Investing for growth: RBS

Posted on 11 Mar 2013 by The Manufacturer

After examining strategies to grow through new production processes and customisation in January, Peter Russell, head of RBS manufacturing and industrials, turns the spotlight to exploring growth opportunities through investing in three key areas of R&D, which can enable UK manufacturers to keep pace with their international competitors.

Supported by RBS

Historically, R&D budgets were among the first casualties in economically challenging times. Encouragingly however, UK industry appears to be undergoing a research and development renaissance, perhaps in acknowledgement that continuous and, in particular, anti-cyclical investment in R&D is crucial to corporate growth and the global performance of UK manufacturing.

R&D is gaining momentum

In a recent RBS survey, conducted as part of a wider report into the Future of UK High Value Engineering (HVE), almost all (98%) of those surveyed agreed that R&D is crucial to growth, and the survey results showed that manufacturers are clearly prepared to back up these sentiments with substantial amounts of capital.

Three quarters (78%) invest up to 20% of their turnover in R&D, and nine out of ten (89%) have an R&D budget of between 1% and 59% of their turnover. Corporate forces are joined by government initiatives, this includes The Technology Strategy Board which has doubled its direct HVE innovation investment to around £50m a year and, in 2010, announced the establishment of seven so-called HVM Catapult centres. These are designed to support UK manufacturing by allowing companies to access equipment and expertise that would otherwise be out of reach, providing R&D resources and facilitating access to new funding streams.*

Asia forging ahead in high tech manufacturing

In comparative terms the overall spend on R&D in the UK, relative to GDP, has been steadily weakening over time and remains concentrated in the hands of relatively few very large firms (The Council for Industry and Higher Education, March 2012), whilst our international competitors, especially in Asia, are further gearing up for growth.

In 2011, for the first time in history, total R&D spending in Asia Pacific moved ahead of R&D spending in the US with Asia Pacific countries accounting for 36.7% of the global spend, the US for 36% and Europe for 27%*. Additional threats to Europe’s established and sophisticated manufacturing base arise from the likes of Brazil and China whose governments launched during 2011 the latest in a succession of manufacturing plans, which are explicit in developing sustainable, high tech manufacturing industries whilst downgrading and moving away from the high volume, lower quality goods end of the spectrum.

For the UK to gain a more prominent position on the global manufacturing stage, UK manufacturers need to commit to a sustainable programme of investment in three key areas of R&D, which will help drive their future growth: new product development, resource efficiency and materials integration.

New product development – collaboration and speed matters

Competing both domestically and globally requires a continuous focus on developing new products.

Both the telecoms and food industry come to mind when looking at new product development strategies. Regulatory pressure, such as the need to reduce sugar or salt content in products has added to the competitive pressure for new or reformulated Investing for Growth The R&D challenge *RBS The Future of UK High Value Engineering report, November 2012 products in the food industry. Similarly Nokia or Blackberry make for interesting case studies in how revenues and market share can be dramatically influenced by product design and competitor activity.

“Design, prototyping and production of new products are critical areas of investment if UK manufacturing is to grow,” Roy Bawden, director of RBS Manufacturing & Industrials, points out. “The costs associated with these activities can be significant and companies are finding innovative ways of meeting this challenge.”

Collaboration within the company as well as with customers and supply chain partners spurs new product development (Forbes Insight/WIPRO, 2012). Toyota’s kaizen or ‘continuous improvement’ methodology is increasingly being adapted to support improved product focus in a company. Product development kaizens bring together engineers, marketers and suppliers to problem-solve the weak points of a product and further develop strong features, applying them to other product, market or customer groups. Resource efficiency

Resource efficiency

plays a decisive role for manufacturing-competitiveness and in saving costs. A number of resource efficiency initiatives showcase UK manufacturer’s commitment to achieving both sustainable and environmentally friendly production of goods whilst improving bottom line earnings.

One example is the Resource Efficiency Action Plan (REAP), administered by Composites UK. REAP aims to encourage an improvement in the resource efficiency of composite products and materials through a combination of primary resource consumption reduction, material substitution, waste prevention through design and reduced product damage (Composites UK 2012).

With 7,400 plastics companies in the UK and an industry turnover of approximately £17 billion – £4.5 billion in exports – the British Plastics Federation is also focusing on the topic and is funding six major R&D projects. These aim to help its members further develop their manufacturing processes and master new techniques to not only match UK and EU Government targets for reducing waste and increasing energy efficiency but also to help create competitive advantage by providing exclusive access to project data thereby stimulating further innovation.

Ongoing projects include researching recycling solutions for Expanded Polystyrene and Polycarbonate and to the development of a plastics pipe system using novel technology which can be used for heating, under floor and drinking water applications (British Plastic Federation, 2012).

Material integration – composites achieve double-digit growth

A major driving force behind material integration has been to produce composite materials with improved specific mechanical advantages over existing materials.

A high profile example of this is the use of such materials in Boeing’s 787 passenger jet, constructed with a high proportion of composite materials. The 787’s three plastic composite fuselage sections offer superior strength and allow the passenger cabin to withstand higher pressurisation. Maintenance costs are indicated to be 30% lower than for a comparable conventional aircraft and the all important fuel costs are estimated to reduce by 20% (British Plastic Federation, 2012).

After weathering the worldwide recession, the global composites market – with 30,000 composites applications worldwide – registered double-digit growth in 2010. Although the pace of the market subsided in 2011, it is expected to regain pace and reach US$29.9 billion by 2017 with a compound annual growth rate (CAGR) of 5.4% over the next five years (Lucintel, April 2012).

A recent study from Lucintel says that the Asian region is the largest growth area for the composites industry and it is expected to consolidate its leadership. North America and then Europe will follow as key composite markets.

UK manufacturers are gearing up: The Composites Leadership Forum has been formed to deliver the UK Composite Strategy which sets out how the UK should build on the foundations of a successful composites sector in the UK and contribute to economic growth in a rapidly developing global market. A major milestone was the opening of the National Composites Centre in Bristol, which provides world class R&D and manufacturing capability to all UK composites companies.

R&D: no turning back

R&D has long been a ‘must do’ for sustainable growth and corporate success. The R&D quartet of new product development, resource efficiency and material integration present an exciting opportunity to improve bottom line, reputation and global competitiveness – all of which are vital if the UK really is going to stay ahead.

For further insight into how manufacturers are thinking ahead to stay ahead please visit