Manufacturing firms have adapted to the challenge of global competition and are starting to reap the dividends despite the current financial crisis, according to a new report.

The Engineering Employers Federation said fewer companies were reporting being affected by price competition in the markets in which they traded.

The challenge from low cost economies was firmly on the "radar" of UK business organisations and they were responding by becoming more innovative.

EEF chief economist Steve Radley said: "This survey paints a positive picture of how manufacturing companies have adapted to the challenge of the global environment.

"Instead of competing on price alone they are adopting a range of strategies to take advantage of emerging markets. While there are many other challenges on the horizon, manufacturers look well-placed to rise to them."

Tom Lawton, of accountants BDO Stoy Hayward, which helped with the research, added: "The competition from emerging markets is likely to increase as these new economies move further up the value chain.

"We see an increasing challenge from China and India as they develop the low cost models that we have seen to date and begin to add innovation, research and increasing quality to the mix.

"However, the threat from established economies such as Germany and the US must not be overlooked.

"Like the UK, they are associated with quality and have access to sizeable home markets with the ability to tap into overseas markets.

"What's more, manufacturers in these countries can also outsource to lower cost economies to shrink their cost base and boost their competitiveness."

Meanwhile, effective management of employee's returning to work after sickness will be a key requirement for manufacturers in their dealings with an increasingly ageing workforce.

The claim is one of the findings of a survey An Ageing Workforce - How are manufacturers preparing? published by EEF.

Companies felt that older workers were more likely to be absent long-term when they were sick.

Thirty per cent of those surveyed were concerned that the number of days lost owing to absenteeism/sickness was likely to rise as the workforce became older.

However, the loss of specialist skills owing to retirement was a far greater concern, expressed by 76 per cent of respondents.

Within five years it is estimated that because of the demographics alone, the West Midlands will be short of 30,000 skilled people. The manufacturing sector has a higher proportion of workers aged between 35 and 55 compared with the workforce as a whole, and fewer workers aged between 16 and 24. Industries such as aerospace and defence will see as much as 40 per cent of their workforce become eligible to retire.

However, companies are beginning to adapt to the challenges of an ageing workforce, particularly with regard to rehabilitation and return to work policies.

The survey found 12 per cent were either implementing these policies as an explicit response to the ageing of their workforce or were considering doing so.

"The shortage of skilled workers in manufacturing means it is all the more important to ensure that no one falls through the net for want of practical support from their employer in helping them back to work after sickness," said Sayeed Khan, EEF's chief medical adviser.