Manufacturing isn't dead, output has been rising for decades and it's crucial to our economy. But the days of mass employment of low-skilled workers is over, and businesses now need to offer services as well as products, writes Jon Card
We've all been told that 'manufacturing is dead' or that ‘Britain doesn't make anything anymore', but researchers at the West Midlands Economic Forum (WMEF) beg to differ. "Official statistics show manufacturing to be 15 per cent of the region's economy, but our analysis shows that it's more like 38per cent," says Paul Forrest, head of research at WMEF. Forrest is the principal author of a recent report, commissioned by Birmingham City University, entitled: ‘Assessing the Secondary Economic Impact of Manufacturing in the Midlands'.
The report takes issue with official figures, arguing that they rely on a definition of the sector that is too narrow. It argues that, when you take into account other productive sectors such as agriculture, mining and construction, the figure leaps to 26 per cent. But also, crucially, when the impact of manufacturing on other economic sectors is also factored in, the true impact is revealed.
Forrest says that by only counting at the numbers of people directly employed in the sector, we've failed to recognise how manufacturing fuels other industries. "They have been looking at the effect on labour, rather than output," says Forrest. "There's been a haemorrhaging of labour, but we've managed to increase productivity. The structure has changed from a labour intensive industry to a capital intensive one."
New equipment, better technology and more sophisticated products and services mean that the insides of modern factories are barely recognisable from what they looked like just 20 years ago. They are cleaner, quieter and more efficient than ever. However, Forrest says the UK still needs to invest more in machinery, automation and, most importantly, staff.
"There's still a lot more automation to be achieved, we don't have as much as Germany, for instance. But the big issue for British manufacturing is that there is a shortage of experienced and competent people. The kids leaving school are the most educated we've ever had, but we need to turn those qualifications into skills and experience."
Previous recessions saw a decline in the UK manufacturing workforce, and the result is there's an experience gap preventing growth. Businesses have to counter this problem, while also finding a way to acquire new and expensive high tech machinery – this involves financial commitments some firms are unable or unwilling to make. Forrest says that many Midlands businesses are simply at full stretch, unable to grow, even though there's demand for their products.
He says the 'supply gap' is estimated to be in the region of £3bn, providing an opportunity for overseas businesses at the expense of our own. "The problem now is that most manufacturing businesses are at full capacity. We need to come up with incentives for people to make an investment in new machinery and their labour forces," he says.
Forrest argues for more investment in training and praises education policies such as those pursued by Wolverhampton University, which enable employees to learn new skills part-time. "It's innovative and it means people who have been working for a decade can improve their skills," he says. "It makes sense if you see your labour force as a capital investment."
Manufacturing has enjoyed something of a renaissance in the Midlands recently, and the region's exports have been a source of pride. Furthermore, there have been numerous reports of ‘reshoring' as larger manufacturers increasingly see the value of having supply chains closer to home. However, Forrest says that such reports are easily misinterpreted, and warns against exaggerating their impact on jobs.
"There's been a big shift to regional supply chains, but I don't like to call it reshoring as that suggests a big factory which was once in Darlaston might be reopened again – it won't. It's better to talk about proximity manufacturing," he says. "Low skilled jobs aren't going to re-emerge in manufacturing. The sector has seen a big rise in medium and highly skilled jobs, and a big decline in low-skilled jobs."
As manufacturers have become more sophisticated and skilled, they have also begun to sell more services alongside their core products. The WMEF report defines this as ‘servitisation', and Forrest says it's a key growth area for the region.
"Rather than just selling a product, manufacturers will sell a batch of services with it. It could be a GPS system with a combine harvester, or maintenance services with a jet engine," he says. "It intensifies the relationship between the producer and the buyer and enables them to constantly upgrade their technology. It can happen pre-production, during production and post-production. This is a key growth area for the West Midlands in the next few years."
But the Midlands does need more and better infrastructure if it is to continue growing. Few businesses would disagree that the Midlands needs better transport, and Forrest cites the all too familiar list of HS2, M6 toll, Metro extension and light rail expansion as the key areas for investment. But the big projects need to work to the benefit of the whole region and there's no quick fix.
"If HS2 does arrive, you've got to get people from the station to where they want to live or work. We really need to reduce journey times to places like Derby, Leicester and Nottingham," he says.
Forrest is particularly concerned about the importance of better transport links and exports which, in his view, go hand-in-hand. "One of the reasons Germany has been successful is that it has six airports which can export to the world – we've got one. Exports travel in long-haul flights and our capacity to carry been stuck at 1.5m tonnes for a decade. It's a bottleneck which no-one seems to recognise," he says.
Forrest says Midlands manufacturers need to be able to get their replacement products and technicians out to overseas clients faster than they are doing currently. However, all too often, this means a journey to Heathrow and that extra time makes Midlands businesses less competitive.
"Because of the servitisation of manufacturing, businesses here need to be able to send out a technician somewhere in a day, rather than it taking two. That's why the expansion of Birmingham Airport is essential," he concludes.
** The Birmingham Made Me Expo on November 19 is being held at Millennium Point and is the Midlands’ most important annual celebration of design-led manufacturing capabilities and achievements originating in the region. The annual celebration brings together world class businesses and thought leaders from a wide range of sectors. Attendees will witness a combination of events, demonstrations, performances and displays which showcase the region’s innovation and success in business. For more details go to www.birmingham-made-me.org
** As a partner for Birmingham Made Me, Please use the code BPOST89 for free entry to the event. Event Page can be found at birmingham-made-me.org/events/event/birmingham-made-me-design-expo-2014/.