Made in the UK: a new industrial revolution?

11th June 2012

Henderson says on Citywire: "As the world is changing, the value chain is becoming longer, wage inflation and transportation costs have increased the burdens of outsourcing, and companies are looking for more control over their supply chains.

Made in the UK

"The answer is domestic manufacturing, the benefits of which are now being rediscovered in the UK. The economy is set to benefit from bolstered domestic manufacturing as a ‘made-in-the UK' concept brings jobs with it."

Why UK manufacturing doesn't have a bright future…

Few commentators on the Citywire article agreed that UK manufacturing had a brighter future, but respondents differed on the reasons why: Pilgrim suggested it was ‘wishful thinking': "We need some restoration of our industrial sector, but, other than the same platitudes we have heard from the politicians for years, the trend to de-industrialize continues relentlessly. As industries close the technical competencies of the workforce evaporate. The quality of our human capital is in decline both through diminished work experience and from demographic change."

In contrast, Gravedigger suggests that it is this attitude, rather than any real weakness in manufacturing that holds the UK back: "We (have) a surplus of doom and gloom merchants talking down the ability of the current generation of workers/managers/politicians to see opportunity in the adverse circumstances. Unfortunately it is a character trait of British politicians, press, public to denigrate our achievements and neglect to celebrate them. It creates a debilitating pessimism which weighs on society like a disease, sapping the optimism required to embark on a business venture or grow an established company."

The government agrees

Politicians seem equally convinced that UK manufacturing is in decline, though they too differ on the reasons. George Osborne has vocally blamed the situation in Europe: "I know from talking to British businesses that our country is bursting with entrepreneurial spirit and exciting investment plans that are being held back because of uncertainty about the future. That's why a resolution of the eurozone crisis would do more than anything else to give our economy a boost."

He added: "The British government is clear that it is strongly in Britain's interests for our biggest export market to succeed. The risks for us of a disorderly outcome are huge."

However, the right wing of the Conservative party believes that Osborne needs to look at his own actions before he starts to blame Europe.

Douglas Carswell, MP for Clacton and author of The Plan; 12-months to renew Britain, says in his blog: "Even more misplaced is the Chancellor's insistence that the Eurozone is to blame for our dire economic performance. Switzerland, which does more than four times more trade with the Eurozone than we manage, is growing. Her economy expanded at a healthy 2 percent year-on-year in the first part of 2012.  The idea that it is all the fault of the Eurozone is demonstrably wrong.

Is QE the problem?

"It is not the Eurozone crisis that we should blame for our awful economic performance, but the almost total absence of domestic economic reform, coupled with the Treasury's absurd belief that monetary stimulus can engineer growth. The longer our economy stagnates, the clearer it becomes that monetary stimulus is no more effective at generating prosperity today than fiscal stimulus was in the 1970s."

'Re-shoring'

However, there are signs that the trend to outsource abroad is coming to an end, which supports Henderson's long-term faith in the strength of UK mnaufacturing. The trend for ‘re-shoring' has had more momentum in the US, to date, but the same rules are likely to apply to UK groups: "In the U.S. it has been reported that a rising number of firms are repatriating their manufacturing capabilities. There are many reasons for this, but two key factors are the increasing efficiency of onshore production and that large elements of the difference in cost between the U.S and, say, China has disappeared."

This research is echoed by the Hackett group, which shows that the manufacturing competitiveness of China compared to advanced economies and low-cost geographies is eroding: "A combination of factors, including wage-rate inflation in China, has brought traditional calculations about global manufacturing sourcing strategies to a tipping point, encouraging companies to reshore some manufacturing capacity while moving additional capacity from China to other low-cost geographies."

This is not a phenomenon that will happen overnight. It takes time to shift production. However, it does suggest that the outlook for UK manufacturing may not be as gloomy as the current statistics suggest. Whether the European crisis is ‘to blame' or not is open to debate, but it is undoubtedly an unhelpful headwind. Perhaps the UK just needs a more optimistic view on its manufacturing capabilities?

 

More on Mindful Money:

Reverse Globalisation: manufacturing comes home

M&S Bank – Brand diversification too far?

How safe are your savings in a European bank?

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