Location, location, location

Picture thanks to Channel 4

How do you know if your region is doing well or not? How do you know if a particular sector is successful?

These are the questions I was trying to answer when I fell into the wonderful world of economic data. I was looking at the digital sector in a part of the North East. You would think it was a reasonably easy question yet it wasn’t long until I got caught in a myriad of conflicting numbers.

The problem started with a definition of what the digital sector is. Does it just include creatives or IT providers and software developers as well? Is it not true that most businesses (and soon all) are using digital technologies and so should the sector be limited to providers rather than consumers?

Then, of course there is the question of how you define success! Do I consider the number of businesses, the number of people employed or the output that they produce? Do I compare where they are compared to where they were a few years ago or measure their success against the market potential. Is it fair to compare the market within the North East region with what is going on in the South East as clearly there are significant differences?

It is not an easy question at all yet I have come across three numbers which may be of help:

Location density (LD) is a measure of the number of businesses per head of population relative to the rest of the nation. A number lower than 1 means that other areas have a relatively higher number of businesses than your area.

Location quotient (LQ) is similar yet is a way of quantifying how concentrated a particular industry or occupation is in a region as compared to the nation. It can reveal what sets a particular region apart from the rest. A number less than 1 means that the specific industry or occupation in the area is less concentrated.

Digital concentration (DC) is specific to the digital sector and indicates the geographic concentration of digital business relative to the UK by turnover. A value higher than 1 suggests that the digital sector is doing well.

It is amazing what you learn once you take the lid off the box. Now all I need to do is work out how the numbers relate to each other.

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