Globalisation has in the past been damaging to the UK and resulted in the decline of large segments of our manufacturing across a range of sectors. In the past 40 years or so there has also been a general drift in this country from an industrial to a service-based economy.
In what might be termed ‘the first period’ of globalisation, UK manufacturing struggled to cope with the cost efficiencies and quality of the expanding economies of the far east (particularly Japan) but also the quality and design innovations of the more established economies of the US and Europe.
In the second phase, our manufacturing has been impacted by the low-cost economies of China, the countries belonging to the Association of South East Asian Nations (ASEAN) and increasingly India and eastern Europe — countries that see manufacturing as one of the foundations of their growth and development.
Although it could be said that UK manufacturing was slow to react, it is also fair to say that some of the challenges of these periods, particularly concerning cost, were difficult to respond to quickly in a world that was becoming global and prepared to purchase its goods from low-cost suppliers — providing the required level of quality was maintained.
I believe that over the recent period, this country has responded well and in broad terms has understood how it can successfully compete in a global market. One indicator of this increasing resilience is that in the last year manufacturing exports increased by some 16 per cent, despite the continued growth of China and other emerging economies — particularly in the drive towards ever lower cost manufacturing.
Many successful manufacturers in this country have recognised that the low-cost economies can provide advantages to their production processes and supply chain as well as providing a potential competitive threat. And the majority of companies now have some form of connection to a low-cost manufacturing process — either through outsourcing or direct ownership.
The companies that do not have this facility have considered and discounted, for the right reasons, the need for this facility. UK manufacturers have therefore been able to build in a low-cost platform to their own production process as a way of addressing price pressure in the market.
Our manufacturers have recognised the need to provide excellent customer service and develop excellent customer relations. Manufacturers now focus on making a product that exactly fits a customer’s needs, providing a quality he demands, giving a service that meets his requirements in all respects and at a price that the customer is willing to pay.
UK companies have invested in innovation, research and development. The ability to generate leading-edge products and ideas that better support the customer requirements has been a major advantage in maintaining market positions. These are core advantages that are not that easy to replicate and can provide something unique to the UK proposition. It is pleasing to see that the government is supporting these developments through the R&D tax credits scheme.
In addition, the advanced use of technology and modern equipment in the production process to minimise labour numbers and offset the high labour costs of the UK, can also drive costs down to acceptable market levels.
Manufacturers in the UK have increasingly recognised that the global economy provides a market for their products as well as a threat to their business. The UK has always been impressive in terms of its international trade — and this trend continues.
The EU continues to provide a huge market and remains by far and away the most important outlet for our manufacturing. Recent research carried out by the Centre for Economics and Business Research (CEBR) for BDO Stoy Hayward, showed that in 2006, 61 per cent of our manufactured goods exports went to the EU, 10 per cent to the US and only two per cent to China — with other countries making up the balance. This research might also be taken to indicate untapped potential for exports in the rapidly-growing emerging economies.
While we have fewer national champions than in the past, the inflow of international business into the UK market (such as Toyota and Honda) has brought great benefits to the manufacturing process and supply chain. Most UK manufacturers now use at least some of the techniques introduced by Japanese car makers when they first entered the UK — to the great improvement of our manufacturing.
Meanwhile, the global challenge continues and is intensifying. China has clear intentions of becoming a major player in world markets (especially car production) and not just remaining a low-cost economy. Many other countries are following this lead.
The results of the recent past suggest that UK manufacturing has the skills and experience to deal with these challenges — and also to take its products to the expanding world market. This country has a deep base of intellectual property, excellent customer focus and service, research and development facilities, a talented and committed workforce — and generally a belief that we can successfully compete in the new world order.
Continuing change is inevitable. but I believe UK manufacturing is now well placed to deal with the global challenge.
Tom Lawton is national head of manufacturing for BDO Stoy Hayward and part of the BDO Stoy Hayward China team
Instead of seeing emerging economies as just a threat, UK manufacturers realise they can also provide advantages for their production processes. Tom Lawton explains