It's time to seize the manufacturing opportunity
Manufacturing Despite much commentary about its demise, manufacturing remains very important to the UK, supporting around 5.1 million jobs directly and indirectly.
Manufacturing is valuable…
Despite much commentary about its demise, manufacturing remains very important to the UK. The recently published, “Made Smarter,” review estimated that manufacturing supports around 5.1 million jobs in the UK directly and indirectly. EY’s view is that, with induced employment included we might be heading towards 7 million in total, or over a fifth of the UK workforce. The sector is even more important in relative terms in many areas of the UK, accounting for 22 per cent of economic output in Sunderland and 25 per cent in Hull.
Its importance goes beyond its contribution to manufacturing sector jobs and output. According to the work for Made Smarter, the sector accounts for 70 per cent of UK business research and development (R&D) spend and 14 per cent of all business investment. At a time when the UK is struggling to improve productivity, manufacturing is the sector offering a way forward.
…and increasingly available…
I could have made the same observations as those above about manufacturing at any time in the last 20 years but I would have been cautious about the prospects for the sector in the UK. Since the 1980s, UK manufacturing has been under pressure from increased competition and the shift of production to low wage economies. As EY’s work on reshoring demonstrated, the UK offshored a greater share of its manufacturing output than any developed economy.
We now find ourselves at a defining point in the evolution of manufacturing globally. Businesses in developed markets had begun questioning their moves to offshore production to low wage economies as the impacts on innovation, quality and time to market started to detract from performance. Technological change is now increasing this move, offering the potential to reduce the importance of labour costs as a share of total production and tilting the balance back towards location in developed markets, especially for high value goods that appeal to western consumers.
…and the UK needs to act…
With technological change creating opportunities at the same time as Brexit is challenging UK manufacturers to improve their competitiveness, now is the time for action. The UK requires an integrated approach to manufacturing that includes trade and domestic policies and that is designed to operate at both national and local levels. Institutional and political reform will be key pieces in the jigsaw: it is not only manufacturers themselves that will need to do things differently to ensure success.
At the heart of any programme has to be a higher level of co-operation between business and Government at all levels. This will ensure policy is designed to have the right impacts, build the confidence necessary to encourage investment and allow integrated policy making. The key components will be infrastructure, skills, innovation and institutions.
…with a clear strategy…
Just like any business would do, the starting point should be the articulation of a clear vision and strategy. This will require that choices are made, especially around the sectors to be given priority and the role the UK believes our businesses can play in these sectors. This is not “picking winners” in the sense of identifying national champion companies but it does require taking a view on where to focus resources. At a macro level there are already obvious candidates. Health, construction and energy are sectors in which changes in the economy and society are already creating opportunity and the ones from which additional benefits will flow to the domestic economy in terms of better and more efficient provision. Automotive is a sector in the midst of major disruption and food and drink will need to transform after Brexit. There are more candidates but the potential is clearly there.
Alongside the sector focus, geography will also be important. The value chains for manufacturing are global and the UK needs to identify where it can play. Working with business, Government has to assess existing capabilities and outline its vision of the future options available for manufacturing. It will then be possible to for BEIS to shape Government interaction alongside the existing business support networks, LEPs, interest groups, Chambers of Commerce to help domestic and foreign businesses understand the opportunities in the UK.
…and a plan…
With a clear strategy and framework, the individual components of policy become easier to design. Potential investment and spend on infrastructure, skills and R&D can be evaluated against the priorities. If the UK decides renewables are a target sector than infrastructure investment should reflect this and skills development should take into account the level and type of skills required. Equally, support for R&D in universities and businesses should be weighted towards potential deployment in the target sectors.
This will also require more devolution of powers to the local level. While some of the activity, such as major infrastructure provision and incentives for investment, will remain national in nature, the provision of the right infrastructure and skills development locally will be vital to ensure a match to sector demand. The largest cluster of automotive manufacturing is likely to remain in the Midlands, while the strength of the food sector in the North East will continue and so skills need to match the demand locally.
There is no time to lose. The market is changing and so is the UK. We have managed to retain and develop our manufacturing base despite relatively little policy support. With a new focus there is a chance to build a modern, manufacturing sector and move up the global league tables.