Our global manufacturing competitiveness index reveals that the UK, US, Japan and Western European countries are expected to become less competitive over the next five years, as China, India and Korea maintain their leading positions. The UK is currently ranked 17 on Deloitte’s global competitiveness index and is expected to drop three positions to 20 in the next five years.

The report, compiled with the US Council on Competitiveness, ranks the countries considered the most competitive now and predicts their relative competitiveness in five years. It also lists the key drivers of competition in the global manufacturing industry, identifying talent led innovation as the highest ranking driver.

Asian giants China, India and the Republic of Korea lead the current competitiveness index and are expected to retain their top three rankings over the next five years. These countries have been emerging as global leaders in manufacturing for a number of years now, and this survey highlights the increasing dominance that the Chinese and Indian economies will continue to have over the remainder of this decade.

In contrast, the dominant manufacturing superpowers of the late 20th century are expected to become less competitive. Other Western European nations will be similarly challenged especially the Czech Republic, the Netherlands, Switzerland, Ireland, Italy and Belgium.

It is disappointing to see that the UK is ranked outside the top 10, positioned at number 17 in an index of 26. Further, it is predicted that the UK will drop three places over the next five years. The fact that both the US and Germany are ranked in the top 10 shows that the drivers of competitiveness are not just cost-based. Both the US and Germany have high wage costs and rigorous safety and environmental standards in place, similar to the UK, yet for example, the US is given a competitiveness score of 5.84, more than double the UK’s of 2.82.

It is vital that the new UK government works jointly with manufacturers to ensure they can improve their global competitiveness. The UK manufacturing sector is predominantly focused on emerging new technologies and high tech industry, we must continue to invest in and develop these areas. Given the significant proportion of UK GDP earned through our manufacturing base, and the number of people employed in this sector, any further slippage in our global competitiveness will have a real impact on the broader UK economy.

European policy strengths and weaknesses

Interestingly, when asked to identify national policies that they perceived as contributing to their country’s competitive business advantage or disadvantage, senior manufacturing executives said that Europe benefited from policies that strongly support infrastructure development (46.1%) as well as science and technology and innovation (43.4%), and intellectual property protection (42.1%). On the downside, European executives felt disadvantaged by labour laws and regulations (42.1%), as well as environment policies (36.8%) and energy policies (31.6%).

Drivers of global manufacturing competitiveness

When asked to rank the drivers of global competiveness, respondents listed access to talented workers capable of supporting innovation as the most important driver globally, with a score of 9.2 well ahead of the traditional factors typically associated with competitive manufacturing, such as labour, materials and energy.
Within the UK, we have seen a shift over the past decade away from our more traditional manufacturing base into high tech and cutting edge technology sectors. Our manufacturing sector is differentiated by our innovation – we must ensure that the industry and our government invest in our ‘brain trust’.
To download the 2010 Global Manufacturing Competitiveness Index, please visit www.deloitte.com/globalcompetitiveness.

Blog from Jason Whitworth, partner and manufacturing expert based at BDO in Leeds

There’s no denying the region’s manufacturing businesses have had a tough time, but we are starting to see Yorkshire’s resilient nature pay off, as more companies report signs of improving demand and are looking to the future with greater confidence about prospects for recovery.

We have seen a larger than expected improvement in output and orders since the start of the year and Yorkshire’s manufacturing companies are starting to feel more confident and upbeat since the financial crisis began in mid-2007.

A number of risks to manufacturers’ prospects still remain and should not be overlooked. Not least uncertainty about how to repair the public finances, ongoing access to finance issues and the sustainability of recovery in export markets. As a result, I would expect to see investment intentions remain muted for a while to come.

Yorkshire manufacturers look to be making impressive gains in exports and it is hoped that the weakness of the pound enables further inroads to be made. In the short to medium term it is difficult to see significant growth in the developed nations of Europe, so as the new economic world order changes, manufacturers need to focus efforts towards high growth emerging markets.

We all need to remain vigilant of the environment in which we are operating, continuing to monitor the health of all major customers, identifying and acting if aged debts begin to mount, and reviewing the security of our supply chain. We also need to be thinking long-term in preparation for competition from a number of countries that will become economic powerhouses over the coming five years.

In terms of the recovery, manufacturers are considerably better placed to bounce back than other sectors that are more reliant on consumer spending to fuel their recovery. While I welcome George Osborne’s plan to protect manufacturers under a new corporation tax framework, there needs to be a clear strategy that rebalances the economy and encourages exporting. This means removing red tape, providing specific support to mid-market manufacturers and supporting emerging technologies, whilst not forgetting the UK’s traditional industrial base.

Manufacturing currently represents around 12 per cent of UK GDP. We need to get back to producing things and personally I would like to see manufacturing push it’s way back up towards 20 per cent of GDP with the right investment and support from the government. In the region, the manufacturing sector is 11 per cent of the total output per year, so any recovery in this sector will be a welcome positive sign that the economy is rebalancing.

Finding the right people will also be crucial to long term sustainability of manufacturing. This was reflected in discussion round our table, with many manufacturers now ‘importing’ skills form other parts of the UK but recognising that, ultimately, the ageing workforce profile of the sector makes it essential to open up manufacturing to a new generation.

It’s a problem across the sector as shown by the launch today of the ‘Work Wise’ initiative, which aims to encourage and support young people to take up careers in manufacturing and engineering. The initiative has been backed by 50 South Yorkshire employers who are accutely aware of the need to renew the skills base within industry instead of companies feeding off one another’s skills base.

Given that there nearly twice as many people employed in manufacturing in West Yorkshire than there are in South Yorkshire, the need for an initiative in this kind is even more pressing. Something for the Leeds city region Employment & Skills Board and organisations like the EEF to consider?

The rise in output has been driven by a pick-up in capital goods production and intermediate goods and energy, says a report in the Financial Times, suggesting that companies in the UK and abroad are investing more in equipment.

The news comes coincides with calls for the new government to appoint a minister for manufacturing to ensure the sector’s long term future and ensure the sector’s heartlands can play a full role in future economic prosperity. The call came from James Newman, head of the Sheffield-based Company of Cutlers which represents, South Yorkshire-based manufacturers.

He says the sector needs ‘incentives’, such as capital allowances, to enable companies hit by the recession to make investments in machinery and staff.

Of course, manufacturing continues to play a key role in the Yorkshire economy as a whole, both in terms of output and employment. In fact government figures show that there are nearly twice as many people employed in manufacturing in West Yorkshire as there are in South Yorkshire and that as a city Leeds is the UK’s second largest centre for manufacturing outside London.

According to Lord Jones, action is urgently required to ensure continued investment and maintain skills levels if the sector is to be sustainable in the long term. He argues that all efforts should be made to avoid iconic brands such as JCB from becoming British-based companies simply assembling parts made in other parts of the world.

In 1979 96% of JCB components were UK sourced, but this has now shrunk to 36%. While the highly successful company strives to source as many parts as it could locally, this was declining because the supplying firms were no longer in existence. If this was allowed to continue , Lord Jones fears that UK manufacturing industry might decline altogether, leaving companies like JCB British in name only.

I recently returned full time to Leeds Met as a Professor of Organisation Learning. When I told one of my clients, his first response was ‘Yes, well done and about time too’ and his second response, after a moment was “but what does ‘organisation learning’ mean?”. And, what relevance does this have to leaders in manufacturing businesses in the current economic climate? Read on.

Consider the two terms, Organisation and Learning. The first implies co-ordinating and bringing things into some kind of order – you get things organised and working with some kind of clarity and direction. Learning is about upsetting the status quo or the current kind of order. Hence the contradiction.

To understand the value of thinking in contradictions requires a bit mental gymnastics and is one of the reasons so many businesses have been unable to cope in recent years. Organisation and Learning may be in tension, but they have to be reconciled. The danger of missing this trick can be found by considering each part in separation, for example by putting effort into organisation at the expense of learning. This can appear very enticing, after all to be organised means that work is proceed as planned, against targets with great clarity. Things are done on time and efficiently. People know how to do things right and any training can correct those who don’t. Continued emphasis on organisation allows improvement by eliminating waste and doing things faster by resetting targets, etc.

The danger is that you sucked into what is clear, ignoring other possibilities or assuming that things will carry on as before, so that any changes from outside are not considered before it’s too late. As the saying goes, ‘if you do what you always do, you get what you always get’. But supposing the customers change their minds about what you do? So concentrating on doing things right, could mean you miss doing the right thing. This is where learning as a disturbance comes in.

The disturbance could involve changes for what people do at work, the things that are produced and how they are produce. Learning as disturbance can also come from exploring what customers and suppliers think and want.

The idea of the Learning Organisation became very popular in the 1990s. It was a lovely ideal that could help any business change radically. However, many managers and leaders found they simply did not have the access within their organisations to enable them to initiate, promote or sustain approaches that required an organisation that ‘continually transformed itself’. Another problem is that when business is struggling to meet or even find orders, there is not a lot of time for learning, even if the evidence says you should (findings from a very important piece of research on creating space for learning in SMEs can be found at; http://www.esrcsocietytoday.ac.uk/esrcinfocentre/viewawardpage.aspx?awardnumber=RES-334-25-0015 ).

The problems of being too organised are tackled by more space for learning as disturbance. And the problem of wasting too much time exploring for learning is to make sure you are better organised. This sounds like setting up a competition between organisation and learning but that’s the nature of contradiction and the source of its potential for responding to difficult times now and in the future. You need to consider the interplay of these two processes by providing support for both organising and learning. If you can do this, you become a two-sided thinker and doer or, in a word that reconciles contradiction, ambidextrous

If you would like to read more about the Ambidextrous Organisation, contact me at j.gold@leedsmet.ac.uk and I will send you a very useful article with key ideas for what to do.

Although UK manufacturers have been through some tough times, our latest survey of UK manufacturers has some encouraging news with almost two-thirds of manufacturers (62 per cent) expecting the availability of credit to remain the same or improve in the coming 12 months. It also reveals that the industry is responding positively to the economic challenges by making use of available public sector funding, with 63 per cent declaring a good understanding of available grants and incentives whilst 33 per cent of manufacturers have sought capital from alternative sources such as shareholders or parent companies.

The overriding message is that while the market is tough, manufacturers have been resilient in their response. The easing of available credit is very welcome, but there are no signs of complacency with manufacturers seeking other appropriate sources of finance where necessary. Manufacturers have also proactively sought to limit their exposure to bad debt, with 65 per cent increasing the frequency of customer credit checks over the past 12 months.

The survey highlights grant funding as one area where there is still some room for improvement. Whilst the majority of manufacturers have a good understanding of grants and other incentives, a significant minority remain in the dark. Almost one in five said they did not know where to look for information on grants, for example, with another 19 per cent not yet having considered grants as a source of funding – this suggests that some manufacturers are losing out on additional funding.

The report found that 55 per cent of manufacturers intend to invest in plant and machinery over the coming 12 months, with 54 per cent of respondents intending to invest in new product development. This shows the appetite for investment from the industry so we would encourage all manufacturers to take advantage of the funding available to them. This will be important as manufacturing emerges from the recession and looks to a future which will require investment in R&D, training and retraining and capital expenditure on new plant and machinery.

Overseas markets

The report also asked manufacturers about their intentions for the coming 12 months, focusing on investment and exports. Seventy-one per cent of respondents said they expected to increase their exports over the next 12 months, with 41 per cent planning on a double-digit increase. However, a sizeable minority of 29 per cent expected no increase at all. Seventy-five per cent of manufacturers will focus their export strategy on the Eurozone. The US and China were identified as the other key regions, with 45 per cent looking to increase trade with the US and 30 per cent with China.

These are confident figures from UK manufacturers, without being overly bullish. As the comparative value of sterling remains low and confidence in global markets picks up, there will be opportunities for manufacturers to increase their exports. However, for every willing seller you need a willing buyer and as growth in many of the major economies remains anaemic the extent to which this can happen is to some degree out of UK manufacturers’ hands.

(Survey was carried out 2-9 February 2010 by Findlay Media in association with Deloitte, and surveyed 101 manufacturers based in the UK. “Pound for Pound” is the second in a series of quarterly Point of View surveys examining key issues affecting UK manufacturers in seeking access to finance. The full report is available at www.deloitte.co.uk/pointofview

Harvard Engineering pulled off a hat-trick in the Yorkshire Forward Innovator/10 Awards, including the Sustainable Innovation prize for its ground-breaking LeafNut system for street lights.

And ATB Morley has reached the finals in the Best Exporter category of the Going Global Awards hosted by Yorkshire Forward and UK Trade & Investment.