Smart Specialisation and the Diversification of Related Sectors: The Context of Developing a West Midlands Space Cluster

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Dr Chloe Billing and Professor Raquel Ortega-Argilés discuss smart specialisation and regional diversification processes, and how the West Midlands can use its unique strengths to secure future regional diversification pathways into the space sector.

This blog post was produced for inclusion in the Birmingham Economic Review for 2021.

The annual Birmingham Economic Review is produced by City-REDI, University of Birmingham and the Greater Birmingham Chambers of Commerce. It is an in-depth exploration of the economy of England’s second city and a high-quality resource for informing research, policy and investment decisions.

This post is featured in Chapter 2 of the Birmingham Economic Review for 2021, on Industry and Innovation: Pathways to Prosperity.

Click here to read the Review.

What is Smart Specialisation?

Smart Specialisation can be understood as a place-based policy prioritisation process based on increasing the local innovation capabilities, entrepreneurial opportunity and excellence in research and innovation, moving towards a sustainable and innovation-oriented growth strategy. These policy prioritisation choices should be based on regional competencies and capabilities via entrepreneurial discovery processes, related technological diversification, industrial embeddedness and spatial connectivity. In practice, these strategies are based on supporting regions in finding ways of diversifying their innovation potential, avoiding fragmentation and duplication or imitation. It should be based on the accumulation of critical mass (i.e. modern clusters creation) by involving actors as anchors in the innovative regional cycle.

Regional Diversification

Regional diversification refers exclusively to regions’ ability to develop new varieties of technologies. More generally, it may also concern developing new varieties of goods, industries and scientific knowledge. In the context of Smart Specialisation, diversification can be understood as the dynamic process of change and the transformation of regional structures, while specialisation refers to domains in which given regions concentrate their expertise in this process of regional industrial renewal. These regional diversification processes should evolve and not concentrate exclusively on a single domain to avoid potential industrial lock-in scenarios.

Increasing Resilience in the West Midlands

The West Midlands region should pursue diversified specialisation processes, concentrating their efforts in given domains of local industrial specialisation, such as the automotive industries or advanced manufacturing, as well as areas of higher added-value services such as business and professional services or logistics. At the same time, in order to increase its industrial resilience, the region must continue to diversify and replace existing specialisations with new (and improved) ones. These processes normally are dependent on existing regional capabilities, allowing related new and existing varieties to emerge consistently as an essential driving force for new industrial pathways with higher value-added. Related varieties of goods, technologies and industries appear when their development requires similar knowledge, applying similar techniques or similar raw materials (for example, auto and aerospace components are related because they are manufactured using similar technologies, skills and materials).

The Development of a West Midlands Space Cluster

One potential new regional specialisation pathway could be the development of a West Midlands Space Cluster. We recently examined the potential for the West Midlands to become a regional centre for the UK space industry, which has grown ten-fold since 2010, is worth £15 billion and employs 42,000 people. This project was part of the UK Space Agency ‘Local Space Sector Cluster and Supply Chain Development’ funding, founded to develop the maturity of ‘early-stage’ local space clusters across the UK. The seed-corn funding focussed on stimulating activities to provide evidence and analysis of the local ecosystem in order to progress the maturity of local space clusters, stimulate local advocacy and investment in Space-related activities and increase the uptake of space data and technologies.

View more work from the Local Space Cluster Development Support Programme

The Development of New Industries

The development of new industries or technologies across the geographical space is characterised by path and place dependence; new activities are more likely to emerge in domains whose organisational routines are cognitively close to those already existing in a given location. This is based on the concept of relatedness. Relatedness suggests that businesses operating in similar fields perform tasks with greater cognitive proximity, making it easier for businesses to diversify or pivot into new industrial segments that are closer to their existing production routine.

Unique Strengths in the Region

A unique strength of the West Midlands is our manufacturing sector (aerospace, automotive, and rail). We found that the skills, technologies, components, and local institutions built around these existing firms in the region are in an exceptional position to secure future regional diversification pathways into the space sector. For example, we have strong supply chains mobilised around local key capabilities (such as engines, electromechanical systems, etc.). These industries (and, in particular, aerospace) share close similarities with space and thus demonstrate strong latent space potential.

This blog was written by Dr Chloe Billing, Research Fellow and Professor Raquel Ortega-Argilés, Professor of Regional Economic Development, City-REDI / WMREDI, University of Birmingham.

The views expressed in this analysis post are those of the authors and not necessarily those of City-REDI / WMREDI or the University of Birmingham.

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