How good could the UK be?

Posted on 16 Mar 2011 by The Manufacturer

Speaking at the Global Manufacturing Festival: Sheffield, Siemens’ Juergen Maier says that UK industry is in a good place but with more investment could do much better.

Mr Maier, managing director for Siemens Industry UK, acknowledged that the previous Labour administration and the Coalition government had both given manufacturing greater priority than earlier governments, and had recognised specifically that engineering and automation were important parts of this sector.

He identified five main areas for business and government to fix in order for the UK to achieve nearer its full potential as a manufacturing economy. They are:
Investment and a strong focus on research and development; the availability of finance; the UK’s culture of investment; tax and regulation and the skills strategy.
Maier’s most emphatic point was made by comparing the UK’s 2010 manufacturing recovery with that of Germany. Last year, UK manufacturing grew by 3.6%, outgunning the aggregate economy. But in that time, investment in capital equipment fell by 8%, and this was following the 2009 recession year when capital investment fell by 20%.
By contrast, in Germany manufacturing grew by 7% in 2010, a significant jump on the UK, but in that period investment in equipment in Germany rose by 9.4% [figures sourced from Oxford Economics]. “This is the UK’s Achilles’ heel,” Maier said. “Given these differences, imagine how good the UK could be with more investment in technology.”

Investment in R&D
In R&D, he focused on the new generation of Technology Innovation Centres, or TICs, which will research opportunities to commercialise engineering for applications like urban mobility, low carbon vehicles and wind energy. The UK needs to position itself as the unequivocal best location for R&D, especially the development, of these sectors in the world, but there is a lot of work to do.

In February Mr Maier’s company Siemens confirmed the location of its £80m offshore wind turbine manufacturing factory near Hull. Why had it chosen the UK? “Not because we have the appropriate skills or good R&D facilities for wind here, but only because of the size of the UK market in the long term,” he said, while acknowledging government’s approval of the £60m port development fund to upgrade ports for moving large turbines.

Access to finance
Start-up businesses have high risk profiles and seed investment costs, and have not always been a favourite beneficiary of investment. Maier told the audience that last year, the German public sector bank KfW lent Eu80bn to the private sector in Germany, many of whom were the Mittelstand, medium sized family businesses, new tech firms and start-ups. Compare this with the Green Investment Bank in the UK, set up to provide finance to start-ups, he remarked, which will be capitalised with only £1 billion initially.
Several initiatives like the Local Enterprise Partnerships, or LEPs, and the Regional Growth Fund, will augment this investment. “But its a scattergun approach and to have a demonstrable positive effect on UK business, these need to linked up, and much larger.”

Culture of investing
For process efficiency, in a short plug for Siemens, Maier told the convention that his company’s own research has revealed some startling statistics. UK manufacturing uses thousands of industrial motors, at least 50% of which are running below optimum energy efficiency. “If they were all replaced with the most efficient variable drives, the total investment would be paid back within one year on energy savings alone,” he said.

Siemens in an acquisitive company and in the UK has taken over parts of companies such as GEC and Ferranti. Looking at their capital equipment levels, it was obvious these businesses were starved of investment, he said, “with automation nowhere near the levels that Siemens would insist on within its internal businesses.” He acknowledged that it was a shame the UK had few domestically-owned large companies, where without the influence of foreign companies, manufacturing would have demised much further.

Short term purchasing gains
Despite the relative low investment levels, factory productivity in the UK is very high, prompting again Maier’s question; how good could it be?

Siemens, he said, invests about £1bn a year in automation hardware and software. But frequently, companies that provide automation technology find that short term purchasing gains take priority over the full lifetime cost, and there is low uptake of end-to-end systems that would really make a big difference to life-time productivity levels.

Tax and regulation
His message reiterates that of manufacturers organisation EEF and other trade bodies – be consistent. “It’s no good to introduce short term tax relief on R&D if you’re going to change the criteria a year later, where financial planning is one, two or more years in advance,” he said. The biggest perpetrator is, arguably, the Carbon Reduction Commitment, which changed from a voluntary, league table-based carbon penalty system to a pure direct tax overnight. The bill for this for Siemens UK was £1.2m, while the original CRC system was zero cost. “It’s not a great incentive for investment in carbon reduction,” he added.

According to Semta, for whom Maier is a board member, manufacturing will need a further 600,000 apprentices and junior level employees in the UK in the next 10 years to meet demand for infrastructure and forecast industrial growth. Aggregating all the current pro-apprenticeship schemes will only deliver 50% of this demand in the time period.

The good news, he adds however, is that the Government is behind apprenticeships, even though the delivery mechanism is hard to understand, especially for SMEs and urgently needs simplification. The traditional university route to work is still far more popular than the vocational education route, despite schemes like STEMNET and the Apprenticeship Ambassador initiative. There are other, big but fringe events that are pushing the skills agenda, such as the Big Bang event held in London last week, promoting careers in science and engineering, which was attended by 30,000 school children. Siemens itself has a collaboration with the Black Country Technical College to give more young people an insight into working for the company.

Mr Maier had several other messages – including highlighting the example of local firm Gripple, the wire fastener manufacturer, which spent 44% of its turnover (not profits) on R&D in 2010 – for the convention. Overall, the simple message was a familiar but essential one: invest, and create a stable tax environment to instil confidence in UK plc for a 10, or better a 20-year horizon.