Our research shows that manufacturing is the engine to drive productivity growth across the whole economy having beaten whole economy and services productivity growth in the past.
UK manufacturing productivity levels were catching up with international comparators in the run up to the 2008 recession. However after this, and the collapse in productivity growth, this trend went into reverse.
There is not one factor that can completely explain the productivity performance of all manufacturing sub-sectors so a targeted solution is needed. Our initial assessment of what is needed has identified the following:
Size matters, with larger companies being able to exploit economies of scale, vertical integration opportunities and with it, higher levels of productivity. Our analysis shows sectors with a higher share of larger firms tend to outperform internationally.
- Boosting capital investment is not a silver bullet solution, for some sectors significantly investing more may not bear fruit. As an example, despite Italy having higher levels of investment in capital equipment compared to Germany, productivity levels in Italy are weaker.
- More UK manufacturing sectors undertake ancillary services as part of business operations compared to international counterparts. This suggests UK manufacturers are more likely to be at the end of value chains where the opportunities for productivity growth may be lower, but profits higher.
Lastly, management practices across UK manufacturing do not reflect international best practice with a long-tail of companies with poor management practices. Evidence suggests companies with better management capabilities are more likely to have higher rates of productivity growth.