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March of the Makers finally underway?

The much-vaunted 'March of the Makers' may well have stumbled last year but is finally moving again, and at a decent enough rate for now at least.

The much-vaunted 'March of the Makers' may well have stumbled last year (manufacturing output actually fell by 0.6% in 2013) but is finally moving again, and at a decent enough rate for now at least. That recovery is getting moving thanks to more stable conditions in the Eurozone - still the UK's biggest trading partner - and rising consumer demand at home.

It is against this better picture that more firms are planning to take on workers, according to a survey by the manufacturing body EEF and accountancy firm BDO. A balance of 31% of manufacturers stated that they planned to take on more staff in the next three months, the highest figure since 2000, with car manufacturing and the electrical sector leading the way. And a balance of 34% of firms stated that they planned to increase investment in the coming quarter, also a record high. 

The survey reflects a more broad-based recovery taking hold in manufacturing, with a stronger outlook across regions and sectors. The EEF/BDO predicts 2.7% manufacturing growth in 2014 and 2.6% for the wider economy. Meanwhile, official figures from the Office for National Statistics (ONS) showed manufacturing output up 0.7% between October and December of 2013.

Manufacturers saw a stronger than expected rise in export orders at the start of 2014, according to the EEF/BDO survey, suggesting that UK factories were at last starting to see the benefits of some improvement in the Eurozone. That's good news as so far the official ONS figures have shown a very weak picture for UK exports, which fell 4% to a 19-month low of £24.2bn in January.

Indeed, UK exports have flat-lined since mid-2011, with little if no progress thus far in George Osborne's goal of doubling the value of UK exports to £1trillion by 2020. The one stand out exception has been the performance of the West Midlands region, where exports are up by 30% of the last two years. Indeed without the West Midlands, overall UK exports would have fallen during this period. So much for a UK-wide rebalancing.

Meanwhile, it seems that manufacturers are continuing to bring production back to the UK - a process termed reshoring, attracted by the UK's technological edge, a diminishing cost advantage in emerging economies such as China, rising transport costs, concerns over quality and the need to ensure supply chain resilience.

One in six firms re-shored manufacturing in the last three years according to another report by the manufacturing body EEF. The figure mirrors that produced by our own research with SGH Martineau on Midlands' manufacturers (see  here ), as well as survey evidence by the Manufacturing Advisory Service. According to the EEF report, production was most commonly brought back from China, followed by countries in Eastern Europe.

Interestingly, for around 40% of companies that had re-shored production in the EEF survey, turnover had increased as a direct result, with just 3% reporting a fall. And some 60% reported a moderate rise in profits and employment.

Of course, the difference in wages paid in the UK and China is still huge. But the gap is closing and overall the cost advantage of basing manufacturing operations in China has been eroded when the overall costs of doing business including transport and logistics are considered.

There are real limits to reshoring. Energy costs, access to finance and the availability of skills all limit how far this can go and areas that we need to address. And reshoring, it seems, is more of a trickle than a flood. But it's nevertheless a real trend that the Midlands' economy and the UK government need to capitalise on.

* Professor David Bailey works at the  Aston Business School in Birmingham

 

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