Innovative britain

The UK's industrial future will depend on its ability to become a 'high value' manufacturer.

It's a very long time since consumers in the UK have been able to look to product labels with the expectation of finding 'Made in Britain' on them. The country has to accept that the powerhouses of cheap manufacturing labour - China, Asia, India, and others - are here to stay, and it is production of a different kind that will become increasingly important for UK-based firms. But don't depend on research and development as the saviour of British manufacturing, experts warn. R&D could go the same way as labour and become outsourced to low-cost countries. China and India in particular are keen to build up their R&D capability.

To move up the global manufacturing 'value chain', Britain will have to ensure it can build on its strengths as an innovator of ideas and a developer of products.

"Much of the innovation [in the UK] is not based on intensive research but on design, development and marketing," says Steve Radley, chief economist at engineering employers' body the EEF. Research by the EEF of its member companies suggests that most of these believe that 'high value' activities will be crucial to the success of UK manufacturing in just five years' time.

UK-based companies' response to low-cost competition from overseas used to centre on aggressive price-cutting and slashing their costs, Radley says. But tactics have shifted and now firms are becoming increasingly focused on innovation and targeting niche markets, including opportunities arising from the global 'green' economy - sustainability, renewables, recycling, carbon reduction, and so on.

Becoming a high-value manufacturer is not just about products, it's also about service, according to Iain Gray, head of the Technology Strategy Board (TSB), a government-funded agency that aims to promote innovation and its rapid application in the UK.

Gray points out that some British manufacturers are now making more of their profits from services to clients than from making the product. Gray doesn't name names, but one sector in which service has become key is aerospace. This 'servitisation' of UK manufacturing is seen by Gray and other experts as a key plank of future competitiveness for British industry.

But can small and medium-sized companies in the sector really become service providers as much as they are engineering firms and manufacturers? This is unclear. But what speakers at a recent conference organised by the TSB did all agree on was that British industry must make the most of its rock-bed of innovation.

Capturing value

Professor Mike Gregory, head of Cambridge University's Institute for Manufacturing, says a broader definition of innovation or high-value manufacturing (HVM) is needed. "HVM is not just about mechanisms but about where we can add value - it's about inventiveness and entrepreneurship."

He believes that manufacturing must be seen in terms of "value creation and value capture". He warns that in China there is now a huge emphasis on innovation, while India has long been encouraging high-tech production.

Companies need to look at the whole value chain, including the provision of services, to see how they can broaden their appeal, he suggests.

However, Gregory argues that a manufacturing country also needs "excellent production". In other words, it would be unwise to rely solely on ideas creation because these need to be translated into products. Japan, for example, is able to combine innovation with what are still the best manufacturing processes in the world.

"A lot of innovation comes out of production," Gregory points out. "That is, there are interdependencies [between innovation and production]. I don't think we [in the UK] understand the interdependencies in the value chain."

Green future

Britain is already losing out on key new technologies, some experts believe. Germany and Denmark are said to have taken a lead on 'green' technologies, while the US and Singapore are ahead in the processing of biofuels.

Moreover, becoming a leader in green manufacturing will
be important in attracting younger people to industry. Consumers are also increasingly looking for products that are more environmentally friendly. But is Britain in danger of losing out on these opportunities? Tim Page, senior policy officer at union group the TUC, argues that the UK lacks leadership from the government.

"We are not succeeding in making UK manufacturing as strong as it can be," Page says. He contends that, while Britain has a firm defence industrial strategy - and this is because the government is a major client of the sector - the broader manufacturing base in the UK lacks a central strategy.

"Manufacturing employment has fallen faster [in the UK] than in France and Italy, while in Germany it has increased," Page argues. He insists that the UK government must take the lead in promoting its key industry sectors, from automotive to pharmaceutical to aerospace, and stop being "hung up on Leyland" - a reference to the failed state-funded British car maker that caused the government many years of headaches and crises up to the 1980s.

"Is the UK moving towards a 'post-manufacturing' nation?" Page asks, insisting: "But we want success in both services and manufacturing."

Page naturally is concerned about job losses, arguing that manufacturing employment in the UK has dipped below three million for the first time in many years. According to the GMB union there are three-and-a-half million manufacturing jobs. It depends on how widely you define industry. But what the unions do agree on is that there has been steady decline, and the GMB warned recently that it was picking up signs of "growing numbers of redundancies in engineering, building materials, furniture, paint and other parts of industry" - signs, it says, of the chill winds of recession blowing towards manufacturing firms.

For its part, the TUC wants the UK government to put money into supporting and promoting both existing and new industrial sectors. While it is unlikely that the government will want to pump much cash into established companies, it does appear keen on boosting both industrial entrepreneurship and the image of manufacturing.

New initiatives

Ian Pearson, the Science and Technology Minister, points out that the government is pumping £1bn into the Technology Strategy Board over the next three years so that money can be channelled into new technologies, including advanced manufacturing and materials, bioscience and electronics.

Pearson, who spoke at the TSB conference, says he detects a "real buzz" in the UK manufacturing sector: "We are lean, we are efficient, and we've proved capable, in many sectors, of moving up the value chain. Manufacturing has a bright and strong future in the UK, I've no doubt about that."

When pressed by E&T on whether the government is doing enough to promote the image of manufacturing, Pearson concedes that there is still more to be done, both by ministers and by the industry itself. But he points out that the government has appointed 18,000 science and engineering 'ambassadors' from industry who will go into schools around the UK to encourage youngsters to join these disciplines.

On the level of innovation occurring in British industry today, Pearson insists that: "Every day we've got companies coming up with new ideas. I'm very positive about our ability to innovate." He adds: "We have great strengths in parts of our manufacturing sector, in terms of language, open markets, and we can make the UK a world-leading innovative country in the future, and that's what we've got to aspire to be."

Pearson also points to the range of initiatives the government has helped to develop that aim to increase engineering skills levels, in response to last year's Leitch Review on skills in the UK. Such initiatives include the National Skills Academy for Manufacturing and the new secondary school diplomas in engineering, manufacturing and other employment areas.

Joined-up thinking

This year will also see a spate of new policies - or perhaps many old policies dressed up in new clothes. This spring, Pearson is due to publish a science and innovation strategy document; while, in the summer, BERR (the Department for Enterprise and Regulatory Reform) will issue a review of the government's manufacturing strategy. So lots of fine words to come from government; it remains to be seen how much difference these will make in the long run.

However, there does appear to be a drive to ensure joined-up thinking within the UK government over its range of industrial strategies. Mark Gibson, director general at the Enterprise and Business Group within BERR, admits that central government has not been completely successful in linking up its national, regional and sectoral policies on manufacturing.

And he argues that the government's philosophy of "backing success and not reinforcing failure" has worked. Ministers didn't intervene over the demise and sale of MG Rover, the UK car company bought by Chinese rivals, but it did financially support the Nissan and Toyota car plants in the UK.

According to Gibson, proposals mooted a few years ago for a Manufacturing Media Centre are still being considered and may come to fruition. The MMC would operate along the lines of the existing Science Media Centre, which is an independent national press office for the scientific community that aims to inform journalists and raise the profile of the sector. Few would dispute that manufacturing sorely needs such a service to help boost its image.

But where does all of this activity leave UK manufacturing as a potential leader in high-value products and services, particularly at a time when the fallout from the US credit crisis could undermine the industry's new-found buoyancy?

The TSB's Iain Gray says we shouldn't confuse manufacturing change with manufacturing decline. "There are some fantastic manufacturing success stories in the UK. We all have to find ways of showcasing these examples."

He adds: "We need long-term sustainable competitive advantage, which means high-value processes and products. Manufacturing is not the end in itself, it's the means to the end - which is the product."

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