The firms that will save UK industry

Opinion

The traditional production base is shrinking but in 20 years High Value Manufacturing companies couldbe responsible for 10 per cent of our economy — and save British industry, claims Justin Hayward.

A few years ago I left investment banking in the City of London and returned to my the home of my alma mater — Cambridge — to set up an investment research company.

The early part of this century was an exciting time to be in Silicon Fen. With the blossoming of co-operation between entrepreneurs and academics, Cambridge was the birthplace of many world-beating firms including ARM, Virata, Autonomy and Cambridge Silicon Radio.

At first sight the only thing that connected these companies was their origins and their use of new technology, but on closer examination I noticed other common themes.

Those involved in these firms often seemed to share the following distinguishing characteristics:

  • they tended to be higher up the value-added chain than traditional manufacturers;

  • they made products that require highlyskilled engineers and other staff;

  • they possessed above-average levels of intellectual property and did more research;

  • they competed more on quality than on price.

This meant they were less likely to be driven out of business by low-cost competition, particularly from East Asia. But they did take longer than conventional companies to become profitable.

The sort of things they made were scientific instruments, software, semiconductors and innovative electronics. Bunched together to take advantage of the highly-skilled labour force in Cambridge and the surrounding area, these firms were known as the Cambridge Cluster.

But we needed a name for what they were doing — especially as, unlike the rest of UK manufacturing, they were on an upward curve while the rest of manufacturing was, and is, heading inexorably downward.

My company, Cambridge Investment Research (CIR), came up with the term High Value Manufacturing, or HVM, in 2002. This was a deliberate variation of the stock phrase ‘value-added manufacturing’ and the term has now taken root.

The recipe for HVM is not simply about linear value-add — it is a more wholesome mix of time-to-market, intellectual property and reinvestments, among other factors.

This country’s HVM firms are now developing products for a variety of sectors. A few examples include: super-efficient solar cells; the BMW Mini; stable liquid vaccines that require no refrigeration for developing countries; organic displays; inkjet printed electronics; high-precision scientific instruments; super-wide format advertising printing machines with no volatile solvents; ‘nanoclays’ for 100 per cent sealing of food packaging and mobile phone batteries that last 10 times as long as traditional ones.

Modern manufacturing companies are beginning to recognise that they belong to the HVM phenomenon, and they become stronger by sharing expertise. After all, unlike manufacturing segments in the past, these companies don’t all make variations of the same product.

While Cambridge may have seen the first HVM cluster, it’s not the only one in the UK. This is why CIR is running a series of conferences nationwide to help HVM companies ensure best practice. We kick off next month with conferences in Cambridge and Oxford.

HVM is now being taken seriously by the government, regional development agencies, employers’ organisations and my old industry, investment. But companies must continue to bend the government’s ear about the help HVM needs to guarantee growth and significant success.

Bosses of HVM firms are calling on government for help ranging from better technology education through pilot production facilities to tax incentives (rather than grants, which are hidebound by tonnes of red tape).

While traditional manufacturing is shrinking — it stands at 16 per cent of GDP today and could be down to 10 per cent by 2025 — within 20 years HVM companies could form half of the UK’s manufacturing base.

By the same year, from its 2.4 per cent today, HVM alone could be responsible for 10 per cent of the economy. It could be the saviour of UK industry and the main employer of the country’s engineers.

It’s time for everyone to take HVM seriously.

Justin Hayward is managing director of Cambridge Investment Research (CIR).

For more information visit www.hvm-uk.com.