A reduction in the trade deficit by £20bn and an estimated 200,000 UK based jobs could be created over the next ten years, as mid-sized manufacturing firms end the outsourcing of production to Asia in response to changing business dynamics, according to a report published by the RSA and supported by Lloyds Banking Group.
The report, Making at home, owning abroad, concluded that many kinds of manufacturing have reached a 'tipping point' in terms of whether they should be located overseas or in the country where the goods are consumed.
The report argues that large scale global trends, combined with new production technologies, will make global manufacturing uneconomic and unattractive to many businesses.
These trends include rising oil costs, increasing regulations on emissions and changing patterns of demand. Mid-sized companies will not be, in the long run, exporting at high volume, the report concludes. Instead they will be producing in the country of use or very close to it, depending on how economies of scale can be achieved.
The report warns, however, that mid-sized companies have been overlooked by government, lenders and the media. It says that the road to their success is "a difficult one", and it is unclear that the UK is ready to respond to the challenges and the opportunities that this changing context provides.
Business Secretary Vince Cable said:
"As part of my job, I am privileged to travel the length and breadth of the UK meeting a range of mid-sized manufacturers. These are the type of innovative companies that will help rebalance the economy, boost trade and create jobs.
"I understand the problems these companies face. Employing people with the right skills, getting access to finance and investing in equipment are real issues for them. That's why we are investing in apprenticeships, helping manufacturers grow via the £2.6bn Regional Growth Fund, developing supply chains with £245m of funding, expanding our network of regional trade advisors and setting up the British Business Bank."
Commenting on the report, University of Cambridge author Finbarr Livesey said:
"For the UK, the opportunity is to reduce the trade deficit, to rebalance the economy and to be competitive in foreign markets. The challenge is to focus on the companies that are likely to drive these changes: the agile mid-sized companies which are large enough to invest in new technology and to have the ambition to grow internationally through investing in productive assets overseas."
Head of Enterprise at the RSA, Julian Thompson said:
"Many companies are now finding that making products in China that are destined for the US or the UK will bring only marginal cost savings. It is imperative that both industry and government begin to discuss the medium term, including how investment decisions made now will affect the growth trajectory for both companies and the country. Specifically, mid-sized companies will be faced with the choice of investing in new production and will be trying to understand when exporting will remain feasible compared to owning productive assets in their target markets."
David Oldfield, Managing Director, SME & Mid Markets Banking, Lloyds Banking Group said:
"Manufacturing is a vital sector to the UK economy and this research raises a timely debate on future trends for manufacturing and addresses the key drivers fuelling this change. We believe that Mid-Market businesses are well placed due to their size and agility to respond to these developments and could instigate a renaissance of the sector given the right support, focus and attention."
"We intend to do all that we can to support this important sector and that is why we have pledged an additional £1bn of lending to manufacturing businesses."
The report also warns that many mid-sized companies are concerned about finding and retaining skilled employees as well as attracting top management. Often they do not have a clear identity - the relatively low profile means that they are rarely at the forefront of new job hunters' minds when they leave higher education.
Making at home, owning abroad argues that the government can provide immediate help by reducing uncertainty in policy for mid-sized manufacturers, supporting the generation of an identity for these firms and continuing to improve the skilled workforce. It also concludes that there remains a shortage of growth capital for mid-sized businesses and that lenders have a duty to better understand the changing investment needs of manufacturing companies.
Notes to editors
1. For more information contact RSA Head of Media Luke Robinson on 020 7451 6893 or 07799 737 970 or [email protected]
2. The report was launched at the RSA, 8 John Adam Street, WC2N 6EZ on 29 April 2013 with Rt Hon Vince Cable MP.
3. Mid-sized companies are defined as those with a turnover between £25m and £500m and with between 100 and 2000 employees.
4. There are approximately 2,500 mid-sized manufacturing firms in the UK (2.5 percent of all UK manufacturing companies).
5. Lloyds Bank has pledged an additional £1bn of lending under its Manufacturing Commitment to manufacturing companies. At six months Lloyds Bank has lent £700m and is on target to beat this Commitment target.