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UK manufacturers competing on quality, rather than price

26 March, 2008

Britain’s manufacturers are benefiting from moving into higher-value production, despite the continued growth of low-cost, emerging markets, according to a new survey conducted by EEF, the manufacturers’ organisation, and the accountants BDO Stoy Hayward.

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

However, "the competition from emerging markets is likely to increase as these new economies move further up the value chain," warns Tom Lawton, head of manufacturing at BDO Stoy Hayward. "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.

He adds that 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," he says. "What’s more, manufacturers in these countries can also outsource to lower-cost economies to shrink their cost base and boost their competitiveness."

The survey shows that manufacturers are continuing to look overseas to reduce costs. Of companies that already have some overseas operations, 70% expect this proportion to increase within the next five years, while a third of companies with no production currently outside the UK expect this to change by 2012.

However, the survey also shows this will not lead to an exodus of manufacturing, with the UK remaining the centre for high-value innovative activity. Some 75% of companies expect the UK to be the primary location for their r&d in five years’ time.

"The UK is still the home of innovation for manufacturers, with 90% of companies carrying out in some form here," says Lawton. "Moreover, there is still a strong demand for the low-volume local niche products that are required on a just-in-time basis by UK customers. This has helped maintain a number of smaller companies, despite the turmoil of global competition."

º  Steve Radley will be discussing the state of UK manufacturing and its future prospects in a keynote speech on the first day of the Drives & Controls Show in Bormingham on 22 April.

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