Manufacturing’s Firm Foundations need greater investment for greater success

Beverley Nielsen- Head Shot-CorporateAffairsDirectorBeverley Nielsen, Director, Birmingham City University think tank, IDEA Birmingham, discusses challenges around Redesigning Manufacturing and driving regional economic growth.

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There is more to economic rebalancing than just shouting about it.

And it is about a lot more than a selective Treasury definition of productivity.

Last week’s Birmingham Post (06.08.15) in referencing the ONS latest City Regions Article(24.07.15) highlighted some fairly shocking stats about the area making up the proposed West Midlands Combined Authority.

For example, ‘on average an hour’s work in the West Midlands creates nine tenths as much economic output…as an hour worked in England as a whole.’ Or ‘the region has too few people with high-level qualifications. Just 27% of West Midlands’ residents aged 16-64 have a degree or an equivalent qualification…But across England the figure is 36%, while in London it is 49%.’

How do we square these stats with strong export growth at +47.4% from 2008 to end 2014 across the Midlands as a whole – demonstrating what can be achieved in a dynamic manufacturing economy.

Strikingly, within this, West Midlands’ exports have grown even more strongly, by 69.4% during the same period – faster than in any other UK region.  We all know how important Jaguar Land Rover’s performance has been in accounting for a significant proportion of this, largely responsible for the trade surplus the region enjoys with China. In fact, UKTI states JLR accounts for around 20% of all UK exports to China with Land Rover Evoque playing a key role in delivering growth from just 431 cars sold to China in 2003 to over 77,000 vehicles sold there a decade later in 2013.

It goes without saying that getting our goods to market depends on efficient and effective infrastructure – both physical and virtual. Yet IPPR, amongst others, have highlighted that 75% of infrastructure spend between now and 2020 is planned for London and South East.  According to Midlands Economic Forum, (MEF) on a per capita basis, in the fiscal year 2013-14, expenditure on transport was £199 per head in the East Midlands and £245 in the West Midlands, compared with £511 in London.

MEF state in their Midlands Manifesto – Infrastructure for Growth, May 2015:

“Connectivity across and within the region is compromising supply-chain performance across a range of sectors….in part hampered by the lack of comprehension of the regional economy. Rail and road links fail to take account of…key centres and clusters of output and their constituent supply chains, including automotive and aerospace, but also key research clusters around the 21 regional universities…”

In addition some regional economists have highlighted that if you look at output per worker in the Midlands on the basis of those people in-work rather than all residents of working age, then output rises to £35k GVA per person, as opposed to the current quoted statistic of £19k GVA per person.

If ever the time had arrived for the Midlands Engine to get under the skin of these numbers, it is now. The facts as presented by Westminster about the Midlands (and other UK regions) are insufficiently nuanced and failing to recognise key strengths.  This is making it harder for us to lobby for and secure vital investment required in key areas to drive vital growth and economic rebalancing.

Manufacturing has become much more complex with competitiveness increasingly dependent on regional capacity and capabilities through collaborative supply chains, re-shoring and servitisation, amongst other trends. According to MEF analysis commissioned by Birmingham City University the comparative contribution made by manufacturing to UK GVA is more significant than the 10% recognized through ONS data, estimated to be contributing around 30% GVA, whilst delivering around 38% GVA contribution to the Midlands economy when taking into account production in the broadest context.

Manufacturers are employing branding strategies – not only in B2C markets but in B2B or the increasingly collaborative enterprise to enterprise (E2E) networks making up the Midlands supply chains which have been expanding through accelerating levels of re-shoring, with the Manufacturing Advisory Service reporting in 2013 that one in six manufacturers having been bringing back production driving greater proximity production.

Innovation pathways are more diverse than accepted policy assumptions would suggest – whilst STEM-led innovation is important, so too are design-driven, craft, customer, process and marketing driven innovation pathways, all of which are used, often together, but too often overlooked when addressing challenges around delivering greater productivity, innovation and high value, which in policy terms, are viewed as largely dependent on solutions driven by technology and advanced engineering.

Manufacturers are facing many other emerging trends and challenges in globalized markets. New technologies, including digitization, have been enabling rapid product development and growing consumer expectations have fuelled demand for new product introductions which have rapidly accelerated over the past decade. For example, 50% of AGA Rangemaster’s revenues in 2014 were composed of products not introduced before 2011.

The new reality is that heightened connectivity demands a combination of ‘hard and soft’ skills in response to increasing complexity around, for example, the development of user-focused haptics involving the development of attractive interface options for consumers, especially in higher value added consumer markets.  Manufacturers focus increasingly on delivering emotional functionalityrequiring ever greater agility in design, production, communications and brand skills.

Consumers themselves expect products they are able to customize to meet the requirements of their lifestyles, whilst also enabling them to make statements about who they think they are and how they see themselves – not just in higher price points but from very competitive price points. Other ongoing challenges facing manufacturers include developing sustainable sources of energy and materials, whilst the internet has brought increasing fragmentation in terms of routes to market.

The recently published book, Redesigning Manufacturing, suggests there is a need to further rethink many aspects of how we understand manufacturing. We need to emphasise ecosystems and encourage joined-up thinking, especially throughout education by linking learning into ecosystem actors.

Perhaps one of the reasons behind the comparatively lower numbers of formal high-level qualifications in the Midlands is due to employers’ demand for young people who are able to ‘think and do’, with this requiring radically different ways of delivering skills and qualifications, with a real need to accelerate higher apprenticeships, genuine parity of esteem for school leavers, careers advice and business engagement throughout the learning process.

Regarding academia current trends suggest an urgent shift away from traditional basic research to a greater emphasis on more applied forms of research. Mike Wright’s 2014 Review of Manufacturing showed that less than one fifth of all research funding was on applied research and this primarily through tax credits and patent assistance.  Within academia fragmentation has been creating a lack of transparency and ease of access to expertise, with the result that industry is unaware of pockets of specialisms they could access, thus constraining collaboration and holding back potential investment.

Business overwhelmingly believes that greater collaboration lies at the heart of the future-proofed economy. Centres of excellence within universities making clearer to business the degree of technology readiness of research developments and a greater focus on impact measures in assessing applied research would be beneficial in incentivizing greater market focus for academics and driving a ‘mind to market’ ethos.