Embracing EU enlargement

A new report from the EEF warns UK’s manufacturers that they should seize opportunities offered by the enlargement of the European Union.

Britain’s manufacturers have been urged to seize the potential offered by the enlargement of the European Union, amidst fears that UK companies are behind the curve investing in the area compared to EU competitors.

EEF, the manufacturer’s organisation, made the call in a report‚ ‘Manufacturing in the New Europe’, which aims to highlight the benefits from economic growth in Central and Eastern European (CEE) countries, as well as the opportunities for lower cost suppliers for manufacturers in the UK.

The report also showed that, according to a survey of 600 UK, French and German companies carried out in the autumn of 2003, a greater number of UK companies are planning overseas investments in China and other parts of Asia rather than the CEE. 42% of UK respondents cited China as a preferred location for future investment, compared with 51% German and 42% of French companies which cited CEE as a location for future investment.

Whilst this may be due to historical and cultural reasons, the recent poor performance of the eurozone or the proximity of countries such as Germany to CEE, EEF believes that firms risk missing out on opportunities from the current enlargement, in terms of trade and investment possibilities and the advantages of a larger public procurement market.

Furthermore, as the EU continues its eastward expansion and economic and political reform gathers pace in potential future members, investment opportunities in the form of privatisation or market expansion will become available and UK firms need to be in a position to best take advantage of them.

“EU enlargement is an ongoing process and a failure to take advantage of the current growth opportunities will leave our competitors with a head start when other countries join in the future,” said EEF Director General, Martin Temple.

“The development of the economies of the new members has been accelerated by enlargement and will pose increasing competitive challenges. It will also bring new markets and consumers, creating opportunities for UK manufacturers,” added Temple.

The report also warned that whilst the accession countries may provide an ideal location for the production of low value goods, which takes advantage of lower labour costs and requires fewer skilled people, they are unlikely to remain this way forever.

Some CEE governments are developing incentives for foreign direct investment that seeks to entice companies to relocate not only production, but also research and development. In addition, there are advantages to locating production and activities such as R&D and after-sales services close to each other. There is concern that as some production moves out of the UK, engineering services such as R&D and design may follow, highlighting the need for companies to continue to innovate and invest in higher value activities.

“It is vital that government creates a supportive environment for investment and innovation and works with business to improve the skills base,” said Temple. “In addition, it must provide business with high quality information on the private and public sector opportunities in the EU and work to ensure members have fair access to government markets.”

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