British Council Creative Economy

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John Newbigin

Hubs, clusters and regions

Why are successful creative businesses often found clustered together in a particular neighbourhood or district, sometimes with a single building or business acting as a ‘hub’ at its centre?

In its 2013 report on the global creative economy, UNESCO pointed out that there is “no such thing as a single creative economy; there is a multitude of different trajectories”. Based on a wide range of examples from around the world the authors noted that the dynamics that drive success in developing creative industries vary from one place to another. They also noted that success in building creative industries in particular locations, whether driven by public policy or private investment, generally came from looking at that location’s “capabilities, not its needs”.

Why ‘place’ is important in the creative economy

These two observations are fundamental to understanding the creative economy and the growth of the individual industries that are part of it. In the dominant globalised industrial economy of the 20th century, manufacturing was increasingly driven to parts of the world where labour was cheap and the costs of taxation, energy and environmental regulation were low. The creative industries are different. Their success is dictated less by external costs such as labour and energy and more by the human talent that drives them and that, in turn, means the social and cultural environment in which they are located. In the same way that plants that thrive in the tropics fail in temperate climates and agricultural crops that feed temperate zones of the world cannot be grown in the tropics, many creative industries are ‘place-specific’ – which is why the UNESCO report pointed out that there is no single global definition of the ‘creative economy’ – it differs from place to place and from culture to culture.

But identifying what are the factors that contribute to success or failure in creative industries is much more complicated than identifying where a plant may or may not grow. The American author Richard Florida famously proclaimed that success in the creative industries was dependent on what he called a ‘creative class’ – well-educated people who lived in diverse, usually urban communities with access to a wide variety of social and cultural facilities from museums and universities to clubs and bars.  But, as Jacob Matthew points out in his essay there are millions of poor and often illiterate artisans in India with access to none of these things but who have the potential to be a major driver of India’s creative economy in the future because of the particular skills that have been fostered in their often isolated communities over many generations. Richard Florida was right in drawing attention to the fact that success for creative industries depends on a specific location or community but perhaps failed to identify all the factors that made that true. The ‘community’ that could transform the future for India’s craft artisans is not a place but the virtual community of a smartphone network.

The important fact is that however we choose to define them, it seems that ‘place’, ‘community’ or ‘location’ are crucial elements in planning for the growth of the creative economy. Policy makers generally think in terms of national policies but the story of the creative economy over the last twenty years has been the story of initiatives that have been taken at neighbourhood and city level, the growth of hubs, clusters and regions. 

Hubs and clusters

By ‘hubs’ is meant a very specific location, usually a building or group of buildings, that provides affordable workspace, support and exhibition or sales space for creative entrepreneurs and acts as the central point of a wider network – hence the analogy of a hub as the centre of a wheel. The Watershed in Bristol, is an example. Hubs may be as much places for social exchange and informal networking as they are places for doing business, and that is especially valuable for creative people who work on their own or in micro-businesses where their range of contacts and networks may be limited. One region in England estimates that 95% of its creative workforce is made up of freelance individuals rather than company employees. Hubs may also be virtual. Wired Sussex is a network of some 2,000 small creative digital media businesses in and around the city of Brighton in Sussex, England. What started off as no more than an online noticeboard where members could find work or workers, has grown to be an influential body that now incorporates two physical hubs (the FuseBox and the Skiff) and provides a focus for the interests and concerns of companies scattered across a spread of villages and small towns as well as the city of Brighton. 

‘Clusters’ describe a group of related or mutually dependent businesses and resources that are grouped together in a neighbourhood or part of a city although, as noted above, the cluster may be a virtual network that is dependent on good internet connectivity rather than physical proximity. The Trampery in East London and the Godown in Nairboi, Kenya are two good examples that illustrate the importance of clusters – and the extent to which hubs and clusters are intimately linked elements of a single phenomenon.

‘Regions’, very often city-regions, (i.e. a major city and its surrounding area) may describe a group of related clusters that are spread across a number of different neighbourhoods, or which enjoy the benefit of a university or group of universities and research institutes that help provide the skills they need, or regional administrations that have decided to foster particular creative industries by helping with subsidised workspace or by investing in marketing and promotion on their behalf.

What makes hubs and clusters important?

Of course, hubs and clusters have been typical of most economies for hundreds if not thousands of years. For example, towns and cities in every part of the world are likely to have a market where all the fruit and vegetable sellers meet to sell their produce. Similarly, fashion stores, electronics retailers, restaurants, theatres and many other businesses tend to cluster together in the same streets or the same parts of a city. Small specialist manufacturers such as furniture makers, clothes makers, jewellers and leather workers would usually group themselves in a particular part of town and the services on which they depended for tools, materials or specialist skills would congregate around them. A particularly successful business, or even a particularly talented individual might form the hub around which a cluster of businesses would grow. But, in a report on creative clusters published in 2010, the UK organisation Nesta noted:

"… the mere existence of a creative agglomeration is not enough for the benefits of clustering to emerge. The other crucial ingredient is connectivity between firms within a cluster, with collaborators, business partners and sources of innovation elsewhere … and, finally, with firms in other sectors that can act as clients and as a source of new and unexpected ideas and knowledge. These layers of connectivity are underpinned by a dense web of informal interactions and networking."

The final point, about the benefits of “a dense web of informal interactions and networking” was further elaborated later in the same Nesta report in a section that referred to ‘knowledge spillovers’ (in other words the process by which new thinking in one industry or business helps to drive new thinking in other businesses) as taking place “…when new ideas and technologies developed by creative businesses are fruitfully applied elsewhere without compensation.”

The success of clusters is not simply a matter of one business making commercial contracts with another. A cluster creates a critical mass of skills, and that also means a critical mass of people, who exchange ideas and techniques because, as well as working in related industries, they may meet socially, they may move jobs from one business to another, or they may set up in business on their own. This suggests that, once they are flourishing, clusters can grow organically. The most famous example is ‘Silicon Valley’ in the United States where a small group of digital technology businesses, many of them staffed by graduates of the nearby Stanford University, attracted talented individuals and other related companies until it grew to a cluster of genuinely global significance.

One particular benefit of clustering has been made apparent to some companies that chose to retain their design departments in Europe or North America but out-sourced manufacturing to other parts of the world, typically China or East Asia. The distance between the two meant that relatively simple problems that needed to be resolved between design and manufacture of, for example, fashion clothes and footwear, were not resolved, or were only resolved after unnecessary delays and costs had been incurred. In contrast, the benefit of co-locating design and manufacture meant that ‘glitches’ between design and manufacture could be easily and quickly solved by regular personal contact between those involved in design and those involved in making. This has led to some companies moving either their manufacturing base or their design studio so that the two are co-located.

It is easy to think of clustering as being of particular benefit to small businesses, but clustering is a phenomenon that can affect the growth of large businesses as well as small. The clustering of film studios and related businesses in Los Angeles, in the US, which began because of the year-round clear skies, benign climate and varied landscapes, became even more dependent on the fact that the creative people who drove it, both actors and filmmakers, liked living there. In fact, one of the initial problems for the film industry in Los Angeles was that another ‘cluster’ of businesses upon which it depended, the banks, was mainly located on the other side of the country in New York and it took at least two decades for the two clusters to understand each other, to the eventual advantage of both. What we today call ‘Hollywood’ is, in fact, a cluster of very big business, the studios with their household names, surrounded by a myriad of smaller businesses, ranging from highly specialised technical businesses to restaurants and limousine hire companies.

How policymakers saw the creative industries as a way of regenerating cities

As the story of the creative industries and the creative economy has evolved over the last twenty years, the way in which governments have understood and responded to their needs has changed. Some early policies for the creative industries in western Europe and North America were closely related to the need for urban regeneration and it is easy to understand why this happened. Small creative businesses, especially individual artists and entrepreneurs with very limited financial resources, tended to locate in parts of a city where workspace and living space was cheap. This often meant areas where earlier manufacturing businesses were being squeezed out of existence by global competition, leaving empty factories and warehouses and cheap, hard-to-let residential property.  Creative people, artists and entrepreneurs, brought with them creative and low-cost solutions for re-using these redundant buildings and generating new social facilities in the heart of declining industrial cities. They wanted clubs and bars and performance spaces for artists and musicians and thus began to regenerate areas, making them more desirable for others to work and live. Planning authorities began to recognise that this provided a very effective way of achieving wider social and economic outcomes. As one of many such examples, the Urban Land Institute of Chicago in the US, a body primarily concerned with tackling the imbalances of a city with a decaying centre surrounded by relatively prosperous suburbs, set up a ‘creative industries district’ in a blighted downtown area. For similar reasons, the municipal authorities in Buenos Aires focused their creative industry investment in socially deprived areas, recognising that this might be a way to regenerate depressed areas and provide new optimism and new jobs for their communities. This apparent congruence of creative industry success with rundown inner city areas led the American academic Michael Porter to identify four advantages for the creative business concerned; by virtue of being in the heart of major urban areas they benefitted from what he called ‘strategic location’ and ‘local market demand’; this also made it easy for them to ‘integrate with other regional and local clusters’, thereby fuelling innovation and diversification; and they had ready access to ‘human resources’ because they were in areas of high local unemployment but also had access to the wider labour market of an entire city.

All these advantages seem obvious. But, as with Richard Florida’s early identification of a ‘creative class’, Michael Porter’s observations tended to obscure that fact that the drivers of success, the “multitude of trajectories” as the UNESCO report put it, were much more varied. A good example is that of Leamington Spa, a small town of 50,000 people in the English midlands, with none of the ‘big-city’ advantages identified by Michael Porter, where two brothers set up a small videogames business about 20 years ago. Their skill and persistence attracted so many local young people who were interested in videogames that today there are more than a dozen videogames companies in the town, some of them with international reputations, employing more than a thousand skilled workers and leading to Leamington being described as ‘Silicon Spa’, in emulation of California’s Silicon Valley. Leamington provides a good example of a hub evolving into a cluster. A similar story could be told about Dundee in Scotland, a city of 150,000 whose main industries had collapsed leading to high unemployment and widespread anxiety as to its future. One of the two local universities, Abertay, offered courses in digital animation that attracted a small group of local graphic artists. Over time, the close symbiotic relationship between this small university and its alumni students has led to Dundee becoming a world leader in videogaming, and the home of the Grand Theft Auto series of games, the most commercially successful global franchise in the history of that sector. When one of the major games companies based in Dundee collapsed in bankruptcy a few years ago, having overextended its investment in a new games concept, the impact on the local economy was greatly reduced because many of its 300 employees sought work with other companies in the area, or decided to establish their own business, demonstrating the way in which clusters with sufficient critical mass and with some diversity of skills and innovation, including, in this case, a university with a deep knowledge of the sector and its skills need, was able to sustain itself in difficult circumstances.

This story highlights two other points of significance in the growth of clusters. The first is that the creative people who are its lifeblood need to have a good reason to stay. The games developers in Dundee did not move elsewhere, even when they lost their jobs in a city with limited employment opportunities because they knew they could find other comparable work without moving away, even if that meant having to establish their own businesses. They stayed because they enjoyed the community they themselves had helped to create. Similarly, Bristol, in southwest England has a number of successful creative hubs, is sustained by several prestigious universities, has a major BBC television production unit specialising in natural history and a variety of excellent arts centres including the Watershed. Taken together, this range of institutions make Bristol a place where creative people want to live. When asked to account for Bristol’s success as a creative centre, a senior academic at Bristol University replied that it was primarily because “creative people come here, like it and stay”. Conversely, the city of Chongqing in southwest China, a major manufacturing centre with excellent universities, including the highly prestigious Sichuan Fine Art Academy, suffers from a disadvantage in that young creative people go there to study but often leave to find work in the more prosperous eastern provinces of China or in the nearby city of Chengdu which has a reputation as a ‘cool’ cultural centre. The authorities in Chongqing recognise that, for the overall benefit of their city, its culture, quality of life, economy, national and international profile and its universities, it needs to do more to make it a city where talented and ambitious people want to live as well as to study

Universities and research organisations are often an important part of a cluster

The important role of universities and other higher education institutions in building sustainable creative economies is increasingly recognised and is one of the reasons why clusters and regions have been a central phenomenon in developing creative economies. Not only do universities play a vital role in providing a supply of skilled labour, especially necessary in fields where technology and work practice is rapidly changing, they often provide the support and facilities that help their graduates through the early stages of building new businesses. More importantly, it could be said that the primary function of a university is the generation of new knowledge and the function of a creative business is to find ways of applying that knowledge for the benefit of society and the economy through innovation. There is a natural relationship between the two.  Equally, it is important to recognise that the role of the university is not just to provide the labour market with skilled professionals; it is to extend the knowledge and insights that help drive innovation. This is also discussed in the section on new skills.

The role of research institutions overlaps with but is distinct from the role of universities. The concept of the creative economy is still very new. The dynamics of what drives success, the relationship between the creative sector and the rest of the economy in assisting innovation and the knowledge ‘spillovers’ referenced above, and, most of all, the data needed for effective analysis of what contributes to commercial or creative success and failure is still relatively unexplored. In some respects the creative sector has suffered because its promoters have lobbied governments for support, often making big claims for success in generating new jobs and new wealth that are based on anecdotal stories rather than the objective insights of an independent research organisation. This lack of solid data and analysis disadvantages creative businesses in many ways but most obviously in terms of investment. A research project by the UK’s Department of Business, Skills and Innovation (BIS) with Warwick University showed that creative businesses, especially in the music, film and television sectors were disproportionately discriminated against as ‘risky’ by investors. The evidence suggested that the perception of their being risky had more to do with a lack of good data than any inherent commercial risk. By definition, many creative businesses are not supplying known products and services for known markets; they are creating new markets for new products and services. Indeed, the film industry has been described as the ‘know-nothing business’ because the success of any film, even if it represents an investment of millions of dollars, is uncertain and unknown until it is in front of paying audiences in the cinema. Even films with major international stars, top directors and brilliant scripts may be commercial failures. The creative industries are inherently risky but solid data, tracked over time so that trends can be more accurately identified and analysed helps to minimise the risk and increase the chances of businesses attracting investment and becoming successful. Independent, objective research is essential to that process. 

John Newbigin