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Innovation at the heart of export success

December 15, 2014

Having the right talent and skills to exploit opportunities are also vital, finds Robert Lea, The Times Industrial Editor

Engineers and manufacturers know they are at the heart of the British export economy. But they also know that it is how well they harness science and skills and overcome the roadblocks of energy costs and tax policy, that will determine whether industry can lead the UK’s economic recovery.

The latest in the series of round-table discussions by industrialists organised by BAE Systems and The Times concluded  that successful exporting can only be secured by innovation and that that can only be achieved by having the right talent and skills.

Nigel Whitehead, group  managing director, programmes and support at BAE Systems, admits he has spent his career trying to find the right formula. “At  the simplest  level,  my  job  abstracts to this: it is a skills enterprise, putting the right people in the right place at the right time with the right skills and at the right cost,” he said.

“I started with the naive view that we could have a business model in which we can use science and engineering to solve complex problems to create products and services to customers.”

“As my business experience increased I found that far from being naive, it is the fundamental model that makes the business tick.

“Differentiation gives us a unique edge in export markets. It is a model that is not unique to BAE Systems. A competitive edge established through science and technology is the root by which the UK can reliably and repeatedly create economic growth.”

Tony Sartorius is chairman of Alucast, an aluminium diecasting business based in the heart of the traditional metal-bashing West Midlands. His business took the same science and technology view.

“We recognised that we needed to move up the value-added chain, take on more complex work and projects,” he said.

The change of tack landed the company contracts with Bentley Motors and  making components for the high capacity brakes of the Bugatti Veyron supercar.

His story, he believes, is not unique in supply-chain Britain.

“We can compete, and compete on cost. The UK leads the western European nations on cost-competitiveness. People think that cannot be true – and it can be marginal if things go wrong or energy prices go up – but it is true.”

Tata Steel is one of those major export success stories, not just in the goods it sells directly overseas but also indirectly through its major British-based  manufacturing customers such as Jaguar Land Rover, Nissan, JCB, Caterpillar and the UK end of Airbus, all of whom are major players in the global market.

The complete picture is not entirely rosy, however. Deirdre Fox, Tata’s director of strategic business development, is concerned that the UK supply chain and the SME market are not as robust as they could be.

“In Britain in the 1970s, for every car we built the local content was 70 per cent. A car built in the UK today has about 30 per cent local content. In Germany, that  figure is over 60 per cent,” she said.

“We are producing fantastic cars but we are not manufacturing enough of the components. “That is the challenge. We need to see much clearer messaging on the importance in procurement of local content.”

There was broad agreement that the challenges are not helped by government tax policies, whether through energy levies or business rates.

Mr Sartorius said that the West Midlands is pockmarked with redundant factories with roofs removed to avoid business rates.“They had to do it to survive but it has destroyed infrastructure,” he said.

Ms Fox said that government needs to understand the effect of such taxation. “On business rates we pay five times more in property taxes than our European counterparts. What we need as an absolute priority is a level playing field in property taxes.”

Similarly, she said, carbon taxes are making energy-intensive industries uncompetitive compared with their European counterparts and though the UK has sought to ameliorate this, it will not kick in until 2016/17. “That is too far away,” she said. “The cost of energy is the single biggest difference in our cost base.”

Another problem is the row over the future of European Union membership, which is doing exporters no favours, according to Mr Sartorius.

“There  is massive  uncertainty over Europe,” he  said. “We need to be in Europe because we need that market. We need to explain to everyone who votes [in a future referendum] that the EU has such a link with jobs in the UK. It could be a disaster if we came out. My worry is that we are not talking enough about the effect on jobs.”


Why manufacturers need to educate students

The Five Rs. You won’t find them — yet — in a classic business school manual, but it is how one of Britain’s younger manufacturing leaders is getting his workers to think about their skills and how they want to use them.

Rowan Crozier is chief executive of Brandauer, a 152-year-old, sixth generation family business based in the Midlands specialising in tooling and stamping. It exports 75 per cent of its £8million a year turnover, mostly to non-European markets, although one of its marquee projects was supplying components for the Large Hadron Collider in Switzerland.

“Innovation is the key to what we do, investing in new kit and, more importantly, investing in finding new people,” Mr Crozier said.

“Innovation is also about how we train people. We have what we call the Five Rs — recruitment, retention, resources, requirement and remuneration — and we have got the whole factory thinking about how we want to address them.

“We are not suffering from a lack of resource but a lack of skills. We have brought in pre-trained people, we have trained our own, upskilled people we have brought in, taken on apprentices, engaged with universities in KTP [knowledge transfer partnerships] and maintained the skills we already have. “The correlation between skills and productivity is 100 per cent; 90 per cent of my time is taken up with people on issues around our Five Rs.”

Dr Carl Perrin, director of the Institute for Advanced Manufacturing and Engineering, believes that if innovation is about having the right people with the right skills, then it is particularly difficult for smaller businesses because they struggle to find or even afford, for example, automation or programming engineers. The solution, he says, is to visit schools and tell students the story of advanced manufacturing in the UK.

“Students sometimes don’t even know what manufacturing is. But the way to convert them is to make them see that they could be using and training on robots, and that it is not about spanners and bolts,” he said.

Mr Crozier says learning how to nurture apprentices is key. “Apprentices’ ambitions have changed. Pigeonhole them and they won’t like it,” he said.

“Traditionally, people come in knowing what trade they are going into. Now they don’t want to stand at a grinding wheel all day long. People want to be multi-skilled, want to do different things. That is a positive. It gives more flexibility in a business that employs 50 or 60. People have changed and we have to change with the times.”

David Wright, head of manufacturing at Innovate UK, the government’s technology agency, believes that manufacturers can be their own worst enemies by not making a concerted effort to get into schools. “We are part of the problem because we haven’t got the message across. But it is an important issue — it must be, because it keeps coming up wherever we go.”


To grow overseas requires a fit SME sector

The importance of successful small businesses in growing UK exports was made clear by Deirdre Fox, of Tata Steel, at The Times round-table event.

“For exports to really take off, we need a strong SME sector,” she said.

“The average number of people employed in small and medium-sized engineering and manufacturing companies in the UK is 30; in Germany, it is about 130, making their SME sector more robust.”

Ms Fox, director of strategic business development for Europe’s second largest steel producer, said that strong engineering SMEs are essential to her company because they form its customer base. But while they are vital to Tata, they must also play their own part in increasing UK exports.

Many thousands of the four million SMEs in Britain are already doing just that and many more are determined to follow them, especially as the Forum of Private Business says that the economic outlook in the UK “remains uncertain” for its members.

James Greenham, managing director of EMS Physio, the Oxfordshire based makers of physiotherapy equipment, said: “We have to export if we are going to grow because the UK market has been flat for the last five years, largely because the NHS, our biggest UK customer, has no money to spend on replacement equipment.
“We took a conscious decision to build a distribution network around the world and 70 per cent of our business is now overseas. We fly the flag at the world’s two biggest medical equipment trade fairs in Germany and Dubai and meet distributors keen to open up new markets. We made a new contact in Burma at the last fair, but China represents the best opportunity because it is a growing market for Western-style rehabilitation treatments.”

North America is EMS Physio’s largest market and it also exports to the Middle East and Australia. The secret of its success overseas is to adapt equipment, such as electrical stimulators and shortwave diathermy products, to meet the treatment regimes favoured in different countries. Identifying US distributors, with the assistance of UK Trade & Investment (UKTI), a government agency, helped Urban Front break into the export market. Elizabeth and Nabil Assaf, owners of the Buckinghamshire based company which makes contemporary steel-reinforced hardwood doors, signed up to the agency’s Passport to Export programme to learn the basics of exporting, including how to select target markets and distributors.

On a trade mission to New York, Mrs Assaf told the British consul general of a door featuring a Union Jack that the company had just designed: it is now in his residence. On the same trip, UKTI introduced her to an experienced distributor who has helped Urban Front to sell three doors a month, worth about £10,000 each, in the US.

Urban Front is now considering appointing a distributor and opening a showroom in California. Mrs Assaf said: “ UKTI’s support was like a springboard and our export business has taken off as a result.”

BM Catalysts, based in Nottinghamshire and Europe’s leading manufacturer of catalytic converters, has put an emphasis on attracting distributors for the challenging French and German markets. Mark Blinston, commercial director, said: “Like anywhere, cost is a major factor in France. What makes the German market different is an absolute refusal to compromise on quality.

“We needed to go a step further to attract buyers in both regions, while still remaining very competitive on price, so we launched the Premium Range and seem to have found our place on the distributors’ shelves.” In the year to the end of September, exports accounted for half of total turnover, with a 15 per cent growth in sales in France and 36 per cent in Germany. Making more complex components with added value and investing in new equipment as well as staff have also boosted exports for two companies represented at TheTimes event. Exports at Alucast now account for 30 per cent of turnover and 75 per cent at Brandauer.
Lord Livingston, trade and investment minister said: “Products manufactured in Britain are in demand because they are creative, innovative and high quality. In 2013, goods produced by the manufacturing sector accounted for more than half of all UK exports.

“We are committed to increasing UK exports of manufacturing and engineering and UKTI stands ready to help, with access to more than 300 regional trade advisers and a presence in 110 countries.”


Table Talk

“Having an industrial policy in the UK is more important than ever before. It’s about what we want to be over the next 20 to 30 years in a world that is changing rapidly”

Richard Hill, Head of automotive & manufacturing, Royal Bank of Scotland


“Few things are more interesting or rewarding than being in engineering and manufacturing”

David Wright, head of manufacturing, Innovate UK


“The biggest investment opportunity for people like us is investing in future energy. But it is complicated by the fact that government is not clear on what that future energy policy should be”

Deirdre Fox, director of strategic business development, Tata Steel


“We are seeing a lot of onshoring coming back, with components which were being made in India and Brazil now being produced in Britain”

Tony Sartorius, chairman, Alucast


“It is as important to train apprentices technically as it is to support them pastorally and develop their attitude and their communication skills”

Rowan Crozier, chief executive, Brandauer


“I cannot recruit the project director for the Astute submarine programme at the job centre, nor can I find the chief engineer for the Typhoon fighter jet at the bus stop. I have to find talent in schools and persuade young people to join as an apprentice or take an engineering degree.”

Nigel Whitehead, group managing director, programmes and support, BAE Systems


December 15, 2014

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