There is now widespread consensus that a thriving manufacturing industry is vital to the recovery of the UK economy. Daryl Gayler, regional managing director at RBS South Region, outlines how manufacturers in the South of England do their part to boost growth and morale in the sector by delivering best practice in a challenging business climate.
Despite economic turbulences, 2011 proved to be a relatively good year for the UK manufacturing industry. Now, with two months left of this year a number of headlines suggest that the sector faces the toughest trading conditions in years with the euro zone crisis sapping export demand from its ‘traditional’ markets.
However, manufacturers in the South of England continue to create jobs, announce further significant investments and report growing sales. How do they beat the odds and Is there such a thing as a southern recipe for success?
What makes the South and what does the South make?
The South of England benefits from a thriving and diverse manufacturing base, which has made a very positive contribution to the prosperity of the region.
Prominent among the sub-sectors setting the pace for growth in the region is the food sector with the South West being a historical hotspot. Another key area of concentration is Kent, with around 500 firms, employing over 18,000 people, which feeds into a wider food manufacturing industry throughout the South East, the UK and export markets.
In the Thames Valley it is technology and electronics firms which enjoy a high profile. In the latest Thames Valley Business Barometer (BDO LLP, September 2012) more than 70% of the respondents stated that their economic outlook has improved or remained the same in the last quarter. A reflection of this confidence is evident in increasing headcount. Forty per cent of respondents increased headcount this quarter and 42% expected to do so in the next three months.
Another sector that is performing strongly is the UK aerospace industry with more than 900 aerospace related companies located in the Bristol area. The sector, the biggest aerospace industry in Europe and second largest in the world, saw a 4.7% increase in revenues to £24.2 billion last year and boosted workforce numbers by more than 4,000 employees to 100,658 whilst investment on research and development rose by a staggering 11% to £1.97 billion (ADS, July 2012). Aerospace contributed £3.2 billion to the South West economy (ADS, 2011).
Aerospace is a fast moving sector and is not immune to structural change. Were the BAE/EADS merger to have gone ahead, the implications for the UK supply chain would have been far reaching and carried the potential for unforeseen, and perhaps unintended, consequences.
Last, but not least, the South boasts some of Europe’s most productive car plants with an automotive supply chain of more than 2,000 component manufacturers. A number of car manufacturers have announced escalations in their investment programmes for factories in the region.
Best practice boosts the South
Although many might say that the business climate in the South has traditionally been more favourable than in other UK regions, manufacturers there aren’t only successful due to their location.
By embracing similar best practice techniques, companies across the South have built an efficient manufacturing community capable of rising to current economic challenges. Interestingly and encouragingly these best practices are neither sector nor company specific, but could be applied across the whole manufacturing industry.
Best practice: Trading Internationally
Government has recently urged companies to boost much needed domestic growth through export and is already an established forté of UK manufacturing. Manufacturers are more likely to export (55% of all companies compared with 31% in the economy as a whole) and the sector contributes 50% of all UK exports (EEF, Manufacturing Focus, Spring 2012).
Europe remains the UK’s biggest export market, but its share has fallen from 60% over the last decade to 54%. A growing number of our manufacturers in the South have moved on to less ‘traditional” regions such as Central and Eastern Europe with Turkey offering particularly attractive opportunities. Other key markets include the Middle East and Asia. The foods and drinks sector, for example, reported its strongest export gains outside the EU for the first half of 2012 in Africa (+23.6%) and the Middle East (+17.7%). (FDF, September 2012)
The local UK Trade & Investment (UKTI) branches for the South West and South East (and across the UK) are an excellent first point of contact for any manufacturer in the South planning to export.
Best practice: Staying ahead of the game through innovation and diversifying the product range
The importance of innovation and R&D budgets is well known among UK manufacturers. Manufacturing accounts for 74% of all business expenditure on UK R&D (EEF, Manufacturing Focus, Spring 2012). In the South, the food & drink sector alone accounts for over 4% of the total R&D spend reported in the annual R&D Scoreboard (BIS, 2011).
Another success factor is the application of skills and capabilities into a new sub-sector. Automotive companies in the South have used their knowledge and engineering know-how to target the nearby aerospace industry.
Best practice: training best talent
Research commissioned by the Royal Academy of Engineering, found that UK industry will need 100,000 new graduates in science, technology, engineering and mathematics (STEM) every year until 2020 just to maintain current employment numbers. However, the UK currently produces only 90,000 STEM graduates a year – including international students who cannot presently obtain work visas – and a quarter of engineering students choose jobs in other sectors.
Firms in the South have broadly recognised the skills challenge they face. They are ready to utilise government funded programmes such as the National Skills Academy for Manufacturing, but they are also engaged in private initiatives. These range from company sponsored training academies for students in the automotive industry to university collaborations between Thames Valley technology firms and the nearby universities in Oxford and Reading.
Looking to the future…
The UK economy, with manufacturing at its core, is on a long road to recovery. But positive figures from the South show that the region can play a vital role in boosting the manufacturing industry overall.
Adopting best practice in the areas outlined has helped many manufacturers to not only ride out the crisis, but to grow their businesses. They set an example for other firms to follow suit.
Furthermore, after showcasing ‘Made in Britain’ at its best over the London 2012 Olympics and the Diamond Jubilee, firms in the South should see themselves well placed to leverage an increased interest in UK industry. The South – as an economically vibrant and highly accessible region – should benefit from additional opportunities, according to the UKTI, to turn casual interest into business and growth.