An overview of the insights gleaned from an exclusive roundtable discussion hosted as part of The Manufacturer Director’s Forum, co-hosted with Investec Corporate and Investment Banking.
The evening’s conversation on business prosperity and growth had input from UK manufacturers operating in a variety of different sectors and of varying sizes. The majority are fast growing and export-focused, and several are making sizeable, strategic investments in digital manufacturing technologies.
Despite the doom and gloom perpetuated by the mainstream media of late, there was a very tangible sense of resilience and ambition from the senior executives sat around the table at Manchester’s Lowry Hotel.
That’s not to say they weren’t acutely aware of the very real risks that they and their businesses face; rather, they exhibited a sense of bullish pragmatism – a trait manufacturers (particularly in Britain) are renowned for.
The CEO of a world-leading metal detection solutions manufacturer, for example, noted that his business was currently investing heavily in R&D to create ever-more innovative systems and build on its competitive strengths – an approach he foresees will stand his company in good stead whatever the future may bring.
A specialist sub-contract engineering business is capitalising on the fact that none of its competitors are investing in capital equipment by fitting out a new £1m automated production line, according to one of its Directors.
That same business is also working to diversify its product mix away from solely focusing on automotive, which should offer some insulation against fluctuating orders and production volumes.
The UK’s economic environment
The evening kicked off with an invaluable and insightful overview of the economic and political landscape provided by Investec’s Head of Economics for Europe, Philip Shaw.
Given the rapidly approaching deadline regarding UK and EU negotiations, it’s no surprise that “Brexit is on everyone’s minds,” said Shaw, describing Theresa May as being “fully aware of the big issues for businesses and manufacturers, in particular”.
“The PM understands what EU integration brings to business,” he added, “hence her Chequers Plan aimed to offer the best of both worlds – global trade deals for the UK and no hard border for Northern Ireland. However, the economic details of the deal are still very thin, particularly around regulatory alignment and future trade agreements.”
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With most MPs not wanting to force a ‘No-Deal’, could an extension of the Article 50 process be the most likely outcome? If so, not many of the delegates were in favour of another six to 21 months of further indecision.
“Businesses require certainty, especially regarding investment” said one Finance Director, with Shaw noting that overall business investment is 3% lower than the previous year as uncertainty continues to bite.
How is uncertainty impacting business decisions?
The Managing Director said that his team had been contingency planning for the past six months for a possible ‘No-Deal’ and had made significant investments in finished goods and raw materials. A deal being secured, however, would mean that this capital will have been needlessly tied up.
“Something manufactured in Britain is six-times the price of the same product manufactured in India, so we’ve got stay competitive,” he added. “Our business looks for every inch, every incremental gain and has a deep-rooted culture of continuous improvement, regardless of a fluctuating foreign exchange rate or political uncertainty.”
A Managing Director of a major food manufacturer warned, “We might face exposure on raw ingredients by as much as an additional 30%. Could our, and other UK businesses, cope with that being wiped off our margins?”
The Finance Director of an international wallcovering manufacturer summed up many people’s experiences, “We are increasingly being asked for prices from customers for products which will be delivered post-March. How can you accurately do that? We don’t know how high or low any additional tariffs will be.”
The Operations Director of a Queen’s Award-winning medical manufacturer noted that his company was currently sitting on large reserves, not because of Brexit or political instability, but to act as a cushion should a large service or utilities government contractor go into liquidation and leave many millions of pounds worth of bad debt in their wake.
“I’m more worried about what impacts these companies than my own,” he commented.
It was a comment that prompted Investec’s Philip Hulme to note that while companies do need some cash sat idle for emergencies, most of that capital could be set to work and generate returns for the business.
The biggest issue attendees voiced regarding Brexit was that it “sucks all the air out of the room.” Manufacturers face numerous perennial issues – recruitment and retention, transport and Wi-Fi infrastructures, sustainability goals, productivity and changing customer demands, none of which have been a long-term focus for government over the past 30 months.
With both the US and China trade war and the ongoing affects ‘dieselgate’ impacting all major exporting nations, Brexit is “just another thing to overcome,” according to one Product Director.
One Managing Director noted that the maxim ‘Innovate or Die’ was true before Brexit and it will be even more important afterwards, adding that the successful companies will be those who are agile, flexible and innovative. To that, many attendees agreed that Brexit would likely separate the wheat from the chaff.
One of the possible benefits of the current uncertainty around Europe is that businesses are increasingly looking to export further afield. Of those represented at the table, a sizeable proportion either already had a strong presence in North America, Asia and Australia and were looking to build on that, or were forging trade links in those territories for the first time.
For more information on how Investec can help make your growth ambitions a reality, visit www.investec.com or contact Philip Hulme on 0161 819 7930