Will UK investments end up going overseas?

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JJ Churchill is a high-precision engineering SME business in the aerospace, powergen, defence and high-horsepower diesel engine sectors. Products include the development and production of advanced gas-turbine blades and complex diesel engines assemblies.

During the last recession JJ Churchill decided that it was imperative to continue to re-invest. This stood us in good stead at a time when many of our competitors were freezing investment decisions. These investments have meant that we achieved profitable growth of 25% in 2011 and we are now looking ahead to the next step in our 7-year business plan, that of overseas expansion.

Setting up a manufacturing facility in a foreign country is a daunting step for any business, especially an SME. But our customers – such as Rolls Royce and Siemens – expect their first-tier suppliers to offer them a local service in Europe the Americas and Asia.

The company's need to grow, alongside this pressure to regionalise, meant we needed to enter the market for high volume gas-turbine blades (rather than just the development and spares market). Without the move into the high volume market, our strategic plan to become a £50m business by 2019 risked stalling.

But here's the ‘rub'. When it comes to the manufacture of high volume gas-turbine blades there are two principle costs: the cost of constantly re-investing in advanced capital equipment; and the cost of skilled labour.

JJ Churchill has been able to use technology to balance the cost of labour and drive consumer value in the relatively competitively un-constrained developments and spares market. But this model breaks down when it comes to high volume gas-turbine production. The UK has the ideal skills present for this work, but the UK's investment environment is not competitive.

Advanced machine tools now cost ten-fold what they did 15 years a go. At the same time their competitive life (not to be confused with their productive life) has come down from around 10 to five years.

The UK government's approach to capital allowances has simply failed to stay synchronised with manufacturing reality. At the same time other economies have gone out of their way to attract inward manufacturing investment.

Without a much more attractive investment environment, high technology, high-value added manufacturing will not be sourced in the UK.

JJ Churchill's decision to expand overseas is exciting and will ultimately secure our growth plan and consequently jobs in the UK. The UK will remain the source of our approach towards gas-turbine blade manufacturing process innovation and spares supply. So in one sense our move to manufacture overseas is no loss to the UK and therefore ‘invisible' to the government.

But the pity is that if the rhetoric of ‘re-balancing the UK economy towards manufacturing' (oft heard from both the previous and current governments) had more substance – including a full overhaul of the tax treatment of capital to better reflect the life-span of modern machinery – then this ‘invisible' story of overseas investment could very easily have been a good news story for the UK.

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Media Team 020 7654 1576

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