Olympic follies, fools’ gold?

The 2012 Olympics have been billed as a huge opportunity for economic regeneration in east London, but ironically the Games may be too big to benefit most local businesses.

Hackney is increasingly known for the ‘creative industries’ – media, arts, design. Indeed, this sector is now the largest in the borough. Hackney’s July 2006 Cultural Policy Framework boldly states that “The regeneration of the site for the Olympic Games is set to bring major new economic and cultural investment in Hackney and it is essential that we secure a sustainable legacy for local people and businesses”.

Because of the way the contracting process for the Games is organised, however, it is unclear that 2012 is going to be successful in harnessing the borough’s immense creative talent. It also remains to be seen how other prominent sectors such as construction, retailing, catering and services will fare. The one thing that does seem certain is that the principal beneficiaries will be large national and multinational firms based outside the Olympic boroughs. Let’s see why.

Displacement, disruption and 1500 jobs lost

Already preparations for the Games have brought considerable disruption to eastern Hackney. A number of local businesses have been forced to relocate at significant cost, and many of those that have not been displaced have found their rents going up.

In June The Times reported that 80 per cent of the 350 companies served with compulsory purchase orders to make way for the Olympic site are still fighting for compensation.

In their reply to a request by the Hackney Citizen under the Freedom of Information Act, the London Development Agency revealed that 41 Hackney-based businesses employing between them an estimated 1579 employees were forced to relocate on account of the Olympics. Only one of these firms (with 35 employees) has remained in the borough, and 12 have closed down entirely. The borough has therefore already lost over 1500 jobs with local businesses.

In other cases, local businesses have been forced out because premises are becoming too dear. Rising rents are a particular problem in Hackney Wick, where the vibrant artistic community is already feeling the pinch.

Leigh Niland, a painter and printmaker based in the Wick has lost her studio space and will likely be priced out of the immediate area. She admits that the pubic funding for cultural activities associated with games represents an opportunity, but she also notes that not all artists are interested in public commissions: “Most of us are interested in doing our own work rather than engaging with public projects. There needs to be a niche left available for people to get on with their own ideas”.

Olympic contracts out of reach for most local businesses

Despite high hopes on the part of many firms, few of Hackney’s businesses can expect actually to win contracts directly from the Olympic Delivery Authority (ODA), which is the conduit through which the majority of the funding associated with the Games will be doled out.

Though ‘community engagement’ features prominently in the ODA’s ‘corporate objectives’ that form the basis for the ‘balanced scorecard’ against which bids for contracts are assessed, there appear to be few concrete mechanisms for ensuring that the tendering process is of direct benefit to the local business community.

A recent report by the New Economics Foundation highlights the obstacles faced by small and medium sized enterprises seeking to tender: ‘it is already clear that smaller, local firms are struggling to compete for a part of the huge Olympic construction, service and sponsorship contracts, many of the latter already allocated to multinational firms with no obligation to make sure that investment benefits the local community’.

European Union regulations on competition are often cited as a reason why local businesses cannot be given any special privileges, though as the New Economics Foundation points out, there are ways round this, such as building into contracts the specific objective of ‘regeneration and sustainability of the community’.

Yet there is scant evidence that this is happening, and most of the opportunities for smaller firms are therefore to be found in sub-contracts, where there tends to be an in-build inertia to supply chains.

Kevin Davey of the Hackney Enterprise Network estimates that three-quarters of all firms that will win Olympic contracts have already got supply chains in place, and Nick Winch of the Federation of Small Businesses points out that absolute imperative for the Olympics to be staged on time enhances the perceived risk of switching to a local supplier.

Unless local businesses act fast to integrate themselves into the existing supply chains of larger firms, they may lose out completely. The soon-to-launch website (www.elbp.co.uk) of the East London Business Place (an initiative of the five boroughs that will host the games) aims to help match needs to smaller local suppliers, but it remains to be seen how successful this will be.

The bureaucracy surrounding the ODA tendering process can also be rather daunting to many smaller enterprises. In order even to qualify to bid for ‘tier one’ contracts with the ODA itself, they have to have in place an array of policies and procedures, and the paperwork can be extremely time-consuming.

Della Tinsley of the East London Design Show is a London Fields-based businesswoman who has experience of this process. She led a consortium of ten businesses that made it through the qualification process and were deemed ‘fit to compete’ for tenders.

Though this group was one of the few such organisations in Hackney to make it that far, the actual tendering proved extremely demanding, making the consortium members reconsider their strategy. Tinsley notes that “part of the issue when you’re dealing with one or two man bands is that you can’t give up a week’s work to prepare a tender”.

And there may be cultural obstacles to successful competition as well. The Olympic tendering process certainly has the potential to professionalise the local business community. When firms sign up with the ODA to compete for contracts, those that do not meet criteria for health and safety, quality assurance and environmental policy are referred on to business support services in order to bring their standards up to scratch.

Winch claims that just under half of all businesses that have so far tried to register on this system have been offered help of this kind. This takes time, of course, but it can also be of long-term benefit to firms.

Winch argues that the process of raising standards is a legacy in its own right, as it serves to improve the practices of all those who seek business through the Olympic contracting process. However, there is evidence of resistance to this sort of professionalisation on the part of certain people, especially those in the creative industries, some of whom expect to benefit from public funding as a matter of right.

Tinsley talks of a “culture of entitlement” in the creative industries, a view shared by Davey, who has been part of the borough’s efforts to skill up small businesses to tender for Olympic contracts. He has observed the “habituation to the drip of public funding” that keeps many of Hackney’s micro-businesses going. “When businesses hear that public funding in the local area is going to get very big, they want a bigger share of the very big drip”.

But the Olympics doesn’t work like that. If local firms want to get a cut of the profit from the Games, they will need to improve their business practices and their networks. No Hackney-based companies have entered into any of the ODA tenders where a pre-qualification questionnaire is required, ie for contracts over £25,000.

Passing trade?

There are clearly many other ways in which Hackney-based enterprises can benefit from the Games outside of the formal tendering process. For those in retail, catering and related sectors, the influx of people in and before 2012 will bring trade.

The best bet for many small businesses in the creative sector may well be the Cultural Olympiad, which kicked off at the end of September. The various legacy projects, many of which are still in the very early stages of planning, could well also provide some possibilities for local businesses to profit.

At the same time, the benefits to be had from these opportunities may be difficult to realise. The legal morass that surrounds Olympic terminology could well catch some firms by surprise. The London Olympic Games and Paralympic Games Act 2006 prevents businesses other than official sponsors from using combinations of words such as ‘summer’ and ‘2012’ in marketing and branding.

A recent report by the Chartered Institute of Marketing describes the regulations as ‘draconian’, and it reveals that 86 per cent of British businesses either had no understanding or a limited understanding of the Act’s provisions, though two in five of them were planning some sort of Olympic-related marketing activities.

Hackney businesses also stand to suffer due to the fact that much of the borough will remain relatively isolated in transport terms, despite the massive effort being put into up-grading transport links in the run-up to 2012.

Michael Sinclair, former Chair of the Stoke Newington Business Association and owner of the Sunstone health club, sees in the Olympics a means of boosting tourism in Stoke Newington. But he admits that transport is an issue: “It would be good if there were a temporary bus route”. It remains to be seen how such a route might materialise; the myriad transport links being laid on for the Games largely bypass most of the borough.

The Legacy: Hackney Wick to become the new Soho?

If legacy developments represent more potential for small businesses than official Olympic contracts, there is also considerable doubt that the legacy will bring the benefits once hoped.

Hackney Wick will be home to the International Broadcast Centre and the Main Press Centre during the Games, and it had originally been intended that the resulting 1.3 million square metres of space would eventually be turned into a hub for hi-tech media industries such as film and television.

However, it has recently been announced that 80 per cent of the media centre complex will now be a temporary structure, to be torn down after the Games. The complex may also be downsized, and some of its functions moved to the Olympic Village.

The grand designs to make Hackney Wick the new Soho – plans described by the Council as “one of the most significant and transformative legacy opportunities the Games offer Hackney” – have thus been all but dashed. With many of the new jobs to be created by the Olympic legacy dependent on the use of the media centre, this development is particularly worrying for Hackney.

Following the creation of a Legacy Board of Advisors in early October by London Mayor Boris Johnson, new ideas emerged, such as the establishment of a university campus in Hackney Wick as a joint venture between UK and Chinese academic institutions, but details of this plan are still vague.

What is clear is that there is a tremendous amount of uncertainty surrounding the Olympic legacy in the current economic climate.