Scotland is the number two location for foreign direct investment in the UK after London – due in no small part to its international status as a financial and business services centre
With £800 billion of funds under management, and 86,600 employees, Scotland’s financial services sector is the UK’s second largest after London. Record numbers of foreign inward investment projects are adding to its mass. Some of these investors already have substantial operations in London, but have looked north for cost-effective expansion. They include US financial giants, JP Morgan and Morgan Stanley, both with large operations in Glasgow.
Have you considered Scotland as a cost-effective base for some operations, while maintaining some core functions in London?
Scottish Development International (SDI) believes that Scotland matches the criteria cited most by foreign investors choosing a UK location. The availability and skills of the local workforce are indisputable.From large financial institutions and mid-sized players to fintech start-ups, exploiting the convergence of information and communications technologies, professionals have wide career-building opportunities. Scotland’s broader technology sector supports more than 101,000 jobs.
Companies with a Scotland-London presence
- JP Morgan
- State Street
- Morgan Stanley
The financial skills pipeline is well stocked in Scotland
Nearly 16,000 students graduate annually with engineering and technology, IT and mathematics degrees. Scotland is well connected by air, rail, road and computer. Direct flights fly in and out of its five international airports, with 100 direct flights to London daily, with typical flight times of 80 minutes; or you can get to Paris in three hours, New York in six, and Dubai in under eight hours. Fast frequent trains to the rest of the UK include Edinburgh to London in as little as four hours 20 minutes, while internal rail journeys include Edinburgh to Glasgow in 48 minutes, and Glasgow to Aberdeen in under three hours.
Around 80% of the population is in the central belt, including Edinburgh and Glasgow, and a modern road network connects main centres of employment. Telecommunications and IT infrastructure is great and there is excellent availability of high speed broadband. The Scottish Government, and its partners in the £410m Digital Scotland Superfast Broadband Programme, plan to extend high-speed fibre broadband to around 95% of premises outside of the Highlands and Islands (H&I) of Scotland by April 2018, and 84% of H&I premises by the end of 2016.
Average labour costs are lower than in London, but the cost of living considerably less, so staff benefit from a higher disposable income. Scotland also looks competitive on the cost and availability of real estate.
The Financial Times fDi Benchmark calculated the average annual running cost of a 50-seat office in Glasgow as £4.63m compared with £7.69m in London. Outside of Glasgow and Edinburgh, costs get even lower.
Education and training are a strength
Scotland has more world class universities per head of population than any other country: five of its 19 universities are in The Times ‘Top 200’. Centres of excellence include the University of Edinburgh’s School of Informatics, the largest in Europe, providing essential technology skills training and qualifications. Other universities actively support fintech through research and bespoke training.
Its growing list of fintech companies demonstrates innovation in the sector – as disruptive technologies create opportunities. These include branchless banking, crowd-sourced business lending, mobile and wearable payment devices, digital identity verification and biometrics, crypto-currencies, personal privacy/data protection, and mobile point-of-sale hardware.
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Scotland shares the UK’s advantage of having the lowest company taxes of all the G20 nations, while government policy across regulation, tax and sector growth initiatives supports investment into key sectors. Financial resources are available for startups and scale-ups in Scotland. Public sources include The Scottish Investment Bank (SIB). It has backed high growth potential companies such as Money Dashboard and ZoneFox.
New financial support for private sector business investment
SDI supports initial investment in Scotland, providing funds to assist future growth for eligible companies. Sources of funding and support may include Regional Selective Assistance, training grants, account management, research and development, specialist innovation support and SMART grants.
The Scottish Government announced a £500m package of financial support for private sector business investment. It includes individual investment guarantees, and loans of up to £5m for SMEs. It will be open to new and early-stage, high-growth potential companies with clear export growth plans, particularly in technology-intensive sectors and businesses in emerging markets such as fintech. The City of Edinburgh Council provides a small business loan fund to assist startups and recently-established businesses.
Scotland’s capital city has an active fintech hub
This was highlighted in a 2015 Memorandum of Understanding, signed by Edinburgh, London and Innovate Finance to promote innovative fintech software companies. An industry-led, national fintech Strategy Group under the support of industry association Scottish Financial Enterprise has started mapping out a five-year strategy to keep Scotland at the leading edge of this fast-evolving industry.
Seasoned technology entrepreneurs, venture capital firms, and Archangel, the largest business angel syndicate in Scotland, are among a variety of private funding sources. With a substantial, mature and yet innovative financial services sector, Scotland also ticks the box for availability of business partners, suppliers, and end-users of technology.
Banks and financial institutions transformated their supply chain in the 1990s
This is the view of Grant Campbell, financial services and technology partner at Edinburgh-based law firm Brodies LLP. "One way of stripping out costs is buying from much smaller companies, providing their solutions pass muster from a regulatory point of view. You also get more agility from these people,” he says.
The (UK) Competition and Markets Authority has called on banks to be more customer-centric, and this is what these smaller suppliers are allowing them to be. They can focus on customers’ needs without the burden of legacy IT systems. Banks are becoming the mature fintechs and partnering with start-ups, adds Graham Hatton at SDI. “The banks want to work with them and get them involved in their businesses. If you can get that right as an SME, there can be a massive prize. Banks may want to acquire you and that is driving a lot of investment into the sector."
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