EEF report notes flaws in Britain's supply base

In its report The Shape of British Industry released today, EEF warned the relative dearth of large manufacturers could, over time, erode the supplier base and make the UK a less likely destination for successful foreign production companies to set up shop and provide direct investment into the sector.

The organisation called for efforts to not only attract new large manufacturers to the UK but also help homegrown SMEs transform into corporate giants capable of competing on a global scale.

According to the report, only 1.2 per cent of manufacturing companies in the UK employ more than 250 employees. This compares with 2.1 per cent in Germany. The proportion of companies with more than 500 employees accounts for just 0.6 per cent of the overall UK manufacturing sector. In the US this percentage is three per cent.

Lee Hopley, chief economist for EEF, commented: ‘While they are relatively small in number, large companies in the UK account for the lion share of employment turnover across the sector. They have a very important role in supporting supply chains but equally deep supply networks support growth in big companies and also attract them to invest in the UK.

‘Unless we maximise those growth opportunities, [and] see today’s SMEs grow into the big companies of tomorrow, we risk putting a cap on our growth potential.’

Finance

One of the largest challenges standing in the way of SME growth is accessing finance. While EEF’s Credit Conditions Survey suggests that conditions for working capital have stabilised over the past 12 months after the financial crisis and recession, the report found many SMEs are still having problems getting loans.

The report, which surveyed 300 manufacturers across the UK, states that a quarter of small companies see availability of affordable finance as one of there top three challenges, compared with only 15 per cent of large companies. 

EEF believes government should improve credit conditions for SMEs with new reforms to improve access to finance. These measures would prioritise transparency on lending principles and ancillary costs for SMEs; foster greater non-price competition among lenders and improve the provision of alternatives to equity finance and bank lending; and restructure government-backed schemes to provide a single source of funding capable of investing through successive rounds of business growth.

The mid-sized firms surveyed by EEF stated that tax and red tape are two of the most challenging obstacles to overcome before becoming global in scale. As part of its recommendations, EEF suggested the government should provide clarity about which corporate, environmental and personal tax reforms it will seek over the next five years.

Skills

Even with finance secured and bureaucracy removed, a company cannot grow without workers to do the job.

Hopley said one of the most common concerns expressed by manufacturers was the lack of skilled engineers, apprentices and graduates in the pipeline.

‘I think all companies in our survey see skills shortages as a challenge and that is potentially one that will intensify as more companies seek to grow,’ she added.

Peter Russell, head of manufacturing in the corporate banking division of RBS, which supported the EEF report, said: ‘From talking to our manufacturing clients we know the questions that are very high on the boardroom agenda are: Where are the engineers for tomorrow? Where will they come from?’

Larger companies have made outward efforts to address the issue of skills shortages. The report highlights Siemens, a company addressing skills shortages forecast in the UK wind industry through a training facility that opened in 2009.

Similarly Toyota has complemented its large-scale investment in hybrid car production in Derbyshire with the creation of a dedicated qualification in collaboration with Burton College.

Optimism

The EEF report did bring forth some positive news in terms of overall growth. UK manufacturing has bounced back quicker than after previous downturns, enjoying its best 12 months of growth since 1994, when the EEF survey started.

Hopley said growth cannot be taken for granted and the manufacturing sector could still benefit from a public relations makeover.

‘There is a challenge around improving the image of manufacturing,’ she added. ‘The sector has a lot of good things to say about itself and I think manufacturers need to speak up more and raise the visibility of its capability and successes.’