Region’s manufacturers encouraged by positive global report

Manufacturers in the region have been urged to make the most of the UK’s top three ranking in the world’s top destinations for future profit growth.

The Global Manufacturing Outlook report from KPMG saw manufacturing executives rank the UK alongside established manufacturing economies such as Japan and Germany.

The report, which surveyed 335 executives globally also revealed that companies are looking to the UK more and more to provide key skills and resources in the supply chain.

Nick Plumb, audit partner and manufacturing sector head at KPMG in Newcastle, said:“Given the importance of manufacturing to the North East’s prosperity, it’s imperative that manufacturers in the region exploit the advantages the UK is being credited with providing on a global stage.

“The UK’s relatively low corporate tax rate and the good IP protection provided by our legal system for businesses trading here are both attractive factors.

“The latter may not be said with the same degree of confidence for a number of the high growth economies. In addition, over the past few years, the weak pound has made UK goods relatively cheaper in the global marketplace.

“These advantages have contributed to the year on year increase in exports since 2009.”

Asked where they expect to derive the majority of their profit growth from over the next two years, the majority of respondents named the US (40%) and China (27%), followed by the UK (14%).

In the fourth annual survey, the UK was also named the third most popular destination for increased sourcing.

16% of respondents said they expect to source more here, higher than Germany, India and Brazil.

China and the US still lead this category, with global manufacturers seeking to increase sourcing in those countries by 34% and 37% respectively.

Of those who expect to increasingly source from the UK, 92% said this would involve research and development (R&D) and 81% said the investment would include product design and development.

Nick said: “There is a tension between a desire to cut labour force costs and maintaining the UK’s strength in high end manufacturing.

“Technological innovations in robotics could provide the opportunity to drive labour costs down, while maintaining high quality output.

“Yet, the UK lags behind other counties in robotics, using just 622 robots per 10,000 workers, half that of Italy and Germany.”

Of the most important factors determining the geographic location of R&D investment, IP rights protection and financing options were cited as primary concerns.

And the availability of skilled talent (33%) was more than twice as important as government and tax incentives (15%).

When asked about which priority areas of cost-control they will be pursuing, 40% of global companies and 45% of UK manufacturers cited reducing labour force costs.

The report also found that investment in R&D is rising with 27% of global companies stating they will spend 4-5% of their revenue, an increase of 10% since 2011.

Of those companies committing more than 6% of revenue on R&D spend - nearly one in five UK manufacturers make this higher level of commitment compared with just 15% of their global counterparts.

Nick said: “The risk point is very much a live commercial issue.

“For example, in the automotive sector, prior to a product launch, manufacturers must audit the readiness of suppliers to meet lead times and quality standards in time for launch deadlines.

“Failure to do so may incur both severe reputational and financial costs.

“Despite challenging conditions faced by our region’s manufacturers, they can be encouraged by global markets increasing their focus on the UK for growth in sales, profit and sourcing.”