Manufacturing in the UK – the opportunities and challenges for 2014 and beyond

Published: 28 August 2014

As a supplier to the UK manufacturing sector across the UK, Berwick Partners works with a huge range of successful, innovative and ambitious manufacturers. Whether SME-sized or large conglomerates, these companies increasingly develop and supply their technologies to a global customer base. Collectively, because of their location in the UK, they share many of the same issues that are both enablers and barriers to their future success. Many of the ‘challenges’ are well-known and repeatedly cited in industry analyses and press reports; be it the skills gap, access to finance, productivity, or the cost of energy. But it is interesting to note that we are beginning to see a shift on some of these issues, which we have highlighted below. Through our involvement with the manufacturing sector, and the bodies that represent and promote it, such as the EEF, we are in the position of having a current perspective of what manufacturers are experiencing now.

A return to pre-crisis level of GDP output, and a new optimism across manufacturing markets

In June 2014 UK GDP surpassed its previous pre-recession high of January 2008, according to the National Institute of Economic and Social Research. Manufacturing output has grown by 4.4% between April 2013 and April 2014, which suggests the recovery has been broad-based and not over-reliant on consumer spending and the housing market – and proof that the economy re-balancing process is underway. Certain manufacturing sectors, such as Automotive, Precision Engineering and Building Products, are experiencing double-digit growth rates and a return to full production, driven by both increased local and international demand. Evidently, the challenge of growing export sales has not diminished, as the strength of sterling and weaker-than-expected growth in certain parts of the world continue to thwart the efforts of companies actively seeking to develop their overseas markets. On this front the automotive market continues to power ahead, exporting more cars than ever before – with OEM’s such as JLR exporting over 80% of its vehicles overseas.

Reaping the rewards of success in export markets

Establishing a leading foothold and market-share in a dynamic and rapidly growing economy is a serious goal for many UK manufacturers – and for obvious reasons. For example, China is now the world’s largest market for passenger vehicles and therefore a significantly important market for major OEM’s who are established players within the region. In 2013 China accounted for 31% of VW’s total sales, but a staggering €9.6bn operating profit compared to a worldwide total of €11.7bn for the German OEM. General Motors, a close second to VW for the largest market share in China, generated $3.7bn net income in 2013, against a reported $3.8bn in overall net income. These figures alone assert how important having a successful international operation can be where the market is a lucrative one.

Inward investment and Government initiatives

Inward investment to the UK has been particularly strong over the last 12 months, placing it at the top of the European league table for foreign direct investment (FDI) and reinforcing the point that the UK is a good place to be for an international organisation. In 2013 FDI projects in the UK increased by 14.6% to a new high of 799, giving the UK a market share of one fifth of all European projects - according to a survey led by the accountancy firm Ernst & Young. Whilst this will be the case for service-based businesses aswell as manufacturing, it shows that the UK government’s initiative to give the UK a competitive tax regime (at 20% it is the lowest amongst the group of the top 20 major economies in the world), is helping to attract investment. This, combined with a well-educated workforce, quality of life, language, a stable political environment, and a growing economy are other highly influential features.

Running parallel to this, the Government has implemented a number of tax incentives to help companies - multinationals and SMEs alike - to innovate and grow in the UK; from Enterprise Zones to R&D Expenditure credit (RDEC) and Patent Box:

  • Enterprise Zones: there are 24 Enterprise Zones across England, allowing businesses located there to claim up to 100% Business Rates relief over a 5-year period. Some Zones have sites where companies can claim Enhanced Capital Allowances and many Zones provide even more benefits;
  • R&D tax relief incentives are available, to encourage companies to increase their spend on research and development and to ‘reward innovation’, which can either reduce a company’s tax bill or provide a cash sum;
  • Patent Box regime aims to create a competitive tax environment for companies to develop and exploit patents in the UK, and encourage companies to locate high-value jobs associated with intellectual property (IP) here. Used effectively, Patent Box will allow qualifying companies to claim an additional tax deduction, giving an effective tax rate of 10% on the profits arising from the use of patents.

It was recently announced that the UK Government is encouraging firms to apply for part of a £100m fund to support re-shoring production from overseas – an ongoing trend that is beginning to gain some momentum. This funding is also being made available to provide research and development support, skills training and investment. With senior Cabinet figures (Vince Cable in particular) giving manufacturing the status it deserves, in tandem with effective commercial incentives, it demonstrates a commitment to the UK once again being a serious player on the world’s manufacturing stage. A positive legacy of Gordon Brown’s tenure in Government is the Business Growth Fund (BGF). Established in 2011, and backed by five of the UK’s largest banks, its mission is to help Britain’s successful SME’s grow and develop, with over £2.5bn to invest in these organisations to spur their future growth.

The landscape for skills and a skilled workforce

Gather a room-full of manufacturing business leaders together on the subject of discussing the availability of skilled employees, and the result can be a rather emotive debate – veering from despair to new-found optimism for the future. The shortage of engineers in the UK has been recognised for some time as being one of the biggest growth constraints for manufacturing. For the last decade at least we have not produced enough school leavers or graduates with the necessary technical qualifications to enter the world of manufacturing as the engineers of tomorrow. EEF, the UK’s manufacturers’ association, states that nearly 80% of all manufacturers are having difficulties with recruitment – including the large illustrious blue-chip organisations. JLR and Dyson, two such brands, have committed to keeping a significant UK-based manufacturing workforce, and are going to need to hire thousands of engineers over the next few years – but even they are having to use alternative solutions to satisfy their demand. For some this means looking abroad for people to fill the gaps. Continued lobbying of the coalition government, by organisations such as the EEF, and by manufacturers themselves, of the need to alter the school curriculum to address the shortfall is beginning to have an effect. Now, funding and initiatives are being provided by the government to promote the subjects that young people need to equip them for a life in manufacturing – science, technology, engineering and mathematics.

Whilst it is evident we have a skills gap for qualified and capable people in research, design, machining and assembly, there is no doubt that the environment for attracting and training people for a career in manufacturing has evolved significantly in recent years. The scientists, engineers, inventors and technicians of tomorrow now have more choice available to them for their vocational training and enabling them to enter the workforce, than they have had for some time. For instance, University Technical Colleges are government-backed schools for 14 to 18-year olds that provide specialist technical and scientific courses for up-to 30,000 students. There will be over 30 UTC’s up and running by 2016.

Apprenticeships are now more widely available, and perceived by many as an attractive (and more commercially sound) alternative to going to University for a full-time three year course, and the government is engaging directly with large employers on how to grow the number of apprenticeships, which last year totalled 140,000.  We are a long way from some countries such as Germany, where being anything other than an apprentice is regarded as unusual, but the UK is beginning to make progress in this area – and is at the start of a very important journey.

The Royal Academy of Engineering (RAE) forecasts that between now and 2020, the UK will need over 800,000 scientists and engineers to fill new roles and replace those that will retire in that period.  Meeting this demand will require a more joined-up approach as to how the manufacturing and engineering sector engages with their employees of the future and sets them on a career in industry from an early age. It will also require a seismic shift in our schools to ensure subjects such as maths are kept in the students’ curriculum until they leave school, and science courses are taught in a more rigorous way than they are today.

Whilst our education system has a long way to go there are innovative bodies such as the Advanced Manufacturing Research Centre in Sheffield that have created their own technical and academic training functions, and this is being repeated elsewhere in the UK. Collaboration between universities and manufacturing organisations is a well-developed and essential part of the UK’s R&D capability. We are fortunate in having many outstanding Universities – and many with an R&D expertise that can supplement companies in the private sector to good effect – whether they are SME’s or large international blue chips such as Rolls-Royce and JCB.

How collaboration between industry and academia can lead to world-class research and development

In 2001 the University of Sheffield and aerospace giant Boeing came together to create the Advanced Manufacturing Research Centre (AMRC) to develop a world-class centre for advanced machining and materials research capability for high-value manufacturing. Set on what would become the Advanced Manufacturing Park, Rolls Royce soon joined the AMRC to set up a ‘Factory of the Future’ on the site. More recently the Nuclear AMRC was established – to apply the same collaborative research model to the civil nuclear manufacturing supply chain. In addition there is a Knowledge Transfer Centre to help engage businesses along the manufacturing supply chain, and a Training Centre to provide advanced apprenticeship and higher training for manufacturing companies. This partnership, between industry and academia, has become a model for future research and development centres globally.

In sports terminology, UK manufacturing’s ‘team’ is performing well and has huge potential to perform better. But its grass roots supply of future players (both individual and companies) needs particular focus and nurturing to ensure we continue to play in the top league.

Berwick Partners is a leading executive search business that operates throughout the UK and Europe, with a particularly strong heritage within the Industrial Markets.

Jonathan Burke is a specialist in leadership roles within the UK’s Manufacturing and Engineering sectors, and it part of the Manufacturing Practice at Berwick Partners.

David Thomas focuses upon senior management appointments within the technology-led manufacturing and precision engineering sectors for Berwick Partners.

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