Government initiatives to promote innovation and exports to emerging markets coupled with growth sectors like the automotive industry provide real opportunities for West manufacturers, according to accountants and business advisors BDO’s regional office.
While recognising that uncertainty in key economies and markets and the lack of access to capital will make 2012 a challenging year for the majority of manufacturers, Bristol-based partner Jim Brown is optimistic.
“After 30 years of decline there is now widespread consensus that a strong and vibrant manufacturing sector is fundamental to the UK economy,” he said.
“The task of rebuilding the manufacturing sector will not be easy and we must accept that it may take years. However, a renewed focus on manufacturing is vital for growth."
He called on the Government to develop a clearer and more explicit medium to long-term framework and strategy for the sector.
While 2011 was a relatively good year for manufacturing, the latest UK and global Purchasing Managers’ Indices (PMI) show a significant deterioration in confidence.
But Mr Brown, who is based in BDO's Bristol office, sees opportunities this year based on:
* Innovation and government initiatives
In 2011, the Government announced a number of initiatives to spur innovation in the UK. These included the reform of the research and development (R&D) tax credit system, an increase in tax relief from £200 to £225 for each £100 of R&D activity, the new ‘patent box’ scheme reducing the rate of corporation tax on income derived from patents to 10%, and a £125m fund to encourage growth in established UK advanced manufacturing supply sectors such as aerospace, automotive and chemicals.
“The key to unlocking the full potential of UK innovation in 2012 lies with helping manufacturers to understand and access the raft of initiatives,” he said “In the shorter-term, we would urge companies to increase their awareness of new Government innovation initiatives and to use the various support schemes available to them.”
* Exports to compensate for low demand in home market
The UK provides a relatively small market for manufacturers, meaning exporting is becoming ever more important. In 2012, Europe and the US will continue to be foundation markets, but West companies looking for significant new market opportunities should focus on the rapidly emerging giants (China, India and Brazil) in addition to looking towards the fast developing new emerging markets such as the CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa).
* Automotive renaissance to fuel manufacturing sector
The motor industry is predicted to register an 11% rise overall in output in 2011 and expects modest growth of 4% in 2012. Despite wider economic gloom, the focus on quality products is expected to contribute to a continued bounce back, making it a core foundation sector
As the UK automotive industry supports a large and mostly UK-based supply chain, this continuing good news should help underpin many UK manufacturing order books through 2012. Jaguar Land Rover, Aston Martin and Lotus expect their export success in 2011 to continue through the year. In addition, Nissan UK plans to build on its export success with the start of production on the LEAF electric car from 2013 onwards.
* New National Manufacturing Advisory Service (MAS)
The launch of the new, nationally-operated Manufacturing Advisory Service (MAS) for all manufacturing businesses across England could help to generate £1.5bn in economic growth, 23,000 jobs and safeguard a further 50,000 jobs.
Simon Howes, managing director of SWMAS Ltd, one of four organisations that will deliver the new programme, said: “The new MAS will provide small and medium-sized businesses in the West with the funding and support they need to unlock their growth potential and improve productivity and competitiveness in 2012. We hope that this could lead them to export more, explore new markets and invest in the latest technologies.”
On the negative side, BDO expects little positive recruitment through 2012 and anticipates that manufacturers in certain sectors may be forced to shed labour to balance the books. There was a sustained fall in the balance of West firms taking on new workers throughout 2011, from a high of 42% in the first quarter to 35% in Q2 and 14% in Q3. There was however a slight rise to 25% in Q4.
Other expectations for the UK manufacturing sector
BDO also expects continued economic turmoil in international markets and lack of capital to negatively impact growth. The huge pressures on sovereign debt, bank debt and bank balance sheets will continue to make access to growth capital very difficult, particularly for SMEs. On a more positive note, commodity prices are finally showing some signs of balance or reduction, which should ease margin pressures.
In November manufacturers reported lower costs of certain commodities.
Finally, a focus on sustainability as a business tool to redesign manufacturing processes to become more resource and energy efficient will be important for manufacturers in the coming year.
