Threat from the East

Manufacturing News, Source : TheManufacturer.com
Published : 22 Dec 2004 10:35

China is the biggest threat to UK manufacturing. The number of companies who feel that way has grown to 57 per cent from just 18 per cent in 2001 and 27 per cent in 2002, according to a report from the EEF.

China is followed by Central and Eastern Europe (27 per cent) and India (18 per cent). In contrast, since 2001 the perception of the extent of competition from the traditional markets has fallen dramatically, with the EU dropping from 53 per cent to 17 per cent and North America from 20 per cent to 8 per cent.

To counter this threat from the lower cost economies of the east, UK companies are successfully adopting a twin track approach of combining an increased focus on innovation and outsourcing abroad to lower costs, the report says.

The survey showed almost half of manufacturers said that more production would take place outside the UK over the next five years, with the primary reason being to achieve cost reduction (86 per cent). A further fifth were considering outsourcing. In addition, two thirds of companies said their dominant focus was on increasing innovation, with 46 per cent saying they were also developing niche markets and customising their products.

However, the survey raised concerns that these efforts at success are being undermined by a series of damaging competitiveness indicators in the UK, which are likely to be exacerbated by increasing levels of regulation from the EU.

Of particular concern for UK policymakers was the fact that on a rating of 1(negative) to 5(positive) the UK scored below 3 on five out of six competitiveness indicators – transport, planning, other business costs, taxation and regulation. Only skills availability was regarded as having a neutral impact on businesses.

Companies also believed that the UK government must make every effort to encourage EU governments to pursue an enterprise agenda:

six out of ten companies said they thought the EU business culture was poor

India’s business culture was regarded as better than that of the EU

China was rated better than the EU on skills availability and only just behind on business culture

Commenting on the survey, EEF director general, Martin Temple, said:

"These results prove that manufacturers are well placed to succeed in an increasingly competitive environment by adopting strategies which focus on adding value in the UK, whilst making best use of the options that low cost manufacture overseas gives them. However, we must ensure that companies who go down this route are doing so as part of a long term business plan and not because they perceive the UK as a poor location for manufacturing."

Commenting on the UK and EU business environments, Temple added:

"The figures also provide a stark warning that the low cost economies of the east are arriving like an express train. If UK and EU policymakers do not commit to measures that will free up enterprise and make their economies more dynamic, there is a grave danger the Eurozone will be left standing on the platform."

The report highlighted four key pillars which companies should adopt in meeting the challenge of the east:

• the constant need to innovate in everything firms do to stay ahead

• the need to examine their markets and decide where best to focus

• focus on efforts to improve their productivity and innovation in the UK as well as examining options for outsourcing overseas

• examine new revenue streams through service provision

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