Good things come in small packages, so they say. Judging by Scotland’s commercial success, it might be true. Scotland is a relatively small country in European terms, with an even smaller population. Its five million citizens, two-thirds the population of London, live in an area two-and-a-half times the size of Belgium. There are only four cities with more than 100,000 inhabitants and Edinburgh is about the same size as Liverpool. Not much, you would think, on which to build a thriving economy.

But the Scots have never let mere statistics hold them back. The traditional strengths of Scotland – coalmining, steel-making, shipbuilding and heavy engineering – may be shadows of their former selves, but in their place have risen a cluster of industries in which the country can truly claim to be world class. Combined with the wide open spaces, beautiful landscapes and low cost of living, it’s proving to be an increasingly attractive location for growing businesses. Throw in cheaper housing costs, with an average house price of £134,000, compared to almost £193,000 as the average for England and Wales, and the picture gets even rosier.

‘Scotland is recognised as having a strong international profile and reputation in business terms, one that belies its size. In some sectors, such as financial services and life sciences, its reputation is arguably stronger outside the UK than it is inside,’ says Paul Nunn, director of East West Locations, a site location and inward investment consultancy.

In a recent survey by financial careers job site eFinancialCareers.com, more than ten per cent of financial professionals working in London said they would move to Edinburgh if they could. They’d be in good company: 53,000 people migrated north over Hadrian’s Wall in 2005, more than made the corresponding journey south. Nor should they have any trouble finding jobs on the other side. A report in April 2006 by employment specialists Manpower showed that Scotland is the second most optimistic region in the UK in terms of recruitment intentions: 27 per cent of businesses said they intended taking on new staff in the next three months, compared to a UK average of 13 per cent.

From Silicon Valley to Silicon Glen

One of the fast-growing businesses that will be doing the hiring in 2006 is Vortis Technologies, a wireless antenna technology company based just outside Glasgow. Currently with a staff of ten, CEO Jim Johnson expects to add another 40 or 50 jobs as the business develops. Vortis has been in Scotland since 2005 and Johnson is a great proponent of the benefits of doing business north of the border. His words carry more weight than most: Vortis Technologies was actually founded in Silicon Valley, California, in 2000, but last year Johnson took the momentous decision to relocate the business 5,000 miles to Scotland.

‘Our business didn’t fit with the standard Silicon Valley growth model and the UK was the obvious alternative,’ says Johnson. ‘The decision came down to London or Scotland. We went with Scotland for a number of reasons. First, there’s a strong electronics sector here, so we could hook into a good supply base of local design and manufacture. Secondly, the overheads are lower, and thirdly, because it is a smaller market, it is easier for us to stand out and build a higher profile.’

Cutting your overheads

The cheaper overheads to which Johnson refers are mainly labour and property. The latter in particular are a huge bonus for businesses moving to Scotland, certainly when compared with the Southeast of England. Prime city centre office space in Edinburgh costs around £27 per sq ft; Glasgow is slightly cheaper at around £25 per sq ft. Prime space in London, by comparison, is around £45 per sq ft upwards. Outside the two main Scottish commercial centres it gets cheaper still: from around £13.50 per sq ft in Dundee to as low as £4 in Inverness, the capital of the Highlands.

Property was one of the reasons that the Essentia Group chose Brora, 60 miles north of Inverness, to locate a new contact centre. The Essentia Group provides outsourced information and advice services in health and lifestyle management. It already had centres in Newcastle and Glasgow, but was looking to expand its range of operations.

‘Brora offered ready-built, hi-tech premises, and the costs are cheaper in the Highlands than virtually anywhere else in the UK. It is as much as £20 per sq ft lower than similar properties in Edinburgh or Glasgow,’ says Peter Carragher, director of operations.

In addition, the local enterprise agency, Caithness and Sutherland Enterprise, was able to capitalise on the Highlands and Islands’ status as Objective One areas for European funding, in order to put together a £350,000 investment package to help the Essentia Group with set-up costs, equipment and training.

Contact centres are a growing strength of the Highlands and Islands. According to a survey by inward investment consultancy Tenon Techlocate, the region can offer cost savings of up to 40 to 50 per cent on salaries and property compared to Southeast England, while maintaining the same – if not higher – levels of security and service. Major contact centre operators such as BT, Vertex, Cap Gemini and Viewpoint all have facilities here.

The buoyant commercial sector in Scotland, however, is starting to put pressure on property prices, particularly in the main cities. Campbell Hart, a partner in the Glasgow office of property agents King Sturge, warns that ‘with rents beginning to rise in the Glasgow office market, now is the time to make your move if you want to get maximum value for money’.

The sheer availability of top quality space can also be an issue, with the Edinburgh office market facing a shortage of grade-A space, which in turn is putting added pressure on rents.

Right people for the job

The other key overhead is labour and in this regard the benefits of Scotland are less clear-cut. Salary levels in the main commercial centres are not hugely different to comparable jobs elsewhere in the UK, although it varies according to the industry and the precise location. The salary for a highly qualified scientist in Dundee or senior financial services manager in Edinburgh is going to be roughly the same as anywhere else. However, at a general mid-management level, there is the potential for significant cost savings in secondary commercial centres such as Perth or Stirling.

Cost isn’t everything, though. For many businesses, it is the type and availability of labour that’s decisive, not the associated cost. ‘We deal with health and medical advice and counselling, so we need specialist expertise such as counsellors, nurses and ex-NHS staff. It was vital that this kind of labour was available to us in Brora, so we held an open day to gauge local interest and suitability. The results were a great success,’ says Carragher.

Average qualification levels in Scotland are among the highest in the UK, with 27 per cent of the working age population having been to university, compared to only 23 per cent in England. The strength of the higher education sector is also evidenced by the close links between university and industry, links that make Scotland a popular location for businesses with a heavy need for R&D. There is even a dedicated national organisation called Interface, set up specifically to match up businesses with university expertise, to help them profit from the vast pools of research knowledge residing in Scotland’s 13 universities. Vortis, for example, has established close links with specialist researchers at Heriot Watt University; while it was the depth of Scottish life sciences expertise that persuaded drug development company Fulcrum Pharma to open a new office in Edinburgh last month, complementing its three existing facilities in England and France.

Sector strengths

Scotland is, in fact, a world leader in life sciences. It is, after all, the birthplace of Dolly, the famous cloned sheep. There are half a dozen specialist bio-technology institutions in Edinburgh, mainly around the Edinburgh Science Triangle. These are soon to be boosted with the Centre for Biomedical Research, a US$1 billion project to build over 1.4 million sq ft of work space dedicated to life sciences organisations, due to open in 2008.

Sixty miles north, Dundee, Scotland’s fourth largest city, is home to the most significant biomedical community in the UK outside of Oxford and Cambridge. The University of Dundee alone has collaborations with the world’s top ten pharmaceutical companies, and the city boasts a roster of world-leading professors that belie its small size.

‘It was Dundee’s tremendous and growing reputation in life sciences that brought us here,’ says Paul Garvey, finance director of healthcare company Axis-Shield, which relocated its diagnostic laboratory from Norway to Dundee in 2003.

‘It is more cost effective and the quality of life is good, but most importantly, the excellent research that is done here has created a vibrant biotech community and a high concentration of skilled graduates,’ he says.

But it’s not all research labs and white coats. Dundee is also the main centre of Scotland’s – if not the UK’s – computer games industry, accounting for ten per cent of the UK’s computer games sector output, while further up the coast, Aberdeen’s pre-eminence in the oil and gas industry has, ironically, led to a burgeoning cluster of environmental technology and sustainable energy companies.

Big cities, big money

If it’s the big money you’re after, however, then it has to be Glasgow or Edinburgh, where financial services are king. According to Paul Nunn of East West Locations, Glasgow’s reputation has historically been more in back office support, insurance and secondary financial functions, while Edinburgh’s reputation was built on core services such as banking, fund management, stock broking and pensions. In recent years, though, the distinctions have faded.

Edinburgh is home to two of the largest banks in Europe, RBS and HBOS, while Glasgow’s International Financial Services District (IFSD) has attracted names such as Morgan Stanley, eSure, Abbey, Direct Line and JP Morgan. The IFSD also qualifies for Regional Selective Assistance, which means grants of up to 20 per cent are available for investing companies. This compares to a limit of 30 per cent in most of the Highlands and Islands region and ten per cent in parts of Edinburgh.

However, the one thing that Scotland can do nothing about is its distance from other major UK commercial centres. And with a standard return fare for the four-and-a-half hour train ride from Edinburgh to London coming in at £220, or an hour-and-a-half return flight from Inverness to London Heathrow costing £173, a grant may at least help to cover your travel costs.