Optimism strong but SC risk and regulation choke growth

Posted on 20 Jun 2011 by The Manufacturer

The Hazard Warning Report by insurer Zurich says that more firms are optimistic about prospects today than 12-months ago, while the state of the UK economy, emerging market opportunities and supply chain risk are the most important factors affecting companies.

More than three quarters (78%) of Britain’s mid-market manufacturers are more optimistic about their industry than 12-months ago, according to the study. The biggest challenges for manufacturers are the state of the UK economy, capitalising on emerging markets for new business and supply chain risk.

Manufacturers also expressed that a lack of credit will not hold back growth.

Sixty per cent of companies, the highest proportion, said that the unstable UK economy presented a serious risk to their business.

Thirty nine per cent of respondents said the ability to break into new or emerging markets was the main factor restricting growth, with 47% saying this was the biggest opportunity for their business.

Regulation is cited as the third biggest factor holding back growth with one in five firms saying that the burden of red tape was restricting progress.

Mergers and acquisitions are not priority concern for mid-market manufacturers, who ranked it bottom of the

The report, published today, is a study of 100 owner-managers of mid-market companies – those with £5m-£300m turnover – commissioned by Zurich, and conducted and analysed by market research company Vanson Bourne. Additional analysis comes from industry bodies such as the CBI, Chambers of Commerce/CIPS an EEF.

The study says:
• 78% of manufacturing businesses in the UK feel more optimistic about the future than at the same time last year.
• 47% of manufacturers cite emerging markets as their biggest opportunity
• 60% of larger firms feel exposed to risks associated with emerging markets
• 32% of respondents feel highly exposed to risks involved with sustainability and the environment.
While the state of the UK economy and heavy regulation were perhaps predictable barriers to growth, Zurich was surprised that sustainability and M&A were so low on the lists of perceived business risk.

“With an extraordinarily convoluted matrix of European, national and industry-specific environmental legislation taking shape, companies must see complienace as a serious risk management issue,” said Steve Green, European Middle Market network leader and co-author of the report.

The analysis revealed that many mid-market UK manufacturers were not looking at risk management in a holistic way, said Mr Green. Emerging markets, for example, presented exciting opportunities and risk but this was not being reflected in emerging markets-related insurance business. “There is a disconnect between the importance being attributed to emerging markets and the risk management protection companies are taking,” he said. “For example, a company might expect to be able to make a claim for non-compliance or delivery failures in the Netherlands, but may not know certain claims are not permitted by law. China and Asia also have big supply chain risk issues – Zurich’s mid-market portfolio of policies doesn’t reflect the importance of these.”

Regulation was an unsurprising top concern for growth. Zurich, which is involved in a lobbying capacity to encourage sensible regulation in areas like health and safety at work, says it is encouraged by progress made by the government to reduce red tape, citing the launch of the Red Tape Challenge in May as an example of progress.

In addition, an independent advisory panel with industry representation is tasked with reviewing the complexity of current health and safety regulation and make recommendations for reform by the autumn. Zurich says it will be involved in this review.

On health and safety red tape, the report cites Lord Young’s October 2010 report, Common Sense, Common Safety, which supported the view that health and safety regulation was appropriate for more hazardous industrial operations but potentially too onerous for low hazard operations.

Zurich has made a deliberate push into the manufacturing sector. In October 2010 it launched a four pillar proposition for the sector that aimed to articulate the company’s expertise in managing business risk for manufacturers. This includes explaining a range of capabilities in areas associated with core insurance underwriting, such as loss adjusting, M&A, law, environmental compliance and professional company valuations.

“The public is getting behind manufacturing after a sustained period of it being in the shadows, it is a tangible, wealth-creating activity that needs support,” said Green. “Globalisation is making full risk management, rather than plain vanilla insurance, more valid to mid-sized companies and our mission is to explain the full extent of risk to growing companies so they are appropriately insured