EEF blog

As part of a three-part series, Stephen Radley, EEF's Director of Policy and External Affairs, is assessing the future for UK manufacturing. The first installment looked at how UK manufacturers weathered the recession, the second piece looked at the prospects for growth and this third - which coincides with the launch of EEF's Manifesto for Manufacturing - sets out what the next government should do to rebalance the economy.

 
Steve Radley lobbying Teresa May MP at the recent Conservative Party Spring Forum

Earlier this week, we've looked at how the resilience of UK manufacturing should help it tackle the challenges and opportunities of the next ten years. But the shift to a better balanced economy will happen in fits and starts - and it's up to government to set out and implement a clear, coherent strategy for facilitating that shift.

Whoever forms the next government faces a daunting task. The decisions made in the first 100 days will have long-term implications: they will determine our ability to generate the growth and prosperity, to fund much needed infrastructure improvements and to create job opportunities across our society.

The next government must, therefore, put in place a strategy that ensures that we can pay our way in the world. 

And a diverse and dynamic manufacturing base must be a part of that strategy. 

It is clear the next government needs to develop a credible plan for reducing the large fiscal deficit it inherits.  But how it goes about this will be critical.  Its plan must be centred on reductions in public spending, driven by significant improvements in the effectiveness of the public sector, strict control over costs and a fundamental rethink of what government does.

The alternative approach of saddling Britain with significant tax rises, particularly on business, would be highly damaging. It would weaken our competitiveness, undermine businesses’ ability to invest in growth and jobs, and send out the wrong signal to international companies looking at where to put their next investment.  

But the choice for the next government cannot be just a negative one - we will only overcome our problems if we know where we want to go.

In our Manifesto for Manufacturing we set out how the next government should refresh itself to become more focused and effective. We suggest reforms that will create an internationally competitive business environment that sends the right signals to would-be investors. And we set out a proactive agenda for growth.

It must send clear signals about its long-term priorities and the importance it attaches to specific technologies or markets and work more closely with business to identify and overcome the obstacles to growth in these markets. It also needs to engage much better with industry in conveying its long-term needs when it is buying goods and services from it. Finally, at a time when finances are extremely tight, a new government must prioritise spending in areas that will deliver sustainable economic growth.

We also need a business environment that encourages manufacturers to make their next investment here.  For example, the tax system must reflect the true cost of modern machinery, while we need to maintain the advantages of a flexible labour market and address longstanding concerns over regulation by developing a new approach that costs and limits the amount of new and existing regulations and by strengthening the assessment it makes of the impact of new regulations. 

More positively, the government can help manufacturers to take advantage of growing world markets by creating a single source of finance to support ambitious, growing companies that are making long-term and risky investments and by ensuring we have the world class export support that UK Trade that helps these companies to develop new markets abroad.

It must also ensure that the education system delivers the science, technology and engineering skills industry needs and that it is straightforward for companies to access the training that they need. Manufacturers must also feel confident that they won’t be facing an energy crunch, five years ahead. 

It is vital that the government delivers on these priorities but ultimately it is down to manufacturers to take advantage of the opportunities that are out there.

In that respect we can take a lot of confidence that UK manufacturing is a very different animal from what it was even ten years ago - because the path to a more prosperous Britian will be built by a stronger manufacturing base.

NOTE: As part of a three-part series, Stephen Radley, EEF's Director of Policy and External Affairs, is assessing the future for UK manufacturing. The first installment looked at how UK manufacturers weathered the recession, this second piece looks at the prospects for growth and the third - which will coincide with the launch of EEF's Manifesto for Manufacturing - will set out what the next government can do to rebalance the economy.

In my initial piece, I set out how UK manufacturing changed itself to remain successful - and survived the recession - despite facing competition from low-cost economies, a strong pound and rising costs.

Having weathered the worst of the last ten years, UK manufacturing is already preparing for the challenges and opportunities of this decade. At the end of the coming decade, manufacturers in the UK will need to have changed yet again.

In our vision for UK manufacturers, they will be large and global or small and capable and ambitious enough to grow into the multinationals of tomorrow. Their close relationships with customers and suppliers, investors and innovators will allow them to respond flexibly and quickly to market demands. And their innovative outlook will give them a sustainable competitive advantage and make them an attractive career option for engineers and entrepreneurs alike. In sum, they will need to become more diverse, agile and innovative.

The opportunities for generating growth will depend upon our openness to global markets, our focus on knowledge plus high value products and services, and our exploitation of fast growing markets. But given the challanges facing the sector, it will undoubtedly evolve in fits and starts, matching the disruptive tendencies inherent in global, open and flexible markets. Only a stronger, globally-focused manufacturing sector will help generate the wealth needed to correct our economic imbalances and contribute to broader national prosperity.

Indeed, the challenges facing our society - dramatic demographic shifts, strategic security challenges and serious environmental concerns - are also the potential markets for manufacturers. At the same time, we can’t be complacent that we can sit back and let these markets come to us. Manufacturers will need to be alert, agile and ambitious.

UK manufacturing is extremely well placed to take advantage of the markets created by the major challenges facing the world. 

In the low carbon economy, we have significant strengths in areas such as low carbon vehicles, engine technology, nuclear power and renewable energy such as offshore wind and marine.  But in other areas such as global security, we have significant strengths in aerospace and defence and electronics, as we do in healthcare technology and pharmaceuticals to meet the challenges presented by an ageing population.  

The UK needs an economy that is diverse enough to prevent the future build up of economic imbalances, robust enough to face its long term challenges and dynamic enough to turn those challenges into opportunities. 

In short, we need an economy that draws more heavily on productive, high value sectors with greater export potential.

While it may seem a daunting challenge, manufacturers are well placed to put themselves at the heart of healthy economy.

EEF's 'Manufacturing Week' is making waves in the US.

At their request, I've been talking about Manufacturing Week on the manufacturing social network MfGCrunch. Here's an exerpt from my post:

"With an election looming and our economy crawling out of recession, the simple objective of 'Manufacturing Week' is to put manufacturing at the heart of the debate on the future of the UK economy.

In the UK, the manufacturing sector is plagued by persistent myths - that manufacturing is in decline, that we don't make anything anymore, that industry is dirty and dangerous, that successful kids go to college while the slow ones work in manufacturing, and - even more dangerous - that we can keep the clever stuff in the UK and send the production abroad.

These myths are rooted in dated images of industry and sit awkwardly with the widely accepted need to 'rebalance' the economy by growing manufacturing.

But what to do about it?

Well, the answer was simple - start standing up and shouting about what makes modern manufacturing so great - and so competitive - in the UK.

See, for the past 20 years, we've had bankers and lawyers pushing politicians to support a 'post-industrialist' society. They got what they wanted because they made politicians take notice.

But instead of griping about the recession they caused, we decided to take a page from the bankers' playbook and start 're-educating' the public and our politicians about modern manufacturing and why the sector is so important to the future of our economy.

As part of this campaign, we launched 'Manufacturing Week' to allow UK manufacturers to stand up for themselves, to be heard and to get in politicians' ears.

We've had special reports in the Telegraph, the Financial Times and The Times - all showing modern manufacturing as the diverse and dynamic industry it is.

And manufacturers are hosting events all around the country and blogging on why manufacturing matters.

Sure, it's been a struggle. UK manufacturers are modest by nature - they just like to get on with being a successful business.

But get them going and their passion is contagious."

And the conclusion from nearly 100 delegates in the North West today was ‘Yes, manufacturing should be at the heart of a future balanced economy.’

One of a number of events going around the country for Manufacturing Week, EEF and the North West Development Agency hosted a debate at Jaguar Land Rover’s impressive facilities at Halewood. 

The panel brought together a range of views from manufacturing, business support, finance and EEF to discuss issues from how we take advantage of low carbon opportunities and concerns about the public finances to how we improve the image of manufacturing and get businesses and universities working more closely.

The audience was firmly on the side of manufacturing – it is important to our economy and it can be bigger and more important in future. 

And while 90% of delegates agreed that government needed to get stuck in if this was going to happen, the majority also recognised that manufacturers can and should shout louder about their contribution to the economy and their communities.

Panellists and audience members agreed that raising the profile of industry during Manufacturing Week was a critical part of this, but that it was everyone’s responsibility to carry this forward beyond the 5th March.

As we continue to mark Manufacturing Week with our we ♥ manufacturing campaign, the Chairman of the Commons Business Select Committee, Peter Luff MP, has written a very positive article on the importance of manufacturing, in which he argues:

"[We should] stop talking manufacturing down.  I get more than a little irritated when politicians and journalists lazily talk of the decline of manufacturing. Yes, I know manufacturing’s share of GDP has shrunk, but in absolute terms we are making more things than ever.  We are the sixth largest manufacturing nation on the planet. We are number two in the world in aerospace. We are number two in the world for life sciences. We are number one in the world in motorsport – and that’s a huge and highly specialised industry employing thousands of engineers. We have the second largest premium car industry in the world. And we have a lot of more traditional industries too – chemicals, metals, bricks and so on that can still flourish in a globalised carbon-conscious economy.

NOTE: In a three-part series, Stephen Radley, EEF's Director of Policy and External Affairs, will assess the future for UK manufacturing. The first installment will look at how UK manufacturers weathered the recession, the second will look at the prospects for growth and the third - which will coincide with the launch of EEF's Manifesto for Manufacturing - will set out what the next government can do to rebalance the economy.

Like the rest of the economy, manufacturing has been through a tough time over the past 18 months. But more recent signs - including EEF's latest quarterly sruvey of members - suggest that the mood amongst manufacturers is changing.

But just because things are looking brighter for manufacturing, we shouldn’t be complacent.

The recession will have damaged supply chains, some companies will struggle to find the skills they need to meet increased orders and businesses will remain vulnerable if they cannot access the additional working capital they need in the early stages of a recovery.

But the more positive figures should also serve remind us of the major strides that manufacturers had made before the banking crisis hit. 

Even up to the middle of 2008, many manufacturers were reporting their best results for at least a decade: Investment intentions were strong. Profitability was soaring. And employment was expanding.

These gains were achieved on the back of a fundamental rethink of what UK manufacturers needed to do to compete in world markets. The recession of the early years of the last decade had shown that too few manufacturers had the right strategies to cope with the rise in competition from lower labour cost countries and with unfavourable movements in exchange rates.

One of the most significant changes has been a shift away from competing on costs.

EEF research in 2004 showed over a third of companies aggressively cutting prices in response to lower labour cost competition. By 2007, this proportion had fallen to just one in eight firms.  In addition, almost half of them had considered but rejected this option, recognising that this was not a sustainable response to low-cost competition. 

In contrast, nearly six in ten manufacturers had taken action to increase focus on innovation with a further 30% either planning to or considering it.  Companies also reported that they were seeking to compete by developing niche products and service offerings. Reflecting these changed priorities, more manufacturers reported that design and development rather than production and assembly would be a key source of competitive advantage in the future.  

Their commitment to these strategies is illustrated by last year’s annual EEF Innovation Monitor which showed that despite the recession, manufacturers reported an increase in most forms of innovation and expected this to continue. Our research also showed that companies were taking a longer view of investment with payback periods lengthening and were increasingly focusing on more intangible forms of investment such as research and development, design and marketing and organisational change. 

This change of tack has already started to deliver results.

After lagging behind the rest of the world’s major advanced economies in the 1990s, UK manufacturers were second to only the United States in improving productivity in the years before the recession. And despite the biggest contraction in world trade since the last world war, a recent EEF survey showed that over a third of manufacturers had managed to expand their exports, with a further 16% maintaining export volumes. Indeed, some 15% recorded an increase of 10% or more in exports. 

We are also starting to see some manufacturers starting to bring production back from abroad. Our most recent research showed one in seven firms doing this, in part reflecting disappointment with the cost savings and quality standards achieved by their investment abroad and concerns over getting products to market fast enough.

But it also demonstrates that more manufacturers have found that they can compete from a relatively high wage cost location like Britain...and it's why UK manufacturers are leading the economy out of recession.

It's a good start to the UK's first Manufacturing Week.

First EEF's Manufacturing Outlook shows that Britain’s manufacturers are looking to the future with greater confidence about the prospects for recovery: orders are returning and companies are consequently the most upbeat since the financial crisis began in mid-2007.

And then today's PMI's showed sustained strength, and the best export-orders since July 1996! More importantly, the Eurozone PMIs showed renewed strength in German and French manufacturing...again, more good news for exporters.

But we have to be cautious about predicting a strong rebound, as a number of factors could knock growth off track.

The recovery depends on world markets continuing to grow, and the financial system’s ability to provide finance is yet to be fully tested. And investment plans are also likely to remain on hold until manufacturers get a better sense of how a new government plans to repair the public finances.

A few month ago, I spoke at a North West RDA's launch of its Manufacturing Strategy. My talk was on innovation in manufacturing, but during the panel debate afterwards, I got a fairly pointed question:

"Do the politicians get it?"

The answer I gave was a resounding 'No'. Beyond Lord Mandelson, there's little understanding of what makes modern manufacturing successful.

The audience grumbled, so I pressed them: Why, did they think, did finanical services get a light-touch regulation over the past 20-plus years? Because they stood up and asked for one. They argued fairly persuasively that the UK needed to move to a 'post-industrial' economy, and the politicians gave them what they wanted.

While the devastating depth of the recession has proved the City wrong and got people talking about manufacturing again, where are the manufacturers standing up, demanding to be at the heart of a healthy economy?

At EEF, we're doing our bit - our Manufacturing. Our Future. report was the first step in a campaign to shout about what manufacturers need to be successful.

But as an election draws closer, it's time for manufacturers themselves to stand up and get engaged.

That's why we've started our 'We ♥ Manufacturing' campaign. It's not really driven by EEF, but by manufacturers talking about why manufacturing matters. The audiance is prospective MPs and the public. If you support manufacturing, then tell us why. 

How else are the politicians going to 'get it'?