Britain's future in manufacturing
Can Britain ever regain its manufacturing pre-eminence
McLaren has developed a successful culture of daring to try new things
Britain has a rich manufacturing heritage, but can it ever relive its former glories?
Somewhere in the region of 20 per cent of the world's GDP comes from the manufacturing sector. There is no denying that this contribution has been declining of late – 30'years ago it was closer to 30 per cent – but that falling-off is more to do with increased efficiency and automation that has, in turn, led to a drop in prices.
Since modern manufacturing began some 200 years ago, global GDP has increased by around 2 per cent a year and, although it has dropped back recently, manufacturing has grown at 2.6 per cent a year. Manufacturing is seen by many economists as the catalyst for the growth of a civilisation, but the question remains: what do we do with it now?
Another interesting side note is that over that same 200-year period, manufacturing output per person has risen by about 1.8 per cent per year on average, while GDP per person has risen by 1.1 per cent.
Even back in the heyday of the Industrial Revolution, Britain was only fourth in terms of manufacturing, behind leaders China, India and Russia, and that was during a time when there were only 35 recognised nations. As the 1800s progressed Britain steamed ahead and, with 2 per cent of the world's population, delivered 15 per cent of the manufacturing output. That period of supremacy was short-lived as the US assumed world leadership status at the turn of the century, a position it held until very recently when the new powerhouse of China retook top spot.
As for Britain, it gradually slipped down the league table to fifth in 1990, further down to sixth in 2006, and is currently clinging on at the foot of the top ten. "Britain has swapped its role as a mass production country in manufacturing for a niche player, something fitting into global supply chains," Peter Marsh, manufacturing author and Financial Times manufacturing correspondent, says. "We still make some interesting products; if you are looking at the best quality mattresses in the world, the best [two] companies are in Britain.
"My way of looking at it now is to forget about it in the manufacturing context, developed, non-developed, which is all fairly meaningless. I prefer to think of the world as the new MCC (Marylebone Cricket Club); cricket lovers will obviously love that phrase, but the new MCC is the new manufacturing-capable countries of which there are now a lot and we should all be pleased about."
Lessons from the top
One man well versed in the trials and tribulations of UK manufacturing is BAE Systems chairman Dick Olver, and he is a stalwart believer in the sector. "I am obsessed; some may say evangelical, with the role and the importance and future potential of manufacturing in the UK, which I guess means that, as chairman of the UK's biggest manufacturing group, I might be in the right job," he says.
He talks eloquently and passionately about what he calls the two-sided myth of UK manufacturing. One side is that we no longer make anything in this country and the other side is that we can grow our economy and drive a sustained and sustainable economic recovery without a vibrant competitive and growing manufacturing sector.
A year ago the Department of Innovation, Business and Skills published a study called 'Manufacturing in the UK'. It found that manufacturing was the third largest sector in terms of the share of UK GDP behind only business services and the combined wholesale and retail sectors. The report added that manufacturing employed some 2.6 million people representing over 8 per cent of total employment and it generated £140bn in gross value-added, representing about 12 per cent of the UK economy.
"That is a bigger share than something that we talk a lot about, financial services, and nobody says that we don't do that anymore. In fact, we do quite a lot to protect it. It's truly extraordinary that our economic self-image is so distorted. The fact is that we remain one of the world's ten largest nations and our overall manufacturing output is 56 per cent higher now than it was in 1990."
Olver believes that the other side of the myth – that we can recover without manufacturing – is equally misguided. "With due respect to the UK's world class retail sector, the way to revitalise the UK's global economic competitiveness is not to open more shops," he explains. "We cannot retail our way out of the economic malaise that currently surrounds not only the UK, but most of the major developed economies of the world.
"I believe that the only way for our economy to recover is for our high value manufacturing exports to be maintained, galvanised and recalibrated. The quickest acting and highest octane fuel for growth in our economy is a blisteringly strong export performance. Nothing else comes close. Historically that has been the lesson from Germany and today it is the message from China."
A tradition of winning
"There's absolutely no doubt in my mind that the UK's refocus on manufacturing and engineering has not come soon enough," Ron Dennis, executive chairman of McLaren Automotive and McLaren Group, says. "And that rebalancing of our economy away from over-reliance on financial services makes long-term sense. At McLaren – in all its forms – we're fully committed to this.
"We believe passionately in the importance of making things, of manufacturing high-tech, state-of-the-art, premium products. We're committed to growth, which is good news for jobs, good news for exports and good news for UK plc."
They may be accused of grasping at straws but many within the manufacturing sector have been heartened by the choice of two engineers to adorn the new £50 note. Out goes the image of Sir John Houblon, the first governor of the Bank of England, replaced by images of Matthew Boulton and James Watt – two of the greatest figures in the industrial history of Great Britain, whose famous company, Boulton & Watt, engineered and manufactured state-of-the-art steam engines throughout the 19th century.
At McLaren, Dennis has witnessed first-hand just how committed to manufacturing the government is when, eight weeks ago, the Prime Minister officially opened the brand-new McLaren Production Centre in Woking. "On the same day the government announced the Queen Elizabeth Prize for Engineering and a few days before that it inaugurated the 'Make it in Great Britain' campaign," Dennis adds. "It's therefore fair to say that we can see that the UK's attitude to manufacturing is changing, as has our own attitude, at McLaren, through a commitment to innovate.
"We're constantly looking at what we do and how we do it – and that's because change sits at the heart of McLaren. We focus everything we do, both on and off the track, on our single ambition: To win."
But Dennis is quick to point out that winning doesn't always mean following the traditional path. Sometimes it means daring to try something different. "At McLaren we've fostered and built a culture of daring to try new things, by recognising that the best ideas often evolve out of failures. Daring to try something different is in our DNA.
"It's what led us 30 years ago to introduce full carbon fibre construction to Formula 1, at a time when our rivals mistrusted it. We then perfected it while our rivals struggled to catch up. Daring to try something different is what led us to use F1 technology to develop our first road car, the McLaren F1 – a record-breaking and ultra-high-performance sports car. Daring to try something different is what has led us to launch Britain's newest car company, McLaren Automotive, which employs more than 700 people with more new jobs to come, and supports a supply chain of dozens of high-tech British businesses."
Until recently, McLaren had never been a full-scale car manufacturer. However, as it ramps up to producing 4,000 sports cars every year, it has learned how to combine F1 know-how with state-of-the-art production techniques, used in one of the world's most efficient and highest-quality facilities. "We've innovated, to bring technology and materials to the market that were previously seen only on cars costing three times as much as our new McLaren 12C."
But while each F1's carbon fibre chassis required hundreds of hours to lay up, with obvious cost consequences, the 12C's revolutionary carbon fibre mono cell can be built in just four hours." *
1. Where is Britain in the manufacturing world?
N S Bala, senior vice president manufacturing and hi-tech, Wipro Technologies
"I think what would be useful is to give you an insight as to what we are picking up when we speak to manufacturers. Especially given the last two and a half years in terms of the economic crisis, high oil prices, and the power of the Euro making it more difficult to be competitive.
"Several things stand out. One is the resource constraint community – how do they improve their supply chains. The second thing, which also applies to the companies we have talked to in the UK, is a specific change that we have seen in the overall market. Next is frugal engineering, how do we do our engineering much more competitively at much better cost. This is important because as costs are cut, the first thing that goes is innovation and how do we use costs from the business to fund back innovation.
"Third is the role that the consumers are playing in terms of consumers driving the manufacturing, and some of the trends that we have seen over the last three to four years here in the UK, specifically in the large manufacturer of engines, how do they improve their process. So by improving the supply chain process itself, you are able to release 3-4 per cent of the spend, the cost if you will back to the business.
"The other thing that we are seeing as we talk more to them and work with them more rigorously, how do they make sure that they are compliant with the English requirements while managing the current assets that they do have. So what is the cost of non-compliance? Most of the time you do hear about key performance indicators in terms of how you measure, but mostly over the last two years, we have also started seeing a lot of key risk indicators that organisations are starting to review."
2. Where is Britain in the manufacturing world?
Professor Sir Mike Gregory, professor at Cambridge University Institute for Manufacturing
"I have three quick things to say: one about the definition of manufacturing, one about how we exploit research and one about how we accelerate the emergence of industries.
"We all talk about manufacturing and everybody has a slightly different view as to what that is. For me it is this whole cycle of understanding the market, design, production, distribution and service and what we see is some fragmentation of that. But British companies do it very well in some of those bits of the value chain. Companies such as ARM with their design of microprocessors in 90 per cent or more of mobiles are for me a part of manufacturing even though they don't have a factory.
"Then you have got GKN, a classical company doing all sorts of things including drive shafts for cars, where they enjoy 40 per cent of the world market, but also more recently building a global aerospace industry deploying their production capability.
"Then there's Tesco. I increasingly think that we should understand manufacturing by standing at the checkout at Tesco because those people are integrating the whole set of activities around the world from understanding the market through to selling the stuff. So let's think about manufacturing as a whole value chain.
"The other advantage is thinking about manufacturing as a set of activities and not a sector. It always bothers me when we talk about the manufacturing sector ' what is actually in it? I think it would be much more helpful if we talked about manufacturing as a set of activities and this applies in different business sectors. Now if you think about it like that, you can take advantage of the things learnt in one sector and use them in another.
"There is a huge connection these days between universities and industry and those involved will recognise that this has changed dramatically in the last 10-15 years. I think we still have an idea that they are still weird folks with white coats with long hair and big glasses who speak to people in the research department companies and then go back and have a great thought.
"It seems that you think of research not just as curiosity driven boffins, but at three levels. There are those guys with white coats and glasses, they are great and we should protect some space for some of them. There are then the people who develop key technologies and that research, and then there are people who apply them and that is research as well."
3. Where is Britain in the manufacturing world?
Andrew Churchill, managing director of JJ Churchill
"The fact that I believe that JJ Churchill is going to be a small part of that blistering economic resurgence with manufacturing in the export market may sound very bullish, but we need to be bullish. We have a tremendous amount to be proud of in our manufacturing sector but we also need to niche and niche incredibly. I own a very small company – 120 employees and £24m turnover. In the niches that we choose to compete in we are first, second or third best in the world.
"So what I am passionate about is understanding how, in manufacturing, in my small world of sub contract engineering, we can really motor ahead. Because I think at the moment we are driving with the handbrake on. I think that there are a number of key things that as a country we are not getting right in manufacturing.
"Starting at the beginning, with innovation, all too often, if we ask what is innovation, we get a variety of answers and all of those are innovation, but all too often when it comes to policy generation, its skewed towards product innovation and process innovation – something that we are very good at in the UK, but that is incredibly expensive as it is incredibly difficult to take a product from technology levels 1, 2 or 3 through to 4, 5 and 6 through to production readiness. That's where we tend to lose a lot of SMEs – they are brought up, they disappear, they move overseas and the production is done elsewhere. So I think a fiscal policy is needed that is tailored better towards assisting that area.
"I think that too often companies in the SME sector are too reliant on government and large OEMs leading the way. We actually need to step up far more and in two key areas. The first is in the skills area. We are not, in front of our school children, articulating passionately how exciting engineering is. We need to be. I am in with my local primary schools, not because it is particularly fun, although I happen to enjoy it, but because they are my next generation of employees. I can't accept that small companies can't or shouldn't be doing this.
"The second area is engagement with the likes of the Institute of Manufacturing and other institutes of higher education. We are generating some wonderful IP in this country, but SMEs in the UK and it's the largest sector in the UK, far bigger than in Germany and the States are notoriously bad at collaboration. Instead of asking how the government is going to encourage our SME sector to engage in technology innovation sectors, they ought to be asking how we can support them."
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