The skills shortage and lack of viable funding is holding back a key part of the national economic engine according to an expert who works at the heart of Midlands manufacturing.
Johnathan Dudley is Midlands managing partner and UK head of manufacturing business at accountants Crowe Clark Whitehill.
He is warning that manufacturing SMEs are facing major challenges which are hindering their growth and restricting their opportunity and ability to export.
The first challenge he has identified is the skills shortage in engineering and manufacturing.
“The skills shortage is caused by a generation of politicians and educators focusing on people doing academic degrees rather than science/maths based ones, and a failure to recognize that a viable alternative to a degree is that of on the job training,” he said.
This had led to older workers having to be incentivised to stay on when they may not want to in order to transfer their skills to new young workers and plug the skills gap.
“Education priorities have changed, but this initiative is largely very recent and it will take time to roll out. Good engineers are at a premium and are being snapped up by original equipment manufacturers who can afford to pay a premium to join what are anyway prestigious employers,” he said.
“This affects all SMEs but is especially notable in manufacturing.”
The other factor hindering SMEs was the continued slowness in obtaining decisions on lending from banks, and the rising costs incurred by servicing debt to satisfy what are noticeably tighter bank monitoring regimes.
“Funding for Lending, discounted lending, while welcome to a level, is only being extended as cheaper lending to those who would have been given loans anyway.
“Bank lending to SMEs is predicated on the provision of security which many entrepreneurs are less inclined to put back on risk post-recession,” said Mr Dudley.
“Banks cannot lend without security and SME customers have no choice but to meet their lending security criteria.
“The Enterprise Finance Guarantee should work but it represents a premium cost for what is apparently no benefit for the SME owner.
“Pay out on default is only permitted to banks if all other security has been called in first.
“If, as usually happens, this includes a guarantee from the proprietor, they have to call this in first, so what is the business owner paying the premium to cover insurance for?
“This seems diametrically opposed to the thinking behind Funding for Lending.”
He said that recovery in the SME sector needed some give and take to encourage owners to borrow to fund growth.
“Regional Growth Funding and soft loans can do this but they are time consuming both to apply for and to await decisions.
“Without incentives, the temptation is to do without and muddle along. This stifles development and investment and could make our resurgent manufacturing supply chain uncompetitive if sustained and easily accessible incentives and assistance are not forthcoming,” he warned.
He pointed out that the UK had traditionally grown through its export trade.
“SMEs are underperforming in exports and there seems to be a fear factor. UKTI assistance needs better communicating and extending.
“Export numbers are the only ones which continue to under perform in what are otherwise encouraging economic statistics,” he said.
But unless this Government and future administrations undertook to close the skills gap and provide more credible and viable funding for SMEs, exporting would continue to lag and hold back overall UK economic growth, he said.
The Midlands office of Crowe Clark Whitehill pioneered the Manufacturing Business Network which meets quarterly and enables manufacturers, particularly SMEs, to share best practice.
At its most recent meeting Midlands manufacturers heard how they could access grants and soft loans.
Sophie Thompson, Strategic Project Manager at the Black Country Consortium, briefed business leaders and explained the recently released Key Funding Factsheet developed by the Black Country Local Enterprise Partnership’s Access to Finance Group and drawn up at the request of Johnathan Dudley, Midlands managing partner and UK Head of Manufacturing Business at Crowe Clark Whitehill. Both are members of the Access to Finance Group.
Mr Dudley said: “It provides an insight into how companies should go about making the various schemes fit what they plan to do, and what they need to do to apply. I urge SME manufacturers to obtain a copy and give it keen consideration.
“The time lag in achieving the allocation of these grants remains a concern and I would urge Whitehall to give urgent consideration to how this can be speeded up.”
