All Together Now?

Co-location of the Creative Industries with Other Industrial Strategy Priority Sectors

Dr Josh Siepel

The UK’s forthcoming Industrial Strategy identifies eight priority sectors, including the creative industries, to be targeted as drivers of long-term growth. But viewing the opportunities through the prism of place raises an important question: should the Industrial Strategy target exemplar regions for strengths in a particular sector? Or are there broader linkages between the eight sectors that might also be harnessed, meaning that place-based Industrial Strategy investments should consider these linkages between sectors as a further source of growth?

Assessing causal linkages between the location and activities of different sectors is complex and empirically challenging, but one simple descriptive exercise is to measure the extent to which these eight sectors co-locate with each other in the UK. In this blog post, I will discuss possible reasons why firms in different sectors may choose to co-locate and then look at the co-location patterns of creative industries with the other seven Industrial Strategy sectors. While the latter does not shed light on the reasons, it is nonetheless an essential first step to understanding the relationship between creative industries and other parts of the economy.

Creative Industries, Supply Chains and Sources of Innovation

One reason why sectors may co-locate comes down to the nature of supply chains and innovation.  Decades of innovation research, stemming from the work of Keith Pavitt (summarised here), has highlighted that the sources of innovation vary substantially between sectors, and these trends are strongly influenced by the nature of supply chains.  Relatively few sectors generate innovation from universities and scientific research, but many sectors acquire innovation from suppliers. For example, the most recent UK Innovation Survey finds that 91% of firms cooperate for innovation with suppliers, compared with just 33% with universities.  Consistent with this, many creative industries firms in sub-sectors like IT, software and computer services, Advertising, Architecture and Design are embedded in the supply chains of other sectors. For example, the ONS input-output tables show that 89% of GVA from the sector grouping containing IT, software and computer services is indirectly captured in supply chains rather than in final sales to customers.[1] The figure is 96% for the sector grouping including Advertising and Marketing, 91% for the grouping including Architecture (and, for comparison, 30% for the sector group including creative, arts and advertising activities – which are mostly paid for by end users). 

Given that the creative industries provide vital inputs for many parts of the economy, this also suggests that they may therefore be sources of innovation and knowledge for many parts of the economy as well. It is important to remember that innovation does not only mean product innovation (that is, new products), but can also include new processes (improved ways of doing things), new forms of marketing, and new ways of organising activities. In these ways, the business-facing parts of the creative industries may conceivably play an enabling role in supporting others to innovate.

The Multiple Mechanisms for Co-location

This brings us back to the question of co-location. Given creative industries play a key role in the supply chains of many other sectors, it would seem entirely likely that they would locate in places where there are other businesses – either because of access to market, access to common skills, or because there are opportunities for learning and innovation. It is also possible that other sectors may choose to co-locate with creative firms for all these reasons as well. An additional consideration is that the presence of creative industries may make places more desirable for workers and innovators to live, as most famously argued by Richard Florida. 

While evidence of co-location alone is insufficient to identify policy priorities, it may at least indicate that a joined-up approach that maximises supply chain linkages, knowledge spillovers and labour flows between Industrial Strategy sectors in places should be a part of the industrial policy mix.

Nesta’s 2009 report on creative clusters analysed co-location patterns, and reported that Creative Industries firms tended to co-locate with both Knowledge Intensive Business Services and High-Tech firms. But with this analysis now being over fifteen years old, it is time for an update.

The methodology used for co-location between creative and other priority industrial sectors

This analysis uses the following data:

• Business counts from the Interdepartmental Business Register (IDPR), published in 2024 as UK Business Counts on the ONS’s NOMIS labour market data platform
• Employees from the 2023 Business Register Employment Survey (BRES), sourced from NOMIS

We used the data to measure the association between the concentration of Creative Industries sub-sectors (and creative industries overall) and that of the other Industrial Strategy priority sectors.

Whereas the UK’s creative industries benefit from a clear definition based on SIC codes, thanks to DCMS’s Sector Economic Estimates, defining the other priority sectors is not as straightforward, as the government has not published a corresponding set of definitions. For this reason, we use definitions based on published sources where possible (these sources are available upon request from the author). For geography, we use Travel to Work Areas (TTWAs), which are commuting regions defined by the ONS as areas where people are statistically likely to live and work, of which there are 228 in the UK according to the 2011 TTWA definition.[3]

To identify concentration of sectors we use location quotients (LQs), a measure frequently used in economic geography. LQs compare the relative concentration of a sector in a geographical area to concentration of the sector nationally. More formally, it can be expressed (for counts of businesses) as:

[(Number of businesses in a sector in an area)/(Total of all businesses in the area)] / [(Total number of businesses in the sector in the UK)/(Number of all businesses in the UK)]

This produces a ratio – if the ratio is higher than 1, then there is a greater concentration of the sector in an area than the UK as a whole.

For this analysis we calculated LQs for all Creative Industries sub-sectors and all other Industrial Strategy sectors at the TTWA level. We then compute partial correlations to compare each creative sub-sector with each other priority sector. 

Partial correlations are a simple statistical tool that allows one to explore the statistical association between variables whilst controlling for other potential explanatory factors. Here, we calculate partial correlations between creative sub-sectors and the other priority sectors for both business counts and employees, controlling for the overall number of businesses and employees, respectively (because a larger industrial presence in a TTWA more generally may induce a positive correlation between sectors). Although simple, a benefit of partial correlation is that it is easy to interpret: using the framework in a previous analysis, if the coefficient is higher than 0.5 (and statistically significant) we can think of there being a strong correlation; if the coefficient is between 0.2 and 0.5 there is a weaker correlation, and a correlation between 0 and 0.2 might be considered to be a weak correlation. Of course, the correlations may also be negative. 

Results

First, we consider business counts – the number of businesses in an area. Business counts are an obvious potential indicator of the extent of any potential spillovers, as they indicate the number of businesses that could potentially be interacting with others. Table 1 shows co-location of creative sub-sectors with the other seven Industrial Strategy sectors.

Table 1: Co-location of businesses in Creative Industries (Data: 2024 UK Business Counts (based on IDBR), accessed by NOMIS; results significant with 95% confidence level)

From this analysis we can see that virtually all creative sub-sectors are either strongly positively co-located or co-located with at least one of the other Industrial Strategy sectors. The only exception among creative sub-sectors being Museums, Galleries and Libraries, which are negatively associated with all of the Industrial Strategy sectors. This should perhaps not be surprising given that the location patterns of cultural institutions is dictated by a range of considerations that are not solely commercial. Of the seven other Industrial Strategy sectors, six are co-located with the Creative Industries, with the only exception being Defence, which is not correlated with any of the creative sub-sectors. On this basis we conclude that the Creative Industries overall and most creative sub-sectors are statistically more likely to be concentrated in places with concentrations of other priority sector businesses.

An alternate way of considering concentration is to consider employment, rather than number of businesses.  This measure prioritises larger firms (for example, a company with 100 employees would show up as one company on the business count data but with 100 employees in employment data, whereas ten companies with one employee each would only have a total employment of ten). Given the disproportionate importance of SMEs in the creative industries, the co-location patterns are less striking, but are nonetheless still apparent, as seen below in Table 2. 

Table 2: Co-location of employment in Creative Industries (Data: 2023 Business Register Employment Survey, accessed by NOMIS; results significant with 95% confidence level)

Table 2 shows positive co-location between different creative sub-sectors and the other priority sectors but the results are weaker than was the case when using business counts. Interestingly, there are also now some negative co-location effects with Advanced Manufacturing in the case of Architecture, Film, TV, Video, Radio and Photography and Music, Performing and Visual Arts.   

Policy Implications

The estimates presented above point to a significant tendency for firms in the Creative Industries to co-locate with other sectors identified as priorities in the UK’s Industrial Strategy. In particular, it finds that the Creative Industries overall and/or creative sub-sectors are more likely to co-locate with six of these seven sectors – Life Sciences, Professional Services, Financial Services, Digital and Technology and Advanced Manufacturing. The only exception in these is Defence. Where there are differences in the estimations for co-location between business counts and employment observed for Creative Industries and Advanced Manufacturing, these are likely explained by substantial differences in the size distribution between creative industries firms (which tend to be smaller) and manufacturing firms (which tend to be larger).

While these estimates do not allow us to attribute causality to co-location in a way that would enable us to determine which specific mechanisms are behind this co-location, they suggest that policymakers may miss a trick if they develop Sector Plans for each of the eight priority sectors without also considering their linkages.

[1] Note that the sector groupings in the input-output tables do not correspond perfectly to the DCMS’s creative industries definitions.

[2] As the BRES survey is a survey of employees the data do not capture employment of freelancers.

[3] Data on the number of businesses is available for all 228 TTWAs, while data on employment is not available for Northern Ireland. The employment data used in this blog post includes 218 TTWAs, excluding the ten Northern Irish TTWAs. Also, London is considered to be one TTWA so concentration of activities in London would not be expected to bias the other estimations.  As expected, when the analysis was run excluding London, the results did not change.

This is a guest blog for the Creative PEC website. Any views expressed are those of the authors who is responsible for all content.

Photo by Paul Marlow on Unsplash