Steven Barr and Ravi Gidoomal of The Manufacturer’s networked expert advisory team, Hennik Edge, reflect on what manufacturers are saying about growth prospects, and what can be done to encourage the investment needed to take advantage of opportunities before they disappear.
The Manufacturer’s Annual Manufacturing Report (AMR) 2018 provides a fascinating insight to the attitudes of the UK’s manufacturing business leaders.
In a wide range of aspects – from skills and training to digital manufacturing, and from politics and business support to finance and investment – manufacturers say they are doing well, they are ready to invest and are broadly optimistic about the future.
At the time of the AMR 2018 survey – late 2017, UK manufacturing was on a roll, enjoying the best period of growth since 2014.
An optimistic outlook
Looking at the report evidence, 67% of manufacturing leaders say that low interest rates and good availability make it easy to access cash if they need it, and 72% are confident that they can grow export earnings.
Even with high price-tag digital technologies, there is strong belief that they can deliver new customers (68% confident), better customer service (86%), improved supply chain relationships (80%), accelerated innovation (83%) and smarter working (89%).
Overall, 87% of manufacturers say they are ready to invest in new digital technologies to boost productivity.
Other technologies and other business needs are also on the minds of manufacturing leaders. For example, we see a resolute intention to bring on apprentices (71% positive) and to get involved in schools and training on site for the workforce of the future (86%).
All these good intentions need investment to pave the way to growth, and the UK’s manufacturers understand that.
Overcautious and underinvesting?
However, the AMR 2018 does reveal nagging doubts about what UK manufacturers will actually do to secure growth that they so strongly believe is possible.
Behind the headlines, the feedback from leaders indicates caution in the face of real uncertainty about the future.
The nation’s trade deficit widened by £2.5bn in this period, mainly due to large increases in the costs of imported fuel. So, are manufacturers, at the heart of UK business, right to hold back?
The drivers of uncertainty are visible in the AMR 2018 responses. While exporters have been able to ride the wave of lower exchange rates pre-Brexit, 42% of manufacturers are now seeing import costs rising significantly.
Post-Brexit, the investment climate is unpredictable, with 52% of manufacturers predicting a financial squeeze and 48% seeing good times ahead.
Manufacturers, especially smaller businesses, have always been cautious about taking on debt or equity, as indicated by the 61% who now say that they would self-finance investment if needed.
Of course, that is a good thing if the business is strong enough to re-invest in further growth. But if not, it can create a downward spiral.
Recently, we met the CEO of a small manufacturing company who has been thinking of selling for six years, while his business stagnates. Consequently, we should not be surprised if ‘ready’ does not mean ‘committed’ and ‘recognising potential’ does not mean ‘willing to invest in growth’.
The truth is that nobody wants finance even in the best of times. What we all want is the positive cash flow and profits that come from a well-focused, well-run business. Finance must deliver a return in value and in a timescale that does not frighten shareholders.
Change is costly, not just in terms of capital investment but also in new ways of working, and the time taken to roll through any project to get to the real results.
The danger now for UK manufacturers is that investment in growth will be too limited by their naturally caution, and too clouded by Brexit-related uncertaintie saround trade, and lack of clarity on the UK’s strategy for manufacturing.
The right investment strategy
So, what is to be done? How can UK manufacturers be encouraged to invest for growth and avoid missing out on the potential benefits they so clearly recognise?
First, the UK government has a lot of catching up to do with the expectations of the manufacturing sector. The new Industrial Strategy is urgently required, having been trailed and trialled for far too long.
Manufacturers are confused about fragmented government support services, including the funding available through LEPs, Catapults and other channels. Brexit is a distraction – we get that – but it is in these uncertain times that we need government to show clear purpose and direction for manufacturing so that manufacturing can lead the way to future economic prosperity.
Second, solution providers of all kinds – including financiers, equipment makers, IT systems and software suppliers, professional advisors, outsourced service companies and research facilities – need to be much broader in their thinking about how manufacturers make their complex businesses work better and bigger.
Excellent but highly specialist products and services must be integrated in a ‘roadmap’ and change programme for business growth that fosters collaboration across the client manufacturer’s interests in customers, operations, supply chain and workforce.
Hennik Edge’s new Manufacturing Expert service has been specially designed to support solution providers with key industry insights and an appreciation of how to maximise impact in a manufacturing business.
Third – and last, but not least – manufacturing leaders, especially in smaller companies need affordable, expert, peer-to-peer support for decisions that are far from easy.
While opportunities are undoubtedly strong, the breadth of challenges leaders face is ever increasing; for example, in cyber security, skills shortages and macroeconomic and political uncertainties.
Who could blame a manufacturer for sitting it out for a little longer? But many will risk being too late, finding that their competitors who invest sooner will be the ones who realise all the potential benefits covered in AMR 2018.
Affordable and empowering support is available. Hennik Edge provides a national ‘network of networks’ that brings together manufacturers looking for help, peers with an inspiring investment-to-growth story, specialist manufacturing advisors, and the best solution providers in the sector.
Our aim is to stimulate growth and business success by helping manufacturers to make sense of their opportunities, make the right decisions to invest, and make the best possible returns.
Other sources of support are available, some with a very strong and effective regional or sector focus. Clearer signposting to LEP, Catapult and other support and funding channels would help a great deal.
If you have been affected by any of the issues raised in this article we would be delighted to cheer you up by helping you find affordable expert support from your peers.
Please do get in touch:
020 7401 6033
Dr Steven Barr is a chartered engineer and expert in manufacturing business strategy and performance. He is the managing director of Hennik Edge, The Manufacturer’s networked expert advisory team, and is an active contributor to university research on collaborative decision making. Steven is a member of several industry panels promoting the adoption of digital technologies and new business models in manufacturing.
Ravi Gidoomal is an experienced banker and management consultant. He has managed investment readiness programmes and led origination for a non-bank lender. Ravi is a specialist advisor in the Hennik Edge team and works with growing businesses to mobilise and implement investment and growth strategies – from raising finance through to strategic financial management and scale up.