The opportunities and risks in 2014 - Manufacturers' views

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This week we released our annual Executive Survey, which showed that manufacturers are quietly optimistic going into 2014, expecting to see moderate expansion over the course of the year.

While most companies see a range of opportunities for growth in the year ahead, manufacturers have become more selective about the projects they take forward, focusing on those which are most likely to deliver a return.

Top growth opportunities manufacturers are focusing on:

  1. Increasing demand for products in emerging markets
  2. Commercialisation of new technologies/product development
  3. Opportunities for diversification into new supply chains

Emerging market demand for products is expected to be a key source of growth for manufacturers in the year ahead, reflecting companies' expectations of growth in these markets (see yesterday's blog).

Commercialisation of new products was the second-most reported growth opportunity. Although down from its top spot last year, 37% of companies report that it is likely to drive growth in 2014.

In line with our Innovation Monitor 2013 manufacturers said they were not just looking to new geographical markets to find new sources of demand, but many are also responding to changing patterns of sectoral demand by using innovation to diversify into new supply chains.

Key risks:

  1. Rising input costs (particularly energy)
  2. Significant movements in exchange rates
  3. Significant upward pressure on pay settlements

Input costs once again topped the list of manufacturers' concerns for the year ahead. 61% of companies said input costs were a risk, while one third said this was the most important risk they faced. Supplementary conversations with manufacturers showed that energy costs were a particular concern.

Exchange rate movements were also identified as a risk, particularly by large companies which are often more exposed to a range of markets and therefore currency movements.

The third biggest concern, pay pressure, has resurfaced in 2014 though few manufacturers expect a deterioration in workplace relations as a result.

Just outside of the top three, manufacturers expressed concerns about supply chain capacity, which is a particular issue when demand is uncertain or rises quickly.

Key actions to mitigate risks:

  1. Greater focus on efficiency
  2. Increased work with customers to understand requirements
  3. Increased work with suppliers to ensure supply chain flexibility

Boosting efficiency is part and parcel of the day job for UK manufacturers, given concerns about rising input costs it is no surprise that a greater focus on efficiency tops manufacturers' list of actions to mitigate risks.

Companies have also taken a range of actions to increase visibility of problems as and when they might occur such as increased work with customers.

With supply chain capacity a particular concern related to economic uncertain, manufacturers are also planning to take steps to address this in the year ahead.

Manufacturers are taking steps to ensure their companies are responsive, productive and flexible and this will stand them in good stead to face the challenges 2014 will bring.

Tomorrow we will blog about trade data, and manufacturers' outlook for export markets

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