While the competitive challenges posed by low cost regions have not diminished, fewer UK manufacturers are reporting a significant impact from price competition in key markets, compared with 2004. Furthermore, whilst many low cost competitors, such as China, have been striving to become more innovative, only two fifths of companies saw higher value added goods from competitors as posing a threat and only 3% a significant threat, down from half and 12% respectively in 2004.
The challenge from low cost economies is firmly on companies’ radar and they are adopting a range of strategies including entering niche markets, increasing innovation and service delivery. This means that manufacturers are competing less on price and more on quality and customer service as a result.
EEF Chief Economist, Steve Radley, said:
“This survey paints a positive picture of how manufacturing companies have adapted to the challenge of the global environment. Instead of competing on price alone they are adopting a range of strategies to take advantage of emerging markets. While there are many other challenges on the horizon, manufacturers look well-placed to rise to them.”
Tom Lawton, Head of Manufacturing, BDO Stoy Hayward commented:
“The competition from emerging markets is likely to increase as these new economies move further up the value chain. We see an increasing challenge from China and India as they develop the low cost models that we have seen to date and begin to add innovation, research and increasing quality to the mix.
“However, the threat from established economies such as Germany and the US must not be overlooked. Like the UK, they are associated with quality and have access to sizeable home markets with the ability to tap into overseas markets. What’s more, manufacturers in these countries can also outsource to lower cost economies to shrink their cost base and boost their competitiveness.”
As part of their strategy, the survey shows that manufacturers will continue to look overseas to reduce costs. Seventy per cent of companies who already have overseas operations expect this proportion to increase within the next five years and one third of companies with no production currently outside the UK expect this to change by 2012.
However, the survey also shows this will not lead to an exodus of manufacturing, with the UK remaining the centre for high value innovative activity. Three quarters of companies expect the UK to be the primary location of research and development in five years’ time with only 3% of companies locating production outside the UK to access new technologies. This compares with two thirds of companies using overseas production to reduce labour costs.
Tom Lawton added:
“The UK is still the home of innovation for manufacturers, with 90% of companies carrying out in some form here. Moreover, there is still a strong demand for the low volume local niche products that are required on a just in time basis by UK customers. This has helped maintain a number of smaller companies despite the turmoil of global competition.”
The survey shows the changing nature of competitive threats, but also the significant increase in companies identifying emerging markets as opportunities.
Whilst China and Eastern Europe remain perceived as major threats (25% and 20% in 2002 compared to approximately 80% for both in 2007) there has been a marked increase in the number of companies looking to take advantage of the rapid growth in Eastern Europe (68%), China (58%) and the Middle East, where a quarter of firms are already exploiting opportunities and a further firth expect to do so within five years.
India and Russia are also viewed more as an opportunity than a threat with over a fifth of companies seeing potential in both regions and a further third seeking opportunities within five years.