UK industry mustn’t let tales of reshoring distract from efforts to make this country a better place to manufacture.
The danger of the reshoring 'trend'
Manufacturing is coming back to the UK. Or so we are led to believe by some interpretations of new research released this week. Coinciding with its annual conference held yesterday in London, the manufacturers’ organisation EEF has conducted a survey that found one in six UK-based manufacturers have brought production back in house in the past three years – up from one in seven five years ago – and a similar proportion have switched to a UK supplier from a low-cost country.
Keen to regain control over their supply chains, UK companies – we are told – are eschewing low-cost countries like China and helping to rebuild the UK as a manufacturing centre based on quality and delivery times. Certainly there are plenty of anecdotes to support this idea, from firms that have realised the difficulties of manufacturing in the Far East – from logistics costs to protecting IP – and moved some of their production lines back to the UK.
Source: Jordan Phillips
Interestingly, the manufacturers on yesterday’s EEF conference panel discussion on reshoring make chocolate and cushions, two relatively low-value products that don’t require the kind of high-technology and precision engineering that are among the UK’s manufacturing strengths and that help keep sectors such as aerospace based here.
But there’s a real danger of getting carried away by these kind of stories. As EEF’s chief economist, Lee Hopley, admitted, the survey isn’t clear evidence that reshoring is leading to net growth in the UK’s manufacturing base: it doesn’t show that manufacturers are moving production back to Britain faster than others are moving it away.
A change from one in seven to one in six sounds less impressive when represented as an increase from 14 per cent to 17 per cent. And the survey also found the number of UK companies with some production overseas and the proportion of manufacturing they do there have both risen slightly since 2004. On top of this, it’s worth noting that the increase jobs that reshoring activity has created is minor – typically between 1 and 5 per cent of a company’s workforce.
It is true that Chinese wages aren’t what they used to be – they’re much higher. Between 2006 and 2010 the average minimum wage in China grew by 12.5 per cent a year. And probably of equal importance is the exchange rate: £1 bought you 15 Renminbi before the financial crash; last year it was at a low of nine. Tony Caldeira, boss of the aforementioned cushion manufacturer admitted this was the biggest factor in his firm’s decision to move some production back to the UK.
But as the UK economy continues to pick up, seemingly on the back of yet another boom fuelled by house prices, borrowing and domestic consumption, it appears likely that currency advantage is only likely to shrink, as it has already begun to do over the last year. And while Chinese wages are higher, there are plenty of other low-cost countries to which British firms can send their production. For some, Eastern Europe already provides a compromise between labour costs, delivery times and supply chain supervision.
The most compelling talk at EEF’s conference came from Nigel Stein, CEO of the aerospace and automotive components manufacturer GKN. He warned that British businesses would only succeed if they weren’t complacent about global competition. This applies as much to any nascent trend in reshoring as it does to sectors where we currently occupy a world-leading spot (like aerospace). GKN wants to do more manufacturing in the UK, he said, but this will only be possible if we make the best products in the best way.
How do we achieve this? Lower energy costs, less government red tape and greater focus on quality were all mentioned yesterday. Surprisingly little was said about innovation: a question about 3D printing was barely recognised by the reshoring panel, suggesting there’s still much work to be done in explaining advanced manufacturing technologies. But an audience survey showed that the biggest concern for manufacturers was access to the right workforce, finding employees with the right skills but also, crucially, who want to work in manufacturing.
In the long-term the UK can’t compete on cost and, while reshoring makes for a nice narrative, we can’t rely on manufacturers deciding they don’t want to fly to China every week to check up on their factories to grow the industry. But fluctuations in the global economy give us an opportunity to show off what our other strengths are or could be. Let’s seize it.