“We have a reminder today that Britain faces a very difficult economic situation. We face problems at home.”
That was the ominous response from the Chancellor George Osborne after news that the economy has shrunk again. But why? What are the problems we face at home while he dines in Davos with Prime Minister David Cameron and London Mayor Boris Johnson?
With the Office for National Statistics (ONS) reporting a 0.3% slide in the UK economy during the last three months of 2012, the largest contribution to the decrease came from the manufacturing sector – a worrying contraction of 1.5%.
While this section of stats includes the mining and quarrying sector, this makes up a small part of the category, which largely measures manufacturing. “Manufacturing weakness in Q4 was widespread with the majority of industries showing a decline in comparison with 2012 Q3,” reported the ONS.
Shadow Business Secretary Chuka Umunna commented that “Despite the poor performance of the pound, manufacturing is still struggling – again, worrying as we seek to diversify the economy.”
From David Cameron to Michael Fallon in the Department for Business, Innovation and Skills, every ministerial speech on the economy seems to mention ‘rebalancing the economy.’
Actually, the opposite seems to be taking place. Manufacturing fell by 1.5% in the final three months of 2012 while the services sector was largely flat and construction making a small upward contribution to the UK economy.
This is not a one-off. In the 10 quarters since the 2010 election the economy has grown by 1% but manufacturing is down 0.4%, despite a raft of government initiatives designed to stimulate growth. As those in industry know, these funds and grants take longer to have an effect than in other sectors.
David Cameron has said that rebalancing the UK economy is ‘slow and difficult,’ but the continuing decline suggests that the rot needs stopping and quick.
Iain Wright, Labour MP for Hartlepool and Shadow Minister for Competitiveness and Enterprise, said that today’s figures “make a mockery of the Government’s claim it is helping the march of the makers,” and urged a “strong and active Government on the side of UK manufacturing.”
Accountancy firm PwC reports that there have been over 4,000 manufacturing insolvencies since the summer of 2010.
It was the ship-builders, car-makers and jet-makers that made any upward move at the end of 2012. The automotive industry accounts for around 11% of total UK exports and produced over 1.5 million cars last year. It is one of the UK’s few success stories. Why?
Building blocks for growth
It has a strong relationship with the Government and Business Minister Vince Cable sits on the board of the UK Automotive Council, a body that has silently transformed the sector since its establishment in December 2009.
The UK Automotive Council covers all the bases for growth. It includes a bank (RBS), the UK’s largest workers union (Unite), influential members of the Government and CEOs from all of the leading companies operating and supplying Britain’s vehicle makers, from the chief executive at GKN Automotive to the CEO of Jaguar Land Rover.
This creates one voice for the whole sector on credit, skills and government support, and feeds into their knowledge of how best to leverage these core business mechanisms.
It is a top-down approach to get big manufacturers growing, with grants from the Regional Growth Fund (RGF) successfully won by Lotus, JLR, Bentley Motor Cars and Honda. However, Tony Sartorius, managing director of metals company Alucast, says that despite rising orders from the automotive sector, more could be done to support small and medium-sized manufacturers looking to supply global companies.
Growing companies, receiving government grants to boost investment and support growth, can buy from anywhere in the world, Mr Sartorius believes this is a missed opportunity for the UK.
“The Government has to guide investment and make business development projects easy, rapid and helpful so that small companies such as mine can grow. Even RGF funding is sometimes stalled because of bureaucracy.”
Mr Sartorius recommends “RGF agreements ensuring a certain level of purchasing from the UK” or a replica of a German policy that rents out factories, providing “modern premises that can run efficiently,” to boost smaller companies capable of supplying the JLRs of this world.
“If you’ve got old premises like mine, which was built 50 to 60 years ago, you are less attractive to new buyers such as JLR,” he explains.
Two is better than one
Sartorius has joined forces with eight other manufacturers from across the West Midlands forming the Man Group. The companies work together to share best practice, make introductions to new customers and discuss new management issues.
Fellow member Brandauer, a 150 year-old manufacturer of metals components, has received two of its biggest contracts through connections within the Man Group. UK companies are now less likely to see each other as competition but collaborating to get a leg-up against overseas rivals.
With Brandauer exporting 75% of its goods, sales director Rowan Crozier says that “Government business support needs to be more accessible to allow us to win business against worldwide companies.”
At SME level, collaborative groups based on sector and/or location boost exposure to customers, by sharing a stand at international tradeshows and sharing databases.
At a scaled-up level, bodies such as UK Automotive Council can guide the sector for the benefit of all and ensure Government funds are funneled into the right areas and growth.
With more support being demanded from UK businesses of all sizes, many envious of their German counterparts and gigantic infrastructure projects fuelling the BRIC nations, similar councils would boost business so that the Government doesn’t chuck its money away if it opts for a Keynesian approach to boost the flagging economy. Even Deputy Prime Minister Nick Clegg has become anti-austerity.
Making bucks bang
However, in-fighting, lack of collaboration at the top and poor communication between manufacturing and Government has hindered other sectors from creating such councils. The chemicals sector which directly employs 214,000 people creating £60 billion worth of wealth, 70% of which come from exports, is well down on the UK government’s list of priorities and does not have a council.
The automotive sector is glamorous, making sexy products that the public sees and uses every day. It is a political goal scorer in the vein of Robin van Persie so the Government was willing to back it.
What other sectors need are leaders. The CEOs and managing directors of large companies on which the whole economic ecosystem is dependant need to spend time creating a better environment for their companies, and essentially, to provide a voice so that the Government can support it. After all, to spend taxpayers’ money the Government needs to know what it’s getting.
Keynesian economics is in demand from companies of all sizes, Juergen Maier, managing director of Siemens Industry UK and Ireland, hoping that the Government and industry perseveres with “a more activist Industrial Strategy and increases capital spend on infrastructure as well as investing in science and technology and skills”.
To get the economy fit the Government has to get active and companies team up to win the global race.
Article via: The Manufacturer
Author: Tom Moore