Once the model of an industrial, northern city, Leeds has found a new role in services. How long will it keep its allure of a low-cost, high-quality workforce?
At the beginning of the '80s, Leeds certainly had its problems. High unemployment, little investment and the decline of its traditional industrial base on top of recession had left the city rather battered. In the intervening 15 years, however, much has changed. A mixture of drive and determination has transformed Leeds into a metropolis which is starting to outshine the traditional northern lights of Birmingham and Manchester. The opening of premier retailers such as the much-publicised Harvey Nichols have given the city an aura of affluence, as has the £1 billion that has been spent on property development in the area since 1990.
Local optimism is running high. A Leeds Financial Services Initiative (LFSI) survey at the beginning of the year revealed that getting on for two-thirds of firms surveyed stated that their level of business was above normal and just over half were more optimistic than they had been six months previously. Over two-thirds reported that the volume of their business had risen in the second half of last year and a further 60% expected the same to happen again in the first half of 1997.
The engine powering the city's take-off has been services, more specifically call centres. Call centres now provide employment for over 10,000 people and the region has attracted over 30 major data-processing, telephone, banking and insurance operations. Leeds is home to the Automobile Association, Direct Line Insurance, First Direct and the Alliance & Leicester among others, and there is no sign of any drop-off in the number of firms wishing to relocate to the region. Most recent reports suggest that NatWest will shortly be the latest bank to relocate to Leeds.
One of the biggest call centres and investors in the city is Halifax Direct, the telephone banking arm of the former building society which floated in June. Set up in March 1995 in an old Vickers tank factory, business at the Halifax centre has been booming.
It has seen calls rise from around 40,000 in its first month of business in September 1995, to an estimated one million in May 1997 - and that's without the extra calls that came in as a result of the flotation.
Michael Riley, controller at Halifax Direct, is justifiably proud of the £20-million centre, possibly the most hi-tech call centre in the world.
It boasts the largest single domain server outside the giant Microsoft's head-quarters in the US. Telecoms giant NTT has been so impressed by the technology that it has enlisted Halifax Direct's assistance in setting up its own call centre.
Like so many others, the society was drawn to Leeds by the availability of a quality - and reasonably cheap - workforce, an attraction highlighted in last year's Management Today/Black Horse Relocation Best Cities survey. 'We looked at the Midlands and the north of England as a whole - Nottingham, Sheffield, Manchester,' admits Riley.
'But in Leeds the quality of workforce and the catchment area was second to none.'
Harry Thelwell, associate director of development at GE Capital, agrees wholeheartedly. He explains that the group's five regional centres - spread from London to Glasgow - were all brought together in Leeds in the early 1990s after its takeover in 1990 by General Electric of the US. 'We found the workforce more dynamic, more efficient, and they had a lower cost base than anywhere else,' he says. Since then, the company that was formerly the credit arm of the Burton Group has tripled in size. In Leeds it provides telephone support for big-name retail clients like Harrods, House of Fraser, Laura Ashley and Dixons as well as the Burton Group.
Its 1,800-plus staff take over 20 million calls annually and expansion is planned for later in the year. The company's ambition is that there should be no more than 3.4 mistakes made for every million calls taken.
To that end, Six Sigma - the world's premier standard in manufacturing which aims to get defects down as close to 0% as humanly and mechanically possible - is being introduced.
The city's investment successes have led some to voice concern that Leeds could become a victim of its own success, that a shortage of skilled staff could put the brakes on the city's remarkable growth. The Regional Call Centre User Group, a self-help industry forum comprising 40 call centre companies based in Yorkshire and Humberside, reckons that recruitment for this year alone will easily top 3,000. And there are already some signs that the city's success has affected salaries. Alison Hibbard, research and development manager at Manpower, estimates that there has been an increase in salaries of 10% over the last year alone and that there is increasingly a need for companies to pay premiums for special skills.
A further challenge is the stiff competition for investment put up by other regions. Scotland in particular has some strong cards to play, notably the cluster of companies along Silicon Glen. Although the call-centre headcount is greater in Leeds, at over 50 the actual number of centres is greater in Scotland. And while Leeds has the edge in UK-based telephony, Scotland has a clear lead with international firms: the IBM centre in Greenock serves the whole of Europe, for example. So strong in fact is Scotland that the UK-wide Call Centre Association was set up there in February last year, a development which clearly smarts in Leeds.
Leeds' wide catchment area has, however, helped both to propel the city's growth and to stave off any immediate workforce worries. Mark Jones, managing partner at lawyers Addleshaw Booth and Co, describes the city as 'the communication centre of the north of England', because of the number of motorways that go through it. That is also a benefit in workforce terms, as LFSI chief executive John Howley explains. 'If you set up in somewhere like Southend-on-Sea,' he says, in a reference to the problems that Access faced with its call centre there, 'then you can only recruit from half a circle (because it is on the coast). Here you have the whole of north Yorkshire.' Some of Halifax Direct's 900 employees, says Riley, live as far afield as Warrington and Liverpool, taking advantage of the motorway network.
Certainly companies do not seem to be finding recruitment too much of a problem as yet. Riley says that when Halifax Direct recently advertised 200 jobs, he received 2,000 applications. Mark Astbury, marketing director of customer service company Ventura, agrees. Ventura has more than doubled in size since last year and, with 1,800 staff, is still recruiting. Howley puts it bluntly: 'People wouldn't be expanding and relocating in Leeds if they didn't think they could get the staff'.
Indeed, as the city's profile picks up, it becomes easier for firms to recruit talent from outside the area, whatever their line of business.
In the legal sector, for example, Jones is now finding that he can cherry pick the best and brightest of young lawyers. 'In the 1987 milk round (for graduate recruitment), Leeds was the bottom choice. By 1988 it had become the top choice for young lawyers,' he says. He quotes similar figures to the call centres and says that for the 25-30 training places the company has annually, the firm had over 2,000 applicants last year. He has no doubts why. Graduates, he says, have 'woken up' to the fact the city is the UK's second legal centre and it does not take a genius to realise that you can 'get more for your money and do not have to put up with the life of the legal profession in London'.
The fact that from Leeds you can be on the Yorkshire moors within 20 minutes also has its attractions. Jones believes that a critical mass has been reached in professional services and claims that success is breeding success, just as it has in Glasgow and Newcastle. 'The north of England and its building society movement meant that originally it was logical for banks to come. And lawyers and accountants have followed,' he says.
There is now a concentration of both lawyers and accountants in the city's business centre that does not exist anywhere else in the UK outside London.
Although Manchester is often regarded as the main financial centre after the capital and houses the northern headquarters of many firms, considerable weight is given to Leeds' case by the presence of the Bank of England's only non-London office.
The strength of the service sector in the city allows it to boast one of the lowest unemployment rates in the country. But while white-collar unemployment is continuing to fall, blue-collar unemployment is on the rise. In the inner-city wards, unemployment is running at over 14%, and in some areas the official figures are as high as 17%. 'Inner-city unemployment is a real problem. It is a waste of human resources,' says John Ansbro, chief officer of the Leeds Development Agency.
In an attempt to address the problem, the council has already set up various programmes. The East Leeds Learning Centre, for example, was specifically established to help train the long-term unemployed. The Leeds Development Agency for its part has had success with job placement programmes targeting among others the Bangladeshi community.
Official efforts to find work for the unemployed have been paramount in the case of Sunripe, a supplier of freshly cut fruit to hotels and in-flight services. Now employing 160 staff and with a turnover of £7 million, last year the company was planning to relocate away from Leeds to Kent where most of its suppliers are based. The nature of the business means that it is very labour-intensive and as Ian James, managing director, explains, he simply couldn't get the staff he needed in Leeds. He had tried the press, various agencies and had advertised in the local recruitment centre, all to no avail. To try to convince him to stay, the city council decided to take on the recruitment function for him. It set up information days in Seacroft and Harehills, two of the hardest-hit inner city areas with unemployment rates of 15% and 17% respectively, as well as sending out 7,000 leaflets door-to-door. As a result, James is now turning people away and is committed to the city once more.
While much of the effort - and the media attention - has focused largely on attracting investment in the hi-tech call centres, it is often forgotten that manufacturing still contributes significantly to the region. Peter Hill, chief executive of the Leeds Engineering Initiative, points out that manufacturing in Leeds is responsible for around 10% of the regional GDP, 20% of the city's GDP and employs around 20,000 people. He complains that all the lights have been shining on other sectors and that people only remember the manufacturing lay-offs of the '70s. In fact the sector is booming. 'There has been an air of depression because people have seen places close down, but they have not noticed what else is happening. Some manufacturing is stronger than it has ever been, but it hasn't made the headlines,' adds city councillor Keith Wakefield.
Another of the reasons for the lack of awareness of industry is that very little investment has been in the greenfield plants so beloved by the media. Ansbro says greenfield investment in manufacturing has been limited because he believes 'if manufacturing is greenfield, it is grant led'. Leeds is not an assisted area, so it does not qualify for the Government's Regional Selective Assistance: few grants are available and are thus seen as an optional extra. Nevertheless a number of foreign companies have come to the city, many of them by buying companies which have their roots in Leeds. Since much of the investment has been via acquisition, companies have been helped in ways other than the strictly financial. Merlin Gerin, for example, which makes transmission and distribution equipment, was taken over by French multinational Groupe Schneider at the end of the '80s. It has just invested in a new £10 million factory which will go on-stream next year. Says managing director Brian Peter, 'We didn't get grants, but we got help in finding the new site and in streamlining the planning process.'
The Swiss, Germans and French have all come in to take advantage of the city's knowledge base and are expanding their operations. The Swiss relationship with the city goes back to the '30s and Sulzer Pumps. Sulzer Pumps' investment became serious in the late '70s with a £10 million investment in a greenfield factory, but this was backed up again last year with a further £750,000 investment in a new testing hall. Cylinder blocks and heads manufacturer VAW has a similar story. Formerly West Yorkshire Foundries, it was bought by VIAG in 1992. The German giant has invested £62 million in Leeds over the last five years - most of it (£30 million) in a state-of-the-art new foundry at Green Cross. 'You need serious professionals and systems,' says marketing manager Adam Pritchard. 'The Germans are impressed by our productivity and wage rates.'
After an extended period of dynamism, the challenge for Leeds now is to look ahead to when its growth rates might slow down. Although no one believes that Leeds will have any difficulties in the short term, the council is already looking ahead to see what will happen when, say, financial services reach saturation point. For the moment, however, the focus is on the first half of next year when the UK has the presidency of the European Union. Leeds is lobbying hard to hold one of the major events in the city.
If that happens, what Ansbro calls 'one of the UK's best kept secrets' will become even more open to Europe.