Infrastructure affects the business environment in which businesses operate and for manufacturing this is no different.
This blog post brings together some of the ways manufacturing competitiveness is affected by infrastructure provision.
Manufacturing is geographically spread
This is a problem for some areas of policy making which can often focus on urban centres of population. Access to manufacturing sites in less urban areas predominately relies on use of the local road network. This has an implication on policy in other areas such as employee recruitment and retention.In addition other infrastructure challenges, such as new electricity connectivity (the UK has fallen from 64th to 74th (2014) in the World Bank's Ease of Doing Business index on this measure) and broadband connection, are resolved at an often slower pace in non-urban areas.
Manufacturers sell physical products - which need to get to market
Reliable journey times when moving goods is crucial; particularly as updated production techniques are introduced such as 'just in time' manufacturing and supply chains become more global with lead times becoming shorter. Delays add costs in a number of ways.
This again reinforces the importance of roads, and for exporting surface access to ports and airports. The final stretches of road to many ports are often local roads where congestion can build up in an unpredictable way and where priority for improvement is often low.
Airports are also important as high value, low volume/weight goods are exported through this route.
Manufacturers make deals face to face
As the UK looks to grow our exports, air connections to existing and emerging markets will be key for the biggest deals to be struck. Communication technology is useful for maintaining established relationships, but as many studies and our own survey have shown, will not replace the need to travel.
Manufacturers are part of the infrastructure construction supply chain
Manufacturers create products for use in infrastructure construction. A CEBR study shows that every £1bn of infrastructure investment, once filtered into the wider economy, sees a boost in GDP of which 8.5% can be attributed to manufacturing activity. Additionally, for every 1,000 jobs created from infrastructure construction, around 250 are created in manufacturing from indirect or induced impacts.
This area of manufacturing has been dogged by U-turns around planned infrastructure investment, affecting the level of investment in capital machinery. As the Infrastructure UK report put it:
- 'Sustained uncertainty and the cyclical nature of infrastructure investment in the UK has contributed, over several decades, to a significant shift from fixed to variable resources, i.e. there is a greater use of subcontracting and less direct investment in construction. Lower capitalisation and the higher levels of subcontracting increase the internal transaction costs in the UK, in particular through the premium cost of risk transfer down the supply chain to second and third tier supply chain providers.'
Manufacturers make investment decisions at a global level
These include decisions on where to site new production facilities, which are major investments, based on long term investment decisions. Quality of infrastructure is the 4th most important factor when it comes to choosing where to invest for manufacturers.
Stability along with convincing long term plans to tackle issues such as future energy supply (and costs) and airport capacity and connectivity all play a part in the decisions manufacturers will take when deciding where to base their operations.
We believe that a body, such as the proposed Infrastructure Commission, could be a major game changer in providing stability and reassurance to manufacturers looking at where next to make their big investment.