Berwick Partners were delighted to host our latest Manufacturing Leadership Online Forum with Juergen Maier CBE recently, to discuss ‘A manufacturing revolution in a disruptive world’.
A graduate in production engineering, and former Chief Executive of Siemens UK, Juergen now Chairs the Digital Catapult, co-Chairs Made Smarter and serves to advice Government on the Industrial Strategy Council. He is a passionate advocate of rebalancing the UK economy and supporter of many UK-wide initiatives championing manufacturing and engineering.
As we embark on a future outside the European Union and begin to restore an economy heavily impacted by COVID, an insightful hour was spent discussing the opportunities and threats the manufacturing sector faces as we start 2021.
Throughout numerous disruptions what stands out in the manufacturing sector is its extraordinary resilience. We have witnessed the huge decline of traditional industries and the computerisation of manufacturing, through to more recent challenges from Brexit and the pandemic. We have also seen more tensions in global trade than we have had for decades.
Medium to long term there is the opportunity to focus attention on three areas; a green revolution to decarbonise; investing in innovation and research; and thirdly opportunities for localisation as global supply chains become more expensive.
A green revolution
A green revolution is vital, and we have made progress - as an example the offshore wind industry has shown how progressive industrial strategies can be achieved through private and public partnership. This started with persuading government ministers that it was a good idea. Despite some initial scepticism there was intervention to support the sector and incentives created to encourage investment, leading to huge success. It is obvious that we need to do the same for hydrogen, building decarbonisation, modular reactors and so on – if we invest and do a proper job you create demand for the technologies.
With incentives in place, people will be encouraged to engage in research, innovation and creation of best in class supply chains. It’s not a question of picking winners but investing in technology. Free market economics are gone; every nation is supporting what they see as key technologies. We are in a competitive race; private sector research investors will have choices and we need a bolder plan to scale key green technologies then reap the value this creates.
Investing in innovation
The UK can be an innovation powerhouse focused on research and development. The Government are investing £15billion, we have some of the best universities in the world and cutting-edge research capability that should encourage companies to invest here. We need to move the needle, with investment that creates interest from the private sector to enable us to reach the 2.4% GDP target for R&D. To get there leveraging private sector money into innovation is key.
We also need to think about how we replace the lost giants of our industrial heritage, research champions such as GEC and ICI. Technology and research companies such as Google, Amazon and Apple are centred elsewhere - we need more local research giants. This creates the environment for scaling up our tech industry. We are getting better at this, for example advanced material companies that are coming out of academia and centres of excellence in Manchester. Further capability is being built up around Oxford, Cambridge and Bristol. We need to be a bit more protectionist, creating local champions whilst encouraging inward investment to enable innovation to flow.
£15billion is a good start, but in times of crisis our thinking needs to be bolder. We need to create a mega Innovate UK to compete with the rest of the world. You only have to look to Germany where the Government has created a recovery fund of £150billion, to see that more needs to be done. People will buy into our excellence, but we need to scale. The creation of a battery giga plant in Blyth is great news and we need much more of this.
Public money could be utilised to create incentives for investment in electrical vehicle infrastructure, or 3D printing, digital twinning, robotics etc. The Made Smarter initiative has received £160m but the pandemic has exacerbated tight balance sheets and more support for scaling is required.
The jury is out on the benefits of localisation but if there is to be an upside from Brexit then an increase in local production of advanced technology may well be advantageous. Putting a strategy in place that supports businesses to localise and set up appropriate supply chains could provide long-term benefits. There is already massive supply chain disruption with rising costs for Asia containers, and changes to non-tariff arrangements from exiting the single market. Increasing trade barriers and disruption might see the opportunity to create stronger incentives to produce locally. Real intervention through grants and support would give manufacturers with extra costs some incentives to localise.
When we do trade deals in the future, for example with the USA, our core fundamental has to be to support local manufacturing and local supply chains, not deregulation or any lowering of standards. Global deals are going to be important and we must balance our instincts for free trade with support for our industries in an increasingly protectionist world.
There is also the question of free ports with potential upsides weighed against the displacement downsides. There could be some trade advantages particularly if focused on hi-tech, high value products. Northern Ireland may see some manufacturing benefits as it is now effectively a free port aligned to EU standards. You have to balance any localisation strategy against the reality of how supply chains work. Multi-product ‘Zebra’ factories such as Nissan mass producing all their model variants in the UK for the UK could be an option, and the sustainability agenda is also likely to encourage localisation.
The scale of most local UK markets dictates that exporting will still be critical. Global markets also encourage innovation and give a truer picture of how to optimise production. Any technology innovation needs to consider global trends. Rules of Origin may create pressure to localise, but this potentially includes moving supply to the European market to meet customer demand and reduce new regulatory burdens.
The railway and offshore wind industries have tried to localise previously, but it is not straightforward. You have invested supply chain knowledge that is expensive to replicate. SME’s will need the roadmap of a coherent industrial strategy with support and incentives to enable investment. The UK is often caught between our free market instincts and the reality that some intervention is necessary. Sector leaders need to be vocal, encouraging ministers and evangelising the benefits of a strong industrial sector. Our ambition should be to lead the word in new technologies such as hydrogen fuel cells or electric cars.
Incentives will dictate the types of businesses we grow in the UK. The lauded German ‘Mittelstand’ community has been created due to a culture that values and celebrates manufacturing – the jobs and exports this creates is in the German DNA. The UK manufacturing sector generates two thirds of our R&D and 50% of our exports, yet we still lack belief in the importance of the sector. We need creative support, an ‘eat out to help out’ equivalent for manufacturing, and certainty of investment from longer-term spending commitments.
Manufacturers must continue to fight to enable profitable transition to the fourth industrial revolution and beyond, scaling innovation and the R&D ecosystem from which our SME’s can profit. We need more businesses like BAE, Rolls Royce and Siemens centred here; the primes that create supply chain opportunities for smaller firms.
The anchor of R&D is profound and an incredible lure for local manufacturing. You can re-shore production, but it is the R&D element that creates the environment for success. We must design a bold, ambitious strategy, particularly now we have the pressure on balance sheets from the COVID crisis. We need to think about creating an independent public sector governed fund that takes debt into equity, releasing capital for investment in technology with longer term repayment plans. Increasing the flow of grants for people to engage in technology would be fantastic and the High Value Manufacturing Catapults are an excellent vehicle to push this out into the market.
We are now masters of our own destiny and there is a great opportunity to create a turbo-charged industrial strategy, focused on innovation, skills, net zero and digitalisation. Our technology creativity needs investment support to overcome scaling difficulties. Germany have the KFW Investment Bank, France didn’t pause their spending review during 2020 – the UK needs to be more focused on recapitalising and supporting industry and recognise the central role manufacturing can play in creating jobs and greater prosperity.
The Aerospace Technology Institute is a good example of how to support a critical industry and channel funding to where it is required. Sectors such as aerospace & defence, automotive, pharmaceutical are the largest value creators and need attention; but we need to broaden verticals to include arenas such as hydrogen, then also look at horizontal markets such as digital and robotics.
We need to carefully protect our key strategic industries but also maintain our traditions as a free trading nation. Some feel that the role of Government is to provide infrastructure and leave companies to get on with it. However, potentially huge markets such as Hydrogen or Electric Cars need prime pumping and a joined up strategic plan to pull it all together. There is a way to gain advantages through clever innovation and promote post Brexit UK across the world. With the right support we can encourage organisations to get out there and create world beating cutting edge technology that benefits us all.
David Thomas is a Partner at Berwick Partners, focused on supporting organisations with key leadership appointments within the manufacturing space.