Global manufacturing executives rank the UK as one of the top destinations for future profit growth, ahead of established manufacturing economies such as Japan and Germany, and high growth economies like India and Brazil.
KPMG’s 4th annual Global Manufacturing Outlook, which surveyed 335 executives globally, also reveals that companies are increasingly looking to the UK to provide key skills and resources in the supply chain, with the UK being the third most popular destination for increased sourcing.
UK is key market for sales and profit growth
Asked where they expect to derive the majority of their profit growth from over the next two years, the majority of respondents named the US (40%) and China (27%), followed by the UK (14%), Brazil (12%), Japan (12%) and Germany (11%).
David Morritt, audit partner and manufacturing sector head at KPMG in Yorkshire, comments: “Given the importance of manufacturing to Yorkshire’s prosperity, it’s imperative that manufacturers in the region exploit the advantages the UK is being credited with providing on a global stage.
“The UK’s relatively low corporate tax rate and the good IP protection provided by our legal system for businesses trading here are both attractive factors. The latter may not be said with the same degree of confidence for a number of the high growth economies. In addition, over the past few years, the weak pound has made UK goods relatively cheaper in the global marketplace. These advantages have contributed to the year on year increase in exports since 2009.”
Top sourcing destination driven by high-end manufacturing
The survey also reveals that the UK is in the top three most popular sourcing destinations with 16% of respondents saying they expect to source more here; higher than Germany, India and Brazil. China and the US still lead though, with global manufacturers seeking to increase sourcing in those countries by 34% and 37% respectively.
Of those who expect to increasingly source from the UK, 92% said this would involve research and development (R&D) and 81% said the investment would include product design and development. The majority said the goods would involve significant intellectual property (75%).
In addition, when asked what the most important factors determining the geographic location of R&D investment were, IP rights protection and financing options were cited as primary concerns. The availability of skilled talent (33%) was more than twice as important as government and tax incentives (15%).
According to the report, the top strategic manufacturing sector priority is reducing cost structure, even ahead of sales growth. When asked about which priority areas of cost-control they will be pursuing, 40% of global companies and 45% of UK manufacturers cited reducing labour force costs.
Morritt continues: “There is a tension between a desire to cut labour force costs and maintaining the UK’s strength in high end manufacturing. Technological innovations in robotics could provide the opportunity to drive labour costs down, while maintaining high quality output. Yet, the UK lags behind other counties in robotics, using just 622 robots per 10,000 workers, half that of Italy and Germany.”
(Source: International Federation of Robotics)
Rising investment in R&D
The report found that, despite cost pressures, investment in R&D is rising. More than a quarter (27%) of global companies will spend 4-5% of their revenue on R&D, a 10% increase over the last two years.
And, of those companies committing above average R&D spend – more than 6% of revenue – UK manufacturers out-invest the competition, with nearly one in five (19%) making this higher level of commitment than their global counterparts (15%).
Managing supplier performance remains a prominent concern though, with half of all manufacturers saying the reliability, quality and risk of suppliers was their top supply chain challenge.
“The risk point is very much a live commercial issue. For example, in the automotive sector, prior to a product launch, manufacturers must audit the readiness of suppliers to meet lead times and quality standards in time for launch deadlines. Failure to do so may incur both severe reputational and financial costs,” said Morritt, before concluding:
“Despite challenging conditions faced by our region’s manufacturers, they can be encouraged by global markets increasing their focus on the UK for growth in sales, profit and sourcing.”
