The time is now for manufacturers in the right products and markets.
It has undoubtedly been a very tough
year for manufacturers. Administrations in
the UK manufacturing sector were up 12
per cent in 2009 from 2008, according to
research by Deloitte, and it was the second
hardest-hit industry accounting for 17 per
cent of all administrations in 2009, behind
the property and construction sector. One
hundred and 28 manufacturing businesses
went into administration in the third quarter
of 2009, and 87 in quarter four.
David Raistrick, UK manufacturing industry leader at Deloitte’s Leeds office, says companies that make machinery and tooling have been badly hit by other manufacturers cutting capital expenditure, but there were pockets of optimism across areas such as high-tech specialised manufacturing.
“Fundamentally, a manufacturing recovery will centre around demand. While the low value of sterling is a factor when it comes to boosting the UK’s exports, there must firstly be a sustained recovery in demand,” he says. “At this stage it is difficult to predict whether the number of manufacturing administrations will increase in 2010. Primarily it centres on whether there is a sustained recovery in demand. All eyes are focused on whether there will be a double-dip recession. If so, it is inevitable that more manufacturers will be forced into administration. But hopefully confidence will return as well as a sustainable increase in demand.”
A particular thorn in their side has been the lack of credit insurance. But Andy Cantrill, senior manager in trade and supply chain for HSBC, says businesses can get funding specifically for exporting.
“A lot of funding has been made available for export funding. Our export and traditional trade finance is up 30 per cent. Funding is available, and banks are prepared to do it if we’re going to see growth. But it is inevitably going to have an impact as far as working capital is concerned.”
The Royal Bank of Scotland (RBS) and NatWest have launched a £1bn fund, ring fenced for manufacturers, which offers fixed rates and the option to defer repayments for up to three years. The fund was launched after the latest Purchasing Managers’ Index (PMI) of UK manufacturers indicated a robust rise in new order volumes.
Tony Kelly, head of business and commercial banking for RBS & NatWest in Yorkshire and Humber, says: “We’re starting to see some encouraging signs for the sector, but we can’t forget the context in which they must be taken, which is that this sector has been hit hard by the recession and its return to full health will not happen overnight.”
The bank has also launched an exporters’ package. It said the value of exports by companies in Yorkshire and Humber was up 4 per cent between quarter two and three of 2009 to £119m, compared with 1 per cent nationally. The average value of goods sold abroad per exporter in Yorkshire and Humber increased by 9 per cent to £807,000.
That’s not to say the days of readily available funding in the UK will return. Only the best cases will get through.
“Credit is going to be an issue, and manufacturers have suffered at the hands of credit insurance companies,” says Cantrill. “In my experience the businesses that are able to overcome that can talk in detail about their strategies for selling and have up-todate management accounts. You should give as much information as you can. It doesn’t always work, but it can work.”
Emerging Asian markets forecast growth in 2010 of 8 per cent, compared with the UK’s measly latest 0.1 per cent increase in GDP, so the manufacturing sector is going to focus on exporting to achieve growth. Particularly in Yorkshire, the high-technology and advanced sub-sectors, such as nuclear and aerospace, will generate opportunities in the future, as well as green technology, delivering efficiencies to existing manufacturers worldwide.
Companies that already export are likely to be benefiting from the lower pound, which has provided gains of up to 25 per cent. Manufacturers that rely on imports are being hit by the cost of raw materials.
But a survey carried out by business advisory firm Deloitte in December 2009 indicated that the comparative weakness of sterling had not boosted exports as much as was hoped for. The firm’s Made in Britain report said only 30 per cent of manufacturers had increased their exports in the past 12 months. In the next two years, though, 39 per cent of respondents said they expected export levels to remain the same, and 55 per cent expected them to increase.
Raistrick says: “Despite market predictions that the low value of sterling would dramatically increase UK exports, the results illustrate that this has not happened yet. I anticipate that as the EU and US pull out of recession, their demand will increase and the low value of sterling will drive our export market in overall terms. I think the industry will see an even higher percentage of manufacturers export more over the next two years than our findings suggest.”
The report also indicated that, despite the excitement around the emerging markets, such as Brazil, Russia, India and China, the European Union (EU) was still the UK’s most favoured market. Deloitte said that 84 per cent of respondents regard the EU as a principal export market, followed by North America at 44 per cent and Asia, excluding China, at 30 per cent.
Exporting to China has been tarnished by fear of theft of intellectual property. Although the government has put legislation in place to protect intellectual property rights, it has proved difficult to enforce and Chinese companies are copying imported products. This has discouraged UK manufacturers from exporting to China, but it shouldn’t, says Dr Lee Cobb, managing director of Struers. Struers is a Danish manufacturer of equipment to prepare materials for metallographic testing, which has just relocated its UK operations to the Advanced Manufacturing Park (AMP) in Rotherham.
Manufacturers of niche technologies should be taking advantage of the Chinese market, says Cobb, because it does have something to give. “There is always going to be a Chinese factory to copy your product if it’s easy to copy. But we’re not retracting. We’re continually investing in research and development to maintain our lead.”
Struers moved to the AMP from the West Midlands on the back of government incentives. The company was also drawn to the expertise in engineering at the region’s universities because the country lacks skilled engineers. “We had the same problem in the 1980s. Any form of materials-based subject wasn’t sexy and young people didn’t feel it was a profession they wanted to follow,” says Cobb. “They want to be doctors, lawyers or accountants. I can’t get a metallurgist for love nor money because people want to do marketing or media studies.”
Chris Scholey, AMP ambassador for Yorkshire Forward, says the career paths of young people are shaped by their parents’ perceptions. “A lot of parents have lost jobs in manufacturing, and there is a lot of people in this region working in the public sector with benefits such as final salary pensions, so you can imagine the advice children are getting. But manufacturers still have to get out there and sell themselves. Sell it like you go out and sell your products.”
Manufacturing is held in high regard in the region, but Steve Roberts, commercial director of Fripp Design, says the terminology is wrong. Fripp prototypes products in-house before outsourcing volume manufacture to a third party. Roberts says: “Manufacturing is a consequence of what we do, not what we do. Where we talk about manufacturing, I think we should talk about innovation.”
Initiatives are in place to get children into manufacturing, but some aren’t supported enough by businesses, according to Nick Pratt, head of learning and skills development at the National Metals Technology Centre, which runs a scheme for young people. Pratt says: “We have 260 AEM students, but don’t have 260 companies taking them on. At £280 per week, they are probably the cheapest employee you’ll get.”
The AEM Students’ Learn Earn and Advance programme prepares work-ready students for placements at businesses in the advanced engineering and metals sector.
Another is the New Era programme, an employer-driven apprenticeship scheme run by Brinsworth Training and Newburgh Engineering. Students study for 40 weeks, sponsored by a host company, and on completion of the course they are automatically employed at the host company.
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