The Government’s redrafted manufacturing strategy was launched one year ago to some acclaim — a more sectoral approach that wasn’t embarrassed to pick sectors on merit. One year on, has it passed the test? Mark Young and Will Stirling report.
The Government’s manufacturing strategy Manufacturing: New Challenges, New Opportunities released last September led with a quote from Prime Minister Gordon Brown:
“…for this government manufacturing not only has been, but remains and will always be, critical to the success of the British economy…”
Many would argue that, contrary to the PM’s words, policy for manufacturing has played very much second fiddle to that for the service sector, particularly financial services, during a New Labour tenure spanning 12 years.
As the floodwaters of the financial crisis rose in autumn 2008, the potential of industry to rebalance the economy was emphasised with the release of New Challenges, New Opportunities — henceforth referred to as MS08 or the Strategy. The review addressed the need to respond to global changes in manufacturing by focusing on five key pillars:
• Global value chains and the fragmentation of production
• Accelerate the spread of technology exploitation
• Intangibles such as design, branding and R&D
• Investment in people and skills, and
• The move to a low carbon economy
A change of tack
Government launched its original manufacturing strategy in 2002, which identified seven critical success factors including macroeconomic stability, investment in capital equipment and processes, science and innovation, best practice and more.
Important services were established as a result, including the Manufacturing Advisory Service, the Technology Strategy Board and the National Skills Academies. This paper was reviewed and expanded in 2004. In 2008 a redrafted strategy was launched that took elements of MS 2002/2004 with new objectives and shaped them to address the perceived needs of manufacturers in a global economy.
Government strategy for some 30 years, beginning with the Conservatives, had been an enabler-based strategy, focused on creating an environment in which business including manufacturers could, supposedly, flourish, while government remained ambivalent about which particular sectors thrive. The focus was to provide “skills”, a competitive infrastructure, an R&D intensive environment — things to create an exciting and conducive environment for people to do business. Government didn’t pick winners. “This was devoutly the sermon, when I wrote the strategy in 2004,” says Nick Brayshaw, recently retired chairman of the CBI National Manufacturing Council. “Suddenly since Lord Mandelson’s arrival they’ve heard the signal voices from this  paper and the TUC, which said horizontal enablers are necessary but not sufficient.”
“You also need a vertical base, a sectoral strategy which looks at individual sectors and applies those enablers to them specifically, in order that they remain globally competitive.” Brayshaw sees this transition of thinking by government, manifested in the 2008 review, as a seminal moment in UK manufacturing strategy, that is “profound, and has been massively under publicised in the media — it is fundamentally important to industry.”
MS08 was followed by two further government reports on manufacturing. New Industry, New Jobs was released in April 2009 at the time when the two state departments, for Enterprise and Regulatory Reform and Innovation, Universities, Science and Skills were merged to form the Department for Business, Innovation and Skills. The Low Carbon Industrial Strategy followed in July. Most recently in July, government pledged £151m to what it calls Advanced Manufacturing.
One year on from launch, what is the evidence that government is applying this combined enabler and sectoral-based matrix to tackle issues of a global economy, and are its forms of support addressing manufacturers’ real needs?
Realising overseas opportunities
The report said: UK Trade & Investment (UKTI) will allocate additional resources to target a package of new support for 600 UK companies of all sizes to identify manufacturing value chain opportunities in India and China.
UKTI says that target is for the current financial year, as nobody had been appointed to address the value chain remit until this year. In May, Paul Calver, a global value chain specialist who has worked for BAE Systems and Cobham, joined UKTI to help deliver this mandate. At the time of writing he had directly supported 20 companies — a small dent in the 600, but commendable in the time available. “This number will increase significantly over the next few months,” UKTI says.
A large proportion of the work for manufacturers that UKTI has done in the last year is for the aerospace sector. Examples are its work to help companies identify opportunities with the large C919 aircraft programme undertaken by China’s aircraft maker COMAC and the facilitation of a meeting between the Minister for Trade, Business and Investment Mervyn Davies and the new chairman of Hindustan Aeronautics at the Paris Airshow in June.
Support for aerospace was reinforced by the £151m disseminated recently for advanced manufacturing. Specifically, Rolls-Royce was allowed access to three of the pies on the table. The aeroengine maker was given £45m towards an internal expansion programme and will head up two research programmes, including the Samulet R&T Programme, with a combined investment value of £85m. That leaves just £20m for other sectors, with the beneficiaries of the balance including the Printable Electronics Centre in Sedgefield which will get £12m and create 1,500 jobs by 2014 and a Centre of Excellence for silicon design in the South West which will get £500,000.
Beyond aerospace, UKTI says it is establishing a mentoring network, carrying out scoping studies, and planning UK trade shows for companies looking to enter the Chinese and Indian markets. It is also identifying opportunities in anti-counterfeiting technologies for the Chinese pharmaceuticals sector, harnessing wind opportunities in China, indentifying ICT (information and communication technologies) opportunities for UK SMEs in India and is creating a ‘Sustainable Cities’ business guide.
Click here for a list of value chain actions by UKTI.
The review said: The Intellectual Property Office will take steps to publicise their newly produced guidance for UK companies on protecting and exploiting intellectual property in key emerging markets such as China, India and Brazil. The IPO says it has made real headway with explaining IP to business since MS08, and highlights its regional one-day seminars. Miles Rees of the IPO concedes that a smaller proportion of attendees than he’d like are manufacturers.
Improving technology networks
In addition to a centre in South Yorkshire and the centre being built in Glasgow, the Strategy pledged a new Manufacturing Technology Centre (MTC) in Coventry which will have industrial scale pre-production and demonstration facilities, which could lead to £130m of investment in business-led applied research and its exploitation over the next 10 years. The Strategy Action Plan says MTC is due for delivery by the end of 2010. The plans for this centre were first announced in June 2008. Approval for the Coventry centre has not been granted, but a decision is expected this year.
Advantage West Midlands (AWM) and the East Midlands Development Agency will finance the MTC, but the size of the investment means it needs approval from the Central Project Review Group (CPRG), which approves Regional Development Agency (RDA) funding. This is an example of a disconnection between government departments. Having committed to the centre in June 2008, a year later construction still needs approval by another branch of government. An AWM spokesman said the RDAs have now submitted the final documentation, which will be supported with a presentation to CPRG on September 9.
In another commitment, MS08 declared that the Technology Strategy Board will invest £24m into research for central to high value added manufacturing. Here, government has exceeded its forecast. Announced in late July, the TSB is providing almost £75m for the two aforementioned aerospace research projects.
Making the most of intangibles
MS08 said: the Design Council and Regional Development Agencies will implement the findings of the current review of the Designing Demand (DD) programme to increase penetration of the programme, helping to ensure the UK design sector has the skills required by manufacturers to compete in global markets.
The DD review inspired five key recommendations: 1) aligning with other Solutions for Business (SfB) products (the range of initiatives government’s Business Link has in place to equip companies with knowledge and skills; for example Train to Gain); 2) tightening of metrics and measurement; 3) implementing SfB branding; 4) the creation of a sustainable model for the Designing Demand programme and 5) raising the profile of DD.
“We are implementing all of these recommendations and have made considerable progress in all of these areas,” says Louise Connolly Smith, senior partnership manager for Designing Demand. “Regions are extending DD contracts and are delivering to more businesses with a focus on the high impact growth services. A recent evaluation shows that over £20 million turnover increase has occurred in companies completing design projects within the programme.”
The Design Council has published several complimentary case studies supporting the programme, although it is hard to assess the influence of MS08 on the effectiveness of DD since the Strategy launch — all of the case studies pre-date 2008. The Design Council says 60% of the companies going through DD are manufacturers, these include oven maker Aga, fuel cell developer Ceres Power and knife manufacturer Harrison Fisher. Aga and Designing Demand worked together to design new ranges which have allowed Aga to increase profits by 14% between 2003/2004 and 2005/2006, and increase exports by 38% in the same period, with sales of the redesigned ranges growing from £2m to £7m in four years. “The difference BIS has made is that the DD review highlighted that there should be a focus on the DD Growth Services withinthe regions, offering manufacturers more opportunity to receive support and access the programme,” says Design Council’s Paul Cannon.
MS08 promised a new focus on skills which would see 1,500 new, high quality manufacturing apprenticeships. These, in addition to 9,000 more Government-supported places announced in 2008 by the Sector Skills Councils, would increase the total number of manufacturing apprenticeships by over 10%.
Gordon Brown reiterated his commitment to this in January when he announced, on a visit to Rolls-Royce’s aerospace training centre in Derby, that a £140m expansion will see 35,000 more apprenticeship starts across all areas of business compared with 2008, bringing the total number to over 260,000 apprenticeships.
A new quango, The National Apprenticeship Service, was launched in April to administer the programmes, taking the emphasis away from the Learning and Skills Council, which was slammed in a report by the Innovation, Universities, Science and Skills Select Committee in July on misallocation of funding. At the start of August just 616 successful matches had been made through government’s apprenticeships.com, despite over 17,000 vacancies having been listed and £3m having been spent on its high profile, Sir Alan Sugar-led marketing campaign.
A spokesperson for NAS said the total number of new Apprenticeship starts in England for the first nine months of 2008/09 is 196,600. If this figure is correct, the 260,000 target for the year will be on track. NAS could not provide accurate figures solely for manufacturing, blaming the ambiguity over which industries manufacturing covers.
Steve Radley, chief economist at the manufacturer’s organisation EEF, says that confusion is currently the biggest obstacle to the development of apprenticeship plans. “Another commitment was to larger companies to supply apprenticeships to work with their supply chain — there’s been some progress with this,” says Radley. “But generally there is much more uncertainty about funding for apprenticeships, which has already been reduced to include only adult apprenticeships meaning there is uncertainty for the younger, more traditional age group. This is a good initiative being clouded by uncertainty over funding.”
But it is the skills an apprenticeship provides which are important and not simply the job. “No-one can predict where the economic cycle will be in four years,” says Radley, “but if you look at the skills needs in manufacturing even now, if you’ve passed a high quality apprenticeship the chances are that your job prospects are strong, if not with that company but another one.”
Recent news to surface on skills provision is that Peter Mandelson is preparing consultation material that will suggest handing responsibility for skills paths to the RDAs. This was met with mixed views with some, like EEF, fearing the goalposts of the desperately convoluted skills market would be changed again, confusing manufacturers further.
Changing the image of manufacturing
MS08 said: a new initiative, ‘Manufacturing Insight’, will focus on improving the public perception of manufacturing to ensure young people are aware of the exciting career opportunities available to them in the sector.
BIS targeted the launch of Manufacturing Insight by the end of 2009. An announcement about its roll-out had not been made by the end of August, but BIS announced the appointment of Nick Hussey as its director on September 1. No official announcement has been made about the body’s formal mandate as this article went to press.
The programme “will have its work cut out” says EEF’s Radley. “There are positive things to say about manufacturing but it’s a sector that has lost many jobs in the last 12 months. The audience is teachers, parents and schoolchildren so it’s harder to get a positive message across in such a climate.”
The Manufacturing Institute (TMI), which delivers the government funded MAS contract in north-west England, runs the Make it in Manufacturing image campaign (www.makeit.org.uk) that is helping to attract young talent into the sector. Part of this involves bringing local manufacturers into schools to set pupils the challenge of structuring their own manufacturing company and making products.
The idea, says TMI’s Nicola Eagleton-Crowther, is to ‘”dispel the many myths and negative perceptions that young people and their influencers have about manufacturing and promote the sector as an exciting and rewarding career destination. The credit crisis has underlined the critical importance of manufacturing and engineering to UK wealth generation and there’s an urgent need for a national hearts and minds campaign that will help develop the pipeline of talent needed to secure industry’s future.” She adds: “With many competing priorities, we hope that the government can deliver fully on its plans for Manufacturing Insight and we look forward to learning more about this crucial initiative.”
Seizing the low carbon economy
This is the basket that government has pledged most of its eggs over the last year, in terms of proposed commitment.
The MS08 review pledged that a low carbon industrial strategy would be launched this year to address the challenges facing manufacturers as they try to reduce carbon emissions as well as the significant opportunities made available by investment in energy and a shift to a low carbon economy. BIS launched the Low Carbon Industrial Strategy (LCIS) in July.
It included the breakdown spend of £405m put up for advanced green manufacturing in April’s Budget. This included £60m for wave and tidal energy research including up to £9.5m investment in the Wave Hub subsea socket off Cornwall, £15m investment for a Nuclear Advanced Manufacturing Research Centre, £10m towards an electric vehicle charging infrastructure, and £120m for offshore wind projects.
These pledges are welcome, and there are some robust amounts here, but while it is too early to assess how this money will be spent, some budgets seem inadequate given the size of the task. For example, the £10m budget for electric vehicle charging seems likely to cover little more than the feasibility study. MS08 said a new Office for Renewable Energy Deployment will be established to address barriers to renewables deployment including helping to develop the UK supply chain. ORED indeed commenced operations as the low carbon strategy was unveiled in July.
Daniel Guttmann, a manufacturing expert at PricewaterhouseCoopers, praised government’s low carbon efforts. “The development areas that were highlighted in the recent Renewable Energy Strategy and the Low Carbon Transition plan are good news for the UK and represent a mix of technologies at different stages of development.”
Where government inertia is of concern though is, for example, the Vestas debacle, where the Danish wind turbine maker pulled out of the UK this year blaming tortuous red tape in the UK onshore wind energy planning process. “At the mature end, offshore wind presents a big opportunity for UK manufacturing,” says Guttman. “But the recent withdrawal of Vestas from the Isle of Wight was a setback. While a system of feed-in tariffs would be a proven, yet expensive, way to stimulate growth, the actions government has announced to create a more stable investment framework should go some way to improve confidence in UK wind.”
Some do not share his optimism. David Sharman, managing director of Ampair, a UK manufacturer of small wind systems, says of the LCIS: “They launched it and immediately walked into the problem itself, when Vestas shut its UK plant down. Until then the low carbon strategy was little more than a glossy brochure. Vestas was a rude wake-up call — ministers have been running around since then saying ‘right, we’ve actually got to deliver this thing.’”
Articulating the timescale
A review of the last 12 months shows that government approach to manufacturing has changed emphasis, from a pure enabler-based model for broad business to one which names and targets sectors with comparative advantage. On balance, several areas of the Strategy have made real progress since launch; the global value chain work and overseas missions being done by UKTI, promoting the benefits of design via the Designing Demand programme, and the fact there is a formal Low Carbon Industrial Strategy now, even if the task it faces on the ground is daunting, are some. Other parts — such as the Coventry manufacturing technology centre — have been slow out of the blocks, Manufacturing Insight and Advanced Manufacturing need more articulation and the apprenticeship programme faces recession-related challenges.
EEF’s Radley points out that recession altered the priorities of MS08, and the challenge for government is to produce short term relief while articulating and sustaining medium term strategy. “Take global value chains,” he says. “We’ve had the commitment on the cluster mark very recently and that’s absolutely fine. But in the short term it’s not going to register greatly with business because the global recession has caused major disruption to global supply chains.”
Several people expressed disappointment that the Strategy fails to clearly spell out government’s priorities for manufacturing expressed in the medium and long term. Which are the priority sectors of manufacturing and by what criteria, and what is the size and timescale of support? But however these policies were labelled, we will afford the policy makers a little slack in some execution since January because of the more immediate measures that needed implementing when the credit crisis spilled beyond the confines of inter-bank lending; the car scrappage scheme, the Credit Insurance Top Up Programme and the Automotive Assistance Programme bumped elements of MS08 down the ‘to do list’. The reprioritisation of policy is true more for industry than government at the height of the recession.
Calls for clarity and timings of an industrial strategy were echoed by the Defence Industries Council on September 1, which published two reports detailing the vital nature of the defence industry to the UK economy and called for government commitment to a formal Defence Industrial Strategy.
Aside from the way they are presented, there is one major snag in the way government executes manufacturing strategy — the disconnect between BIS and the Treasury.
“[The Treasury] does its own thing and whoever the Chancellor happens to be is not prepared to let other departments affect his fiscal policy,” says Andrew Churchill. “A joined-up approach to tackling the recession and promote manufacturing, but with the Treasury and Her Majesty’s Revenue and Customs left out, presents a big problem.”
He points to government’s credit insurance top-up scheme introduced in the Budget. The cost at 2% proved too expensive, a point overwhelmingly made by businesses in a recent survey from Whitehall to measure the scheme’s effectiveness. Government had to change the scheme last month to halve the payment to 1% as well as increasing the upper limit from £1m to £2m and remove the £20,000 lower limit in order to make the scheme more accessible. This was the second amendment to the scheme — the first made companies that had had their cover reduced from last October onwards eligible.
Says Churchill: “If they’d really understood what manufacturing needs, i.e. the ability to respond quickly, many manufacturers would not have had to struggle through another five months of credit insurance problems. And it would not have occurred if HMT had been joined up with BIS.”
He contrasts this with the Japanese approach. That is, all new legislation in Japan has to go through MITI — the Japanese equivalent of HMT — to check for the “unintended consequences” of state policy on business.
“It’s not always about gross misjudgements and decisions that politicians take,” says Churchill. “It’s more often about execution — the law of unintended consequences. We’ve had some rotten tax work over the last five years because it’s been rushed, e.g. the abortive attempts to overhaul venture capital, the taxation treatment of global head offices and the outflow of head offices from UK — head offices were not meant to offshore to Ireland, but you can’t always think it through. If you don’t have a joined-up tax planning system with your business policy generation you will inevitably run into these potholes.”
Picking or backing winners
Looking forward, the consensus seems to be manufacturing can only succeed as a credible, globally integrated part of the UK economy if government departments (namely BIS and HMT) collaborate more effectively, there is an unambiguous strategy disseminated into short, medium and long term parts and when money is awarded to industry sectors, the accountability and rationale of those decisions are made public.
“I don’t think we have as yet promoted this change of strategy, this focus on advanced manufacturing and the extent to which government is prepared to kick-start it,” says Brayshaw. “I remain open-minded as yet to the conviction of the follow-through. And I do have that issue about the breadth of sectors receiving support beyond aerospace.”
“The glue that has been missing from the different government departments is the same that’s been missing from these publications [strategies],” says Churchill. “Show us the big picture, tell us that this is a key sector and why, and this is the evidence why we’re supporting it. Then let’s get the universities to encourage the skillsets for tomorrow and let us encourage companies to engage in that area — it’s that joined-up model that’s missing.”