketplace and rapidly expanding interest in the development of health, wellbeing and care mobile apps and other digital technology tools to support healthy living, living at home, health in the workplace, health and sports and other health and wellbeing uses. These are market opportunities that could be relevant to a range of business sectors.

C&IoS has relevant experience and opportunities which could give it a competitive edge, for example an older population providing a test bed for digitally enabled innovations which can help support the health and care of older people and which could be rolled out to other areas developing similar age profiles. However there are some building blocks needed, which are likely to be critical to realising market opportunities. These include developing the ‘demand chains’ for collaboration and commissioning of e‐health and e‐wellbeing products and services, understanding the health and care problems/wellbeing opportunities to be addressed including through collaborative R&D beginnings and the routes for developing and scaling up market opportunities, and providing the support needed to facilitate this level of collaborative working to realise market opportunities. Developing these building blocks also has the potential for achieving social innovations. (ii) Enterprise Business growth from e‐health and e‐wellbeing could potentially come from a range of sectors ‐ including the digital sector, private sector health and care providers, sports and recreation providers and the community and voluntary sectors. There are no specific business clusters for e‐health and e‐wellbeing in C&IoS and supply chains appear to be very shortbut there could be scope for developing a network of businesses that could come together in different combinations to collaborate on RD&I. 104

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While there are some good existing examples of businesses, there is a need to develop awareness of the market opportunities and raise the profile of businesses engaged in this sector. A key part in this could be de‐risking the initial stages of business participation in R&D. There should be potential for exporting outside C&IoS but more research is needed to scope the opportunities including the global opportunities in the mhealth market, and the means of entry to such markets, for example, whether other business partners are needed. Working with organisations such as SW AHSN, NHS Innovations SW and other networks beyond C&IoS would also be valuable. (iii) Knowledge Creation There are important existing knowledge creation assets in C&IoS – including that developed through previous investment via EU Structural Fund Programmes, such as ECEHH, ESI, AIR, as well as other centres of excellence such as Plymouth University. Other organisations also generate R&D, for example Royal Cornwall Hospital Trust’s R&D Department. There are also valuable networks beyond C&IoS that support knowledge creation and exchange and lead into RD&I such as SW AHSN, NISW, PenCHLARC and the SW Peninsula Clinical Research Network.

There are opportunities to co‐create RD&I across the knowledge bases in C&IoS . What will be important in doing this is to recognise and identify the business development opportunities as well as the research opportunities and the scope for their development/realisation within the E SIF timeframe. (iv) Capital Identified skills development needs include those in relation to translational skills (skills needed to work between different disciplines with new technologies), software development/ engineering and, more broadly, developing collaborative working opportunities. The excellence in e‐health and e‐care skills development group in C&IoS has been developing innovative responses to some of these issues. PhD courses working with businesses also provides a model with potential for use for across different areas of higher level skills development.

There is a need for finance to de‐risk the early stages of R&D work in particular but also to provide a continuum of finance that can support businesses through the innovation value chain from early stage R&D to commercialisation. The In Residence and Follow On Scheme developed

by ECEHH is one successful model for this, specifically intended to de‐risk that early stage business engagement. It is important that financial support is able to accommodate both smaller level early stage requirements and working capital investments to support later business growth.

5.9.2

Implications (i) Markets Potential areas for development could include: 

demand chain development – where e‐health and e‐wellbeing is likely to be a commissioned process, bringing the commissioning body, the users (who could be individuals) and the businesses together to collaborate on defining the problems and how digital technologies could be developed to address these – so that the business knows there is a purchaser for 105

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the product/service. Could be done through pilot projects and demonstration projects and could include innovations around public sector commissioning and procurement (which SWAHSN is seeking to develop); 

reverse trade shows – where the ‘consumers113’ set out the problems they want addressed and businesses put forward ideas on how digital techs could be developed to resolve these‐ which could lead into collaborative projects;



researching and developing the potential of local, national and international markets for mobile tech e‐health and e‐wellbeing products/services and bringing together potential RD&I business collaborators through business networking and events to address the market opportunities;



building on national pilots already in place in C&IoS eg Living Well and Headstart Kernow ‐ both of which have potential for digital technology enhancements and both of which are exploring social innovation through new ways of service delivery;



developing pilot/demonstration projects in the context of public sector health and care providers e.g. around data sharing and inter‐operability – this is challenging due to data and information sharing governance‐ hence the potential for a pilot project related to a defined problem, which can be addressed in the E SIF timescale and which has potential for widespread roll out, could be a way forward. This need not be limited to service providers in C&IoS – it could use networks like SW AHSN to work beyond C&IoS ;



developing the potential of data sharing and linking big data sets to inform health and wellbeing product/service development and which could link across a range of business sectors, organisations and datasets;



developing C&IoS as a test bed for new digital technology services/products (from within and outside C&IoS ) – where there are groups of people willing to test things and monitoring/evaluation structures in place to demonstrate health and care efficacy – needed if a business product is to be successful in the marketplace especially if targeted at health and care service providers. Potential for a particular focus on older people including supporting older people to stay longer in their homes using e‐health and e‐wellbeing tools;



developing the use of gaming and mobile devices e.g. for use with children and young people around health prevention, wellbeing and condition management; and



provision of expertise to support businesses in dealing with specific issues e.g. meeting legislative requirements, quality standards, Regulations such as the EU Medical Devices Directive (e.g. vouchers to business to buy in expertise, or to pay for business mentoring from another business already skilled in the area).

(ii) Enterprise Potential areas for development could include:

113

Consumers could include health and care service users, community groups, service commissioners and others, and could be working collaboratively and in partnerships

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

developing a Cornwall marketplace or platform for businesses involved in e‐health and e‐ wellbeing – both to raise the profile for this smart specialisation theme locally but also to act as a single point of information globally. Could be used to highlight innovations;



developing a business network which can support business collaborations in response to innovation opportunities and share experience (within the parameters of what businesses are willing to share without losing competitive edge);



developing models for de‐risking business participation in RD&I; and



working with networks who can help access customers; and with the spectrum of private, voluntary and community sector health, wellbeing and care service providers or who are otherwise involved in health and wellbeing related activities, not just public sector.

(iii) Knowledge Creation Potential areas for development could include: 

developing/extending models such as In Residence – including on a collaborative basis across HEIs and ensuring coherent support across all stages of the innovation value chain;



targeting co‐creation of RD&I collaborations ‐ ensuring all R&D business collaborations articulate the problem being addressed and the market opportunities pathway for spinning out business development from the R&D, at the start;



continuing to support HEI knowledge exchange activities with businesses – events, workshops, collaborations etc; and



working with networks beyond C&IoS eg SW AHSN.

(iv) Capital

Potential areas for development could include 

building on the work of the excellence in e‐health and e‐care skills group, including to develop translational skills; (and how these might be incorporated into mainstream professional health and care courses);



developing the concept of businesses linked with higher level skills development, building on the model of PhDs linked to businesses developed in Convergence and with suitably programmed links to ensure business valuable results can be achieved in a timely way;



developing financial schemes to de‐risk the early stages of business participation in RD&I – the In Residence and Follow On scheme is one model to build on. The NIHR i4i model might be another. These need to be able to provide small as well as larger levels of financial support;



ensuring a continuum of financial support for all stages of the Innovation Value Chain; and



linking up pre‐16 education with post 16 to develop career pathways.

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6

Smart Specialisation – Marine Technology

6.1

Introduction

Reflecting close proximity to the sea from all parts of the region, naturally deep ports and harbours and the sheer scale of coastline, Cornwall and Isles of Scilly’s maritime industries have long influenced the social and economic culture and structure of the area. Like agriculture the marine industry has a long reach in C&IoS with many depending on their livelihood and leisure on sea related activity. LEP data indicates there are approximately 20,200 businesses registered in the region of which 15,000 are micro businesses employing fewer than five employees. Only 40 businesses in the region are classified as being larger than an SME i.e employing more than 250 staff; notably three of these businesses operate in the marine sector; A&P Falmouth, Pendennis Superyachts and Fugro Seacore. The marine sector is defined by C&IOS LEP as one of five bedrock industries.

The historical marine related economic activities of fishing, ship and boat building and repair and transportation are still very present and important to C&IoS economy as is related activity such as food and tourism which relies heavily on the marine environment. A new economic growth area is the renewable energy sector particularly wave energy but also including off shore wind. Combined these traditional and new marine related activities generate around £500m to the GDP of Cornwall and support in excess of 14,000 jobs. However the marine sector is not just important economically to C&IoS it is also important at a UK level; estimates suggest the C&IoS marine sector accounts for almost one in seven maritime jobs in the UK and 8% of the UK’s marine industry turnover. The UK marine industry is estimated114 to have made a £18.9billion gross value added contribution to GDP in 2011/2012 equating to approximately 1.2% of the UK’s economic output and correspondingly accounting for 1.2% of total employment. Also of note is that the productivity of the marine and maritime sectors was higher at £51,300 than the economy average at £48,300115.

There exist strong linkages between the traditional marine industries and the newer off shore renewable energy sector in terms of supply chain potential and the economic benefits that would bring in terms of growth of jobs and GVA given the highly skilled nature of the employment opportunities entailed. However, the traditional marine sector of boat building repair, maintenance and equipment and services are an industry in their own right and their research and development and innovation potential needs to be considered. This report therefore explores the evidence in terms of strength of the innovation eco system for both sectors in turn.

114

The economic impact of the marine and maritime sector on the UK, Oxford Economic 2013 Definition includes Ports, Shipping, Marine Industries and Maritime Business Services

115

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6.2

Traditional Marine Industries

6.2.1

Evidence from previous research

This report builds upon work previously undertaken by Catalys in September 2013 and Strategic Economics Ltd in 2014. The Catalys report in September 2013, highlighted the need to clarify the extent to which C&IoS could further capture supply chain opportunities in the traditional marine sector. Potential areas for exploration included the design and fabrication of boats and other off shore structures, design and fabrication of wave devices, specialist deployment technology, off shore services, design of instruments to measure environmental conditions and associated monitoring systems, use of robotics for remotely controlled equipment and remote sensing equipment.

The Strategic Economic study noted that the recent concept of ‘green marine’ had been driven by cost considerations. The need for shipping to become more efficient with an associated lower environmental impact is driving a shift to more ‘resource light’ products. Areas such as engine design and the development and the application of new materials such as composites are expected to experience strong on‐going growth. The author notes that in a UK context given it has lost its competitive position in the ship building market generally to lower cost competitors the shift to high value green technology may now represent a significant market opportunity.

6.2.2

Cornwall and the Isles of Scilly The traditional marine industry of boat building, repair, maintenance and increasingly re‐fit is well established across C&IoS with clear clustering around Falmouth. SIC data indicates that there are almost 1,800 people employed in the marine technology sector in C&IoS as set out in Table 6.1 below.

Table 6.1: Marine Technologies and offshore energy – employment change 2009 to 2013

2009

2013

% change in employment

Employment

% of total employment

Location Quotient

Employment

% of total employment

Location Quotient

C&IoS

2,184

1.0%

1.6

1,681

0.8%

1.3

‐23.0%

South West

29,150

1.2%

1.8

26,488

1.1%

1.8

‐9.1%

England

158,323

0.7%

‐

151,658

0.6%

‐

‐4.2%

Table 6.1 shows that there has been a significant decline in employment in the sector in Cornwall and the isles of Scilly, with the rate of decline of 23.0% between 2009 and 2013 being far more severe than the decline both regionally and nationally.

Recent research116 has indicated that approximately 1,000 employees are estimated to be employed by the 3 largest marine companies A&P, Furgo Seacore and Pendennis Super Yacht

116

Matt Borne ‐ consultant to Cornwall College

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(although it must be noted that A&P and Fugro Seacore both operate in the ORE sector also).

Whilst there is clearly a concentration of employees in these 3 large companies all based in Falmouth and many of the small and micro businesses are also based in Falmouth a substantial number are spread across the Cornwall and given its location St Mary’s in the Isles of Scilly. This concentration profile is mirrored at a national scale as reported by the UK Marine Alliance which reported that the leisure marine sector is comprised mostly of SMEs – the nine largest companies representing 25% of the market.

The Plymouth Marine Institute has estimated that in the South West, the UK Leisure, Superyacht and small commercial marine industry accounts for 9,340 employees in employment, has a turnover of £900million (accounting for 28.5% of the UK, second only to the South East which accounted for 32.3%). Approximately 3,000 of the employees are estimated to be based in Plymouth.

The SIC based analysis above is in keeping with the econometric analysis undertaken previously

by Strategic Economics (as is the case in the analysis of the other smart specialisation sectors).

As noted by Cornwall Marine Network these codes reflect marine technology and not the full spectrum of marine and maritime business activity (some 150 SI codes reflecting workwear to locks and hinges manufacture). Undoubtedly a large number of businesses across C&IoS are involved in marine and maritime activity117 some of which will be involved in research and development118.

6.2.3

Markets Demand, competition, location, scale, trends, influencing factors The British Marine Industry Trends survey published in May 2014, reflected significant improvement in the industry with monetary measures showing a positive trend. The Industry Trends Report showed the sector is healthier than the previous year and future expectations for the marine industry were also more promising with over half of the trends survey respondents experiencing an increase in overall marine business activity over the previous six months and profit levels reporting the most positive trend since pre‐recession. The report stated that ‘hit hard by the downturn, the leisure market is now improving steadily and new build activity is seeing uplift over the last six months ago compared to last year. In the superyacht and small commercial sectors, both of which are still performing ahead of the leisure sector overall, the most significant improvement is being seen in the aftermarket/ refit markets’.

The latest trend report shows that the UK leisure marine industry sector continues to grow. For the third consecutive year, the industry posted growth in 2013/14, with total revenue in the UK leisure, superyacht and small commercial marine industry totalling £2.93bn (a 1% increase on 2012/13). As the UK economy entered calmer waters, the domestic marine market returned impressive growth – expanding from 62.8% of total revenue (in 2012/13) to 68% (2013/14). This success was driven by the mid‐market, says the British Marine Federation, with small and medium sized builders reporting strong growth. Signs of resilience in the sector are supported

117

CMN estimate in C&IoS there are a total of 14,000 people employed by 700 businesses in the marine and maritime sector CMN also suggest that there are substantially more technology focussed businesses and associated employment than the official SIC data indicates but due to confidentiality cannot provide detailed figures.

118

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by the latest set of industry trends (June‐November 2014), which show 90% of members surveyed are positive about future prospects – a 2% improvement on this time last year. The sluggish Eurozone economy and resulting lack of demand provided a challenging backdrop for exports. International trade still accounted for £938m revenue – 32% of total revenue in the sector – but the Eurozone slowdown caused an 8.7% reduction in exports. These conditions affected growth for the top exporters, which pegged back overall growth in the sector.

The UK Marine Alliance notes that the UK leads the world in quality powerboat production and produces a range of high value sailing yachts. They suggest the UK’s share of the superyacht sector is growing with a turnover of around £420m a year and over 3,600 employees, and is globally recognised with many leading international yacht designers based in the UK, including Pendennis in Falmouth. They note the leisure sector mixes service and manufacturing, from surveyors and charterers to specialist equipment manufacturers and three world leading marine leisure clothing brands.

In terms of future prospects, market analysis points to the rise of the middle classes in China, Brazil and other BRIC and emerging market countries such as Croatia as positive markers for demand growth, for example in China, super yachts imports has dramatically increased and dominated the total imports (44.6 percent). Estimates indicate that the imports of super yachts will increase 20 percent in 2013 and 40 percent in 2014, with a value of USD 65 million.

The UK Marine Alliance Export Strategy note that for leisure boats and equipment, the major European markets of France, Italy, Germany, the Netherlands and Spain remain key for leisure boat sales and equipment and it is important for UK companies to get ‘specified’ by the major boat builders who sell across the world. In the medium term, 5‐15 years, the British Marine Federation (BMF) has identified further markets with growth potential as being Brazil, Russia, India, China, Turkey, Slovenia, Greece, Australia, New Zealand, the Middle East and Scandinavia.

Other market analysis notes that the developed leisure marine markets will continue to be highly attractive to SMEs noting that Europe has six million boats and 36 million boaters and that ‘the continent has a developed market and encompasses many of the main global brands and that these brands, amongst others, are also strong exporters enabling UK companies to be present in global markets by being specified in builds in Europe.

UK Marine Alliance Export Strategy A key barrier to exports, particularly for SMEs, is a lack of capacity within businesses to sustain export business. The ability of UK marine companies to fully exploit global business opportunities is shaped by a number of factors including company size, internal capability and capacity, the sub‐sector in which it operates, export readiness and experience.

Information on export opportunities is patchy and the ability to acquire this information, particularly in emerging markets, has been identified by industry as a key barrier to growth.

Moving forward, it is important that industry and government improve how they share information and intelligence about growth opportunities and changing markets. Improving management of this information with new ways of working on an ongoing basis is a key theme of this strategy

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Future Technology Trends The industry survey asked UK marine companies to identify the marine product and service areas which would produce the highest number of new innovations over the next ten years. The main technology groupings identified were: 

environmental protection and emissions reduction;



autonomous systems;



renewables119;



propulsion technology; and



electronics and data management.

Policy Recognising the importance of the marine industry across the EU, the EU Maritime Strategy: The Sea: New Opportunities for the Future, sets out a vision of a strong, sustainable and competitive European maritime industry in 2020: 

Strategic: An evolved public perception and the acknowledgement that the maritime technology industry is of strategic importance for the EU and provides quality employment for large global companies, SMEs, in defence and security in Europe;



Innovative: A sector which delivers cost‐effective, innovative and technologically advanced products and services through effective use of RDI and high productivity;



Competitive: A successfully restructured sector offering attractive long term employment opportunities for a highly skilled workforce, including younger workers. A workforce in manufacturing, R&D and servicing that is trained and prepared to work with a multitude of technologies;



Specialised and Green: An industry producing specialised products integrating ‘green’, innovative and safe high‐tech technologies, ranging from ships for conventional markets (transport, leisure, oil & gas, etc.) to vessels, structures and systems, devoted to a safe and sustainable exploitation of the oceans and of marine renewable energies;



Life Cycle Oriented: An industry taking care of the environmental footprint of their products from design, through production and operation up to dismantling and recycling;



Export Oriented: A sector exporting a significant share of ships, maritime structures and systems, characterised by high‐quality and high performance in specialised market segments;



Energy Efficient: Special emphasis on design, product development and the cost‐effective exploitation of technological solutions aimed at energy efficiency and emissions reduction; and

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The Department of Energy and Climate Change (DECC) estimates that wave and tidal stream energy combined has the potential to deliver around 20 per cent of the UK’s current electricity needs which equates to an installed capacity of around 30 – 50GW.

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

Global: A strong European manufacturing base for ships and components sold on the EU and global markets which offer a genuine level playing field to all players in the sector, based on the principles of safety, sustainability and fair competition following balanced trade deals which include sector specific provisions where necessary.

The European maritime stakeholders have narrowed down the areas of policy action to four main themes of focus: 

employment and skills;



improving market access and fair market conditions;



access to finance; and



research, development and innovation.

A future for Maritime Cornwall: The Cornwall Maritime Strategy 2012 ‐ 2030 The local context for development of this theme is provided by this strategy. A number of relevant objectives are set out namely: 

to promote low carbon maritime enterprise throughout Cornwall as a key component of economic revitalisation and international excellence;



promote the development and deployment of marine renewables including supporting research and development into wave, tidal and wind energy to ensure the economic benefits of the development of Cornwall’s marine energy programme are effectively coordinated with environmental priorities;



support the implementation of the Crown Estate Strategic Resource Areas, maximising opportunities for collaborative working; and



support the infrastructure required for sustainable maritime enterprise, including the availability of high speed broadband and digital fibre connectivity for workspace; together with supporting infrastructure for onshore renewables.

The strategy highlights working towards securing a sound economic future for Cornwall through working with industry to provide a wide range of jobs and skills in maritime employment. It also sets the following relevant aims: 

C2: Support the Local Enterprise Partnership (LEP) and Cornwall Marine Network in promoting and developing sustainable maritime enterprise;



C3: Ensure that Cornwall develops excellence in the provision of marine education and training across the full range of maritime industries and the environment (including higher education and vocational training) building on existing capability and expertise integrated with business incubation;



C4: Harness the potential of marine renewables within the context of a broad‐ranging strategy for sustainable energy production in Cornwall to create an internationally recognised centre of excellence; and

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

C8: Aim for excellence in a sustainable maritime economy; including ports and shipping, recreational and commercial fishing, ship repair, leisure, superyacht and boat construction, marine renewables, waste processing and emerging knowledge‐based industries.

The Strategy also sets out a range of aims with regard to development of Cornwall’s estuaries, ports and harbours. These are as follows: 

E1: Consider the strengths, issues and opportunities in relation to Cornwall’s ports and harbours to gain a better understanding of their roles;



E2: Future‐proof maritime areas for maritime related business and community uses through protecting waterfront land in urban environments and ensuring that port infrastructure and waterfront locations are at the heart of regeneration schemes;



E3: Protect and develop port infrastructure where it is sustainable and economically viable to do so, so that they continue to be an important part of modern and future maritime Cornwall;



E4: Work towards more coordinated management of and advocacy for ports and harbours, to encourage further economic development whilst balancing the operational, leisure and environmental uses;



E5: Where appropriate, promote port development that facilitates the expansion of other economic activities, including renewable energy, leisure, fishing, freight handling, ship repair, yacht and boat construction;



E6: Ensure that ports and the coast accommodate the promotion of leisure/ recreational activities and coastal access without adverse effects on economic activity and environmental quality. One example of how this may be achieved is through creating zones for leisure based activities in waterways, rivers and in ports;



E7: Maximise the opportunities for supporting and promoting sustainable local fisheries and aquaculture; including the provision of shore side facilities for handling and processing landings; and



E8: Promote the role of Cornwall’s large and small ports and harbours in creating job and business opportunities for the development of the marine energy industry, its supply chain, technology development, manufacture and maintenance.

Many of these aims are also relevant to the emerging off shore renewable sector (as a market for traditional marine tech and a market in its own right, particularly aims E5‐E8. The relavnce of these to the offshore renewables sector is explained in detail in section 6.4 below.

Plymouth and the South West Penninsula City Deal To maximise the potential economic benefits of the marine sector in the South West and particularly C&IoS and Plymouth, central Government is supporting the Plymouth and the South West Penninsula City Deal. Reaching across five primary authorities, it brings together the private sector, Government, Higher and Further Education. The City Deal’s vision is to create an environment where business thrives, companies innovate and the commercial potential of marine technology, knowledge and assets is harnessed to the greatest extent. This it is planned 114

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to be achieved by creating one of the largest City Deal partnerships, which will begin redressing a key economic barrier to economic growth – the area’s low rates of productivity. It is also expected to rebalance economic activity in favour of businesses investment and export. Low productivity and export growth will be addressed by amongst other things:

6.2.4



Growing the marine sector by unlocking critical employment sites led by South Yard in Plymouth. This will facilitate the international relocation and development of supply chain companies and enable the growth of local marine sector companies;



increasing the commercialisation of R&D from marine research assets; and



providing tailored business support programmes to all SMEs and marine sector companies.

Enterprise Business base, clusters, RD&I evidence, attitude to innovation Recent research estimated there were 100 marine tech businesses in Falmouth and Penryn with many more across the rest of Cornwall and Isles of Scilly. As noted above the sector is dominated by 3 large players and many small and micro and lifestyle enterprises with the majority being indigenous. An indication of the number of companies is given by the statement of Cornwall Marine Network that it has helped 350 companies. It is understood that a strong supply chain exists between the smaller enterprises and the large players but that significant amounts of labour and materials are sourced from outside of the region due to an inability to locally source whilst many enterprises are focused on the home market rather than outside of C&IoS. A focus on one geographical market clearly reduces the resilience of these companies and can makes for a more fragile economy. SIC data indicates (see table 6.1 above120) that there was a decrease of almost 29% in terms of employment between 2009 and 2013. Whilst there was a decrease at the South West and England areas these were much smaller at 8.8% and 11.7% respectively. Location quotient analysis confirms the concentration of marine activity in the economy of C&IoS compared to England as a whole and even the South West although compared to the South West as a whole this is only marginally higher.

There are examples of companies in the sector undertaking significant research and development as well as innovation however in terms of overall attitudes to research and development and innovation there is no reliable data. Indications of a more general positive attitude to innovation at least is the response to the the Marine Innovation Service which delivered business assists to 20 marine technology companies during the Convergence Programme as well as the response to the opportunity presented by Cornwall Marine Network’s £1.85million (RGF funded) Capital Fund available to fund workspace and equipment investment between £50,000 and £500,000. CMN report they expect the funding to be fully committed over the three years; with many applications being received.

120

See footnotes 4 and 5 above

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6.2.5

Knowledge creation Public research, networks, leadership The UK has extensive academic expertise in marine engineering Research & Development. The UK’s specialist academic institutions undertake both fundamental research and commercial R&D in the marine sector. Leading marine engineering universities include: 

University of Southampton‐ Maritime Centre of Excellence;



University of Strathclyde, Department of Naval Architecture and Marine Engineering;



University of Newcastle‐School of Marine Science and Technology; and



Plymouth University‐Plymouth Marine Institute.

As a number of companies are world leaders in the design and manufacture of yachts and superyachts substantial technical knowledge has been built up.

Recognising the need for research and development and innovation the Government has invested over £19 million since January 2012 to support innovation. This included a new Technology Strategy Board (TSB) competition to develop solutions which improve current vessel performance and efficiency and also to generate novel low carbon, green shipping, propulsion and marine ICT projects.

In addition to the universities Government has funded other centres of excellence that have real potential to enhance the capability of the industry to create and commercialise new technologies to grow their business. The National Composites Centre (Bristol) is a key knowledge asset available to local companies in the drive for lighter and lower carbon vessels.

Networks Nationally there are a substantial number of bodies seeking to act as a networking route for the marine industry to connect those involved in the industry as a means of growing business opportunities through the sharing of information and collaboration, and market awareness and trends as well as a means of influencing government policy and financing through a collective voice and action. Amongst such bodies there are: 

Society of Maritime Industries;



UK Maritime Industries Alliance;



British Marine;



British Marine Federation; and



the Institute of Marine Engineering, Science and Technology.

Locally there also exist networks to connect businesses based in C&IoS again with a view to increasing business opportunities through sharing of information, professional and company development and market knowledge. Two key networks are Cornwall Marine Network (350members) and Cornwall Manufacturing Network (60 members). Whilst it is understood that both local networks have many businesses involved, some very actively the level of involvement in national networks and with universities and centres of excellence is not formally known but is 116

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thought to be low. This it has been suggested could be due to a lack of historic experience of joint research and development activity.

6.2.6

Capital Funding Research and development in the marine sector can be significant and have long investment timescales. Whilst access to loan and other forms of financing have not been cited as barriers to research and development the cost of such activity has been mentioned as a barrier.

The Cornwall Marine Network Capital Fund was reported as being a useful source of funding for small and medium size companies in the sector providing access to relatively small amounts of funding at up to 45% intervention rate. As the Fund has become more widely known applications have increased indicating there is a strong desire to undertake investment to grow the business. Given the relatively small scale of funding it has however limited ability to stimulate large scale early stage research and development.

Skills The C&IoS LEP have noted that the existing engineering base is strong in company numbers but not supported by numbers of young people moving into the sector. There is a need to tackle the ageing workforce issue and to help people move into more specific areas such as aerospace, marine engineering, space, and renewables.

Within Cornwall & IoS key sources of skills training is company training, apprenticeships and courses. There are a number FE and HE course providers for example Falmouth Marine School which provides a selection of courses from introduction to degrees in partnership with Plymouth University and specilaises in relevant subjects such as Marine Engineering and Marine Science & Biology. Cornwall Marine Network have also provided training at Level 1,2 and 3.

Recent collaboration between Cornwall College and Cornwall Marine Network established the key priority skills of Tier 1 companies to be across all levels of engineering.

Overall, however, there is a general consensus that the quantum of people in the labour market with the right skill level at all levels is insufficient for the sector’s current needs and acts as a barrier to investment and growth.

Innovation infrastructure Falmouth harbour is the third deepest natural harbour in the world. The Port can currently support vessels ‘alongside’ up to 220 metres in length with a draft of 8 metres, but the mean depth of the existing main access channel is 5.0 metres, the result of many years of siltation121.

The dock estate extends to 30 hectares. It has three large graving docks and 750 metres of alongside deepwater berths that are able to accommodate vessels of up to as much as 100,000 tonnes. It also has cranage facilities and heavy lifting equipment as well as engineering and fabrication facilities. There are also many other ports around the coast such as Hayle and Helston which are equipped to offer similar marine services.

121

No decision by the MMO has been taken in relation to dredging of the Port

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6.2.7

Strengths, weaknesses, outputs and threats Strengths

Weaknesses

 Geography and tradition



R&D experience limited to small number of companies



Collaboration between companies, centres of excellence low



Business base dominated by large number of small and micro businesses



Business process/management insufficient to meet ORE customer requirements

 UK knowledge creation e.g. NCC  Port of Falmouth  Local networks

Opportunities

Threats

 Focus on ‘green marine’

 International competition

 Off shore Renewable Energy Market

 Ability to accommodate increasing size of vessels

6.3

Conclusions and implications Traditional marine tech

6.3.1

Markets The C&IoS traditional marine tech for vessels is an established market as is the the global market and the UK market. However it is expected that there will be continued growth arising from the development of BRIC countries and other developing nations, thus creating growth opportunities in particular market segments for example ‘green technology’. There is also opportunities to expand or operate within the growing off shore renewable energy sector locally, nationally and internationally (see section 6.4 below). The analysis shows however that whilst some businesses in C&IoS are positioned to take advantage of the growth opportunities in one or both markets, others are not aware of the opportunities and/or are too small to have the resource available to investigate and develop markets domestically or internationally particularly those in the Tier 2 and Tier 3 supply chain. The research shows that there is real and immediate growth prospects for Tier 2 and Tier 3 suppliers as a significant value of existing supply chain activity is from outside of the region.

Implications for the support framework include: 

market opportunities awareness for green technology associated with vessel build, repair, refit; 118

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6.3.2



market opportunities awareness raising for opportunities in new off‐shore renewable sector;



supply chain development related to new technology driven market opportunities; and



promotion of C&IoS offer/brand development‐ events, literature, networking.



focusing on the the 5 areas with most potential for growth identified by marine companies: 

environmental protection and emissions reduction;



autonomous systems;



renewables;



propulsion technology; and



electronics and data management.

Enterprise The traditional marine tech is a significant sector in terms of number of businesses, employees in employment and wealth generation for the regional economy. Marine technology businesses are heavily clustered within the Falmouth and Penryn cluster, and represent more than 75% of the marine technology workforce in Cornwall, and are therefore particularly important in the local economy. Whilst widespread across the region the industrial base is dominated by many small or even micro businesses with little resource time, money or skills to invest in making businesses more efficient through investment in new technology and skills.

Implications for the framework are:

6.3.3



support investment in equipment to meet new technology driven markets; and



support businesses to grow markets by collaborating to respond to larger market opportunities.

Knowledge creation Traditional marine tech businesses in C&IoS are creators of new knowledge but significant investment to date has been limited to a small number of companies. A recent workshop organized by University of Exeter identified a number of companies inside and outside of the region that saw a value in R&I. Substantial knowledge creation expertise within geograpically close research institutions exists but interaction between businesses and RI has historically been low. To maximise growth, greater awareness of the scope and findings of relevant research is needed and of opportunities to carry out or contribute to further new knowledge creation.

Key implications for the framework include: 

promote funded exploratory and near market research opportunities available to businesses either singly or with other local businesses; 119

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6.3.4



promote funded exploratory and near market research opportunites with national and EU HE institutions and research facilities;



greater awareness of the wealth of technical knowledge and support available from dedicated facilities such as The National Composites Centre at Bristol and others; and



greater linkages with Innovate UK’s knowledge transfer networks and knowledge transfer partnerships.

Capital Innovation infrastructure The innovation infrastructure has many strengths and for traditional marine tech businesses perhaps the strongest is the natural environment of C&IoS as well as built port infrastructure.

Particularly of value is the natural depth of some port locations although the propensity for vessels is to grow in size and this may restrict opportunities for market growth if ports are unable to accommodate these larger vessels.

Implications for the framework include: 

support to meet port infrastructure needs.

Skills There is a general consensus that the quantum of people in the labour market with the right skill level at all levels is insufficient for the sector’s current needs and acts as a barrier to investment and growth. The Cornwall Marine Network have indicated that though examples of people with the ‘core’ skills required are evident, they are not always available in large enough quantities.

STEM skills are recognised by key industry stakeholders as a prerequisite for many of the roles in renewable energy industries. Engineering skills at all QCF122 levels were noted by Cornish businesses as experiencing shortages, which will worsen if required for commercialisation of an MRE industry‐ leading to requirements for increased study of STEM skills. In particular, middle / technician‐level engineering skills (at levels 2, 3 and 4) were repeatedly highlighted as a skills gap issue by Cornish businesses.

Implications for the framework are: 

create pipeline of skilled labour; immediate, medium and longer term;



promote careers and appropriate course choices in schools, FE and HE. Provide showcasing and experience opportunities for schools, FE and HEI students and staff in marine businesses;



encourage exchange opportunities between Universities (staff and students) and businesses;



skills interventions that are demand led and tailored to the needs of individual businesses ‐ particularly those responding to new technological developments in the industry;

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Qualifications and Credit Framework

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

increase access to and awareness of suitability of different types of growth funding particularly equity, loans and other sources;



support a specialist training centre that meets the engineering skills needs for marine and other smart specialisation sector skills such as aerospace and agri tech; and



create opportunities for marine technology businesses to engage with skills and HE in particular by supporting demand‐led solutions.

Finance The enterprise base is dominated by a few large companies and many small and micro companies. Thus the funding needs of both need to be addressed potentially in different ways.

Implications for the framework are: 

facilitate new partnerships between new investors and existing companies;



support businesses to become aware of grant and challenge fund opportunities (and support bid application); and



increase access to and awareness of suitability of different types of growth funding particularly equity, loans and other sources.

6.4

Offshore renewable energy

6.4.1

Evidence from previous research The Catalys report stated that C&IoS had the potential to become an international market leader in this sector given its marine energy resource, unique set of research and development assets as well as grid connection and potential associated supply chain for the ORE industry.

This combined with the expected market growth in offshore wind wave and tidal generation pointed to potential for significant business growth as well as achieving UK renewable energy targets. The report noted that areas for future investigation included123; 

develop a framework for working with those developers testing devices through testing facilities in Cornwall to maximise the supply chain benefits;



identify the potential for advanced materials production;



discuss the funding issues;



identify skills requirements; and



discuss future market opportunities.

The Strategic Economics124 study identifies ORE as a nascent technology with expansion of global markets predicted to remain relatively limited during the programme period. The value chain remains relatively under developed, albeit R&D led. The United Kingdom c

123

The Catalys Study was a short piece of work.Additional areas for investigation have emerged through the research for this Evidence Review Using different methodology and undertaken subsequent to the Catalys Report.

124

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an claim international competitive presence in development and evaluation of prototypes and demonstrators but domestic future development of the technology and subsequent commercial opportunities remains uncertain. For offshore wind, this is an emergent indu strial technology forecast to experience one of the highest global market growth rates of all the technologies: one in which the UK market currently has strengths. The UK can claim international centres of expertise in R&D and some good commercial positions in the value chain (for example, prototypes, power conversion and installation) but gaps in the supply chain remain (for example, in assembly), suggesting a requirement to scale u p local production.

For other offshore activity – such as drilling, site investigation and associated support – market growth is driven by the increasing scarcity and difficulty in accessing oil and gas reserves. Given that it is highly unlikely that renewables will displace global oil and gas dependency over the next 10 20 years, this market will continue to exhibit strong growth. An important driver will remain the cost pressures reflecting scarcer, more difficult to access and extract resources. Businesses that help the oil and gas industry minimise exploratory and set up costs will experience strong demand for their services.

6.4.2

Off‐ shore Renewable Energy in Cornwall and the Isles of Scilly The UK is recognised as a market leader in the off shore renewable energy sector and along with Orkney and Edinburgh in Scotland, Wales, and at Strangford Lough in Northern Ireland, C&IoS have a strong presence. No official statistics for historic or current number of companies or their size in terms of employees or turnover are available at the C&IoS level125. The Cornwall Marine Network recently created Marine Offshore Renewables Group has a membership of 28 membership, representing a workforce of more than 1,100, and a combined turnover in excess of £170 Million per annum. However the proportion of MRE activity represented in the workforce and turnover figures of each member business is not known. Additionally, any forecasts about the future potential size of the employment base and gross value added materialising to any degree are dependent on a number of conditions being met, some quite challenging. What can be established is that key international players in wave energy devices have established a base in Cornwall around Wave Hub and FaBtest and that a number of local companies such as A&P, Mojo Maritime and Insight are working with these companies creating a cluster of device developers and supply chain operators. Further evidence of developing relationships and opportunities connected with the sector was the involvement of two Cornish companies in the £4million installation study commissioned by The Energy Technologies Institute (ETI) who chose Wave Hub as its preferred location to develop, build and test a floating offshore wind turbine to investigate whether floating windfarms could play a cost‐effective role in meeting the UK’s energy needs126. The two Cornish companies contributing to this work were Marine contractor and vessel owner Keynvor MorLift Ltd (KML) and offshore drilling specialists

125

The CMN Marine off‐Shore Renewable Group CMN note (October 2015) has 28 members, representing a workforce of more than 1,100, and a combined turnover in excess of £170 Million per annum. These companies trade worldwide, but have significant potential to support an emerging MRE sector around Cornwall.

What is less apparent currently is the proportion of MRE activity represented in the workforce and turnover figures of each member business. Additionally, any forecasts about the future potential size of the employment base and gross value added materialising to any degree are dependent on a number of conditions being met, some quite challenging.

126 It is not clear if the ETI have postponed or cancelled the follow on project.

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LDD who were chosen by lead contractor The Glosten Associates. Results from the study could lead to the ETI deciding to invest up to £21m in the construction and deployment of the demonstrator project which would occupy one of Wave Hub’s four berths.

6.4.3

Markets – competition and demand Demand, competition, location, scale, trends, influencing factors The UK is ranked as the world’s second most attractive place to invest in marine and this has helped to drive record levels of investment. In 2014, the UK’s share in renewable energy investment in EU was 30%.

In a future looking report Global Marine Trends 2030127 the authors postulates that ‘despite the volatile nature of commercial shipping, 2030 could well usher in an era during which the prevailaing trends and themes are opportunity and growth with regard to offshore energy. The report comments ‘oil and natural gas is expected to account for 60% of global demand for energy in 2030 but advances in technology, underpinned by innovation, research and development will be the keys to meeting the growing demand for energy from more diverse sources. The number of offshore platforms and renewable energy devices required to meet global demand will grow significantly. This indicates growing challenges and opportunities to produce offshore oil and gas, and offshore renewable energy. There will be tremendous growth opportunities for participants in the offshore oil and gas and renewable industries.’

Other authorities such as the UK Marine Energy Programme Board also highlight opportunities presented by wave and tidal energy resource estimates noting that with the right political and financial support in place, as much as 240GW of marine energy capacity could be installed worldwide by 2050 . In the UK, they estimate wave and tidal stream technologies have the potential to deliver up to 20% of our electricity demand from low carbon, home‐grown and predictable sources. The value of maintaining a global lead is clear and the opportunity for UK based businesses to capture some £76 billion1 of this market by 2050 must not be missed.

According to current estimates the UK could secure a marine energy industry (supplying a domestic and global market) worth up to £6.1 billion per annum, which would directly employ as many as 19,500 individuals and contribute GVA to the UK economy in the region of £800 million per annum by 2035. Further estimates indicate that if the UK competes successfully in global markets to achieve market share contribution of marine energy to GDP could increase to 4 billion per year by 2050. The Carbon Trust has estimated that, if the UK can maintain its position at the centre of the industry, the marine energy sector could be worth over £70 billion to the UK economy by 2050 and create tens of thousands of jobs.

Whilst numbers on the size of the generation capacity and the size of the market opportunity differ, the message from all commentators is the same, namely that the UK has a strong presence in the off shore renewable market due not only to its potential resource but also to its leading technology based across the UK but particularly in Scotland and the South West. The message is also clear however that much needs to be done to maintain this lead and that full commercial expansion of the industry is expected to occur from 2020 onwards once the industry is able to deliver utility scale international energy projects backed by an advanced

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QuinetiQ, Lloyds Register, University of Strathclyde 2015

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manufacturing capability. The shape and geographic focus of the industry will therefore be determined by the investments made in the next ten years.

The key offshore renewable opportunities for Cornwall and the Isles of Scilly are wave energy and wind (although tidal is also being explored). Historically ie in the last 10 years the opportunities were largely seen as being in wave energy but more recently interest in floating offshore wind have been highlighted.

Offshore wind Interest in harvesting the stronger winds further out at sea has been slow to develop because fixed towers at depths of 100 to 500 metres are not a practical proposition. But interest and development and deployment in floating towers is growing and C&IoS are playing a part.

Renewable UK reports that ‘he UK has been the world leader in off shore wind since October 2008 with as much capacity already installed as the rest of the world combined128. The total offshore generating capacity in UK waters provides almost 15 terawatt‐hours (TWh) of electricity annually, equivalent to the electricity consumption of over 3 and a half million homes.

The next twelve years will see a significant increase in this capacity, with further wind farms becoming operational. This scale of activity will bring both great challenges but also great opportunities for a still young, but fast maturing industry. With regard to deep off shore wind farms (and this is the most relevant for C&IoS) it is expected the first farms could be installed in the UK by 2017.

Offshore wind is a strong asset in the European maritime economy with an estimated employees in employment of some 58,000 people in 2012. It is also one of the fastest growing maritime sector; its installed capacity was 5 GW at end 2012, and by 2020 this could be eight times higher, at 40 GW, meeting 4% of European electricity demand. By 2030, offshore wind capacity could total 150 GW, meeting 14% of the EU’s total electricity consumption. However, it is still a young technology facing considerable challenges and it needs political and economic support to address challenges associated with large scale deployment. Notably, a supportive legislative framework is needed, and new offshore designs must be developed for deep water.

Current commercial substructures are economically limited to maximum water depths of 40m to 50m. The ‘deep offshore’ environment starts at water depths greater than 50m. An EU task force in 2012 found that: 

deep offshore designs are necessary to unlock the promising offshore market potential in the Atlantic, Mediterranean and deep North Sea waters;



deep offshore designs constitute an export opportunity. As deep offshore capacity increases, expertise, skills and technologies developed in Europe can be exported across the globe, initially to Japan and the US;



the energy produced from turbines in deep waters in the North Sea alone could meet the EU’s electricity consumption four times over;.



deep offshore designs are competitive in terms of the levelised cost of energy (LCOE) with bottomfixed foundations in more than 5Om water depth;.

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The first off shore wind farm was installed in 2000 was a near shore installation in Blyth harbour, NE England

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

the technology is still at a very early stage of development and in order to achieve commercial and large‐scale deployment, the sector must overcome technical, economic and political challenges; and



if the challenges are overcome, the first deep offshore wind farms could be installed and grid connected by 2017.

The Carbon Trust’s is another one of many authorities making estimates on generation and economic growth potential. They identified the UK’s strong opportunity to participate in this new area of technology and project development and noted there were indications that floating foundations could significantly reduce costs, perhaps even below the £100/MWh threshold for commercial deployments.

Wave Energy The World Energy Council has estimated that approximately 2 terawatts (2 million megawatts), about double current world electricity production, could be produced from the oceans via wave power. It is estimated that 1 million gigawatt hours of wave energy hits Australian shores annually and that 25% of the UK's current power usage could be supplied by harvesting its wave resource.

Wave energy is a renewable, zero emission source of power. As water is about 800 times denser than air, the energy density of waves exceeds that of wind many times over, dramatically increasing the amount of energy available. Waves are predictable days in advance, making it easy to match supply and demand. The UK Marine Foresight Panel estimates that just 0.1% of available marine energy could supply five times the global demand for energy.

The global wave energy market is projected to witness rapid growth with one market analyst indicating that the global market for wave and tidal could reach values of up to $10billion by 2020. Whilst as noted above the quantum of estimates differ they all point to the same growth potential. This growth potential is due to high energy demand and the increasing importance for energy production through sustainable sources. However whilst expected cost reductions on account of technological innovations and capacity up‐scaling offer opportunities its noted that high investment costs coupled with long turnover period have increases financial risks and that such constraints regarding financial viability are expected to hinder the market growth over the forecast period. The constraints are also expected to act as entry barrier to new market participants. Local geography and varied wave patterns also pose a challenge for a uniform wave energy market development.

R&D funding it is acknowledged by all is a key factor in the wave energy market development.

Increasing R&D to counter challenges in terms of investment and technology are needed to materialize the global market growth. The market currently is at a nascent stage and is highly fragmented. Consolidation of the market is expected to be driven by capital availability and innovation capabilities. Special purpose project companies and strategic alliances are expected to be crucial for small technology developers to participate in major global projects.

Though wave energy currently signifies only a miniscule portion of the global energy mix, markets such as Europe, Asia Pacific and North America show promising growth opportunities.

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while China and Australia do the same in Asia. Large scale wave energy projects in Australia and U.S. promise a robust market growth in those regions.

Prominent industry participants operating in the global wave energy market to date include Aquamarine Power, Eco Wave Power, Pelamis Wave Power, Oceanlinx and Ocean Power Technologies Inc., Carnegie Wave Energy, Marine Current Turbines, Ocean Renewable Power Company Llc, and Tenax Energy, among others129.

Policy There is a strong policy context to encouraging reliable energy generation from renewable sources in terms of reducing greenhouse gases, generating reliable energy sources as well as the recognised potential for the associated economic growth from development of the sector. The UK has an ambitious decarbonisation policy as embodied in the 2008 Climate Change Act which consists of a commitment to reducing net Greenhouse Gas Emissions by 80% by 2050 (on 1990 levels) and an intermediate target reduction of 26% by 2020. This target is supported by five year carbon budgets130.The UK Government announced in 2013 that the UK had met its first carbon budget, covering 2008–2012, with Greenhouse Gas emissions in 2012 23.6% lower than 1990 base year levels. They said ‘we are also now on track to meet the even more demanding reductions required to meet the second and third carbon budgets’.

In March 2007 the European Council agreed to a common strategy for energy security and tackling climate change131. An element of this was establishing a target of 20 per cent of EU's energy to come from renewable sources by 2020. In 2009 a new Renewable Energy Directive (Directive 2009/29/EC) (‘RED’) was implemented on this basis and resulted in agreement of country “shares” of this target. For the UK, its share was that 15 per cent of final energy consumption ‐ ‐ should be accounted for by energy from renewable sources by 2020. The RED included interim targets, and required each Member State to produce a National Renewable Energy Action Plan (which contains a progress trajectory and identifies measures which will enable countries to meet their targets). The Directive also requires each Member State to submit a report to the Commission on progress in the promotion and use of energy sources every two years. The EU’s 2030 energy and climate package, based on the UK’s proposed blueprint, commits Member States to cut domestic greenhouse gas emissions by at least 40% by 2030. This includes EU‐wide targets for renewable energy and improvements in energy efficiency.

The Energy Act 2013 puts in place the long‐term legal and financial framework required to create a secure, affordable and diverse energy mix, with the proportion derived from low‐ carbon sources increasing over time to help meet the UK’s Carbon Budgets and EU targets.

The Department for Energy and climate change published a UK Renewable Energy Roadmap in July 2011 setting out how the UK will tackle the non‐financial barriers to renewables deployment, enabling the market to grow in line with goals for 2020 and beyond and stating the UK can meet the target to deliver 15% of the UK’s energy consumption from renewable sources by 2020 as set out in the Renewable Energy Directive. The Roadmap highlights offshore wind as

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Some of these participants have exited the market eg Pelamis and Marine Current Turbines 2008‐12, 2013‐2017 and 2012‐2022‐ the budget for any period beyond this has to be set at least 12 years in advance.

131 EU Renewable Energy Directive 2007 130

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a key technology that will help the UK meet the 2020 RED target, with a central range of up to 18 GW for deployment by 2020 (subject to cost reduction). This would correspond to around 17% of the UK’s net electricity production.

The Committee on Climate Change concluded that there is scope for the penetration of renewable energy to reach 30 ‐ 45% of all energy consumed in the UK by 2030. They also recognised that achieving this level of growth would require resolution of current uncertainties and cost reductions.

Total electricity generation from renewables in 2013132 amounted to 53,667 GWh, an increase of 12,453 GWh (30 per cent higher) on 2012. The largest absolute increase in generation came from onshore wind, rising by 4,880 GWh to 16,992 GWh, due to increased capacity and higher wind speeds across 2013. Similar factors helped offshore wind generation increase by 3,892 GWh to 11,441 GWh (52 per cent higher). At present there is no generation of electricity from wave power as the technology is still in the development stage.

Policy announcements at a regional level also create a positive context for off shore renewable energy generation within Cornwall with a setting of a target of 34% reduction in GHG emission between 2009 to 2020. To contribute to progress towards this target and to support an important economic sector within the region Cornwall Council published The Cornwall Maritime Strategy 2012‐2030133 . The Strategy identified a number of relevant objectives and actions, namely: 

to promote low carbon maritime enterprise throughout Cornwall as a key component of economic revitalisation and international excellence;



promote the development and deployment of marine renewables including supporting research and development into wave, tidal and wind energy;



ensure the economic benefits of the development of Cornwall’s marine energy programme are effectively coordinated with environmental priorities;



support the implementation of the Crown Estate Strategic Resource Areas, maximising opportunities for collaborative working;



support the infrastructure required for sustainable maritime enterprise, including the availability of high speed broadband and digital fibre connectivity for workspace; together with supporting infrastructure for onshore renewables;



work towards securing a sound economic future for Cornwall through working with industry to provide a wide range of jobs and skills in maritime employment;



support the Local Enterprise Partnership (LEP) and Cornwall Marine Network in promoting and developing sustainable maritime enterprise;



ensure that Cornwall develops excellence in the provision of marine education and training across the full range of maritime industries and the environment (including higher education

132 133

UK Digest of Statistics

A future for Maritime Cornwall: The Cornwall Maritime Strategy 2012 – 2030, August 2012

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and vocational training) building on existing capability and expertise integrated with business incubation; 

harness the potential of marine renewables within the context of a broad‐ranging strategy for sustainable energy production in Cornwall to create an internationally recognised centre of excellence; and



overall the aim was for excellence in a sustainable maritime economy; including ports and shipping, recreational and commercial fishing, ship repair, leisure, superyacht and boat construction, marine renewables, waste processing and emerging knowledge‐based industries.

The Cornwall & Isles of Scilly Marine Renewables Roadmap June 2015 states that the MRE development in C&IoS is a long term investment and further investment is needed to build on the £100m investment already made in the MRE industry to date. Recognizing this timeline the roadmap considers future development over a 10 year period to 2025. However it states ‘we equally recognise the urgency to secure the sector, therefore our focus over the next 5 years is to support the establishment of robust foundations that will enable the private sector to achieve the next steps towards commercialisation’ . We are keen to look at the opportunities MRE presents not only in C&IoS, but also through the link that we have with the SWMEP and on a national and global level. Recognising the challenges faced by the industry, especially its limited access to finance, it is important we play a role establishing where public sector funding could be used to leverage private sector finance and de‐risk projects. This should help provide the foundations to support and encourage future project developers in the construction of fully commercial wave energy parks. Nationally, our links to the Marine Energy Programme Board (MEPB) provide us with an excellent opportunity to work cohesively across the sector. However, it is essential we also work collaboratively with our Celtic partners in Wales, Scotland, Northern Ireland and Ireland, to address common challenges. We must also maximise opportunities where we can support development and growth, as well as learn from one another, ensuring the UK stays a world leader in this emerging market. This roadmap recognises the work already being progressed by our growing supply chain and key partners. The roadmap has been produced following 12 months of engagement with the industry and identifying where public finance can be most effectively used to achieve long term growth. We are fortunate to have access to exceptional skills and an internationally recognised offshore renewables supply chain.

We also have access to world leading test facilities with the Dynamic Marine Component test facility (DMaC), FaBTest and Wave Hub. It is envisaged that by supporting the further development of our local MRE sector, we will see a number of devices deployed off the coast of C&IoS over the next 12 months and beyond. We must ensure that our local supply chain continues to thrive and that C&IoS is well positioned to play its part in securing the UK’s continued reputation as a market leader in offshore renewables.

It is clear there is a strong supportive policy context for renewable energy generation including marine at all governmental levels, EU, National and regional and that the economic benefits associated with the potential market opportunities are significant. It is equally evident that the UK has a substantial power capacity if it can be harnessed. However, the path to generating a reliable energy supply from marine sources and those most suitable to Cornwall and Isles of

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Scilly such as wave and off shore wind is not yet established and much needs to be done to make the markets materialise.

6.4.4

Enterprise Business base, clusters, RD&I evidence, attitude to innovation EMEC134 list 191 companies involved in developing wave energy concepts‐ although they note that the list may have inaccuracies given the immature nature of the industry. Other estimates suggest that in 2013 at the UK level the marine technologies sector supported 3,100 jobs – an average 1.5% increase since 2010 with 31 device developers operating across the UK. Official (or unofficial) detailed analysis and statistics for the MRE sector in C&IoS are not available however a Merific135report published in 2014 identifies 21 Cornish businesses operating in the MRE sector. It is not clear how many of these companies were involved directly in the core device design and testing development activities and how many were in the engineering/consultancy supply chain.

At a national level a study for the The Marine Energy Programme Board136 recently commented on the existence of supply chain competencies for wave and tidal energy. It stated ‘components and services similar to those required by wave and tidal companies are already being offered in the UK for other sectors which currently have much higher demand and it will take time for the wave and tidal industries to ramp up to requiring large volumes. Therefore there is confidence that the UK supply chain will be able to grow at the pace needed to deliver wave and tidal energy, provided the companies involved have sufficient confidence in the market potential to invest in diversification into these new markets’. However the report noted that wave energy devices and subsystems were the only areas with a high level of concern due to the gap between solutions available and what is needed for early commercial arrays.

With regard to Cornwall and Isles of Scilly a number of the world’s key players in wave energy devices are present including Carnegie and Fortum and these investors are working with local companies with specialist knowledge enabling them to grow and become exporters of technical expertise in their own right One such example is Mojo Maritime and their contract to work on The European Commission’s Clean Energy From Ocean Waves (CEFOW) research project that is coordinated by Fortum. A 17million euro Horizon 2020 has granted. The mission of the five‐year project is to research and develop the use of the Penguin wave energy converter, developed by the Finnish company Wello, in electricity grid connected ocean conditions. In addition to Fortum, the joint project consists of Wello Ltd, Mojo Maritime Ltd, Wave Hub Limited, Green Marine (UK) Ltd, Uppsala University, Plymouth University and the University of Exeter.

As noted above the drilling/subsea foundation expertise of Seacore and LDD is being used in the ETI off shore wind floating device pilot study led by US company, Glosten.

Early findings in a study commissioned by University of Exeter137 sought to identify the supply chain requirements for the MRE sector and the extent to which these could be met by the

134

137

135 136

The European Marine Energy Centre Ltd Marine Energy in Far Peripheral and Island Communities June 2014 (author CMN) Wave and Tidal Energy in the UK: Capitalising on Capability February 2015 MRE Supply Chain in C&IoS (not yet published)

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current business base in C&IoS. Emerging findings from the study suggest that many activities could be supplied but there were gaps. It is not clear what capacity analysis was undertaken as part of the study and the extent to which local companies had a desire to work in the sector. A survey by CMN noted that local companies considered the MRE sector to have high requirements, particlualrly for health and safety and were unsure that they could meet these terms. Exter University report that at a workshop held in March 2015 a number of companies in addition to those identified in their commissioned report indicated that they saw the need for and value of research and development.

Marine renewable is by its nature research and development intensive with a number of key technology challenges particularly for wave energy devices to be solved. Those currently involved recognise these challenges and have a commitment to research and development.

This is true of those FDI companies as well as the indigenous companies currently working within the sector such as A&P, Furgo Seacore, Mojo Maritimr, LDD and others. It is not clear that other companies not involved see the potential, want to or are able to invest in capacity particularly given the uncertainty over the length of time to commercilaisation. The importance of this is highlighted by the Marine Energy Planning Board statement that ‘tidal energy and wave energy are both emerging technologies and a period of focussed technology demonstration activities, optimisation and cost reduction is required for them to become fully commercial. Where these activities take place will have a big impact on where the short and long term economic benefits will fall. The marine energy sector will leverage the expertise of, and provide a major diversification opportunity for, the existing world leading UK marine and maritime industries. These industries are already worth £17bn a year to the UK economy but need new applications and markets if current levels of employment and contribution to the economy are to be maintained and expanded’. Research for the marine renewables industry in Orkney has indictaed that substantial economic benefits can be gained from the research and development and testing stage of off shore energy devices138 as shown in Table 6.2.

Table 6.2: Economic benefits

Fte job years 413 96 10 5 405 146 1,075

Infrastructure development in Orkney EMEC’s direct employment EMEC’s supply chain Visits to EMEC Device development Other employment generated Totals

Earnings (£m) 10.3 3.4 0.3 0.1 13.9 3.9 31.9

GVA (£m) 20.7 2.3 0.6 0.2 27.8 5.6 57.2

Total employment effects are estimated at over 1,000 whilst GVA is estimated at almost £60million. A recent survey of marine energy companies working in the UK by RenewableUK found the industry has already invested over £578 million8 developing various technologies with over 77% of this spent in the UK economy. Respondents to the survey have received a combined figure of around £70 million in public support thus leveraging, on average, around £7 of private money for each £1 of public funding received.

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Economic Impact Assessment EMEC, Highlands and Islands Enterprise 2012

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6.4.5

Knowledge creation Public research, networks, leadership The UKTI marine proposition outlines the UK’s strong marine universities and research institutions. Leading UK marine‐related research institutes with international relationships include the Southampton University Maritime Centre of Excellence, Strathclyde University, the Plymouth University Marine Institute, the National Composites Centre (Bristol), the SuperGen UK Centre for Marine Energy Research (HQ Edinburgh) and the European Marine Energy Centre (Orkney)139.

These and other institutions and businesses as noted above are centres of excellence creating substantial technical knowledge to assist in the development of marine energy devices. The EU and the UK government and other institutions regularly invest in initiatives to fast forward the technological knowledge needed to de‐risk investment and shorten the timescale to reliable energy generation. One such initiative at the EU level is the Marine Knowledge 2020‐ this will provide an integrated knowledge infrastructure based on national data collection systems delivering data products at a European‐level through the internet. This will include a flagship multi‐resolution digital seabed map of European waters as well as upto‐date information on the water column by 2020. Benefits of at least €500 million a year through increased efficiency and innovation are expected.

The ORE Catapult is a national centre for the generation and sharing of marine energy technology. The physical centre has facilities for development, demonstration and testing alongside its leadership, industrial reach and engineering expertise. The Centre states that it focuses on seven ‘Knowledge Areas' – Blades, Drive Trains, Electrical Infratructure, wind and ocean conditions, foundations and substructures, operations and maintenance and installation and de‐commissiong. These are the areas the ORE catapult believe the industry must focus their efforts on technology innovation to drive down the cost of offshore renewable energy and are an indication of priorities for HE and SME engagement. The seven Knowledge Areas, are complemented by a range of cross‐cutting activities including developing industry Knowledge and Standards. They aim to create new knowledge through research and testing and to translate this knowledge into tools that address industry’s specific needs and to fill information gaps in the market.

The National Composites Centre at Bristol supports collaboration between industry, academia, and government and brings together Bristol’s PhD and NCC study programmes with SME support facilities including laboratories, workshops, and lecture and seminar spaces. Phase Two’s additions include a high‐volume, automated production cell (enabling mass production of lightweight, high‐performing components aiding the reduction of carbon emissions in many sectors) and a large demonstrator and test area for industry. It aims to be ‘an independent, open‐access national centre that delivers world‐class innovation in the design and rapid manufacture of composites and facilitates their widespread industrial exploitation.'

A local knowledge creator is the PRIMaRE initiative. The Partnership for Research in Marine Renewable Energy (PRIMaRE) is a network of world‐class research institutions who undertake research and development to address challenges facing the marine renewable energy industry

139

Whilst a number of these RI have a stronger focus on traditional marine tech they have relevance for the ORE sector also.

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at the regional, national and international level. The overall aim of PRIMaRE is to foster a multi‐ institutional world‐class research cluster in all aspects of marine renewable energy which will: 

provide a forum for research in marine renewable energy;



facilitate and foster research collaboration and knowledge exchange between the Parties and with industry and national and international partners;



utilise the assets and resources in the south west of England including world class demonstration facilities such as Wave Hub;



work closely with the South West Marine Energy Park (SW MEP) as its research cluster of choice, taking part when appropriate in joint marketing and joint events;



hold an annual PRIMaRE research conference, to be hosted and organised by the Party chairing the Steering Committee, which will rotate annually; and



co‐operate on a PRIMaRE website, providing content including contact details, a list of relevant expertise and skills, details of current research projects and available papers and reports, to be hosted and maintained by Plymouth.

PRIMaRE was originally established in 2007 with Plymouth University and the University of Exeter. In 2013 it expanded to bring on board other regional assets and knowledge. It is managed through a steering committee consisting of representatives of five universities (Plymouth University, Univeristy of Exeter, University of Southampton, Univeristy of Bristol and University of Bath) two research centres (Plymouth Marine Laboratory and Marine Biological Association), Wave Hub and the South West Marine Energy Park.

The overall aim of PRIMaRE is to foster a multi‐institutional world‐class research cluster in all aspects of marine renewable energy by covering the following research areas: 

materials;



fluid dynamics/ hydrodynamics;



survivability and reliability;



environmental resources;



impacts on environment and ecosystems;



power conversion and control;



infrastructure and grid connection;



marine operations and maritime safety; and



marine planning and governance.

Each of these areas are a key focus for research by one or more of the partners making up PRIMaRE and it represents a considerable resource as indicated by the resource insome of the key partner institutions.

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The Plymouth Marine Institute represents in the region of 3,000 staff, researchers and students.

They provide an external portal to an extensive pool of world‐leading experts and state‐of‐the‐ art facilities, enabling the Insituite to understand the relationship between the way we live, the seas that surround us and the development of sustainable policy solutions.

The staff represented by the Marine Institute are housed within four University faculties (science and engineering, arts and humanities, business, health and human sciences) and form the broadest portfolio of marine expertise within a single institute in Europe. It brings together scientists, business professionals, leading edge analytical facilities and collaborative research opportunities from the University’s Faculty of Science and Technology and the Plymouth Business School as well as expertise in supporting emerging and existing technologies through its experience in a broad range of marine renewable energy activities as well as conducting engagements with local, regional, national and international stakeholder groups › Supported by over 400 project scientists, specialists and other university staff, this institute has a broad portfolio of marine expertise in Europe. The Marine Sciences Building at Plymouth University is a £19 million marine building, housing state‐of‐the‐art research facilities,. Housing the most advanced wave tank and testing facilities in the country including a hydrodynamic test facility with tidal and wave test basins, ship simulator and Electronic Chart Display and Information Systems labs › Dedicated technical support and office facilities for up to 150 marine institute researchers and technology developers.

The ERDF application for PRIMaRE sets out that one of the core themes of the University of Exeter’s Science Strategy is Climate Change and Sustainable Futures (CCSF). Exeter’s research spans marine renewable energy, power conditioning and grid interconnection, solar energy, energy storage, carbon capture and storage and biomass. Energy policy research is focused on renewable heat, marine energy and technology innovation. It has world leading infrastructure for marine renewable research as well as state of the art real time simulation capabilities including the Dynamic Marine Component Test facility, the South West Moorings test facility, and a fully equipped Electrical Systems Lab. Exeter is a core partner in the UK SUOPERGEN Marine consortium and ETI/EPSRC funded Industrial Doctorate Centre for Offshore Renewable Energy and is a member of the Research Advisory Committee for the Offshore Renewable Energy catapult’ The Marine Biological Association (based in Plymouth) research includes modelling marine organisms to inform knowledge of fundamental mechanisms as well as research that is specifically targeted at understanding biogeochemical and ecological processes and their complex interactions with environmental factors including long term and rapid environmental change. The Association has a wealth of data from 70 years of long term studies.

Bristol University and Bath University have a long established expertise in engineering. regenSW notes that the University of Bristol’s Advanced Composites Centre and University of Bath’s Centre for Power Transmission and Control are using knowledge base built upon traditional industries, applying them to emerging technologies.

In addition to the many centres of excellence nationally and regionally with a focus on addressing the technology gaps the industry benefits from national and local networking institutions and groups all focused on identifying the needs of the industry, opportunities for collaboration and market analysis. Key groups are: 133

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

Energy Technology Institute;



RenewableUK; and



Marine Energy Programme Board.

At a local level the Cornwall Marine Network (CMN) is active as is the MOR Group (sub‐set of CMN).

Wave Energy Scotland (WES). WES is a subsidiary of HIE, and will run a research, development and innovation programme to develop key components. It will cover the development of both new concepts and existing ‘promising’ technology, in order to create a pathway to commercial performance.

European Marine Energy Centre (EMEC) off Orkney also focuses on research and development and innovation but its focus is largely on companies operating in its geographic area.

6.4.6

Capital In addition to its natural innovation infrastructure of substantial wave and wind capacity C&IoS have many innovation assets including device development and testing facilities, workspace and strong leadership. Given its historical maritime economy the area has useful man made infrastructure of deep ports and harbours.

Leadership In recognition of the potential for renewable energy generation in the South West as a whole the Government granted the area the first designation as a Marine Energy Park.The Park was funded by Cornwall Council and Plymouth City Council; the Cornwall and Isles of Scilly and Heart of the South West Local Enterprise Partnerships; Regen SW, Plymouth University and the University of Exeter; working with Department of Energy and Climate Change and representatives from the marine energy industry. The geographic scope of the South West Marine Energy Park (MEP) extends from Bristol to Cornwall and the Isles of Scilly, with a focus around the ports, research facilities and industrial clusters found in Cornwall, Plymouth and Bristol. The core objective of the South West MEP is to: create a positive business environment that will foster business collaboration, attract investment and accelerate the commercial development of the marine energy sector.

The wider South West MEP tasked with delivering the aims and objectives is a public private partnership and now comprises over 50 public and private sector organisations, including representatives from supply chain companies, technology developers and industrial partners.

The partnership is in the process of establishing a partnership steering board that will provide strategic leadership and represent the marine energy park and local industry at a national and international level. As well as creating a natural collaborative network, the South West MEP partnership aims to help to set the strategic priorities for future investment and growth in the South West. It will also provide a strong voice for the industry and region within the national programme and policymaking areas. The South West MEP partnership plans to work with other marine energy parks, industry and other national bodies to help shape UK policy in areas which will enable commercial development of the sector including: 134

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

future market incentives;



initiatives to reduce project risk;



marine spatial planning and consenting;



infrastructure investment including grid;



access to finance;



support for enterprise and innovation;



takeholder engagement and community support; and



international market development.

Other leadership assets include the Offshore Renewable Development Plan (ORDP). Launched in 2014, the ORDP has been established to work with key partners in C&IoS and Plymouth’s marine renewable sector to encourage marine renewable technology developers to reach their next steps towards commercialization140 The aims of ORDP are to: 

establishing a range of finance and funding initiatives developed specifically for the associated supply chain;



mitigating barriers to commercialisation by working with technology developers, the associated supply chain, ports and Higher Education (HE) providers to help de‐risk investment and enhance investor confidence;



supporting Cornwall, Isles of Scilly and Plymouth and test and demonstration facilities;



seeking to alleviate grid capacity issues where they exist by working with key partners to identify and implement mitigating actions;



piloting the concept of a marine renewables energy economic zone which will aim to deliver an enhanced business environment tailored to the needs of Marine Renewable Developers;



encouraging promotion of CIoS&P’s world class Marine Renewable Energy supply chain by working with key partners; and



supporting the development of an industry‐led centre of excellence focused on marine renewables.

Innovation infrastructure Another important workspace and general support infrastructure facility focussing on the marine renewables sector is Hayle Harbour. The Hayle Harbout project is a £20million Convergence Programme investment141 to upgrade pedestrian and other transport routes across the town and to make a substantial investment in port infrastructure including a new marine renewables business park. The new business park is designed to accommodate

140

Managed by Cornwall Development Company, Cornwall Council’s economic delivery arm The ORDP is funded by Cornwall Council, the LEP and the Regional Growth Fund.

141 Funded by ERDF, BIS and Cornwall Council

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companies in the growing marine energy sector and is being built on the site of a formal coal‐ fired power station at North Quay in Hayle now owned by Cornwall Council.

It will offer 2,500 sq metres of managed workspace, including 900 m2 of modern office accommodation over two floors with Superfast fibre broadband and seven light industrial units varying in size from 200 to 250 m2. Hayle is also home to Wave Hub. Wave Hub is the largest and most technologically advanced, fully consented, grid‐connected site for the testing and development of marine energy devices. This £42 million facility provides shared offshore infrastructure for the demonstration and proving of arrays of wave energy generation devices over a sustained period of time. Located 16km off the north Cornish coast of Hayle, Wave Hub provides an electrical hub on the seabed to which arrays of wave energy devices can be connected. Wave Hub plays a key role in supporting companies to overcome the final hurdles to commercialisation, ie providing a testing and demonstration site site for full scale single and array deployment.

There are other test facilities available to the South West marine energy sector including the Dynamic Marine Component Test Facility (DMaC) and FaBTest.

DMaC is a purpose built test rig that aims to replicate the forces and motions that components are subjected to in offshore applications and so provides a secure low‐risk setting to identify potential engineering problems and refine designs more specifically and quickly than has been possible so far ‐ before testing them fully in the live environment.

FaBTest, situated 3 ‐ 5km offshore in Falmouth Bay, is a nursery facility enabling wave energy device developers to test components, concepts or full scale devices in a moderate wave climate with excellent access to nearby port infrastructure. FaBTest’s pre‐consented status, allows for up to three devices to be deployed concurrently. Pre‐consented helps reduce risk, time and uncertainty for the testing of marine energy technologies, components, moorings and deployment procedures. The site offers water depths of 20m‐50m and seabed types of rock, gravel and sand.

The site is leased from The Crown Estate and has a Marine Consent for testing, subject to permits issued by Falmouth Harbour Commissioners. Operational support of the site, as well as ongoing monitoring and research is provided by the Renewable Energy Group from the University of Exeter, based on the nearby Penryn campus. This is supported by RGF investment of £549,000. A range of data is collected by the University of Exeter which is made available to developers and stakeholders.

Data collection at the FaBTest site is designed to provide optimum support to devices and components being tested on site. It is operated by the University of Exeter Offshore Renewable Energy group; an applied research team that comprises experienced researchers and dedicated technical staff, actively engaged in the ongoing characterisation of physical environmental conditions at the site. The data incorporate in‐situ measurements and modelling of the physical environment as well as direct measurements of device performance. The data collected at the site are subject to rigorous quality control procedures. These provide data of the highest quality, suitable to detailed research and development. Data are supplemented by core analysis procedures to classify the oceanographic environment and to support the prediction of Data Collection, Analysis and Provision for the FaBTest site 8 loading and fatigue on installed devices.

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As such, it combines long term data collection for classification of the site conditions and real time measurement and assessments for monitoring and control of ongoing operations.

Plymouth University Wave Tank‐ The Plymouth University Marine Building houses a sophisticated wave energy testing tank. It was designed for both academic and commercial research and is capable of simulating a wide variety of wave and tidal situations. The facility includes four separate tanks: a deep water ocean tank; a shallow water coastal tank, a sediment flume and a tilting flume. All four tanks are equipped with wavemakers and current generators. The ocean tank has a hydraulic moving floor for ease of access and to simulate different ocean conditions.

Cornwall’s natural setting contributes a key asset in the context of wave and wind energy. The peninsula of Cornwall, juts into the Atlantic and faces the prevailing westerly oceanic swell.

These long swells pack an enormous amount of energy – with a typical average range of 15 ‐ 25 kw/m (kilowatts per metre of wave face) in the area around Wave Hub, increasing to 35 ‐ 40 kw/m in the area around the Isles of Scilly. While the waves are powerful, South West England benefits from less extreme storm conditions that would challenge the “survivability” of the devices. This is especially important in the early stages of their development.

Looking further ahead, there is significant potential for the expansion of offshore wind in the South West. The development of floating wind technology could provide a cost effective alternative to fixed foundations and would allow the deployment of wind turbines in the deeper waters to the west of the Bristol Channel and off the Lizard Peninsula. Wave Hub has been confirmed by the UK’s Energy Technologies Institute (ETI) as the preferred location for its offshore wind floating platform system demonstrator. The project aims to develop, build and test a floating offshore wind turbine to investigate whether floating wind farms could play a cost‐effective role in helping to meet the UK’s energy needs.

Finance There are a number of sources of funding available to support the supply chain and device developers. The financial support is in the form of grants, loans, or calls (procurement), for eg the Small Business Research Initiative (SBRI). The SBRI is designed to provide innovative solutions to challenges faced by the public sector, leading to better public services and improved efficiency and effectiveness. It generates new business opportunities for companies, provides small and medium‐sized enterprises (SMEs) a route to market for their ideas and bridges the seed funding gap experienced by many early stage companies through the public procurement of research and development (R&D). The SBRI was used recently by Wave Energy Scotland in an attempt to address a ‘power off’ technology challenge with an open call to access a £7million fund. Key other sources of funding include the Energy technology Institute and the EU Framework Programme/Horizon 2020 both of which focuses on early stage research often requiring large sums. As noted above the Fund has been accessed by device developers operating in Cornwall & Isles of Scilly. The ORE Catapult also has funding to address technology challenges and launches open calls to assist with specified areas of research. Over time and at any one time there can be a number of sources of funding albeit with be‐spoke terms and niche focus. Generally key sources of funding are: 

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

ETI;



DECC;



Innovate UK;



British Business Bank



Research Councils; and



ORE Catapult.

Reflecting the variety and scale of funding, the common theme across all the early stage projects is that access to some form of capital support to reduce exposure and de‐risk both public and private investment has been critical. Once the industry has developed a track record and uncertainty over technology performance and reliability has been removed, it may be possible for projects to be wholly financed on commercial terms. The ORE Catapult has reported that this position is some time off as further technology development is still required to demonstrate truly commercial devices which provide high confidence in performance and survivability, and potentially to reduce levelised cost of energy (LCoE) that utilities and project developers require to move forward with first array projects. The ORE has noted that based on discussions with industry experts, estimates of the investment needed per company are roughly on the order of £50 million over five years to bring devices proven at part scale to the end of a full scale demonstration. Ideally two or three wave technologies would need to secure this level of investment spread over five years, c. £150 million, in order to develop a robust and competitive wave energy industry that can drive down the costs of the technology towards commercialisation. This assumes that the devices and their enabling technologies are developed in isolation. However, potential cost savings from coordination of enabling technology development could reduce this £150 million requirement.

Market analysis has suggested that early VCs who have invested in the wave energy sector have not realised the required returns, and Government and corporate support, a key factor in VCs’ decisions to invest in the sector to begin with, has not been as forthcoming as first anticipated.

Skills A number of local FE and HE institutions are actively engaged in providing education and training relevant and sometimes dedicated to the marine renewable sector: 

University of Exeter Cambourne School Of Mines ‐ has offered undergraduate renewable energy degrees since 2003. Both the BSc and MEng programmes are accredited by the Energy Technology Institute to allow graduates to progress to Incorporated and Chartered Engineer status. The University typically take 40‐50 students a year for these programmes;



Plymouth University ‐ offers MSc Marine Renewable Energy;



Exeter and Plymouth offer in the region of 20 PhDs in relevant disciplines through IDCORE, SUPERGEN and other schemes; and



Cornwall College and City College Plymouth ‐ provides apprenticeships to foundation degrees in Engineering related subjects, including Marine Engineering, Electrical Engineering and Renewable Energy and Engineering.

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ESF funded research undertaken by Cornwall Marine Network into the current and emerging skills needs for a Cornwall Marine Renewable Energy sector, funded by Convergence ESF Skills Support for the Workforce Capacity Building funding, which concluded: Short‐term (12 months) MRE Skills needs include: 

Mechatronics should feature more strongly in engineering design training;



High voltage power engineering systems should be embedded within electrical design engineering degrees;



Software training in CAD should be consistent with industry needs;



Project management training to include technical, commercial and legal skills;



Metallurgy should be embedded more prominently within materials engineering training; and



Quality Control technicians training should reach quality assurance certification in line with ISO 9000 standards.

Medium‐term (2 to 5 years) MRE skills include: 

Significantly increasing Technician level skills at Level 4. Technician courses to include: 

Measurement and testing of high voltage electrical appliances



Power electronics



Pipe fitting processes



In‐depth hydraulic principles



Metrology



Electrical engineering with much greater industry focus

General skills needs and other requirements include: 

Apprenticeships to be made available to SME’s, using an Apprenticeship Training Agency model (such as the Cornwall Apprenticeship Agency owned by CMN);



A new focus on higher Engineering Technician Apprenticeships at Level 4;



Significantly increasing the supply of Engineering Apprentices at Levels 2 and 3;



The development of local TrailBlazer Apprenticeships which meet industry needs;



Careers guidance featuring vocational career routes into the sector to be provided at all local secondary schools;



Potential for an Advanced Engineering Training Centre in the Falmouth cluster;



The use of E SIF funding to add value to existing training provision, much of which is too narrow in focus to meet employer needs. This could include bolting‐on short course specialisms to existing courses; and 139

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

Significantly improved linkages between industry and schools / HE establishments.

Despite the number of courses offered the consensus is that there is an insufficient supply of skilled labour at all skills levels to support not just the supply chain but also device development and testing. This undoubtedly acts as a barrier to investment and progress in reaching commercialisation.

6.4.7

Strengths, weaknesses, opportunities and threats The following table identifies the strengths, weaknesses, opportunities and threats that could impact on the existing or future potential for the ORE Industry.

Strengths

            

Weaknesses

Renewable energy targets RD&I assets (national and regional) C&IoS Brand Supply chain Natural environment Built environment‐ ports and harbours Business and CoE collaborations South west cluster Relationship with Crown Estates Opportunities

   

Oil price volatility Energy security aims Climate change Export of technical skills/knowledge as global market grows

 Cost efficiencies in non‐wave renewable



Threats

    

6.5

Technology gaps Investment returns Hard infrastructure Lack of investor understanding of devices/technology Lack of standardised technology solutions to component and device development

energy production Grid capacity Skills/labour availability competition Availability of finance  grants‐ R&D  VC Inconsistent government policy

Conclusions and implications Off shore renewable energy

6.5.1

Markets Thre has been a strong growth in the demand for renewable energy over the last 20 years and the expectation is that this demand will only continue to grow. Whilst off shore renewables such as wind, wave and tide is at present a very small part of the market it also is expected to grow once as set out earlier particular technology challenges and regulatory conditions have been overcome. The market for the ‘development of off shore renewable energy expertise’ is currently a positive one in which C&IoS participate, however it is expected that the real market 140

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opportunities will materialise once ‘devices are in the water’. The analysis suggests also that whilst C&IoS have potential and expertise in off shore wind, wave as well as some tidal the largest opportunity for market growth currently is associated with wave energy.

Implications for the support framework include:

6.5.2



promotion of C&IoS ‘development expertise’ to emerging international markets in off shore renewables;



map detailed market opportunities domestic and international and associated C&IoS strengths and gaps to increase market awareness and penetration; and



promote C&IoS assets to inward investors.

Enterprise Given C&IoS’s reputation, its historical maritime base and its investment over the last ten years in ORE assets, there is a large number of key ORE market operators present in the region. With regard to device developers these are largely inward investors with supply chain companies largely being indigenous. Particularly of note is the export focus of the supply chain companies which is helping to create jobs and GVA. The analysis suggests there is greater potential for longer and deeper supply chains and for more companies to become involved in export markets.

Implications for the support framework include:

6.5.3



support export awareness raising and export development strategies;



support supply chain development so companies are aware of, have capacity and capability to bid for and win contracts;



support investment in equipment;



support IP development;



support businesses with regulatory challenges;



support new businesses to enter the market;



support networking and collaboration between businesses; and



help companies navigate range of ‘support products and providers’.

Knowledge creation There are a number of generally acknowledged technological challenges to overcome to move from single and small array development, testing and deployment to full scale testing. Until this occurs significant private sector investment and therefore commercial enegergy generation will remain unforthcoming. There is evidence of collaborative research between businesses and research institutions on the technology challenges faced to date but this could and needs to be be strengthened and extended to overcome those now facing the sector.

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Implications for the support framework include:

6.5.4



promote funded exploratory and near market research opportunities available to businesses either singly, with other local businesses;



promote funded exploratory and near market research opportunites with national and EU HE institutions and research facilities;



greater awareness of the wealth of technical knowledge and support available from dedicated facilities such as ORE Catapult; and



greater linkages with Innovate UK’s knowledge transfer networks and knowledge transfer partnerships.

Capital Innovation infrastructure The innovation infrastructure has many strengths and for the off shore marine renewable energy industry perhaps the strongest is the natural environment of C&IoS and its deep seas relatively close to shore and its port infrastructure. Sitting alongside these is of course be‐ spoke infrastructure and services such as FabTest, DMaC, Plymouth Wave Tank and Wave Hub. Each of these are key support structures in a long journey to guaranteed energy generation.

Implications for the framework include: 

maintenance of sufficient port and harbour facilities to meet expected growth in demand; and



continued accessibility for device developers to technology testing facilities and services.

Skills Despite the number of courses offered the consensus is that there is an insufficient supply of skilled labour at all skills levels to support not just the supply chain but also device development and testing. The Cornwall Marine Network have in consultation with businesses noted that there is a need to increase the numbers of both degree‐level and technician‐level engineers, particularly at levels 3 and 4 within the County, providing entry and progression routes through QCF levels. Branches of engineering to include both general engineering and marine engineering, both of which would add value to the necessary skills base required within the MRE industry. The lack of suitably skilled labour undoubtedly acts as a barrier to investment and progress in reaching commercialisation.

Implications for the framework include: 

create pipeline of skilled labour; immediate, medium and longer term;



promote careers and appropriate course choices in schools, FE and HE. Provide showcasing and experience opportunities for schools, FE and HEI students and staff in marine businesses;



encourage exchange opportunities; 142

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

skills interventions that are demand led and tailored to the needs of individual businesses; and



support advanced engineering training centre that supports skills needs in MRE and other smart specialisation sectors.

Finance The common theme across all the early stage projects is that access to some form of capital support to reduce exposure and de‐risk both public and private investment has been critical.

Once the industry has developed a track record and uncertainty over technology performance and reliability has been removed, it may be possible for projects to be wholly financed on commercial terms. The ORE Catapult has reported that this position is some time off as further technology development is still required to demonstrate truly commercial devices which provide high confidence in performance and survivability, and potentially to reduce levelised cost of energy (LCoE) that utilities and project developers require to move forward with first array projects.

Implications for the Framework are: 

improve investor knowledge of off shore renewable energy technology;



public sector funding for key technology challenges;



de‐risk investor investment for near market and far off market activity;



facilitate new partnerships between new investors and existing companies; and



increase access to and awareness of suitability of different types of growth funding particularly equity, loans and other sources.

In the marine energy sector, the main theme is the need for long‐term support as the industry seeks to establish itself. Energy price support was cited as the most important incentive for companies by 29 per cent of those questioned with a further 16 per cent saying government targets and infrastructure support are key. A further 27 per cent focused on the need for certainty and confidence in the sector with 13 per cent focusing on the long‐term potential of the sector. Both energy price support and the need for certainty and confidence have become significantly more important over the last 12 months – last year just 1 per cent said energy price support was important while Marine energy has some way to go until it reaches commercialisation. In 2014 there was also a fall in those worried about research and development, from 20 per cent to 7 per cent, suggesting that the sector is making progress with some of the many challenges it faces. When it comes to barriers, the relative immaturity of the sector compared to some other renewable technologies is reflected in the fact that 30 per cent of respondents highlighted issues around the availability of finance and 22 per cent said that there are still technology issues to overcome. Driving costs down was highlighted by 15 per cent and grid connection was seen as important by 13 per cent. All of these factors point to the fact that marine energy has some way to go until it reaches commercialisation. Indeed, the sector’s lack of current concern over a number of other issues suggests it’s still at an early stage of growth. Just 4 per cent cited lack of government involvement and return on investment as important barriers, while only 2 per cent highlighted environmental issues and planning/site 143

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availability as serious worries. These issues will no doubt rise up the agenda as companies continue to put devices in the water and start to deploy multi‐device array.

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7

Smart Specialisation – Space and Aerospace

7.1

Introduction

Space and Aerospace have been identified as SMART Specialisation markets for C&IoS primarily as a result of key physical assets within the area and the opportunity to build on these to maximise growth of the sectors. These include Newquay Cornwall Airport (NCA) with its long runway, uncluttered airspace and the Aerohub Enterprise Zone (and associated incentives) and Goonhilly Earth Station, a fully operational satellite communications teleport, identified by the UK Space Agency as a national asset142. As the two industries are quite distinct and currently at different stages of development within C&IoS, the remainder of this section considers the market opportunities and supporting infrastructure for each sector in turn then concludes with a high level summary of the strengths, weaknesses, opportunities and threats and implications for the support framework.

7.2

Space ‐ context and evidence to date

7.2.1

Overview The UK Space Industry has grown significantly in recent years and the Space Economy143, as defined by London Economics and shown in the diagram over the page, currently has a turnover of £11.8billion144 (2012/13) which represents growth of 4.1% on the previous year and an annual growth rate of 8.6% since 2008/09. The most significant segment of this turnover relates to space applications which account for 78%. Analysis by London Economics reveals that the industry employs approximately 37,000 people directly in 170 companies, the majority of which are SMEs (71%), but also supports up to 115,000 jobs indirectly. The UK space economy generates 31% of its turnover from exports, which is more than double the export share of the UK economy as a whole, with over 40% (£1.5bn) of this coming from sales to the rest of Europe.

The UK Space Industry is a key priority for the government given its capacity to generate growth and export potential and the opportunity to position the UK as a global leader, being one of eight great technologies with the capacity to do so145. This growth is being driven by the development of satellite based solutions and ‘downstream’ applications for a range of sectors within the economy. The industry requires highly specialised and skilled individuals in a variety of disciplines including engineering (mechanical, electrical, software), science (physicists, mathematicians), project management, production, training and finance and has the capacity to

142

Cornwall and the Isles of Scilly Strategic Economic Plan The Space Economy includes companies that manufacture, launch and operate space assets (e.g. satellites) and a further layer of companies that utilise the signals and data supplied by these space assets to develop value‐added applications (e.g. earth observation imagery, satellite broadband services, etc). These companies earn revenue driven by equipment (e.g. satellite navigation devices) and/or services (e.g. maps, live satellite broadcasting) that are reliant on the continued operation of the space industry. The Case for Space 2015, London Economics July 2015 144 The Case for Space 2015: The impact of space on the UK economy, London Economics July 2015 http://londoneconomics.co.uk/blog/publication/the‐case‐for‐space‐2015/ 145 Space and Satellites have been identified as one of eight UK great technologies; www.gov.uk/bis/industrial‐strategy 143

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generate important spill‐over effects as new technologies and processes developed can be applied across a range of other sectors, including the other Smart Specialisation markets.

Figure 7.1: Definition of the Space Industry and wider Space Economy

7.2.2

The space sector in C&IoS Defining the precise size of the Space Industry and Space Economy in C&IoS is difficult for a number of reasons. Firstly, the sectors are not well defined using standard government industry classifications (SIC) and data available from sources such as the Office for National Statistics is often limited, particularly in relation to the Space sector. The most reliable source comes from the UK Space Agency’s Size and Health survey and sector mapping to provide estimates of employment and activity, however this data is generally only available either at a national or regional level. In addition, the wider space economy comprises companies who provide the technology (the upstream sector) as well as companies that exploit the technology (the downstream sector) as described below: 

upstream companies include those involved in the space segment primes and their suppliers, as well as those companies involved in ground segment prime and subsystems

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and components. Companies who provide support products and services and research and consultancy to these companies are also included in the upstream definition; and 

the downstream sector includes the parts of those companies involved in satellite broadcasting, satellite communications and satellite navigation. Organisations involved in earth observation and equipment and support service providers also form part of the downstream segment.

As shown in Figure 7.1, the space sector has a key role providing the underpinning technology that supports a breadth of other sectors in relation to broadcasting, navigation, defence, communication, and earth observation. The downstream definition therefore needs to include the user‐driven applications as well as those companies that sell products and services that are underpinned by Satellite communications, remote sensing or positioning. The challenge relates more to measuring the scale and nature of these companies, as many of them do not recognise that their products or services have anything to do with space, and that part of their turnover should be reflected in figures for the sector.

Notwithstanding these difficulties, ONS data does provide a base from which change can be measured. Data from the most recent Business Register and Employment Survey (2013) indicates that there are 265 people employed in the manufacture and repair and maintenance of aircraft and spacecraft and related machinery; space transport and satellite telecommunications activities146, although it should be recognized that this encompasses aircraft as well as spacecraft. While employment has been increasing since 2009, the sector is still a very small employer in the sub region compared with total employment of 207,000 for Cornwall and the Isles of Scilly overall. The number of companies on the FAME database147 for these sectors currently stands at 28.

An assessment of the potential employment in organisations and businesses within sectors in the wider space economy however highlights a much bigger base. A range of SIC codes have been reviewed in relation to the categories listed below, which have come from Figure 7.1 shown above. These include: 

broadcasting;



communications;



earth observation;



defence (and more efficient public sector services);



navigation; and



scientific.

This demonstrates that there are approximately 22,815 people in Cornwall currently employed in businesses within the wider space economy that could potentially benefit from value added applications and use of satellite data. Similarly the FAME company database also indicates that

146

SIC classifications 30300; 33160; 51220; 61300 FAME database (managed by Bureau van Dijk) – holds data for over 7 million companies in the UK and Ireland

147

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there are in excess of 2,000 organisations working across these sectors that could take advantage of satellite applications, data and new technologies.

An indication of the cross over into the other smart specialization areas is set out in Table 7.1 below, although it should be recognized that this list is not exhaustive at this stage: Table 7.1: Smart specialisation markets that could benefit from space enabled technologies

Smart Specialisation market

Relevant organisations, business sectors and activities that could benefit from space enabled technologies and data

Agri‐tech



All farms: Satellite weather forecasting. Could benefit from Earth Observation (crop production monitoring), tagging and monitoring of livestock, GPS controlled agri‐chemical control, satellite communication for ordering/logistics/delivery vehicle tracking.



Council: Flood and emergency planning, monitoring and enforcement.



Supply chain: Prediction of supply requirements, logistics, development of technology tools for productivity, development of service industry to control and operate agri‐tech services.

Digital economy



(Space is already an integral part of the digital economy)

Software development companies ‐ many applications for space data need to be conceived, written, operated, managed etc.



Big data ‐ space produces vast quantities of data: new data processing and handling techniques need to be developed.



Media: TV, Film, Radio, Art, Cinema, Festivals, News : with Satellite communication offering an extremely cost effective distribution medium for mass market media.



Developing world: Satellites provide rapid access to developing (export) markets. These markets themselves could encompass several of the smart specialisations.



Training: dissemination of training materials via satellite.



Internet / security / coding / processing / storage / and related services have much in common with the technology used in satellite communications.



Monitoring and alarm reporting via satellite, GPS ‐ monitoring, remote diagnosis and treatment, epidemiological surveys.



Major export business for e‐health in Africa and the developing world ‐ including remote diagnostics.



Response to natural disasters.

E‐Health and E‐ Wellbeing

Marine

 Satellite communications ‐ telephony, internet, TV, monitoring (of fisheries etc), coastal monitoring, science surveys, weather forecasting, climate monitoring, mapping, oceanography, monitoring green energy systems

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Some of the key companies that are active within the space economy within C&IoS are listed below. These comprise a mixture of small to medium sized enterprises, many of which have established global export markets and operations. For example, Avanti Communications one of the leading satellite data communications providers, own and operate a number of satellites from Goonhilly in Cornwall; Flann Micowave provides components to virtually all ground stations around the world; and GES Ltd has contracts with 3 of the 4 largest satellite operators, monitoring spacecraft for SES, Inmarsat and Planet Labs and provides testing services for Eutelsat.

7.2.3



Avanti Communications PLC;



BT Superfast Cornwall Labs;



Callington Space Centre;



Cortex (SW) Ltd;



Engineered Arts;



Flann Microwave components;



Flux engineering Ltd;



Fugro Seacore Ltd;



GCHQ Bude;



Goonhilly Earth Station (GES) Ltd;



Hirst magnetic instruments;



Laser Industries;



Pixalytics (based in Plymouth); and



Sea communications.

Evidence from previous research When the first draft of the Smart Specialisation Framework for C&IoS was developed by Catalys in September 2013, Space was not initially included as a key theme or sector. The industry has however been included in subsequent research to develop the evidence base, carried out by Strategic Economics Ltd in September 2014, in recognition of ‘Goonhilly’ providing a key asset which could be used to develop the sector.

Following a review of published research148, the report prepared by Strategic Economics Ltd, attempted to classify the Smart Markets in respect of technological maturity and growth potential in terms of their prospects for the broad sectors and where appropriate, specific niche markets. The report concluded that overall space is a relatively mature market with highly organised value chains that are driven by principal organisations such as multinational

148

Including the Catalys report, witty review, and reports from relevant sector bodies

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corporations or state bodies149. At present, the sector is dominated by the US although emerging players such as China and India are increasingly influential and committed to exploiting growth.

The report went on to describe how the Space sector and the markets are currently experiencing a high level of technological change, disruptive influences and product development as a result of ever‐increasing demand for additional capacity, flexibility and availability of data and connectivity, which will in turn, require more cost effective and larger scale connections via Satellites and the development of applications to facilitate use of the data.

The report suggested that as a result, global demand for satellite‐based service delivery was projected to remain strong and while the market for space was largely ‘mature’150 it could also be classified as ‘emergent’151 with capacity for sustained growth as a result of end user requirements driving the need for new designs and technological developments.

In addition to the analysis of the potential markets, Strategic Economics Ltd also considered the scale, breadth and maturity of the asset base across the value chain which encompasses technology and knowledge within the Universities, research centres, the business base and the workforce. In doing so, the report also considered the supply‐side issues and the extent to which C&IoS was leading or following sector activity more generally. Combined with the market potential, this was used to determine the competitive position and future growth potential more generally.

The review concluded that although the research and business base were not as well developed locally as elsewhere, it acknowledged that key strengths and opportunities did exist within C&IoS, particularly in relation to the infrastructure at Goonhilly. It questioned the extent to which investment from E SIF could generate economic impacts and returns in the short to medium term (i.e. during the lifetime of the programme) but concluded that notwithstanding this limitation and the other risks that could impact the sector (for example, the high level of competition and long term nature of some R&D programmes) the infrastructure opportunities indicated that concentrated effort on the site to boost long‐term growth prospects may be worthwhile, in conjunction with other measures to support the development of the workforce for example.

Overall, when the market, asset base, risks and lessons learnt from previous evaluations (regarding partnership delivery mechanisms, time to see results and assessing impact, addressing market failures, size of the intervention, flexibility, intensive support, and the size of the market) were assessed, Strategic Economics concluded that the Space market offered ‘near trend growth’ to ‘stronger than trend growth’ opportunities.

While the report raised some questions about the relative size of the sector, the competitive position of C&IoS, and the subsequent investment required to generate impacts during the

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It should be noted that this is now starting to change as disruptive influences and new companies enter the market. For eample, For example, SpaceX are significantly lowering the cost of access to space. Virgin Galactic (and others) are introducing the possibility of Space Tourism, Planet Labs an SME has become the biggest satellite fleet operator, OneWeb – plan to launch a global fleet of communication satellites and Goonhilly plan to become the first private organisation to be part of a Deep Space communications network 150 The market is already a significant size and predicted to see limited growth beyond projected trends, given the existing scale and scope of well‐established supply chains 151 Those with existing evidence of global market developments, with value chain development sketched out for the future and, therefore those most likely to undergo sustained and substantial market growth

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lifetime of the programme, our consultations with key stakeholders and industry representatives to date suggest that there are a number of potential growth opportunities within the sector and the wider space economy more generally within C&IoS that could generate significant impacts for the local economy in the medium to longer term. This is particularly the case given its role as an underpinning technology that supports a breadth of other sectors, including the other Smart Specialisation sectors as indicated in table 7.1 presented earlier (e.g. marine – forecasting, navigation, communications applications; renewables – forecasting wind & tides and remote monitoring).

As the Space markets are growing rapidly and the environment is changing constantly, the potential offered by new user–driven applications suggests that this is a critical time for investment in the sector so that C&IoS has the infrastructure in place to take advantage of new markets and engage in emerging technologies such as those related to Unmanned Aircraft Systems (UAS); satellite earth observation; mapping; navigation; climate and environmental monitoring; and internet delivery to aircraft. It will be particularly important that interventions to support the sector are aligned with the relevant support networks and work being carried out by organisations such as the Satellite Applications Catapult to raise awareness and assist organisations to benefit from satellite technologies, generating growth and highly skilled jobs in the process.

7.3

Space ‐ markets Space has been identified as one of Britain’s 8 Great Technologies, technologies in which the UK is set to become a global leader as a result of UK strengths in both research and industrial capability. Satellite based solutions and downstream applications are growing rapidly across a range of sectors – enabling TV, internet, navigation, weather and shipping forecasts – and offering significant growth opportunities for businesses involved in developing multiple applications.

In recognition of the potential opportunity for economic growth in the UK, the government launched the first industry‐led Space, Innovation and Growth Strategy in 2010. This led to: 

the creation of a Space Leadership Council, bringing together Government, Industry and Academia as the most senior group in the UK advising on Space policy;



the creation of the UK Space Agency tasked with providing a unified voice in championing the sector, advising on policy, setting strategy and co‐ordinating funding, with a budget of around £250 million per annum;



a 33% increase in optional funding to the European Space Agency at the ESA Ministerial in 2012, increasing the UK’s work and influence in crucial areas such as satellite communications and Earth observation;



a National Space Technology Strategy, produced and updated by industry, that Government has backed with £35 million in funding, creating a National Space Technology Programme;



a Satellite Applications Catapult centre at Harwell, Oxford, one of only nine Catapults in the UK, initiated using Technology Strategy Board funding; and 151

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

ESA’s establishment of the European Centre for Space Applications and Telecommunications (‘ECSAT’) at the UK Space Gateway152 in Harwell, recognition of the UK’s innovative approach.

The Space Growth Action Plan (April 2014)153 sets out the government’s response to the UK Space Innovation and Growth Strategy 2014‐2030, which will take the UK further towards a space economy worth £40 billion per annum by 2030 (10% of the Global Space market). The report acknowledges that the growth created from developing downstream applications and maximising export opportunities will account for a substantial part of this future growth, which will in turn require a continuing shift in approach and investment from industry and the Government.

The Space Growth Action Plan identified five high level recommendations and proposed actions to capitalise on the market opportunities and projected growth in the industry. These include: 

Developing the high value priority markets ‐ identified to deliver £30 billion per annum of new space applications by promoting the benefits of Space to business and government and engaging service providers;



Promoting enterprise and investment through regulation – to make the UK the best place to grow existing and new space businesses and attract inward investment;



Influencing Europe – by increasing the UK’s returns from Europe by continuing to grow the UK’s contribution to ESA programmes and securing greater influence in large European‐ funded programmes;



Supporting growth in the UK space sector – by launching a National Space Growth Programme and defining an International Policy that will improve collaboration with nations across the world, enhancing the UK’s competitive edge in export markets and enabling targeted and market‐led investments in leading edge technology; and



Stimulating a vibrant regional space SME sector – by improving the supply of finance, business support, information, skills and industry support.

The Space Growth Action Plan detailed growth market opportunities and 15 priority markets (highlighted in red in Figure 7.2) where the UK has the greatest opportunity to enter the space market and stimulate growth. Each market is predicted to be worth at least £1 billion annually to UK‐based suppliers within 20 years.

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UK Space Gateway is the focal point for the UK space sector, based at Harwell in Oxford. The gateway is responsible for the development of the wider UK capabilities which, through links with the LEPs, will lead to balanced economic growth. https://www.gov.uk/government/publications/space‐growth‐action‐plan

153

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Figure 7.2: Space Growth Action Plan – Markets Markets

Maritime geospatial services

Maritime surveillance

Maritime environmental monitoring

Secure Satellite communications

Galileo PRS

Polar infrastructure for shipping and exploration

Security, safety and resilience

Markets

Disaster and emergency response Space robustness services

Removing space debris Space weather Space situation awareness

Game changing services

Low cost access to space Persistent surveillance Power from space

Space tourism and small payload launch Space planes Low cost LEO launch vehicles

Climate and Insurance and finance environmental Agriculture and food security services Environmental services

Climate applications Carbon monitoring and modelling Environmental policy

Weather forecasting More efficient public sector services

Transport management

Rail transport

Smart cities/ urban services for local government

Air traffic Road transport

Energy infrastructure services e‐connectivity Direct to home TV

Backhaul (mobile, fixed, broadcast)

Fixed satellite broadband

Telemedicine, assisted living

Broadband to ships

Broadband to aircraft

Energy use monitoring and management

Ubiquitous m2m Location based services Managing unmanned vehicles and hosted payloads

Transport Gaming/synthetic environments

Seamless personal communications

Consultations with key stakeholders and businesses in the Space Industry have confirmed that opportunities exist in C&IoS to capitalise on growth across a range of markets. This includes in particular downstream applications and the potential to exploit the availability of satellite data being captured at Goonhilly Earth Station, but could also include upstream companies if Newquay Cornwall Airport was successful in becoming the first UK spaceport as detailed below.

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Key opportunities include: 

the development of a Spaceport at Newquay Cornwall Airport ‐ NCA is now one of five areas shortlisted to become the first spaceport in the UK, due to become operational in this parliament. In terms of the market, there is now more focus on micro satellite launch (horizontal) and suborbital activity and science rather than space tourism, which was the initial driver for the spaceport concept. The technical specification is due to be issued by the end of 2015, with the formal bidding process taking place during 2016 with the preferred location confimed in the latter half of 2016. If successful, the spaceport would generate significant clustering opportunities for both upstream and downstream companies;



the development of Goonhilly Earth Station (GES) to become a major hub for businesses offering services delivered via satellite. Benefits include ‐ a fully functioning teleport; large site with office/data centre facilities (air conditioned buildings); high speed connectivity; capacity to undertake deep space communications and other research; and land/buildings for redevelopment to offer incubation/’science park’ space for new and existing businesses;



proximity to key businesses that are heavy users of satellite data – Met Office, Environment Agency, Plymouth Marine Laboratory, Geographical Society, and SW water;



access to large amounts of data/data analytics (big data) and data centre facilities at Goonhilly; and



satellite applications in key priority sectors – a number of which are particularly important to the economy of C&IoS, for example: 

the marine/maritime industry – which could benefit from forecasting, navigation, and communications applications. Satellites already play a key role in supporting maritime operations as no other technology can provide communications and real‐ time monitoring in the remote regions of the world's oceans. Consequently, there are many opportunities for growth of satellite‐derived applications and solutions;



agri‐tech/food supply – which could benefit from environmental monitoring and climate applications to assist crop production and management; and navigation applications to improve distribution and logistics in the supply chain; and



transport and more efficient public services – particularly relevant for water, air and road transport all of which are important given the location of C&IoS and energy infrastructure services and requirements (particularly relevant for IoS). In future there will be an increasing reliance on autonomous vehicles for mission‐critical systems. These will need to be robust and resilient with a wide geographical coverage, and satellites will play an important role in enabling this move and continuing to support navigation and communication systems.

These sectors are also being prioritised by the Satellite Applications Catapult which is able to offer additional support to:

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

work with end‐users to identify needs and demonstrate commercial potential by organising workshops and demonstrators, and showcasing the capabilities of satellite industry suppliers in targeted sectors;



Identify opportunities for organisations to become involved in the ‘explore' activities and provide potential solutions to downstream sector organisations through use of the opportunities area of their website;



develop business cases and encourage investment and SME involvement in the market opportunities;



explore the Innovation Growth Strategy markets and look for overlaps between these and the transport and maritime programmes to develop capabilities;



work with the other Catapults to explore the commercial potential of satellite data and services, especially (but not exclusively) with future cities, transport systems, digital and offshore renewable energy; and



align with and lead EU and ESA level R&D projects to develop and establish expertise.

In addition to the opportunities outlined above, the UK space agency has identified a number of other key market trends and issues that need to be addressed to drive growth at the local level.

These include:



the ‘game‐changer’ in the upstream market which is the increasing number of proposals for large constellations of small satellites, which has the capacity to introduce a new model for satellite manufacture, moving from individual builds to production lines. The drive to reduce costs could open up markets for new suppliers of components and there could also be clear synergies between geographical proximity of manufacturing and a launch capability;



the increasing number of satellites will increase data availability and the frequency of updates. An improved refresh rate of observations (and improved measurement resolution) will open up new markets and application opportunities. Alongside this, the EU funded constellations (eg Copernicus) will provide UK companies with low cost / free data;



overcoming the main ‘market failure’ which relates to a lack of awareness of what space can offer. Many businesses do not know that space could help them and equally, agencies such as the Satellite Catapult Centre do not know who these companies are in order to target them more effectively. Activities to support the LEPs are aimed at addressing this issue, and the work of the Satellite Applications Catapult is aiming to promote greater awareness in order to break down some of these information barriers; and



the need to provide additional incubation support for space companies – within C&IoS, the UK Space Agency is currently working with SETsquared on a pilot and it is hoped that Exeter will provide a bridge into Cornwall and Goonhilly more specifically, if there are potential synergies that could be exploited.

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7.4

Space ‐ enterprise As referred to earlier, the number of enterprises within the ‘Space Industry’ within C&IoS is still relatively small at present, but it has demonstrated growth since 2009 (based on the limited amount of data available) and the factors underpinning this growth now need to be capitalized upon to further develop the sector as a whole and the niche markets within it. In addition, the number of enterprises in the wider space economy is likely to be significantly higher, as space underpins a number of the technologies that support a range of other sectors within the local economy – including broadcasting, navigation, communications, defence and earth observation.

A range of opportunities for new enterprise development have been identified in relation to new applications to serve the emerging space markets, and there is also an appetite to innovate amongst a number of the businesses consulted to develop this evidence base, in order to respond to the new technologies arising within the sector. However further support will be required to stimulate the growth and sustainability of new enterprise development, particularly in relation to creating an environment where collaborations and knowledge transfer can take place alongside facilities to support incubation of new ideas and businesses. While GES Ltd has started to attract businesses to the Goonhilly site as a result of investment in new facilities, further work is needed to promote the ‘offer’ associated with the site and the potential opportunities and benefits for businesses either starting up or relocating to Goonhilly. Given the potential of the UK Space Industry to attract FDI154, this marketing and promotional activity needs to extend beyond the EU. Although there is currently no formal network of Space businesses within C&IoS or networking within the sector, the individual businesses do appear to undertake joint work and collaborate with both the local Universities and Universities further afield and sector support agencies on an ongoing basis. As the sector grows, it is envisaged that support for a more formal grouping would be beneficial to facilitate business to business collaborations and the development of new ideas and joint projects that could benefit the sector as a whole – for example collaborative training initiatives, and joint marketing and promotional activity.

7.5

Space ‐ knowledge creation The Satellite Applications Catapult, based at the UK Space Gateway in Harwell, was created to foster growth across the economy through the exploitation of space. It aims to be at the forefront of the UK Space sector's growth plans and investment, helping organisations make use of and benefit from satellite technologies, by bringing together multi‐disciplinary teams to generate ideas and solutions in an open innovation environment, with access to expertise and state‐of‐the‐art facilities. More recently, the European Space Agency has also established the European Centre for Space Applications and Telecommunications (ECSAT)155 at Harwell, its newest facility and the first in the UK, bringing ESA’s capabilities and interests in supporting activities related to telecommunications, integrated applications, climate change, technology and science.

154

A recent presentation given by the Director for Growth from the UK Space Agency at the most recent Space Conference suggested almost 100 foreign‐owned Space firms are now in the UK. 155 http://www.esa.int/About_Us/Welcome_to_ESA/ECSAT

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The Satellite Application Catapult's aims and objectives place it at the heart of the ongoing revolution in satellite services, which will have a global impact due to the power that satellites can bring to bear on the challenges of the modern world. It's vision is: "To be a world‐leading technology and innovation company, helping businesses of all sizes to realise the potential from space. By embracing a pioneering, agile, collaborative and entrepreneurial spirit, we create valued partnerships to deliver game‐changing results."

Most of the activities that the Satellite Applications Catapult carries out are within distinct programmes of work which focus on maximizing economic impact and where funding can be used to meet common needs and solutions.

Clearly defined programmes enable people from across the Satellite Applications Catapult to collaborate effectively and work towards a common vision, bringing a range and community of stakeholders together for each topic, including potential end‐users, suppliers, researchers, funders and, quite often, colleagues in the other Catapults.

The work programme is selected using several criteria that ensures there is a need and reason for the Catapult to get involved, with the potential to generate an economic impact being the driving force. The Catapult programmes are closely aligned with the results of the UK's Space Innovation and Growth Strategy (IGS), the work that the European Space Agency (ESA) is undertaking, and the priorities of the European Commission. All programmes involve projects, demonstrators and showcase events to promote what is possible. While the Catapult is not a funding agency, it can assist companies to raise private finance and direct businesses to the most appropriate sources of grant funding (described later in the next section). Alternatively, companies may bid collaboratively with the Catapult or use the centre to develop work on behalf of the business that will benefit the wider community.

Its current programmes include: 

Market exploration ‐ market assessment and the development of new programmes, currently concentrating on aspects of smart cities, food supply chains, health, security and energy as well as an information campaign to promote awareness of satellite capabilities;



Technology exploration – which involves identifying the missions and data infrastructure needed to promote faster, better and cheaper access to satellite data;



Maritime – this programme is focused on situational awareness and improved maritime communications looking at applications such as fishing monitoring, integrated logistics and supply chains and vessel efficiency; and



Transport – in particular inter‐vehicle communications and reliable positioning, which offer the potential of a future with autonomous vehicles enabled by satellite data contributing to intelligent transport systems.

The Catapult is based at the UK Space Gateway, which is the focal point for the UK space sector and responsible for the development of wider UK capabilities, which through links with the Local Enterprise Partnerships (LEPs), will lead to balanced growth. To this end, the Gateway has

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started to convene a cross LEP working group (of which C&IoS is a member) to share best practice in the development of new satellite applications.

In addition to the Catapult, the Harwell Campus ‐ a world leading science, technology and business campus based in South Oxfordshire with more than 4,500 researchers, engineers and innovators from over 150 high‐tech organisations, and a focal point and cluster for the UK’s rapidly growing high‐tech space community – is also home to the ESA Business Incubation Centre which is managed by the Science and Technology Facilities Council (STFC) and was established in 2011 as part of the Technology Transfer Programme.

The Business Incubation Centres, across Europe, support selected entrepreneurs with comprehensive commercial and technical assistance to help them start up businesses that apply space technology to non‐space industrial, scientific and commercial fields. ESA BICs help to create viable businesses and new jobs by providing support to more than 75 companies every year in Europe, and more than 200 start‐ups companies have received support to date.

Alongside the support offered by the Catapult, at a local level there is significant R&D capabilities and linkages with academia within key businesses in the sector (e.g. GES, Avanti Communications, Flann Microwave, Pixalytics) and considerable expertise and interest in the development of Satellite applications and collaboration with industry from the following HE institutions: 

Falmouth University – has particular expertise in Smart home technology which encompasses service delivery; smart home components – e.g. smart home software platforms/middleware; smart home control devices and sensors; interoperability and open standards development; assistive living/independent living technology; home security systems; domestic energy management /smart metering; intelligent applicances and product life cycle management; the smart grid; and home robotics;



University of Exeter – areas of expertise include Astrophysics and one of the largest star formation groups in the UK with a wide variety of observational and theoretical programmes; Exoplanets; Stellar Physics; Galaxies and the Interstellar Medium; Engineering Structures and Control Systems. The University also has expertise in remote sensing applications, satellite imagery and satellite tracking technology. The Astrophysics department has access to international and local telescope/observatory facilities, while a range of laboratories support the engineering departments. The University is similarly linked into a number of networks with the European Space Agency (ESA), NASA, and the Royal Astronomical Society, receives FP7 and Interreg funding for research purposes, and has key industrial collaborations with a range of organisations including Demios Space, ESA, Met Office, Alenia Space, PML and QUESTUAV; and



Plymouth University – specialisms include Security, Communications and Networks; Fixed mobile and satellite communications; information systems security; network technologies and intelligent robotic and autonomous systems. The University also has strengths in marine and environmental satellite imaging.

In addition, potential synergies also exist with:

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

the Environment and Sustainability Institute (ESI) at the UoE based on the Penryn Campus – this £30 million interdisciplinary centre is leading cutting‐edge research into solutions to address problems of environmental change;



Tremough Innovation Centre, which is located adjacent to the University Campus Tremough, and provides a business acceleration facility to support a range of enterprises including those from the eco and environmental sectors; and



the Academy for Innovation Research (AIR) and the Launchpad Incubator at Falmouth University which are also based at the Penryn campus providing innovation support for SMEs and talented graduates that incubate into incorporated, investible companies156.

7.6

Space – capital

7.6.1

Infrastructure Goonhilly Earth Station (GES) GES Ltd was established to re‐develop the large telecommunications site at Goonhilly following its closure by BT in 2008. The site, which has been recognized as a key national asset by the UK Space Agency, was acquired by GES Ltd in 2012. The company is currently in the process of undertaking a phased re‐development of the site, to transform it into a Space Science Centre, alongside its commercial operations. There are a range of plans for the site which include: 

commercial satellite communications;



specialised satellite operations such as tele‐command, telemetry and control;



deep space communications;



radio astronomy services;



training and education;



visitors centre;



secure data centre facilities with excellent connectivity;



high‐tech electronics and communications manufacturing centre; and



business/Science/Incubation facilities for start‐ups and other companies.

In addition to a range of fully functioning antennas, the site benefits from advanced on‐site security; a network operations centre that operates on a 24/7 basis; high‐level connectivity as a result of a deep sea fibre‐optic cable with high speed connectivity to London, USA and Asia; air‐ conditioned facilities to house computers/data‐centre requirements; and an abundance of office/space to be refurbished. GES Ltd is an experienced satellite teleport operator offering a wide range of uplink, co‐location, hosting, Virtual Network Operator (VNO), back‐up and partnering services to commercial clients. They have had some success in attracting small data

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GES Ltd is currently host to a team of graduates as part of this programme.

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centre operations to the site and have recently started to deliver training courses as part of their commercial offer.

In addition to its commercial activities, the company is heavily involved in RD&I and has strong links with the UK Space Agency, ESA and the UK Space Gateway at Harwell. The business is currently working with a group of Universities – Oxford, Leeds, Manchester, Durham, Southampton and Hertfordshire, in undertaking research into radio astronomy.

7.6.2

Finance A range of potential funding sources are available to support the development of businesses in the Space sector or organisations wanting to create new satellite applications, as outlined in Table 7.6. There is a National Space Technology Programme and funding available from Innovate UK, but also more sector specific funds from the UK Space Agency and Earth Observation Centre. The UK Space Agency funds the NSTP, CEOI, and the SSGP from its national budget, in addition to managing the UK’s ESA subscription which operates on a geo‐return basis which means that the UK’s investment flows back to the UK in contracts and grants. The IAP described in Table 7.2 is one such investment, but other areas of funding include telecommunications and core science missions many of which bring longer term benefits.

Table 7.2: Funding for Space projects and businesses Source of funding

Details

Private investment

UK Business Angels Network; Venture Capital; Banks

Innovate UK (formerly the Technology Strategy Board)

Smart scheme – three types of grants are available (proof of market, proof of concept, development of prototype) for projects across a range of themes or sectors for UK based SMEs that have high growth ambition and potential, allowing them to engage in R&D projects from which successful new products, processes and services could emerge.

Launchpads – help technology themed clusters of young, early‐stage companies to develop and grow in specific locations around the UK. Two £1million competitions have been run so far focussed on the space sector.

Innovation vouchers – are grants of £5,000 designed to encourage businesses to look for new knowledge to help them grow and develop from an external expert.

Knowledge transfer partnerships – offer businesses the opportunity to work with academic institutions to gain access to new knowledge with the government financing part of the cost of running the project.

National Space technology programme (NSTP):

 Telecommunications  Sensing  Position, navigation and timing  Exploration and robotics  Access to Space

There are three types of NSTP grant: 

NSTP Technology Fast Track Grants – typically £50,000 to £150,000; up to 12 months duration



NSTP Pathfinder Grants – £50,000 maximum; normally no more than six months duration



NSTP Grants for Exploratory Ideas (Mini Studies) – rolling call, £10,000 maximum grant; up to 3 months duration.

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Centre for earth observation The centre hosts regular calls instrumentation (CEOI) Space for smarter Established by the UK Space Agency and delivered by the catapult to drive the government programme uptake and use of space products, data and services across government.

(SSGP) European funding

Horizon 2020 (FP7) provide grants for R&D in specific areas.

European Space Agency

The integrated applications promotion programme (IAP) is dedicated to the development, implementation and pilot operation of integrated applications ESA Business Incubation Centre can provide £40,000 funding

Regional Innovation Funding

LEP regional funding

Despite the range of potential funding sources available for businesses within the sector, evidence suggests that there is a lack of skills, expertise and sometimes willingness to bid for these funding opportunities given the time and resources required. This is often coupled with imperfect information about the sources of funding available, eligibility criteria, timescales for delivery and details of what is required by funding authorities to ensure success. Access to local, flexible funding schemes (using EU funding) has proved particularly beneficial to the existing business base.

7.6.3

Skills In 2013, CDC commissioned the development of a Skills Action Plan for the Space Sector. The plan, prepared by Pye Tait Consulting in conjunction with Scott Space, recognised that in the short‐medium term, the development of space capability would require the same skill‐set as that for Aerospace and Advanced manufacturing, in particular a strong base of Level 3‐5 provision in: 

engineering ‐ electronic, electrical, mechanical;



IT ‐ computer hardware, network and systems design and management; software design and telecommunications;



manufacturing management skills – process, project, production; and



aviation/space operations.

Alongside this provision, the plan recommended that further work was needed to: 

build relationships with the Space academic community at Oxford, Leicester, RAL Space‐ Harwell, Exeter and Plymouth Universities;



develop improvements to the delivery of STEM in schools and beyond; and



raise awareness and the image of Space and Aerospace as a potential career among teaching staff, lecturers and other IAG professionals.

The plan also identified that over the long term additional support would be required to: 

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

explore the potential of opening/promoting an Aero–Space Academy, based on and existing high‐tech college or University site, for 14‐18 yr olds to study engineering, computing and technology A levels and vocational qualifications; and



develop higher level degrees in satellite management and systems, advanced telecoms and Astrophysics.

Consultations with businesses in the sector revealed similar issues to those raised above, particularly in terms of attracting and retaining highly skilled individuals during their ‘middle career stage’. Recruitment to first and last posts is relatively easy, but attracting individuals at the mid‐point of their career is proving more difficult due to location.

Since the skills action plan was published, GES Ltd have started to deliver professional training courses for individuals and businesses within the space sector, and the UK Space Agency has appointed a national lead for skills development to identify how provision can be delivered around the country, bringing courses closer to audiences.

7.7

Aerospace ‐ context and evidence from previous research

7.7.1

Overview The UK Aerospace Industry is the biggest in Europe and the second largest Aerospace Industry in the world with 17% of the global market share157. Aerospace organisations research, design, manufacture, operate, or maintain aircraft and/or spacecraft and activity is very diverse, with a multitude of commercial, industrial and military applications. The most recent UK Aerospace Outlook 2015158, reports that the industry currently employs around 235,000 employees in the UK in approximately 3000 companies (110,000 direct, and 125,000 indirectly). The industry has an annual turnover of around £29.2 billion, which represents 35% growth in the last 5 years, and 91% of final demand comes from exports.

The Aerospace industry is recognised as key priority for the government, as outlined in the industrial strategy159, given its capacity to generate growth and export potential and the opportunity to position the UK as a global leader. This growth is being driven by an increase in air traffic worldwide as consumer demand increases in line with rising incomes, the need for more fuel efficient aircraft and government’s demanding less noise and lower emissions. The industry requires highly specialised and skilled individuals in a variety of disciplines including engineering (mechanical, electrical, software), project management, production, training and finance and the industry has the ability to generate important spill‐over effects as new technologies and processes developed can be applied across a range of other sectors, including the other Smart Specialisation markets.

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Lifting Off: Implementing the strategic vision for UK Aerospace https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/142625/Lifting_off_implementing_the_strategic_vision_ for_UK_aerospace.pdf 158 UK Aerospace Outlook 2015; www.adsgroup.org.uk 159 https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/306854/bis‐14‐707‐industrial‐strategy‐progress‐ report.pdf

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7.7.2

Aerospace in Cornwall and the Isles of Scilly At a national level the Aerospace Industry has a competitive advantage in Wings, Engines, Aerostructures, and Advanced aircraft systems. At a local level, the Aerospace assets within C&IoS have been identified as presenting key opportunities for growth of the local economy.

Defining the precise size of the Aerospace sector in C&IoS is difficult for a number of reasons.

Firstly, the sector is not well defined in standard government industry classifications (SIC) and data available from sources such as the Office for National Statistics is often limited. In addition, companies in the Aerospace sector wouldn’t necessarily class themselves as ‘Aerospace’ businesses. These companies are essentially advanced manufacturing and engineering businesses that are typically only about 50% dependent on Aerospace. These companies also provide goods and services to other manufacturing sectors including defence, marine, offshore wind and automotives.

Notwithstanding these difficulties, ONS data does provide a base from which change can be measured (accepting that these figures are likely to underestimate the size of the industries).

Using the statistical definition for the Aerospace (and Space) industries provided by Strategic Economics Ltd. Table 7.3 highlights the changes in employment over the period 2009‐2013. As shown, there has been a significant increase in employment in C&IoS over the four year period, but compared with overall employment, the sector is still a relatively small employer in the sub‐ region. Analysis of some of the sectors outside the definition provided highlight a further 1,784 people employed in engineering related activities160 – which are very likely to include activities related to Aerospace.

Table 7.3: Employment change in Aerospace 2009‐2013

2009 Employ‐ment

% of total employment

C&IoS

398

0.2%

South West

22,333

England

210,040

2013 Location Quotient

% Change in employment

Employment

% of total employment

Location Quotient

0.2

562

0.3%

0.3

41.2%

0.9%

1.0

23,918

1.0%

1.2

7.1%

0.9%

‐

202,884

0.8%

‐

‐3.4%

Source: Annual Business Inquiry 2009 ‐2013

The table highlights the relative strength of the sector within the wider South West of England, which is recognised as one of the largest Aerospace clusters in the country, with 900 aerospace related companies generating approximately £3.2 billion for the South West Economy. These include some of the OEMs (Original Equipment Manufacturers) and Tier 1 suppliers including Boeing Defence UK Ltd, Airbus, Rolls Royce and GKN Aerostructures (just outside Bristol) and their associated supply chains.

Figure 7.3 highlights other areas with a comparative advantage in the Aerospace industry, namely:

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Engineering design activities for industrial process and production; engineering related scientific and technical consulting activities; other engineering activities; technical testing and analysis; and other research and experimental development on natural sciences and engineering

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

Lancashire – one of the largest Aerospace clusters in the UK and home to BAE systems over two sites at Samlesbury and Warton where the next generation combat aircraft (Lockheed Martin F‐35) will be built;



Cheshire and Warrington – with the Airbus wing factory at Broughton; and



Derby, Derbyshire, Nottingham, Nottinghamshire – the location for the Rolls Royce Apprenticeship Academy.

Figure 7.3: Location Quotient for the Aerospace sector

The Aerospace industry is dominated by a small number of OEMs such as Boeing, Airbus, Finmeccanica and Bombardier which have relatively well established supply chains – as shown in the overview of the supply chain in Figure 7.4 shown over the page. While C&IoS does not currently have any of these OEMs, the area is home to a number of satellite operations of some of the key players in the industry – Bristows, Augusta Westland, Babcock, Lockheed Martin and Boeing. Furthermore, local businesses within C&IoS can also benefit from their relatively close proximity to Bristol and the cluster of businesses in the West of England and Heart of the South West LEP area.

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The companies within C&IoS that are active in the sector are typically third and fourth tier suppliers, and while data availability is limited, the FAME database which holds records for over 7 million businesses across the UK and Ireland indicates that there are currently just under 100 companies in the aerospace sector.

Figure 7.4: Aerospace supply chain overview

These local businesses comprise a mixture of predominantly small to medium sized enterpises, many of which have established global export markets and operations. Some of the key companies that are active in the sector are listed below: 

Apple Aviation;



DP Engineering;



Flann Microwave;



Lowley engineering;



Pall Redruth;



Preci – Spark;



R & R Bassett;



Ram Gaskets; 165

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

Righton Aerospace;



Smiths Advanced Metals;



Teddington Electronics;



Wes Ltd; and



Weston Aviation.

Evidence from previous research In terms of raising the overall global competitiveness of the UK, the government has identified a number of sectors and technologies in which the UK either has or has the capacity to develop a competitive advantage that will drive future growth. Aerospace features as one of these key industrial sectors.

Although Aerospace was not initially included as a key theme in the first draft of the Smart Specialisation Framework for C&IoS (Catalys, September 2013), it has been included in subsequent research to develop the evidence base, carried out by Strategic Economics Ltd in September 2014, in recognition of the key Aerospace assets within the area.

Following a review of published research161, Strategic Economics attempted to classify the Smart Specialisation markets by technological maturity and growth potential in terms of the prospects for the broad sectors and where appropriate, specific niche markets. The report concluded that overall Aerospace was a relatively mature market with highly organised value chains driven by OEMs and Tier 1 suppliers, where the route from R&D through to commercialisation is well developed, particularly in the established air transport sector.

The report went on to explain that the sector is currently experiencing high levels of technological change and product development, including the introduction of composite materials, additive manufacturing, and unmanned aviation vehicles, which are opening up new niche markets and opportunities for new companies to enter the market. It concluded that while the Aerospace market was largely mature162, end user requirements are driving the need for new designs and technological developments (e.g. more environmentally friendly and fuel efficient aircraft) which means that the markets could also be classified as ‘emergent’163 with capacity for sustained growth.

In addition to the analysis of the potential markets, Strategic Economics Ltd also considered the scale, breadth and maturity of the asset base across the value chain which encompasses technology and knowledge within the Universities, research centres, the business base and the workforce. In doing so, consideration was also given to the supply‐side issues and the extent to which C&IoS was leading or following sector activity more generally. Combined with the market potential, this helped to determine the competitive position and future growth potential more generally.

161

Including the Catalys report, witty review, and reports from relevant sector bodies The market is already a significant size and predicted to see limited growth beyond projected trends, given the existing scale and scope of well‐established supply chains 163 Those with existing evidence of global market developments, with value chain development sketched out for the future and, therefore those most likely to undergo sustained and substantial market growth 162

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The review concluded that while some opportunities did exist within C&IoS, the research and business base were not as well developed locally as elsewhere. It acknowledged the key strengths related to the Aerohub Enterprise Zone at Newquay Airport with its focus on developing clusters of activity around specific markets for example testing unmanned ariel systems (UAS) and maintenance, repair and overhaul (MRO) operations. However with regard to the former, it did comment on the fact that the market was still developing164 and while the area had some key businesses within the sector, more extensive business clusters could be found elsewhere, particularly where OEMs and established supply chains had linkages with centres of excellence and universities outside C&IoS. Notwithstanding these limitations, the review went on to say that the infrastructure opportunities presented by the Aerohub at NCA did indicate that ‘concentrated effort to boost long‐term growth prospects may be worthwhile, in conjunction with other measures to support the development of the workforce for example’.

Our discussions with key stakeholders and industry representatives confirmed this view, noting that a real momentum had started to build up around the Aerohub. A number of consultees commented on the need to capitalise on the earlier investments at the Airport, particularly as outcomes are now starting to be realised.

Overall, when the market, asset base, risks and lessons learnt from previous evaluations (regarding partnership delivery mechanisms, time to see results and assessing impact, addressing market failures, size of the intervention, flexibility, intensive support, and the size of the market) were assessed, Strategic Economics concluded that the Aerospace market offered ‘near trend growth’ to ‘stronger than trend growth’ potential.

Although the report raised some concerns about the competitive position of C&IoS, high barriers to entry and established research/supply chains elsewhere, our consultations suggest that there is capacity and a strong desire to generate additional growth from the Aerospace markets which could be exploited by consolidating the investments made to date, and focusing on niche markets to establish a competitive advantage.

7.8

Aerospace ‐ markets The UK Aerospace industry has a 17% share of the global market and generates annual revenues in excess of £29 billion, the majority of which comes from exports £26.3bn. It is the largest aerospace industry in Europe and second only to the US worldwide. The civil aerospace (i.e. non‐military) is forecast to grow strongly over the next 15 years generating significant opportunities for the UK. The global increase in air traffic is due to be sustained at 4.7% p.a. between now and 2030, which represents a doubling in air traffic. The market opportunities associated with this growth are summarized in Table 7.4 and are being driven by: 

airlines seeking more fuel efficient aircraft;



government’s demanding less noise and lower emissions; and

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a recent report by Qi3 Insight Ltd, highlights a number of forecasts that estimate the market could be worth $10bn by 2023. http://www.qi3.co.uk/wp‐content/uploads/2014/02/Qi3‐Insights‐White‐Paper‐UAVs‐Growing‐Markets‐in‐a‐Changing‐World‐ 2014021903.pdf

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

consumer demand as rising incomes in emerging markets open up air travel to a much larger number of people.

Table 7.4: Projected growth in the Civil Aerospace Industry

Demand /Market (by 2031)

Estimated worth ($)

Aircraft (100+ seats)

27,000

$3.7 trillion

Business jets

24,000

$648 billion

Helicopters

40,000

$165 billion

$4.5 trillion

Total civil aerospace

Source: Lifting Off, implementing the strategic vision for UK Aerospace

To date, the UK has developed world class capabilities in some of the most advanced parts of modern aircraft in wings, engines, aero‐structures and advanced aircraft systems. However, much of this success draws on technological investments made in the 1970’s and 1980’s and recent evidence suggests that UK content on new aircraft is in decline. As the UK is well placed to compete and remain at the forefront of aerospace manufacturing and the new generation of aircraft (variants of Boeing 777 and the Airbus A320 neo) investment is required to develop new manufacturing processes, new skills and a flexible and adaptable supply chain capable of responding to the step change in technology required to deliver improvements required by the industry.

As the UK is well placed to lead on developing many of the new technologies required and the industry, which is an integral part of advanced manufacturing, provides significant scope to rebalance the economy, the Government and Industry established the Aerospace Growth Partnership (AGP) in 2010 to tackle barriers to growth, boost exports and grow the number of high value jobs in the economy. They developed a shared vision to: 

ensure that the UK remains Europe’s number one aerospace manufacturer and second only to the US – an ambitious target in light of increasing international competition and the pace of innovation in the sector;



support UK companies at all levels of the supply chain to broaden and diversify their global customer base; and



provide long term certainty and stability to encourage industry to develop the technologies for the next generation of aircraft in the UK.

‘Lifting Off’ sets out the AGP’s strategy for implementing this strategic vision for the UK aerospace industry and the interventions that will be delivered to support growth. Their key priorities are grouped around support for: 

Technology – in particular R&D activities at the new Aerospace Technology Institute and the UK Aerodynamics Centre; and to maximise opportunities for UK industry to gain access to European programmes;



Manufacturing – embedding world class processes and systems throughout the supply chain and developing the aerospace Manufacturing Accelerator Programme; 168

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Supply chain competitiveness – accelerating technology exploitation within the supply chain; developing a more strategic approach with UKTI to pursue overseas target markets and more strategic targeting of inward investment opportunities; access to finance through the newly created Aerospace Finance Forum and increased collaborative working between prime manufacturers and suppliers to create strategic supply chains and clusters of companies including SMEs; and



Skills and engagement – to build on progress made with SEMTA165 and UKCES166 in helping to secure the next generation of talent for aerospace; explore the potential of a sector wide Industrial Partnership on skills; maximise available funding schemes and improve the image of aerospace as a career.

While some of the interventions and support available to exploit new markets is being delivered at a national level the aerospace industry is also cascading this support through their strong trade association, Aerospace, Defence, Security and Space (ADS) and the network of regional offices. The West of England Aerospace Forum (WEAF) provides this role for the South West region. The association has recently developed its own Aerospace strategy ‘iAero’ in the challenge to sustain global competitiveness and its own position as one of the strongest clusters in the UK. iAero sets out the vision for the SW to create an Aerospace advanced‐technology cluster capable of: 

developing and industrializing differentiating technologies;



driving technology lead collaborations and partnerships;



leveraging academia, catapult centres (e.g. the high value manufacturing catapult and the National Composites Centre) and UTCs;



developing leading skills and talent in sustainable jobs; and



instigating innovation in the supply chain.

In line with the national strategy and focus on the UK’s strengths in relation to wings, engines, aero‐structures and advanced aircraft systems, the strategy describes seven foundation technology themes that will be prioritized for support (processes, skills, infrastructure, culture): 

wing and engine systems integration;



advanced assembly and automation;



advanced composites application and integration;



wing integration and optimization;



net shape manufacturing;



rotorcraft design and manufacture (whole aircraft and major systems); and



rotorcraft integrated electrical and avionics systems.

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Sector Skills Council for Science, Engineering and Manufacturing Technologies UK Commission for employment and skills

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The strategy describes how the SW aerospace cluster will work together to realize the national aerospace agenda and has aligned their activities with the national strategy in relation to three key themes, in order to take advantage of the support available: Table 7.4: iAero: SW Aerospace cluster working together to realize the national aerospace agenda Advanced engineering and technology

 Aerospace

Technology

Institute (ATI)

 National

Aerospace Technology Exploitation Programme (NATEP)

Additional educational capability integrated with national strategies

Additional capability to promote collaborative working and supply chain vitality

 National Aerospace College

 Sharing in growth (SIG)

 Talent Retention Solution

 National

 MSc Bursaries  AGP Employer Skills Programme: o Specialist skills

Technology (NATEP)

Aerospace Exploitation

 SC21167

o Early careers o Apprenticeships o Project management o Knowledge management

At the heart of the iAero strategy is boosting the growth of SME’s in the aerospace industry by providing a strategic approach to integrating technology, skills and supply chain development.

At a local level, key stakeholders have identified a number of potential aerospace market opportunities for businesses in Cornwall in relation to: 

Maintenance Repair and Overhaul (MRO) services – based at the Aerohub. The MRO market is an area where demand for services is predicted to grow168 as the Air transport fleet continues to expand. A recent report by ICF international suggested that the MRO market was expected to grow by 3.8% p.a. and generate $90bn by 2024, with engines driving a significant amount of this growth, and 27% of this market share going to the EU. This presents key opportunities for the UK (given existing strengths in relation to engines) and key services within the MRO market include: 

composite in service support repair and disposal ‐ design for supportability; damage assessment and field repair capability; repair methodology and standard repair schemes; advanced material repair schemes; advanced material repair for new composite materials;

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SC21 – a change programme designed to accelerate the competitiveness of the aerospace and defence industry by raising the performance of its supply chains 168 http://www.slideshare.net/reyyandemir/global‐fleet‐and‐mro‐market‐forecast‐trends‐and

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integrated health management technologies – data and information management, closing the loop between data supply and maintenance, so that the data is used pro‐ actively for fleet operational, reliability and maintenance purposes, as well as for fleet management and trend analysis; inventory reduction and optimization; enabling technologies;



aircraft and equipment recycling and deployment – secure and safe recycling and disposal of airframe, equipment and materials; and



skills for service – availability of skilled and licensed technicians.

As the Aerohub has been successful in attracting a key MRO operator to NCA, further opportunities exist to attract supply chain companies, however evidence suggests that additional infrastructure will be required at the Aerohub to enable NCA to attract and accommodate new engineering start ups and and enterprises specialising in new technology such as composites and additive layer manufacturing. 

Unmanned Aerial Systems (UAS) – in particular the testing of these systems at Newquay Cornwall Airport, NCA. A recent report by Qi3 Insight ‘Unmanned Aerial Vehicles: Growing markets in a Changing World’169 referenced a 2007 EU Study which identified a range of future markets for UAS applications: 

Government – law enforcement, boarder security, coastguard applications;



Fire‐fighting – forest fires, other major incidents, emergency rescue (e.g. mountain rescue);



Energy – oil and gas industry distribution infrastructure, electrical grids/distribution networking;



Agriculture, Forestry and Fisheries – environmental monitoring, crop dusting, optimizing use of resources;



Earth Observation and Remote Sensing – climate modeling, aerial photography, mapping and surveying, seismic events, major incident and pollution monitoring; and



Communications and broadcasting.



advanced manufacturing and engineering – including the use of composites, robotics, and additive layer manufacturing; and the potential for testing propulsion and engines; and



space and space tourism – which has been identified as a longer‐term opportunity for Newquay Cornwall Airport, NCA, linked with the airport being shortlisted as one of the potential sites for the UK’s first Spaceport for commercial space flights.

C&IoS are well placed to take advantage of some of these emerging market opportunities as a result of NCA and the associated benefits of the long runway, uncluttered airspace and the

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http://www.qi3.co.uk/wp‐content/uploads/2014/02/Qi3‐Insights‐White‐Paper‐UAVs‐Growing‐Markets‐in‐a‐Changing‐World‐ 2014021903.pdf

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facilities/benefits offered by the Aerohub (as discussed later in Section 7.7). However a number of potential barriers have also been identified ‐ which could inhibit growth if left unaddressed.

These include:

7.9



knowledge and awareness of the market opportunities arising and potential support available to enter the market;



a highly competitive industry dominated by small number of OEM/Tier 1 contractors with established supply chains outside C&IoS – and therefore a need for greater linkages/ networking with intermediary bodies and the established cluster in the wider SW and West of England;



high level of industry standards and regulations to meet (SC21; AS9100; NADCAP) – which are often costly to achieve170;



‘segregated airspace’ – which has to be approved by the Civil Aviation Authority (CAA) – for testing UAS;



access to expertise and funding to respond to new technologies arising in the industry;



attraction and retention of skilled individuals – in particular engineers, technicians; and



location and proximity to the prime contractors and their supply chains – which result in additional distribution/transport costs for businesses and the associated competitiveness of the C&IoS offer.

Aerospace ‐ enterprise As referred to earlier, the number of businesses serving the Aerospace market is still relatively small within C&IoS at present, although the sector has demonstrated growth since 2009 based on the limited amount of data available. Like Space, the Aerospace market is highly competitive, with a number of barriers to entry, but opportunities for new enterprise have been identified in relation to the MRO supply chain. Furthermore there is an appetite to innovate amongst a number of the businesses consulted to develop this evidence base, in order to respond to the new technologies arising within the sector such as additive layer manufacturing and the use of composites.

In order to capitalise on the momentum now starting to build up in relation to the cluster of businesses at NCA and the Aerohub, pro‐active marketing and promotional activity will be an ongoing requirement to exploit the investments made to date. Attracting new investment to the site, including FDI, will remain a key priority moving forward, however it will be vital that credible industry knowledge exists locally to support this growth, through both project champions and inward investment teams. Aerospace projects are often developed over a long period and without this expertise it will be extremely difficult to build relationships which will in turn impact on inward investment success.

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DP Engineering; Righton Aerospace; Pall Redruth have all gone down the SC21 route and have been successful in gaining supply chain contracts

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The Cornwall Aerospace Advisory Panel (CAAP) was established in 2012 by the LEP and Cornwall Development Company to provide a new industry advisory panel to support the development of the Aerospace Industry at the Aerohub and through the West of England. The panel was set up following the award of the Enterprise Zone at Cornwall Newquay Airport to support the needs of the industry by working in a more joined up way. As this panel has now disbanded, following the end of the ERDF Convergence Programme, this has left a key gap in the support infrastructure for the sector although there is an informal network of businesses that came together as a result of the CADI initiative, the Cornwall Manufacturers Forum, and a regional networking group WEAF – all with interests in promoting opportunities arising in the Aerospace market:  the Cornwall Aerospace and Defence Initiative (CADI) was established back in 2006. CADI aimed to unite organisations under a common purpose and to offer a comprehensive range of engineering services for both short term projects as well as longer term R&D based collaborative solutions. While the organisation is no longer in existence the network of advanced manufacturing and engineering companies continue to meet and share knowledge and expertise through the other networks listed below and by virtue of their location (a number are currently based on the Treleigh Industrial estate in Redruth);  Cornwall Manufacturers Forum – which is a voluntary grouping of the larger manufacturing and production companies in Cornwall, with established export markets which come together to discuss topics of mutual interest and concern. There are approximately 20 members employing circa 4000 employees in Cornwall and contributing around £100 million annually to the Cornish economy in wages and local sourcing. The forum provides a vehicle for members to exchange information and experience; to encourage the development of manufacturing in Cornwall; and provide a channel of communication between the members and the local authorities, LEP and other key agencies in the South West;  the West of England Aerospace Forum (WEAF) is a membership trade association that champions and supports the interests of the aerospace and defence industry in the South West of England. The forum leads the sector in delivering national supply chain initiatives, which connect the SME community to the Primes. WEAF aims to facilitate environment where companies can improve their competitiveness and grow the industry. To this end, WEAF runs the Aerospace and Advanced Engineering iNet, networking and training events. It also actively encourages skills development and leads key steering groups within the aerospace and defence industry; and WEAF collaborates with partners like UKTI to provide critical support services such as export and marketing opportunities at major international trade exhibitions, like Farnborough and Paris and it also enjoys close links with the MOD. Feedback from the consultation process suggests that while these networks exist to encourage supply chain linkages and collaboration, more needs to be done to promote the opportunities arising in the industry, through for example greater linkages with the wider SW cluster of aerospace businesses and WEAF. There are still relatively low levels of awareness regarding support available for RD&I and low levels of interaction with the knowledge base.

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7.10 Aerospace ‐ knowledge creation 7.10.1 Aerospace Aerospace is the cornerstone of UK high‐value manufacturing, moreover it is a highly R&D intensive industry with annual R&D spend of some £1.4 billion representing approximately 12% of total R&D spending in UK manufacturing171. It delivers significant spill‐over benefits to the economy, drives world leading improvements in productivity year‐on‐year, sustains an advantage over international competitors and is positioned to lead the way to a greener, low‐ carbon aviation future. The government and industry have recognised that UK capabilities cannot be sustained without a joint approach as the timescales for a return on investment and the associated risks are too great for companies to bear on their own and even harder to bear lower down the supply chain.

The Aerospace Technology Institute will implement the AGP’s R&D plan across all levels of the supply chain, with a focus on retaining a competitive edge in aerodynamics, propulsion, aero‐ structures and advanced systems. Following the establishment of the UK Aerodynamics Centre a number of initial debut projects are now underway, with a combined investment of £100 million, as set out in Table 7.5.

Table 7.5: Examples of current research projects being delivered by the UK Aerodynamics Centre UK strength Aerodynamics

Current Research Projects Bombardier is leading a consortium to improve the aerodynamics of nacelles (the housing that holds engines, fuel, or equipment on an aircraft) Augusta Westland is working with 3 universities and 3 SMEs to provide significant improvements in passenger comfort and aircraft vibration for the next generation helicopter

Propulsion (engines) Advanced aircraft systems

Rolls‐Royce is leading 2 projects to develop quieter, more efficient engines GE Aviation is working with BAE Systems and Coventry and Southampton Universities to design the next generation of flight decks BAE Systems are leading a consortium exploring unmanned aviation in the civil market

Aerostructures UTC Aerospace Systems is working with Raytheon and others to close current technological gaps in motors and control electronics which will support the introduction of the all‐electric aircraft.

Alongside these larger‐scale projects, much of the ATI research will be carried out in the ‘High Value Manufacturing Catapult’, which brings together seven institutions172, or Centres of Excellence across a broad range of sectors to support UK manufacturing in the commercialisation of cutting‐edge technologies.

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Lifting Off, implementing the strategic vision for UK Aerospace Advanced Forming Research Centre (University of Strathclyde); Advanced Manufacturing Research Centre (University of Sheffield); Centre for Process Innovation (Wilton and Sedgefield), Manufacturing Technology Centre (Ansty, sponsored by the Universities of Birmingham, Loughborough, and Nottingham and by TWI), National Composites Centre (University of Bristol), Nuclear Advanced Manufacturing Research Centre (Universities of Manchester and Sheffield) and Warwich Manufacturing Group (University of Warwick)

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The Catapult brings these centres together to develop manufacturing technologies, which can span from raw materials to finished assembly processes. It also enables innovation to cut across sectors by bringing together businesses from diverse industries and giving access to a pool of world‐class expertise, equipment and processes invested and supported by UK government. It bridges the gap between early innovation, where the UK has traditionally been strong, and industrial‐scale manufacturing, where real wealth is created in the UK and which needs to grow to support a healthy and balanced economy.

The Catapult allows progressive businesses and organisations to build new partnerships and products with significantly reduced risks. It makes the HVM Catapult an invaluable resource and a two‐way communication channel for industry to the heart of government.

At a local level, a range of expertise and potential collaboration opportunities exist in the HE establishments and there is some evidence that businesses are accessing support from Innovate UK, in the form of Knowledge Transfer Partnerships and making linkages with the Centres described below: 

University of Exeter – has expertise in Engineering Structures (in particular 3D truss structure) which have applications for aeronautical and aerospace industry; Control Systems and UAVs; and also houses an Aerodynamics laboratory and 2 industry facing business technology centres – the Centre for Additive Layer Manufacturing (CALM)173 and the Centre for ALternative Materials and Remanufacturing Technologies to provide South West businesses with the expertise, advice and support to optimize the use of composites and plastics. Additional research specialisms include Exeter Advanced Technologies (X‐AT), which is a multi‐talented team dedicated to commercially orientated research in the core themes of advanced manufacturing and materials development. The UoE has a number of key industrial collaborations with businesses such as Airbus and NGC Aerospace and offers a range of higher level skills engineering programmes (including electronic, materials, and mechanical courses); and



Plymouth University – including in particular the Centre for Security, Communications and Network Research (CSCAN) which is a large group of leading scientists and researchers underpinned by an industry standard suite of communications, electronics and intelligent robotic systems with high performance computing facilities – including an Advanced Composites Manufacturing Centre. Plymouth also runs a successful Knowledge Transfer Partnership programme174 and offers a number of higher level skills courses in electrical and electronic engineering, robotics and computer networking, science and systems.

Consultations with local businesses suggest that key barriers to exploiting the knowledge base included: 

a lack of business awareness of market opportunities to prompt RD&I;



accessibility, information and awareness of the expertise available within the local Universities, network of Innovation Centres and the Catapult facilities on offer; and

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Flann Microwave currently working with CALM A recent KTP with Bombardier Transportation assisted the organisation to become a world leader of a new patented coded train detection system, and was critical for retaining the UK manufacturing base within a global organisation

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

knowledge and skills to access innovation support, funding opportunities and the potential to collaborate with research organisations.

7.11 Aerospace – capital 7.11.1 Infrastructure As referred to earlier, Aerospace has been included in the Smart specialisation strategy as a result of key assets that have the potential to attract and cluster businesses that will generate jobs and economic wealth in the sub region. The Aerohub at NCA provides a range of potential benefits for businesses as described below, however it should also be noted that NCA is an operational civilian airport which brings the added advantage of enhanced connectivity alongside the investment opportunities available.

Aerohub at Cornwall Newquay Airport Cornwall was awarded an Enterprise Zone in August 2011, and the Aerohub at Cornwall Newquay Airport was launched at the Farnborough Air Show in 2012. Enterprise Zones aim to support business growth in selected areas around the UK, enabling areas with growth potential to create the new businesses and jobs they need to achieve economic success. The Aerohub is targeting aerospace businesses, particularly in relation to: 

maintenance, repair and overhaul companies looking for a new base – with exceptional infrastructure, excellent connectivity (as a result of investment in Superfast Broadband) and skilled employees. With bespoke, new‐build hangars, Aerohub can help businesses save time and money and improve their cost‐competitiveness;



flight training ‐ direct access to a maritime environment makes the location ideal for search and rescue training. In addition, the uncongested, unrestricted and restricted airspace, furthers adds to its attractiveness as an ideal location for flight training operators; and



Unmanned Aerial Vehicle Systems (UAVs) – the Aerohub offers a world‐unique testing facility. A recent partnership between Newquay Cornwall Airport and West Wales Airport has created the only dual‐centered testing site with segregated airspace to operate UAVs in the EU. Titled the National Aeronautical Centre, the two airports aim to capture part of the $33 billion civilian UAVs marketplace by providing the airspace, infrastructure and expertise required to support UAVs technologies.

The Aerohub extends to 650 acres and offers a range of development opportunities which could accommodate over 2,000,000 square feet of hangar space, offices and manufacturing, as well as 5,000 jobs. The site is split into two definitive areas ‐ Airside and the Business Park, as follows: 

Airside ‐ covers direct aerospace activities that require access to a runway. Bespoke hangars can be built to meet a client’s requirements; and



Business Park ‐ the 87 acre Business Park development has 53 acres which are fully serviced, and provide potential space for companies in the aerospace supply chain, renewable energy, ITC, advanced manufacturing and engineering.

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The Aerohub is now home to Augusta Westland, Ainscough Wind Energy, Bloodhound Super Sonic Car, Bristow Helicopter Group, British International Helicopters, CIS UK Ltd, Cornwall Air Ambulance Trust, FLYNQY Pilot Training, Gateguards, Skybus, and Apple Aviation. Apple Aviation a key MRO operator has clients including Lessors, Thomas Cook, Thales, DHL, ILFC, BMI, and American Airlines which bring an ever growing concentration of Aerospace companies to the Aerohub while companies such as Bloodhound Super Sonic Car (a key Space/Aerospace project) has been successful in securing Nammo as its product development partner and Rolls Royce who are world class leaders in propulsion and engines. Both Apple Avaiation and Bloodhound provide good examples of projects and businesses with future development opportunities which should be exploited by the Aerohub to create a project legacy.

Both development sites have unrestricted planning freedom, which allow for premises to be built quickly and efficiently, decreasing the risk, time and costs associated with planning regulations. Furthermore as an Enterprise Zone, companies can benefit from: 

100% business rate relief;



research and development tax credits;



significant planning freedoms; and



an unparalleled source of funding packages, through European funding programmes and UK government Regional Growth Funds.

Electrical, mechanical and materials engineering skills are readily available through Combined Universities in Cornwall, which incorporates University of Exeter, Plymouth University and Falmouth University along with higher education colleges.

7.11.2 Finance There are a range of funding opportunities available at a local, regional, national and EU level to incentivise businesses in the Aerospace industry to undertake R&D and to stimulate businesses more generally to innovate and grow. These are described below.

At a national level, the government is investing significant funding in RD&I activities co‐ ordinated by the Aerospace Technology Institute, the UK Aerodynamics Centre and the High Value Manufacturing Catapult which comprises 7 Centres of Excellence across the country. In addition, they are also providing funding to support businesses in the supply chain to respond to the new technological changes within the Industry. In particular, they are providing support through the Manufacturing Accelerator Programme and the National Aerospace Technology Exploitation Programme.

The aim of NATEP is to help companies develop their own innovative technologies, and at the same time enhance their technology management capabilities to increase their ability to win new business with higher tier companies anywhere in the world. The programme is unique in that it offers support ‐ not only in the form of funding ‐ but also and perhaps more crucially, support with technical expertise, business advice and mentoring by industry. To date the fund has benefited small and medium sized suppliers aiming to take their technologies and business capabilities to the next level, across a wide range of technologies ‐ from composites, through 177

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electronics to manufacturing processes. This funding is being administered by the network of regional aerospace associations with WEAF fulfilling this role for the South West Region.

A number of grants and other funding programmes are also available from Innovate UK to support proof of concept, the development of prototypes, and gain access to academic expertise, alongside support through their Knowledge Transfer Networks and online Innovation networks (_connect).

At a local level, businesses within the industry have accessed funding for innovation and business growth from European Funding allocated to C&IoS and from intermediary schemes developed using this funding. During the last round of EU convergence funding, businesses consulted referred to the following schemes and funding sources being particularly beneficial, given the scope and flexibility of support available and relative ease with which funding was secured: 

SW Manufacturing Advisory Service;



Business Investment Grants (BIG);



South West Investment Grants; and



GBI Financial Support.

The consultation process also revealed less knowledge and awareness and willingness to apply for other EU research programmes, for example Horizon 2020, given the complexity, time and expertise involved in completing the application process.

7.11.3 Skills Access to skills is a cross cutting theme underpinning the government’s industrial strategy.

Understanding and supplying the skills required by the Aerospace industry to meet the needs of businesses within the sector will be critically important to ensure continued investment and growth. In addition, more needs to be done to promote careers within the Aerospace industry, as evidence suggests that Aerospace delivers better paid and skilled jobs. A recent survey by ADS reported that average wages in the industry currently stand at £40,500 – 50% more than the UK average. These figures are in line with market statistics produced by the UK Commission for Employment and Skills and ONS. It is clear from work carried out by the Aerospace and Defence Sector Skills Group in conjunction with Semta (the Sector Skills Council for Science, Engineering and Manufacturing Technologies) that there are a number of key challenges for the Aerospace workforce: 

the industry has problems recruiting as shown by the vacancies currently being carried ‐ 30% of firms in the sector have a vacancy (c. 2000);



attracting certain types of skilled staff is a particular problem – areas such as fatigue and damage tolerance, composites, stress and licensed engineers are amongst the key areas of shortages. Some of the most severe shortages are faced by firms seeking to recruit technicians skilled in working with composite materials which require different skill sets to those trained and experienced in metallic; 178

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

the age profile of the industry – the aerospace has a lower proportion of young people currently working in it than manufacturing as a whole and a greater proportion of those aged 45+. Estimates suggest that over 8,000 people could retire from the sector in the next 8 years but only 5000 young people are likely to be employed based on current employment trends, leaving a deficit of 3000 people. In MRO, there are aonly 1,200 licensed engineers aged 20‐30, compared with 3,500 aged 50 and over;



up‐skilling is a major issue – 40% of the workforce are qualified to NVQ level 4+, with a target of 50% by 2022. As this is unlikely to be met by graduates alone, an increase in higher apprenticeships is required to raise the skills of existing workers; and



current investment in skills is below what it should be – only 15% of companies offered apprenticeships in 2009, whereas the UK manufacturing average was 18%. A variety of barriers prevent or deter employers from investing in training, including inability to source quality engineer training from local providers, and in SMEs the lack of HR support. Some employers consider recruiting skilled people to be less complicated and resource intensive than training their own workforce – which has obvious implications for the companies in the same supply chain and therefore the industry as a whole.

Consultations with businesses in C&IoS confirmed these key issues, but also commented on their inability to attract engineers and technicians to the area to work on a permanent basis. For example, the MRO operator at NCA currently employ engineers from outside the area, that work 2 weeks on and 2 weeks off. Similarly, while the local FE and HE institutions (namely UoE and Plymouth University) provide a range of skilled and higher skilled engineering courses, attracting and then retaining graduates in C&IoS beyond their first job, appears to be a key issue.

Recent initiatives to provide tailored/bespoke training appear to have been successful, and a number of businesses commented on the UKCES pilot in particular (developed by the Cornwall Manufacturing Forum) in terms of improving the relevance and quality of FE training provision available to support the advanced manufacturing and engineering businesses in the sub region, and the apprentices coming through the programme.

7.12 Strengths, weaknesses, outputs and threats A high level summary of the strengths, weaknesses, opportunities and threats for both the Space and Aerospace markets is presented below: Strengths

Weaknesses



Newquay Cornwall Airport, NCA and the Aerohub (airspace; long runway; development opportunities; financial incentives)



Few C&IoS companies in the market at present, and few companies with the requisite quality standards/accreditation



Growing cluster of aerospace businesses at the Aerohub



Location – which impacts on comparative cost base



 

No Aerospace OEMs

Network of advanced engineering companies



Key satellite operations of some major Aerospace

manufacturing

and

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Lack of sufficient infrastructure and buildings to service existing demand and new markets – hangars; engineering/clean rooms; offices; space to

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Companies – Bristows; Augusta Westland; Babcock; Lockhead Martin; Boeing (ScanEagle, RNAS Culdrose)



Goonhilly Earth Station ‘recognised as a national asset’ – high level connectivity; security; office/data centre facilities; R&D expertise and networks



Strong knowledge base and HE specialisms/expertise to develop Aerospace and Satellite applications



Good R&D links with other Universities connected to Space and Satellite Applications – Oxford, Manchester, UKSA at Harwell, ESA

accommodate start‐ups in new technology fields (composites, additive layer manufacturing)



Access to data via the internet ‐ companies do not need to be physically based in the sub‐region to take advantage of satellite data availability



A lack of dedicated incubation facilities for the sectors

Opportunities

Threats



Significant global/consumer demand – more efficient/greener aircraft

Highly competitive markets



 

Government priorities – funding for RD&I and market development



 

Industry regulations and quality standards

Downstream applications growing rapidly across a range of sectors – a number of which are prominent in C&IoS



Proximity to heavy (satellite) data users – e.g. Met Office; Environment Agency



Access to significant amounts of data (big data)

No formal linkages with the established cluster of Aerospace and supply chain businesses in the SW

Comparative costs

7.13 Conclusions and Implications 7.13.1 Markets There is intense competition within both the Aerospace and Space industries, given their global markets, but a number of market development opportunities have been identified that C&IoS has the potential to realise, through the existing business base, attraction of new businesses and development of new enterprises. These opportunities have the potential to build on, and further strengthen the key assets (both physical and human) and knowledge infrastructure already in place within C&IoS to support the growth of the local economy. They include: 

development of the MRO operations at the Aerohub ‐ through the attraction of new companies (inward investors) and new enterprise development within the MRO supply chain;



UAS – further development of the partnership with West Wales Airport and testing capability at Newquay Cornwall Airport, NCA. C&IoS have key strengths in sectors that could benefit from the use of UAS applications – for example Agri‐tech crop management;

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

aviation training – taking advantage of the location of NCA and the unrestricted airspace; and propulsion and engine testing linked to the emerging UAS market and other new industries such as space vehicles;



composites/robotics/additive layer manufacturing – development of new products and processes in line with changes in the industry – through collaboration with expertise at UoE and Plymouth and the HVM catapult;



development of new satellite applications – for the environment sector, marine/maritime and transport, in line with the priority sectors identified by the UK Space Gateway and those being pursued by the Satellite Applications Catapult – building on the research capabilities at UoE, Plymouth, Falmouth and the Environment and Sustainability Institute (ESI);



exploitation/use of the satellite data and data centre facilities at Goonhilly; and



the development of the spaceport if NCA is successful in the bidding process.

Implications for the support framework: 

inward investment activities with pro‐active marketing and aftercare and joint work with UKTI to promote the C&IoS offer associated with both the Aerohub and Goonhilly, including the potential to attract Foreign Direct Investors (FDI) from within the Aerospace and Space industries – which has implications for promotional activity outside the EU;



development of supply chain initiatives with Aerohub anchor tenants;



assistance with industry regulations and quality standards; and



greater collaboration with the local HE and research institutions.

7.13.2 Enterprise There is an existing group of advanced manufacturing and engineering businesses in C&IoS that could benefit from growth of the Aerospace market. The Aerohub is building a cluster of businesses in the sector, around NCA, and opportunities exist for new enterprise development in the MRO supply chain. Greater linkages with the wider SW aerospace cluster, through WEAF, could assist C&IoS businesses to develop greater market/business opportunities and entry into some of the more established supply chains. Industry quality standards are high and often costly to achieve so there are potentially greater opportunities for established businesses in the industry to benefit from the new market opportunities arising from RD&I. Although the space sector is still relatively small compared with the overall business base in C&IoS, the sector is growing and comprises a mixture of small and large global organisations.

These organisations have strong links with academia and are actively involved in RD&I. There are a range of different market opportunities arising for new satellite applications, which will in turn provide significant opportunities for new start‐up businesses and the growth of existing businesses in the environmental sector, marine and maritime, transport more generally and agri‐tech. As C&IoS has key strengths in these sectors, identification of businesses that could benefit from new technology/satellite applications will be particularly important in order to generate growth within the sector.

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Implications for the support framework: 

greater awareness of potential market opportunities arising;



more networking and linkages with the wider SW cluster and WEAF;



development of collaborative business to business proposals; and



diagnostic support to identify potential for new innovative applications/technologies.

7.13.3 Knowledge Creation The HE institutions within C&IoS, namely the University of Exeter, Plymouth University and Falmouth University have particular expertise and key research strengths that could either support businesses directly or develop collaborative RD&I projects within the Aerospace and Space/Satellite communication sectors. There are a number of industry research centres and groups for example the Centre for Additive Layer Manufacturing at UoE; the Advanced Composites Manufacturing Centre at Plymouth and the Exeter Advanced Techonology (X‐AT) group also at UOE. Furthermore these organisations also have access to other facilities (e.g. laboratories, telescopes), networks both national and international and established industry collaborations that local businesses could benefit from. The newly established Environmental and Sustainability Institute at the UoE has the potential to provide support for businesses and potential start‐ups in both industries.

There is evidence of some RD&I activity among the business base (in both Space and Aerospace) and linkages with local academia and research institutions further afield, including the newly established Innovation Catapult Centres, in particular the High Value Manufacturing Catapult and constituent Centres of Excellence and the Satellite Applications Catapult, however this could be strengthened significantly through greater awareness of the potential collaboration opportunities open to business.

Implications for the support framework: 

promotion of the collaborative opportunities available within the local HE institutions and research facilities;



greater awareness of the support available from dedicated facilities such as the ESI and other Innovation Centres; and



greater linkages with Innovate UK’s knowledge transfer networks and knowledge transfer partnerships.

7.13.4 Capital The Airport and Aerohub at Newquay and the Goonhilly site provide C&IoS with key infrastructure that has the potential to attract businesses into the area in the Aerospace and Space/Satellite communication industries. If successful, this will in turn help to develop clusters of business activity that will enable C&IoS to develop a competitive advantage within the industries.

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The potential development opportunities at the Aerohub, in conjunction with the financial incentives on offer for businesses re‐locating to the Airport provide businesses with a comprehensive package of support that will enable them to compete effectively for new market opportunities. Although Goonhilly has started to attract new businesses to the site, further investment will be required to transform some of the buildings and parts of the site that have the capacity to generate growth, which could be implemented on a phased basis in line with the current plans.

While there are a number of funding sources available to support RD&I in Aerospace and Space, many of these are either small scale (for testing concepts) or difficult to access, creating a gap in the market for flexible funding and investment in capital equipment/infrastructure.

Attracting and retaining highly skilled individuals remains a key issue for both Space and Aerospace, particularly in relation to engineers (electrical and mechanical), computer specialists and project managers. C&IoS have had some success with tailored and bespoke training within the industries, but further work will be required to attract more and higher level apprentices and licensed technicians and engineers within the industries, alongside up‐skilling for new products/processes and the use of KTPs to enhance the productivity and competitiveness of the business base.

Implications for the support framework are: 

greater marketing of the C&IoS offer – particularly in relation to NCA and Goonhilly;



flexible funding that will attract testing or R&D activities and assist existing companies to innovate and adapt their working practices to respond to new technologies – bespoke funding to support fit for purpose facilities, capital equipment and investment in KTPs;



skills interventions that are demand led and tailored to the needs of individual businesses ‐ particularly those responding to new technological developments in the industry;



more higher level apprenticeships and shared apprenticeship schemes; and



promotion of the career opportunities in both the Space and Aerospace sectors.

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8

General Innovation and R&D

8.1

Introduction

This section provides a review of levels of innovation and R&D activity in C&IoS and the issues that will require addressing if a general uplift in such activity is to be achieved.

8.2

Evidence from earlier research The recent Thematic Evaluation of the C&IoS 2007‐13 Convergence Programme (AMION Consulting May 2015) included an assessment of interventions supported under the Programme’s Innovation and R&D theme. These included a broad range of projects but with a particular focus on large‐scale capital investments.

The Programme’s performance in terms of generating ‘hard’ economic outcomes was found to be mixed – due to a range of factors but including in particular, the economic climate for much of the programme period, an economic structure skewed towards micro‐enterprises and away from high growth businesses and the inevitable timelag between R&D and innovation and the realization of benefits in terms of GVA and employment.

However businesses generally viewed the interventions as being relevant to their needs and a range of wider benefits related to the development of a research and innovation infrastructure and culture were also identified. These included: 

the increasing presence and involvement of Plymouth University and particularly the University of Exeter in the area that have in general brought research and academic repute to Cornwall, and more specific benefits through the activities of the ESI, ECEHH and science and engineering research support facility (SERSF) projects, the three Cornwall innovation centres and the Knowledge Spa project;



the reputation and increasing scale of innovation and R&D projects and facilities is also helping to create a critical mass, which is attracting research staff and innovative businesses to locate and set‐up in the locality;



development of a niche in the environment, renewables, health and creative sectors that is enabling the area to establish and broaden its own ‘innovation’ offer. For example, the combination of AIR and Launchpad projects are supporting the development of digital gaming and gamification activities at Falmouth University and there is consequent potential for Cornwall to become a centre of excellence for games technology; and



increased links between HEIs and local SMEs and entrepreneurs to enable business growth, SME capabilities and new enterprise formation. several projects have aimed to induce local company innovation by embedding entrepreneurial values in HEIs and FE that will translate to staff, students, and graduates.

The report identified a number of ways through which the effectiveness of innovation support to businesses could be improved in the future including: 184

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

better marketing and promotion of the support available;



offering greater continuity and longer term support;



increasing coverage to target a broader range of businesses;



providing greater opportunities to tailor support to meet the individual needs of the business and provide more in‐depth or practical support where required; and



enabling networking and collaboration between businesses.

Several general lessons for the future were also identified, including issues for the next European Programme. These included: 

ensuring greater integration between interventions so that they comprise a coherent package with appropriate linkages;



the need to progress plans for a central growth hub to help assess needs, support referrals and raise awareness of the support available;



the need to broaden the innovation ‘offer’ of universities and enable businesses to buy in expertise from elsewhere; and



the need for targets to capture the full breadth and depth of outputs, outcomes and impacts delivered by innovation and R&D projects.

The report emphasised the need to build on and consolidate the achievements made to date particularly those related to capital investments. Further specific priorities were identified as including: 

skills;



encouraging an innovation culture change in all businesses so as to address the region wide productivity challenge;



provision of suitable grow‐on workspace for businesses “graduating” from innovation centres; and



continued funding for the creative sector to build on recent growth and create a critical mass of creative businesses in Cornwall that is better able to compete with other areas.

CM International recently (June 2015) published an evaluation of the three Cornwall Innovation Centres. Part of the report considers the future of innovation support in Cornwall in the context of global trends in innovation supports and investment and the experience of the existing Innovation Centres.

The report identified a number of challenges for C&IoS in order to further grow innovation activity and realise its economic potential. These challenges included: 

ensuring the availability of ‘grow‐on’ and ‘move‐on’ space especially for occupants of the Innovation Centres;



capitalising on investments made in Higher and Further education facilities;

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

achieving an appropriate sectoral focus to provide an integrated and complementary set of investments and initiatives;



improving the strategic added value of Innovation Centres – through, for example, wider networking and outreach; and



ensuring that there is access for businesses to investors in innovative businesses.

In light of these challenges, the report highlighted the following priorities for future investment:

8.3



Grow–on space ‐ to maximise the impact of the investments made to date, improving the availability of suitable and affordable grow‐on space for tenants currently located at the Innovation Centres;



Innovation Acceleration programme – bringing together companies researchers, investors and support agencies to provide an innovation supply chain that would take the most promising and innovative people and ideas through the full pre‐incubation; incubation; innovation and business launch steps within a programmed environment;



Virtual Incubation ‐ to ensure the benefits of innovation support and incubation of innovative businesses are available to and accessed by a wider range of businesses and innovative individuals across Cornwall;



Innovation Outreach activities – to use the Centres as a platform from which the benefits of the investment in innovation and incubation can be taken to a wider business base with greater innovation ‘outreach’ across the Cornwall economy;



Co‐creation space ‐ to provide flexible working spaces for individuals or small teams and to open up the possibility of peer‐to‐peer exchanges of ideas and skills providing a base to grow into joint ventures; and



Smart Specialisation Innovation Centres ‐ explore the contribution that sector‐focused Innovation Centres may make to the delivery of wider Smart Specialisation initiatives.

Innovation in C&IoS C&IoS has very low levels of business investment in R&D. In 2009 R&D spend was 0.19% of GDP, the lowest of any LEP area, compared to a national figure of 1.85%. In the period 2010‐ 2013 only 20 local companies in C&IoS (out of 5,464 nationally) successfully applied for Technology Strategy Board (TSB) funding. When it comes to the value of grants the position is even worse, with only £4 million out of £922 million being secured locally. It is widely accepted that the nationally available data on innovation is deficient, as it does not pick up innovation improvements in businesses if they are not readily identifiable through standard ONS metrics.

Understanding innovation in C&IoS would benefit from some primary research that examined the innovation that goes on under the radar and that taking place in Cornwall and to the benefit of Cornwall, but is done by companies that are headquartered elsewhere and therefore reported elsewhere.

The result is low levels of competitiveness and the lowest levels of productivity of any LEP area in England. On the 2013 UK Competitiveness Index the C&IoS LEP area is ranked 34 out of 39 186

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LEP areas (the same rank as in 2010). It is also the lowest of all 39 LEP areas in terms of employment in export intensive industries (13.5% in 2010).

AMION has developed an Economic Growth and Competitiveness Index (EGCI) to provide a framework for comparing the relative performance of local authority district areas within England. As shown in Figure 8.1, the Index groups statistical data for more than 30 socio‐ economic indicators covering: 

pillars of economic growth and competitiveness: 

enterprise;



people and labour market;



knowledge and innovation; and



place;



economic activity; and



overall target outcomes – quality of life.

Figure 8.1: Economic Growth and Competitiveness Index (EGCI) structure

The ‘Knowledge and Innovation’ pillar uses the following statistical indicators derived from ONS data: 

employment in high technology sectors – Business Register and Employment Survey;



employment in knowledge intensive services – Business Register and Employment Survey; and



employment in higher order occupations – Annual Population Survey.

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The Index ranks the performance for 325 local authorities in terms of current performance (cross‐sectional) and recent trends (longitudinal). Cornwall175 rankings (with the best performing area ranked 1 and the worst ranked 325) are shown in Table 8.1.

Table 8.1: EGCI ranking of Cornwall EGCI Theme

Cross‐Sectional (Rank of 325)

Longitudinal (Rank out of 325)

Pillar 1: Enterprise

102

87

Pillar 2: People and labour market

189

131

Pillar 3: Knowledge and innovation

295

35

Pillar 4: Place

259

212

Economic activity

310

52

Target outcome: Quality of life

211

96

Overall EGCI Rank

245

29

The analysis indicated that Cornwall is ranked 295th in terms of knowledge and innovation on a cross‐sectional basis. However, it has performed relatively strongly over recent years in longitudinal terms, being ranked 35th.

Figure 8.2 illustrates the ranking of Cornwall by quantile in terms of the knowledge and innovation rank, compared with other areas.

175

Data for Cornwall only ‐ Isles of Scilly ONS data suppressed due to small sample sizes

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Figure 8.2: England EGCI Rankings

Our consultations with stakeholders and the wider evidence review suggests that the weak innovation and R&D culture within the C&IoS business base is largely a reflection of the region’s economic structure – and, critically, in turn it serves to reinforce those economic imbalances. Key factors are: 

the predominance of SMEs and the lack of large businesses. the latter generally have a greater propensity (and more resources) to invest in RD&I. Only 1.5% of firms employ 50 or more people, a figure that is lower than both the south west and the national averages;



the area’s sectoral composition; mining and quarrying activities have largely ceased, but the other traditional industries – tourism, agriculture and fishing – continue to provide unusually high shares of employment by British standards176. Conversely, the share of C&IoS

176

In many of these sectors significant amounts of R&D is undertaken at a UK wide level but not proportionate amounts in C&IoS

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employees working in knowledge‐intensive employment is substantially lower than the UK average (43.2%, against 53.7%, in 2011); 

high levels of self‐employment. 20.7% of 16‐64 year olds in Cornwall were self‐employed in 2012/13, compared with 13.5% in the UK as a whole. A number of the micro‐companies in cornwall are in effect ‘lifestyle’ businesses, supporting their owners but creating few additional full‐time, permanent jobs;



a dependency upon local markets which, combined with the distance from major centres, means that local businesses are somewhat sheltered from competitive forces; and



a historic lack of university and research institutions in C&IoS, which has restricted opportunities to access expertise in innovation and R&D.

A recent report ‘Benchmarking Local innovation: The Innovation Geography of the UK: ERC 2015’ provides some further insight, and some source for optimism, concerning factors affecting overall innovation activity in C&IoS . As can be seen from Table 8.2, it shows C&IOS ranked 13th out of all LEP areas in terms of overall ‘appetite for innovation’. The area scores particularly well on collaboration and strategic/marketing innovation but poorly on R&D. Table 8.2: Local innovation benchmarks Product/ Service

New to market

Process

Strategic/ marketing

R&D

Collaboration

Overall

Oxfordshire LEP

1

5

1

2

1

1

1

Greater Cambridge & Peterborough

5

10

5

1

2

2

2

South East Midlands

3

6

7

3

9

6

3

Gloucestershire

2

17

12

7

6

3

4

Enterprise M3

4

1

21

12

7

4

5

Dorset

10

2

3

11

13

21

6

Tees Valley

8

15

2

10

12

14

7

Coast to Capital

18

3

11

4

18

8

8

Swindon and Wiltshire

7

9

4

5

5

38

9

Liverpool City Region

16

25

14

8

10

13

10

Northamptonshire

9

16

6

33

3

20

11

Cheshire & Warrington

15

22

13

16

14

22

12

Cornwall and Isles of Scilly

19

26

8

6

37

7

13

English LEAs

The most recent BIS Innovation Survey177 emphasises the growing realisation that the economic performance of firms and industries depends on their ability to exploit technological innovation.

It says that policymakers should therefore pay particular attention to how best to support

177

BIS (2014) UK Innovation Survey: Innovative Firms and Growth

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innovation and encourage innovative firms to grow. However, evidence suggests that a small percentage of firms generate a disproportionate amount of innovation and employment growth. It is argued that this has certain policy implications: 

while both innovative activity and growth are highly skewed, they differ fundamentally. businesses involved in innovative activity tend to persist in this type of behaviour over time, while high growth is largely episodic; and



policies should focus on helping firms capture value from innovation, regardless of whether that innovation is their own or was generated elsewhere in the economy.

It is also a mistake to assume that high growth firms are necessarily innovative or those with the greatest potential for innovation. The Innovation Survey defines highly innovative firms (HIFs) as those that are in the top 20% in terms of R&D spending or that are in the top 20% for sales from new‐to‐market products and services. High growth firms (HGFs) are those firms in the top 5% for employment and sales growth. The Survey finds that there is very little overlap between these two categories: less than 1% of firms were both. HIFs were very likely to sustain high levels of innovation over time. A recent Swedish paper178 confirms this point about distinguishing between high‐growth and innovative firms. It suggested that high‐growth firms often failed to sustain those high rates over time and that such firms proved in most cases to be ‘one‐hit wonders’. The implication is that programmes will not be able to improve economic outcomes just by targeting existing high‐growth firms.

8.4

Issues The following summarises (using the key components of the ‘Innovation Ecosystem’) the main issues identified through the research, consultations and reviews of other documentation that are affecting the further development and growth of general innovation and R&D activities across the C&IoS economy.

8.4.1

Markets Over the last 10 to 15 years, there has been a growing realisation that market expansion or even market share maintenance requires innovation at all firm levels from the large corporate to the one person micro and this is regardless of the sector or market in which they operate.

Innovation can come through investment to create bespoke new knowledge (often referred to as research and development) or via the exploitation of already created knowledge (often referrd to as innovation) it can and should apply to any or all aspects of a company’s activity from marketing to new product/services and processes.

The last 10‐15 years has also seen the globalisation of more and more product and service markets. This has opened up new market opportunities but also increased competition for those focused only on domestic markets. Contributing to, as well as being driven by, this globalisation is the increasing use of technology to create new products and services or to adapt new products.

178

Daunfeldt, S‐O. and Halvarsson, D. (2012) Are high‐growth firms one‐hit wonders? Evidence from Sweden

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Research has found that SMEs which have a track record of innovation are more likely to export, more likely to export successfully, and more likely to generate growth from exporting than non‐ innovating firms and their productivity is also likely to be higher. UKTI has estimated179 that only 1,000 of the 21,000 registered businesses in C&IoS export goods and services180. The Cornwall Chamber of Commerce survey181 found that while almost 9 out of 10 of the companies consulted recognise that growing global trade is important, export accounts for only 19% of business conducted in the Duchy.

As noted above, the level of innovation in C&IoS is historically low relative to other areas of the UK, although the ERC’s research using a wider range of metrics (albeit wholly based on self reporting) gives some cause for optimism even if it reflects a perception and attitude to innovation rather than an accurate picture.

The number of patent applications has decreased from 1999 to 2008 – 35.9 per million population down to 12. This decline has moved C&IoS down the EU ranking (from 152nd to 172nd)182. However, the decrease in the number of patents is reflected at the UK level.

Commentators suggest this overall pattern may reflect the decrease in R&D spend as a result of the economic recession and a feeling that investment in the resources needed to process a patent do not give sufficient return.

Clearly the ability of firms in C&IoS to access and grow market share will depend on increasing their levels of innovation and export. The Cornwall Chamber of Commerce has recommended: 

research to identify international markets that offer the best match and highest returns for Cornish businesses. Findings would be publicised to ensure widespread awareness of opportunities;



help for businesses with export potential to access trade missions, garner introductions to international markets and customers, and attend and host international trade events;



creating and promoting an interlinked business support environment optimised to deal with upturns in national and international trade;



introducing collaborative marketing activities between groups of businesses, match funded by the public sector and the LEP;



adopting a wholesale “think global” mindset ‐ from young people learning languages and skills fit for an international marketplace, to help with regulations and documentation;



promoting and developing ‘Brand Cornwall’;



building on Cornwall and Scilly’s enviable position as a UK market leader in the Leisure and Tourism industry with a well‐managed and maintained civic infrastructure that demonstrates commitment to customer services; and



businesses to actively pursue export opportunities with the assistance of more easily accessible UKTI data and insight.

179

182

180 181

LEP Evidence Base Strategic Economic Plan It is likely that a sizeable proportion of these will be farms.

2015 For some innovations patents may not be considered appropriate for eg Digital

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8.4.2

Enterprise The C&IoS business base is dominated by micro and small business, albeit with similar proportions to the South West and Great Britain overall (See Table 8.3). The Employment and Skills Evidence Base, supporting the 2014 Strategic Economic Plan, gave a figure of only 120 enterprises (out of 21,000 VAT registered in 2012) employing more than 100 staff and only 40 employing more than 250.

Table 8.3: Businesses by size (%) Business by size

Cornwall

South west

Great Britain

Micro (0‐9 employees)

87.9

88.5

88.3

Small (10‐49)

10.6

9.7

9.6

Medium(50‐249)

1.3

1.5

1.7

Large (250+)

0.2

0.3

0.4

The Evidence base adds that over 40,000 businesses exist that fall below the VAT registeration threshold.

However, a key difference between the business base of C&IoS is that many are ‘lifestyle’ in orientation. The SQW report183 states that ‘many micro‐companies in Cornwall are not looking to expand significantly, and so while they support the business’ owners they create few additional full‐time, permanent jobs. The level of self‐employment in C&IoS is also well above the national average: 20.7% of 16‐64 year olds in Cornwall were self‐employed in 2012/13, compared with 13.5% in the UK as a whole. Whilst it may reflect an ‘entrepreneurial culture’ given its historic persistence it has not worked towards growing businesses or an innovation culture. A significant proportion of these micro‐companies, whilst not immediately focused on growth can be encouraged to engage in innovation through measures to improve productivity and cut costs.

A report for BIS184 noted that seeking information and advice increased with business size ‐ only 31% of those with no employees sought it compared to 77% of medium sized companies. The survey also showed that those using mentors were significantly more likey to have introduced new or significantly improved product and other changes and there was a correlation between the size of the business and never having used a mentor.

Despite economic globalisation and the ability to transmit information rapidly and cheaply, geographic boundaries still matter. Clustering is particularly important to gain access to new ideas and tacit knowledge, especially in young industries. Specialisation in a market niche compensates for some of the disadvantages of small scale.

Research and analysis into innovation in Cornwall is limited, although there are two relevant studies: Innovate South West (2009) and the Innovation Survey into the Cornish Marine Sector 2006 to 2008. The main results of both of these studies are:

183

What Works Elsewhere SQW 2015

184

Demand for mentoring among SMEs Dec 2013

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

the majority of businesses develop and look for innovation support from their staff, clients and other businesses first;



the associated cost, including the financial risk, was the main barrier to innovation;



less than 20% of those surveyed in the Cornwall Marine Innovation survey said they would look to universities for information;



more collaboration with Colleges and Universities was needed;



the most popular innovation activities were investment in equipment and marketing; and



the least popular innovation activity was participating in external R&D, design and market research’.

The C&IoS LEP EU Investment online consultation survey (2013) summary states: ‘As Cornwall and the Isles of Scilly traditionally consists of many SME’s often operating at capacity it is difficult for them to envisage providing investment and time into something that does not give an immediate financial return. Whilst it is acceptable that the return could be in the future, it can be difficult for them to commit to long‐term research and innovation projects due to the constraints of working resources. With better access to R&D funding grants, more research and innovation could move from speculation into formalised projects involving a number of smaller businesses working for their collective greater good185.’ 

key barriers to Innovation and the undertaking of / engagement with R&D are identified as: Limited experience in intellectual property rights, licensing and joint ventures and collaborative partnerships;



availability and costs involved in accessing facilities and expertise to develop innovative ideas;



availability of technical, business and investment finance to commercialise idea; and



low innovation and R&D base level of C&IoS businesses to engage with national Innovation and R&D schemes (for example, Technology Strategy Board).

The combination of the factors such as business size and aspiration, along with levels of exporting means that there is a significant gap between the existing position of C&IoS business base in general and where it needs to be positioned to take advantage of growth and export opportunities generated by RD&I activity.

8.4.3

Knowledge creation A key feature of UK industrial policy is the promotion of the opportunities for business growth through the exploitation of the Eight Great Technologies’. As noted above, the eight great technologies are: 

advanced materials;



agri‐science;

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Source: Serio (2012) The Innovation Landscape in Cornwall – some initial findings

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

big data and energy‐efficient computing;



energy storage;



regenerative medicine;



robotics and autonomous systems;



satellites and commercial applications of space; and



synthetic biology.

Many of these focus on the smart specilaisation areas identified by C&IoS partners as markets that have particular opportunities for growth based on the current innovation eco system existing in each market; namely agri science, big data and energy efficient computing and satellites and commercial applications of space. Important connections also exist between these sectors for example big data and agri tech, big data analytics and satellite communications, smart energy storage and agri tech, satellite communications and off shore renewable device and wave/wind monitoring etc. The others have a close association such as advanced materials with the marine tech and the aerospace markets whilst the robotics and autonomous systems also have a close relationship with space and aerospace. However, as many have commented technologies have a read across to many markets.

The government has also established seven technology Catapults whose remit is to act as a network of world‐leading technology and innovation centres to bridge the gap between business, academia, research and government. The centres aim to create a critical mass for business and research innovation by focusing on a specific technology where there is a potentially large global market and a significant UK capability. They allow businesses to access equipment and expertise that would otherwise be out‐of‐reach, as well as conducting their own in‐house research and development. The seven established Catapults focus on: 

high value manufacturing,



satellite applications,



cell therapy,



offshore renewable energy,



future cities,



transport systems; and



the connected digital economy.

A commitment has been made to invest in two new Catapults in 2015/16: 

an Energy Systems Catapult will help innovative UK businesses tackle the challenge of creating energy systems that meet future supply and demand, both in the UK and overseas; and

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

a Diagnostics for Stratified Medicine Catapult will help identify and provide the right care for individual patients, allowing businesses to develop new treatments and reducing the cost of healthcare.

Again a number of the Catapults technology foci align with the C&IoS smart specilasisation sectors; such as off shore renewables, digital economy and satellite applications. However as noted with regard to the eight great technologies, the technological innovations in one sector are increasingly able to be adopted or adapted into other sectors. A real case in point is the Digital economy where the technology being created can be used to create new digital products and processes and it can also be used to ‘digitise’ the most traditional of businesses from architecture to mining.

As noted by the C&IoS LEP, a barrier to innovation in C&IoS is the limited experience of businesses in intellectual property rights and licensing. This is recognised as a national issue for small businesses and as a result the Intellectual Patent Office (IPO) is set to provide training and awareness raising seminars for businesses. This will provide them with the knowledge they need to identify the opportunities and risks that Intellectual Property (IP) presents for their business and to seek further advice at the right point. They also plan to provide online tools to help businesses assess their IP assets, and working with partners to fund strategic IP audits for businesses where IP has been identified as a critical issue for their growth.

The Design Council is a long standing body who’s remit is to encourage design‐led innovation and new opportunities, through policy work with government, research and campaigns, business and public sector design services and Design Challenges programme.

Current themes include: 

the ageing population,



stimulating economic growth,



addressing obesity, and



building better communities.

The Design Leadership Programme is the Design Council’s coaching and mentoring service for SMEs, public sector organisations and universities. The programme is delivered by a team of Design Associates based across the UK, who will lead and advise clients through a design strategy suitable for their needs with a view to realising a final design project. Taking part in the programme costs between £2k and £15k; this depends on the needs and the size of the business. The Programme is supported by the Department for Business, innovation and Skills and each year a number of places on the programme are subsidised by 50%.

The Universities operating with C&IoS as well as in the rest of the South West are creators of knowledge that can help companies with research and development as well as innovative plans.

Again, this knowledge spans across the full range of business activity ‐ for example, Falmouth University supports sustainable design as well as creative digital businesses. The University of Exeter, through its presence in the Environment Sustainability Institute, can support businesses aligned to environmental change and a wide range of business research and development activity, whilst the University of Exeter Medical School’s European Centre for Environment and

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Human Health based in Truro conducts world‐class research into the complex links between the environment and health.

The Universities have engaged in a number of Knowledge Transfer projects which although on a small scale relative to the business base (in the 10s rather than (100s) have been well received and created positive experiences for researchers and businesses alike.

8.4.4

Capital Finance Innovation and, even more so, research and development requires time and people expertise as well as often significant financial investment. Thus companies need to be convinced that the costs of the research and development and innovation are outweighed by the benefits.

The British Business Bank 2014 survey found that external finance is important for funding business start‐ups, investment and growth despite being used by a minority of businesses. As the economy grows, it is expected that access to appropriate sources of external finance will be essential for start‐ups, growth firms and viable but underfunded businesses alike. The survey also found that: 

a more diverse and vibrant supply of finance is needed, as for some of those with the potential to succeed, traditional loans and overdrafts are not suitable for all their financing needs; and



most small businesses are not aware of the full range of external finance options. This varies significantly across different types of finance. 85% are aware of leasing or hire purchase, but the figures are much lower, although rising, for alternative funding sources, with 32% aware of crowdfunding and 35% aware of peer‐to‐peer lending; and



while businesses are beginning to view finance as less difficult to obtain (26% viewed it as very difficult in 2014 compared to 43% in 2012), there remains a gap between perceptions of the chances of obtaining finance and actual approval rates. The proportion of businesses discouraged from applying for finance remains significant and recent data from the SME finance monitor suggested the number of SMEs in this bracket could be as large as 160,000.

Furthermore, evidence suggests that smaller businesses fail to sufficiently shop around or plan ahead when seeking finance – potentially limiting their ability to obtain finance.

The PWC Financial Instruments Report for C&IoS LEP found that like the UK as a whole, difficulties in accessing finance persists for certain segments of the SME market. Consultations with local key stakeholders suggested that: 

a number of growth businesses (between 200‐600) are unable to obtain finance from traditional sources and wish to do so. For example, the current South West Investment Group (SWIG) uptake of loans – from those growth firms that have been “turned down by banks” ‐demonstrates such demand.

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

the majority of businesses in the region comprise of micro‐enterprises; many of these are unable to gain funding at a micro level due to a lack of appetite from banks, high transaction costs and limited business readiness.



social enterprises have also encountered similar issues (in part due to longer payback periods and perceived lower returns profiles and lack of investment readiness).



emerging and innovative sectors lack initial development capital and early stage support through bank aversion to the higher risk profiles, longer return timetables, and lack of security, compounded by limited equity funding available to meet such gaps in finance.



reduced supply of finance has also meant a reduction in available working capital funding for growth and expansion. Investor readiness was also cited by all consultees as a common issue across most types of SMEs in the region – their ability to generate growth may be in place but the means and personnel to deliver such potential may not. Whilst there are business support services available in the region their coordination, through the Fund, may provide a focal point to ensuring businesses applying for funds can secure those support services most appropriate for their needs.

There are obvious significant market failures in relation to the availability, knowledge and use of finance by SMEs across the UK and this is mirrored in the C&IoS context. Under E SIF PA3d Growth through Innovation strand 43.2million euros186 is identified to support innovation across the business base. The E SIF also specifies an allocation of 5.8million euros187 to help businesses reach support through a single access point to an FEI delivery mechanism to develop new models, export and access investment into their business, supporting the wider activity supported under PA3. Whilst not all 5million euros will thereore support innovation activity it is reasonable to expect that in the region of 50% could be directed at research and development and innovation across the whole of the C&IoS business base. In addition to E SIF a number of other EU and UK Government funded financial schemes are currently available to support general SME research and development and innovation; these include amongst others (identified in the smart specialisation sector chapters): 

Horizon 2020;



British Business Bank;



Innovate UK



Small Business Research Initiative;



R&D tax credits; and



Patent Box.

Innovation Infrastructure As noted above, three Innovation Centres have been built in the last 5 five years at a cost of £38.3 million. The Centres have been part‐funded under Cornwall’s Convergence Programme (2007‐2013), Priority Axis 1, ‘Innovation and Research and Development’ and provide premises,

186

Using an exchange rate of 0.8562 equates to £37millon.

Using an exchange rate of 0.8562 equates to £5million.

187

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support services and innovation and business support for businesses to innovate and grow. The Centres have been built at key locations in Cornwall ‐ Pool, Truro and Penryn Falmouth. They are intended to improve the productivity of companies, increase the rate of innovation and increase the overall number of high value added companies in Cornwall. Together they provide just under 12,000sqm of floorspace and currently have 92 tenants.188 The report noted that the sector specialization was limited at any of the Centres.

Other projects supported by the Convergence Programme also provide incubation/innovation space such as the Academy for Innovation and Research as and the Falmouth Launchpad based at Falmouth University.

The connectivity of households and businesses acts as a key asset for innovation given as noted the increasing globalization of markets and associated technological growth. The provision of Superfast Broadband via a £132m collaboration between Cornwall Council, BT and EU provides superfast broadband infrastructure across Cornwall and Isles of Scilly with an expectation that 95% of homes and businesses will be connected by 2015. A second phase (Superfast Extension Programme) supported by central government building on the initial is investment has recently been announced with plans for 99% coverage/connectivity to homes and businesses by 2020. A separate Convergence project Superfast Cornwall Fund provided grants of between £1,000 to £50,000 to businesses funding up to 50% of the cost of businesses developing innovative activities requiring the use of the superfast broadband to grow their businesses.

The Convergence Programme also supported the provision of high quality workspace some of which is suitable for companies wishing to innovate and grow such as ST Austell Print and LDD. However there is a general perception that insufficient grow on space for companies moving out of the Innovation Centres and other supported environments can go to and still maintain close links with similarly minded and/or business related. Consultations for this study indicated that more clustering opportunities were needed around physical nodes as well as dedicated supported grown on space. Future financing of new grow on space for owner developers needs to be considered in terms of E SIF minimum Call values‐ setting this at £500,000 could be prohibitive for smaller companies.

The smart specilaisation sector research has indicated the importance of strong networks and leadership to identify and encourage research and development and innovation activity. There are many networks at a national level with a number of a strong local presence such as the Chamber of Commerce, Institute of Directors and the Federation of Small Businesses. Many sector groups with a national reputation also recruit businesses in Cornwall and Isles of Scilly and of course some business are owned by externally based companies and have international network connections. Locally it is evident that there is a large number of business groups, initiated and led by businesses some with external stakeholders such as public research and university representation. These groups are very active in the region and have sizeable membership (although the degree of engagement on a regular basis by members is not so clear) These groups include: 

Cornwall Business Partnership;

188

Recent evaluation gave occupancy levels as 90% for Pool Innovation Centre, 67% for Tremough innovation Centre and 37% for the Health and Well Being Innovation Centre

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

Cornwall and Devon Institute of Directors; and



sector organisations (eg WEAF, CMN, Digital Meet Up, Cornwall Manufacturing Network, MOR, Cornwall Agri‐food Council and others).

It is also evident that the groups have strong links into local government but their links to national government and policy makers is less clear.

Skills The lack of higher level skills to meet the needs of businesses is a key issue both nationally and more specifically at a local level within C&IoS. The shortage appears to be even more acute in relation to RD&I, as NVQ level 4+ skills will typically be required, and the percentage of the working age population within C&IoS with this level of qualification falls well below the national average – although the gap is starting to narrow. This is due in part, to the nature of the business base and historic inexperience creating a pool of experienced and innovation driven employees. This has clear implications for upskilling. Retaining skills in the area is also a growing opportunity, as the HE institutions are beginning to attract more students to C&IoS and with them investment in academics and researchers. Moving forward it will be critically important that these graduates are retained within the area, in order to capitalize on their IP, talent and skills through the provision of support such as stage 1 incubation or structured routes and schemes to feed them into existing companies.

Table 8.4: % of working age population with NVQ Level 4 +

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

C&IoS 21

20.8

24.8

27.4

25.6

24.3

26.7

30.5

30.6

32

32.6

UK

26.5

27.4

28.5

28.5

29.7

31.1

32.6

34

34.9

35.8

26

Source: Labour Force Survey

8.5

Strengths, weaknesses, opportunities and threats The strengths, weaknesses, opportunities and threats associated with the general level of innovation and R&D in C&IoS can be summarised as follows: Strengths

Opportunities

 Public policy and support for RD&I  E SIF funding and other sources focused on increasing RD&I investment through de‐risking  Strong leadership  Existence of sector and cross sector  Collaboration to win business contracts networks  Collaboration to win RD&I contracts  Convergence funding in assets and  Globalisation of businesses innovation activities has created a base  Grant funding opportunities for investment (albeit low)  Positive general economic growth prospects  Some large employers focused on RD&I who are keen to work and develop the supply chain

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Weakness

Threats

 Lack of business growth ambition   Micro and small business with few resources to explore growth opportunities  through RD&I   Awareness of market opportunities   Access to finance  Lack of export experience  Historic investment and experience of

Digitisation and globalisation of traditional business Focus only on smart specialisation sectors Lack of skills and attitude changes Expectation that all RD&I will pay off in the short, medium term‐ need to allow ‘failure’.

RD&I activity

 Lack of traction with HEI and research institutions inside and outside of C&IoS

8.6

Conclusions and implications The domination of the business base by micro and small business and those with very low turnover coupled with the historic lack of research and development and innovation experience means that significant support is needed to bring businesses to a position where they can take advantage of globalisation and the technological advances. The research for the Evidence Report indicates that support is needed across the full range of business activities if the level of research and development and innovation is to be raised sufficiently. A key issue is to ensure access to finance for investment is available. This should be in the form best suited to individual businesses which may be loans, equity, grants, or other forms. Similarly to de‐risk their investment enterprises need to be aware and helped to access knowledge creation sources such as research councils/institutions, Catapults and universities including those operating nationally as well as ‘locally’.

As even regional contracts for research and development and supply of services and products can be for large scale activity and this is out of the reach of the micro and small business, business networks and formal collaboration need to be encouraged within and across knowledge based sectors. To support such formal and informal networking and collaboration activity ‘innovation hubs’ both virtual and physical are needed. Market demand stimulation activity is also needed to promote a new image of C&IoS business both ‘at home’ and further afield. The former perhaps through interactive screens in public places, the latter through development of a collective CV for example, for a market or a network.

As noted above, a greater level of skill is required at all technical levels. Equally important is a change in attitude, which could be encouraged by education and businesses working together together at a strategic and operational level to increase the exposure of students and staff to innovative companies and to create a pipeline of ideas and labour for the growing companies.

These knowledge hubs could be physical hubs supported by knowledge exchange and transfer initiatives as well as programmes to intensively support new start‐up businesses alongside formal business education.

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Ultimately, it is clear that what is needed to raise the level of RD&I amongst knowledge‐based businesses and the economic base more generally is a detailed understanding of the innovation eco system, how it is changing over time and how to adapt policies that meet the needs of businesses, including allowing failure. Policies need to recognise the quantum and position of the local asset base and working with partners both in and out of C&IoS needs to be a priority.

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9

Next steps The review of evidence regarding the market opportunities for the Smart Specialisation sectors has identified a number of key factors that need to be addressed to grow and deliver tangible and sustainable economic and social benefits for Cornwall and the Isles of Scilly. This will involve supporting existing businesses to innovate and better align themselves to key/new scaling markets and also investing right across the pipeline of entrepreneurial activity. It will include building on the strengths where they exist of strong and growing clusters in nascent and mature markets as well as emergent sectors that such as e‐health and e‐well‐being that are in their infancy across the UK and wider markets. The evidence report has also identified the need for an increase in RD&I spending across the business base with a focus on ‘high‐growth’ and ‘high‐growth potential’ businesses. The latter are businesses who can demonstrate a desire to invest and grow and show real market opportunities particularly with regard to export potential as well as those with turnover and employment that meet EU definitions for high growth. The framework for E SIF support, which is due to follow this document, will outline the type of support required to overcome some of these barriers in addition to highlighting interventions capable of accelerating growth in the industries.

The support framework will identify: 

a series of potential support interventions – including generic support applicable to all of the smart specialisation areas; sector specific solutions and initiatives to support innovation across all sectors;



phasing of allocations; and



recommendations on activity that can be supported in the short, medium and longer term and rationale for prioritisation

At this stage, it is envisaged that the range of potential solutions will cover those highlighted in Tables 9.1 and 9.2 below, which describe the more smart specialisation support applicable to all of the smart specialistion areas and the high level sector specific solutions identified by the key stakeholders and businesses attending the recent consultation workshop events.

Table 9.1: Generic support applicable to all the Smart Specialisation areas Knowledge Creation







Markets

Build awareness and promote use of  research outputs and facilities at the Catapults and Centres of Excellence ‐  extend research for C&IoS businesses.



Strategic Knowledge Transfer Network post(s) for C&IoS to provide facilitation  support  Establish integrated pathways from R&D  to commercialisation – including collaborative pilots

203

Assistance to meet industry regulations and quality standards Inward investment Collaboration to service markets Procurement Reverse Trade Shows Establish/strengthen business network groups‐ including linkages with regional bodies and other intermediaries to promote SME and B2B collaboration, networking and supply chain

Cornwall and Isles of Scilly Research, Development and Innovation Evidence Base Report

linkages



Enterprise

Capital (finance, skills and resources)



Entrepreneurship funded schemes (for  example, Falmouth Launch Pad Incubator)



Diagnostic support programme for new business start‐ups and existing SMEs



Private sector expert panel (including investors) to offer advice and support for  new business ventures 



Smart sector business mentoring



Spin outs from universities; public service; large business 



Developing a C&IoS market platform ‐ profiling what is available and supporting national/global marketing of products and services



Investment readiness

Flexible RD&I grant funding ‐ gap funding, use of specialist expertise, access to capital equipment (generally expected to fall within £2k‐£60k; in exceptional cases significantly higher amounts may be needed) Challenge funding Innovation vouchers Raise awareness of other R&D funding (Public and Private) and provide expertise to access this S3 Skills Strategy covering higher level skills (engineering, software develop‐ment) and operator skills

 Graduate retention initiatives 

Knowledge transfer partnerships



In residence schemes



Support for businesses at all stages of the innovation cycle from pre‐incubation to grow on space

Table 9.2: Sector Specific Solutions: Agri‐tech

 resource management – actions promote wiser use of primary resources, such soil and water and to reduce inputs, such as agrochemicals to achieve economic and environmental benefits, including land remediation at Eden and developing capabilities at ESI;

 actions that manage and control animal and plant diseases, including animal behaviour;

 support research and innovation into UAVs on farm applications with an emphasis on those applications that might be rolled out within the programme period;

 integrating farm management data and utilities through mobile technology, for example, the CrapApp;

 support research and innovation into land use decision making at farm scale, as well as at larger scales for Cornwall as a whole, building on Catchment Sensitive Farming pilots; and

 consider extending the Farm Platform approach more widely in C&IoS, to cover 204

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additional areas and link to approaches such as Catchment Sensitive Farming.

Digital

 provision of high speed connectivity infrastructure in diverse locations around cluster points‐ one company paying £500 per month for superfast;

 virtual and physical communications hub;  digital strategy (showcasing digital expertise);  develop data analytics capacity  develop entrepreneurship  code camps;  IP advice; and  engagement with schools/colleges to create talent pipeline.

Marine

 centre for excellence in advanced engineering and marine tech related manufacturing for RD&I activity related to product, process and skills development;

 support to address key technology gaps in ORE device development and deployment;

 support to address technology challenges related to sustainability in boat building, repair, maintenance, refit; and

 supporting use and development of innovation assets E‐Health

 building on business engagement R&D successes such as the In Residence, ECEHH and Business partnered PhDs;

 building on the skills development and innovation work through the C&IoS ‘Excellence in e‐health and e‐care’ group;

 developing the ‘demand chain’ through innovative approaches – fostering collaboration and building a market;

 building a network of businesses to enable collaborations and networking; and  building on skills development – in particular, translational skills.

Space and Aerospace

 advanced manufacturing centre of excellence at NCA: 

skills – higher level apprenticeships; upskilling; STEM skills;



R&D – additive manufacturing; robotics; composites;



incubation facilities; and



start‐up opportunities – MRO supply chain (surface conversion, testing).

 UAV centre of excellence;  space innovation centre – incubation facilities; collaboration and networking; development of applications; training; data storage and analytics; and

 development of collaborations with UoE; Plymouth University; AIR to develop space applications.

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