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Manufacturing sector seeks action not words from the policy-makers


Manufacturing is alive and coping reasonably well within the UK’s ’age of austerity’ but the sector needs to seek new markets and promote long-term planning to secure its future, writes John Burbedge


That’s the combined view of two significant reports on the manufacturing sector, produced in association with BDO and published recently.1


One underlying theme of the reports is a call for the Government and sector stakeholders to work together to create a strategic plan for the future of manufacturing.


Paul Duckworth, head of manufacturing in BDO’s Southampton office, agrees: “Our surveys show that engineers and manufacturers believe that manufacturing has a future within the UK and can be successful over the next decade, but also that the sector needs long term, consistent and planned help to achieve its full potential.


“Germany is a good example, but many countries have managed to build a long-term plan for their manufacturing sector that rises above election- based politics and establishes it as a fundamental of the economy and the UK needs to do the same.


“This structured focus on manufacturing would help rebalance the UK economy – in many peoples’ minds, too dependent on its service sectors.“


Policymakers also need to make the UK more competitive as an investment location, simplify the tax and regulatory environment, build stronger UK supply chains, and ensure the supply of skilled graduates for growing companies, says Duckworth.


While UK manufacturing has gone through a generation of change, becoming leaner and more flexible in the process, it has not lost its globally admired qualities of innovation and high-standard production. The resilience of the UK manufacturing sector, particularly against competition from low-cost producers in emerging nations, is another fine quality, but sadly not one that easily translates into bottom line profit.


Many manufacturing companies already export well, some within global markets and supply chains, but perhaps too many still focus on the financially troubled eurozone. This reliance on EU trading (and UK domestic markets) is currently hampered by depressed sales, reflected in the UK’s slow economic recovery from recession. Sterling values have helped in some export markets, and the Internet is still a major opportunity for SMEs to become global operators, but rising energy and commodity costs have cut margins, and company growth is being hampered by lack of funding options and appropriately skilled graduates.


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There is confidence in the sector, says Duckworth, it’s just that investment plans seem to be on hold, as manufacturers wait for the right economic wave to break.


“In a tough market, the local marine sector seems to be faring comparably well. There are some great local success stories of businesses showing strong growth in the past year. Growth is largely being driven by overseas sales, particularly to emerging markets rather than the uncertain eurozone.


“A surprisingly large number of smaller companies in the Solent area are involved in the aerospace and defence supply chain. It’s great to see these companies working together with the bigger players and importantly working with each other collaboratively. This really helps sustain the local market in these continuing difficult times,“ says Duckworth.


So, is the UK manufacturing sector ready to grow? Is it overcoming ’Age of Austerity’ challenges? Can it be more competitive in worldwide markets?


We asked some Solent area manufacturers for their views – a company that has embraced the opportunities of low-cost Asian production; a successful UK company now part of a Swiss- owned global corporate; and a ’home-grown’ UK family run business.


Manufacturing the Future (May 2012), produced by BDO/IMechE. Manufacturing Outloook (June 2012), produced by EEF supported by BDO


1 REPORT FINDINGS


• only 6% of manufacturers believe banks currently provide enough support.


• two-thirds believe the Government should establish an ’industrial bank’ supporting the manufacturing sector.


• only 25% believe the Government is adopting the right strategies to support and develop UK manufacturing.


Chinatool: Global markets can reduce risks


Founded in Portsmouth in 2000, the now Hong- Kong based Chinatool Group has successfully combined western design, technical and project management skills with low-cost production in Asia, to give customers a ’European-standard service.’


Its Chinese operation, built in 2007, manufactures tooling and injection moulded parts for new cars, supplied to production lines across Europe, US and Asia.


Financial director David Wilkinson, explained: “We tend to put labour-intensive products out to China and less labour-intensive activities in the UK.“ European sales and distribution is managed from Solent region offices at Gunwharf Quays.


“The automotive sector has a huge focus on cost. If you can provide the same part at 20% less by using a global set-up then you do.“ Control of transportation, operating costs and production efficiency are paramount.


Increasing energy and materials costs are usually passed on to OEM customers, who recognise the pressures of their suppliers – “it’s about establishing a good working relationship, supported by monitored costs-data.“


“The big hurdle is maintaining supply. Quality and reliability is vital. While each part may only cost a few Euros, if the production line grinds to a halt, €millions could be lost in labour and time.“ Chinatool is never complacent, says Wilkinson.


“Our current issue is falling demand in the European market. We don’t have any guaranteed sales figures, so if less cars are sold we make less parts.


“The real strength of our global business model is the broadness of the markets that we service. If we were only supplying Europe, we could have seen a 50% drop in volumes with nothing to cover it. With a global footprint, there is always a growing market somewhere.“


Chinatool’s graduate level engineering trainees go to China to learn ’on the job’. “But, finding UK engineering graduates has been difficult,“ admits Wilkinson.


While still low, Chinese labour costs are becoming more expensive. “At some point we will need to expand into another geography with a young developing manufacturing base,“ says Wilkinson.


THE BUSINESS MAGAZINE – SOLENT & SOUTH CENTRAL – SEPTEMBER 2012


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