87% of UK manufacturing businesses express confidence for the future thanks to strong domestic and global demand. But, will that confidence translate into greater capital investment? Mike Rigby, head of Manufacturing, Transport and Logistics at Barclays, reports.
Looking across the manufacturing landscape, it is clear to see that a new industrial revolution is under way. Dubbed ‘the Fourth Industrial Revolution’ (4IR), it is set to drive the transformation of production not only for UK manufacturers, but the world’s.
This change builds on the automation that characterised the Third Industrial Revolution, but goes far beyond. It meshes industrial processes with breakthroughs in advanced technologies such as data management, artificial intelligence, the Internet of Things and additive manufacturing.
More than anything, it is characterised by sheer pace of change.
Barclays’ latest piece of research – Intelligent manufacturing: an industrial revolution for the digital age – explores manufacturers’ appetite and ability to invest in advanced technologies. It considers the barriers faced by UK industry in being part of the next revolution – and assesses the potential benefit to the economy if these obstacles can be overcome.
Our modelling suggests that capitalising on this ‘digitalisation’ movement could, by 2026, add £102bn per annum in additional revenues for UK manufacturers, increase GVA by £31.6bn per annum and create more than 100,000 additional jobs.
Crucially, it could enable UK manufacturing to accelerate its sluggish recovery. It has the potential to improve global competitiveness and address our industry’s persistently poor productivity. However, UK manufacturers’ investment in existing technology lags behind that of our rivals.
Optimistic about the future
Despite many headlines to the contrary, our survey has revealed a strikingly upbeat mood within UK manufacturing. Asked about the international prospects of the sector over the next five years, 87% expressed confidence thanks in large part to strong domestic and global demand.
That optimism would appear to be well-placed as UK manufacturing continues to generate high levels of turnover. Output has recovered slowly over the past few years, though it remains below pre-recession levels. After a sharp decline between 2007 and 2010, employment in the sector has stabilised at around 2.7 million.
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In 2016, the number of manufacturing businesses increased to more than 133,000 – surpassing the number in 2008 for the first time, and small businesses predominate. Meanwhile, firms have stepped up capital investment: this figure doubled between 2010 and 2015.
Capital investment in automation, however, has been lower than in most other advanced economies. The use of automation in global manufacturing has soared since 2010, driven by improvements in robot technology delivering significant efficiency and productivity gains.
Yet, shipments of robots to the UK in 2015 amounted to around half those to Spain and France, and less than 10% of those to Germany.
Furthermore, UK manufacturing was using just 71 robots per 10,000 employees, compared with 301 in Germany and 531 in Korea, according to IFR World Robotics 2015.
Barclays’ 2015 Future-proofing UK Manufacturing report suggested UK investment in automation might be picking up, but the trend wasn’t sustained. In that report, many firms cited a lack of funds, skills and external sources of support as barriers to investment. Our latest survey suggests nearly a quarter of manufacturers remain unconvinced by the likely return on investment for these technologies.
Yet among those who have already invested, more than half (51%) report that the technologies have improved productivity. Cost reductions and the freeing of staff to work on higher-value activities were also widely cited – 45% and 32% respectively.
Our own experience tells us that many of the respondents we spoke to two years ago who declared their intention to invest in the technologies of the Third Industrial Revolution (3IR), have not done so.
With 4IR building so heavily on the 3IR platform, this long-term lack of structural investment could present a key risk in UK manufacturers’ ability to embrace 4IR and compete globally. A step-change in investment intention is clearly required for UK manufacturers to have a chance to compete with their global peers.
Investment plans and obstacles
Many businesses reportedly plan to step up their 4IR commitments. Those with investment plans intend to boost their commitment by 5% – 7% compared to the past two years, although for those playing catch-up with 3IR technologies, this may not be enough.
However, some businesses plan to scale back their investments. Depending on the technology, this applies to between 5% -10% of respondents. Even more worryingly, significant numbers of businesses have made no previous investments and do not plan to do so in the future.
Given the benefits already being reported by those who have invested in 4IR technology – only 6% of those who have invested report seeing no benefits – it is perhaps surprising that doubts about its value persist so widely.
Concern over return on investment is the most common reason when asked what has prevented them from investing more in 4IR technologies, cited by 23% of respondents. Almost the same amount (21%) lack confidence that they have the in-house skills or knowledge required to use 4IR technologies.
Financial constraints are prominent too; 19% of respondents say their business lacks funds to make long-term investments, and a similar proportion believe their capital spending priorities lie elsewhere. Lack of grants and loans from government, or funds from banks, are among other concerns raised.
An eye on the horizon
Given the constraints on manufacturers, what can be done to spark action and encourage faster and deeper investment in 4IR? When asked what would help them to start investing, or to invest more, our respondents pointed to a range of factors.
Download our latest report –Intelligent manufacturing: an industrial revolution for the digital age – to find out what they are and the potential benefit to the economy if they can be overcome.