Opportunity knocks for manufacturing

Paul Boughton

A vibrant and effective UK manufacturing base is essential for future prosperity. But how are the companies themselves dealing with the many challenges that confront them?  Sean McDonagh finds out.

As the UK economy appears to once again stabilise, the impact and influence of the manufacturing sector continues to be extremely important.  With widespread consensus that a revitalised manufacturing base is essential for a more balanced and successful economic future for the UK, assessing company outlook, sentiment, behaviours and decision-making in critical areas such as investment confidence and routes to growth are important factors to examine if progress continues to be made.
To help assist in such an assessment, Siemens Industry commissioned research that looked into what more than 500 UK manufacturing companies thought about key areas such as general trading confidence, Government support for the manufacturing sector and current and future investment strategies. We talked to a wide range of organisations, including representatives from the chemical, oil and gas and food and beverage industries to unearth what, in particular, companies have been experiencing to help drive a robust growth agenda.
Taking the manufacturing sector as a whole, it appears that despite the challenges presented by the worldwide economic issues, the general contraction following the 2008 crash and the current ongoing Eurozone crisis, almost half (48 per cent) of organisations feel optimistic about the future performance of their business. This contrasts with the 12 per cent who stated they were pessimistic. Allied to this fact is that more than 68 per cent said their investment levels over the coming year would equal or exceed that of the previous 12 months.
Indeed, 41 per cent said they actively planned to increase investment levels – a sign perhaps of business confidence once again slowly returning? While it is not the only consideration, nonetheless such green shoots of increasing confidence and its translation into proactive and higher levels of investment demonstrates positive sentiment that can only aid the sector as it goes forward.
In terms of some of the key industries that make up our manufacturing base, further analysis highlights some important nuances and distinctions. [Page Break]
Chemical sector
The chemical companies who shared their thoughts expressed the least amount of optimism (34 per cent) about the year ahead when compared to companies in both the oil and gas (55 per cent) and food and beverage (47 per cent) sectors. But despite this lower number it still accounts for a positive outlook among more than a third of the chemical sector companies involved in the research.  Indeed, more than half believe that the depths of the recession are behind us and the economy is in growth mode. To support this, over half of the companies said they have not lacked the confidence to invest through the recent downturn. The flipside to this however is the widespread acknowledgment by 72 per cent of chemical companies that they have in recent times turned away from implementing investment decisions.  For such organisations this has translated into an admission that they now have a current and business critical need to invest.
Interestingly, the prime areas of investment that have been undertaken have focused upon building infrastructures, plant equipment, marketing and IT and technology. The spotlight on technology investment is set to continue with increased spend in this area identified as the primary target for the coming 12 months for chemical manufacturers. As a traditionally conservative industry, the challenge facing the chemical sector to invoke long-term industrial technology investment plans and lifecycle planning to modernise, optimise and maintain what are often ageing manufacturing plants needs to be met head on.
When questioned about their perceptions concerning barriers to growth, chemical companies alluded to a combination of a lack of Government support, workforce skills shortages and constraints in plant capacity.
For marketplace observations, respondents pointed out the marked increase in domestic demand that has driven their business volumes, with 67 per cent stating this was the case - as opposed to just 4 per cent citing an equivalent upsurge in overseas demand.
Despite the food and beverage sector recording good levels of optimism for the year ahead, some 44 per cent of businesses stated they have lacked the confidence to invest capital budgets through the downturn. This is the highest figure when compared to the actions of chemical and oil and gas companies.  Mirroring the chemical sector, for those who have shied away from recent capital expenditure investment decisions, a majority (76 per cent) now admit it has led to a business critical need to invest. Such observations are supported by the fact that nearly half of food and beverage companies (48 per cent) plan to increase their investment in the year ahead.
Investment decisions that have been implemented concentrate upon improvements to IT and technology and focusing on new product development and R&D. These areas will continue to be the primary areas of investment focus for the future, as well as increased spend on marketing activities.
Increasing domestic demand in this sector out performs the chemical industry, with 71% of food & beverage manufacturers saying this area is driving volume increases. But when it comes to impacting on growth the issues varied from the chemical sector and covered labour costs, competition from emerging markets and plant capacity. A lack of government support for manufacturing was also a view expressed.
The oil and gas sector recorded the highest level of optimism of the three industries, with 55 per cent of oil and gas manufacturers feeling positive about performance over the coming 12 months. Lagging slightly behind the food and beverage industry, 41 per cent said they had lacked the confidence to invest all available capital budgets and, in a familiar trend echoed in the other industries, this has led to nearly 70 per cent of oil and gas companies who lacked confidence to invest now admitting to a business critical need to do so.
Investment strategies have concentrated upon building infrastructure, new IT and technology support and new product developments.  Going forward oil and gas companies say they will continue to spend on building infrastructure and increase investment in more plant equipment.
When asked to assess the impact of the numerous Government initiatives to support UK manufacturing and whether it had affected morale in their business, the jury seems to be out for oil and gas companies. Respondents were equally split, with 43 per cent saying they had boosted morale in the organisation, while 46 per cent said it hadn’t. It was, however, most favourably viewed by the food and beverage companies.
Asked to cite barriers to crucial future growth, examples given included access to external finance, energy costs, skills shortages and plant capacity – some of these also clearly resonate with both the chemical and food and beverage industries. As far as demand is concerned, business volume was predominantly being driven by an increasingly stronger domestic bias, reflecting the experience of the chemical and food & beverage sectors. [Page Break]
Future success

Obviously the future success of the manufacturing sector in general, and the three industries highlighted here in particular, is dependent on a wide range of factors. Nonetheless, the fact that general confidence is erring on the optimistic side is encouraging for all. With positive signs that more businesses are prepared to consider and act upon critical investment decisions around technology to help unlock efficiencies, support competitiveness and make the most of market opportunities, it appears that some of the barriers to growth that could hinder progress for the UK’s manufacturing base can begin to be tackled.  
Key areas such as improvements to production efficiencies, addressing long-term skills shortages, setting clear management strategies and a continued commitment to innovation and investment lie at the heart of what most manufacturers feel the sector needs to move forward.It is a real moment of opportunity. By focusing upon such factors, important and valuable industries such as chemicals, food and beverage and oil and gas can ensure they continue to make salient contributions to the predicted and renewed vibrancy of the UK’s manufacturing infrastructure in the years ahead.
Sean McDonagh is business manager, chemicals at Siemens Industry, Manchester, UK.   www.industry.siemens.co.uk