BBC news featured a piece this morning called “Manufacturers bounce back” (I paraphrase) but it did highlight an interesting development that has started to occur in the UK manufacturing sector. Some small to mid size manufacturers have started to recall manufacturing processes back from the Far East in response to some complex market changes.
Cost is the primary factor – a weaker pound can make it less cost effective to outsource, along with factors such as rising Chinese inflation, and increasing transportation costs. But there are also elements of protecting the innovation and skills that we have in this country which are beginning to influence this trend. This innovation can drive process improvements in ways such as reducing dependence on labour during the manufacturing process, which in turn, can remove the cost consideration for outsourcing to countries where labour is cheap.
Britain has long been known for innovationÂ – particularly when it comes to engineering and design. Many countries put British engineers at the top of their wish list when recruiting – and there is still a shortage of graduating engineers, which, if this changes, could strengthen the UK position. That’s still a pretty big if however.
What these smaller manufacturers seem to be responding to however, is the realisation that this type of expertise is in even shorter supply elsewhere, and that outsourcing manufacturing opens a door to others encroaching on that space. British manufacturers have an opportunity to differentiate – but only if the IP remains in this country.
With the Chinese economy still seeing high growth, I’m not suggesting there is a mass exodus – but it will be interesting to see if this trend grows in 2010 as companies seek to protect innovation – often the only differentiator in a highly competitive industry. There is reason to be optimistic – Manufacturing is still 12% of the overall GDP of this country – more than financial services (according to Lord Digby Jones on the BBC this morning).