Secret of the Mittlestand?

Subscribe to Campaigning blog feeds

Published

Flicking past the continuing coverage of Team GB's awesome medal tally and then the continuing coverage of the eurozone crisis in the FT, there is an interesting piece on some of the factors that have contributed to the long term success of the German Mittelstand.

Policy makers often look at this particular part of the continent and look for the qualities we should seek to emulate in the UK. And never more so than now as we struggle to generate growth based on trade and investment that our economy needs. So what are the secrets of the Mittlestand - here's five to get started with.

...but has someone already let the cat out of the bag?

1. Innovate and retain a manufacturing base in your home market

We've been writing quite a bit about innovation recently. It's key to growth, key to driving productivity gains and for a majority of UK manufacturers, it's key to meeting their strategic objectives, according to our Shape of British Industry survey. If there is no such thing as a sustainable competitive advantage in manufacturing, innovation is a vital area of investment that can keep companies ahead of the competition.

Take a chemicals company that, in response to rising raw materials prices, responded with innovation to redesign some of its product range to minimise price increases for customers without compromising quality.

This agility was helped by having production and innovation closely linked. The production process can be as important when it comes to world class manufacturing. For some manufacturers, there are clear advantages to having core manufacturing activities in the home market. Our Global Value Chains survey showed that one in seven companies had returned some production from lower labour cost economies back to the UK because inconsistent quality, unpredictable lead times and variable costs were undermining their competitiveness.

2. It's all about services too

And it's not just product innovation that matters for UK manufacturers. EEF's Innovation Monitor shows a steadily increasing proportion of manufacturers engaging in service innovation. As one capital equipment manufacturer put it "it's no longer enough to sell product, you have to provide the support services that will maintain it through its life cycle".

In addition to being a differentiator, more UK manufacturers are deriving revenue from such services, which can provide a cushion through a period of weaker demand.

3. Help train future employees

For UK manufacturers, recruiting and retaining skilled employees has been an uphill challenge for more than a decade. With problems at multiple points in the STEM skills pipeline UK companies have become more and more active in building a talent pool for the industry. Last year's Manufacturing Workforce survey showed that 55% of manufacturers were planning to up their investment in skills in the next 12 months and that the recruitment of new apprentices was also high on the agenda.

Good practice can be found in the machinery sector with one company working closely with other local manufacturers to maximise the recruitment of apprentices and the benefits that brings to the community and supply chain. Another large company has a long running relationship with local schools, offering opportunities to visit the company and supporting the delivery of the STEM curriculum.

4. Expanding into foreign markets is essential - but be careful

UK manufacturers are clearly looking beyond the domestic market and the sluggish growth prospects in Europe for other potential bright spots. In May markets outside Europe overtook our traditional EU trading partner as the main destination for goods exports. But even this underplays some of the significant growth rates in exports to emerging markets over the past few years - see our exporting medals table for more details.

5. Harness networks

Collaboration happens in the UK too. It is important for companies of all sizes when it comes to product development and forward planning. Collaborative activity can strengthen supplier and customer relations, improve demand visibility, reduce costs and improve flexibility.

PS When is a 2.9% month on month fall in output good news? When the consensus was expecting a fall of 4.3%.

The Index of Production data for June was always likely to signal a sharp drop in output, given the disruption to working patterns over the Bank Holidays. However, the latest manufacturing figures from ONS suggest the fall was a lot less than first estimated. So what does this tell us ... well not a great deal. Our feedback still suggests that although confidence is fragile there is still growth to be found in overseas markets. The real question is whether July's data will confirm that output was simply displaced or whether we really have got something to worry about.

Author

Chief Economist

Other articles from this author >
Online payments are not supported by your browser. Please choose an alternative browser or make payments through the 'Other payment options' on step 3.