Efficient exporters are weathering the storm

Jul 15 2008 by Graeme King, The Journal

MANUFACTURERS who are innovative, efficient and export effectively are outperforming the rest of the economy to weather the worsening economic situation, new research said yesterday.

With gloom descending on many sectors of the UK economy, there has been precious little good news from business leaders but manufacturing body the EEF says many of its members are not only doing well in UK terms, but beating their competitors in France and Germany too.

The “Modern Manufacturing – The High Performers” report highlights the top 20 high performance sectors within UK manufacturing.

And the message is that those companies who treat globalisation as an opportunity, who innovate and use technology to their advantage, are the ones who are thriving.

Nine sectors have outperformed the manufacturing average over the last five years, together accounting for almost 60% of UK manufacturing output.

Especially strong growth can be seen in transport equipment, mechanical equipment, medical and precision instruments, non metallic equipment and recycling, which have all expanded at a rate of between four and 10 times the average.

The only two large sectors in the top 20 high performance sectors are aerospace and pharmaceuticals.

High profile success stories in the North East recently have included oil and gas pipeline companies Wellstream and Duco, who have benefited from the high price of oil, and steel mill Spartan whose fast turn around, service led business model has made it popular with its customers.

Tony Sarginson, EEF regional manager, said: “This report is the final nail in the coffin of the myth that manufacturing is in decline. The reality is a dynamic, innovative and increasingly high value sector that is competing successfully across the globe.

“What is especially notable is the diversity of activities that are thriving.”

Tom Lawton, head of manufacturing at report authors BDO Stoy Hayward, said: “The analysis shows that there is no one winning formula for high performance in a relatively high cost location like the UK. The sectors that have succeeded in recent years have adopted a range of strategies that make them stand out internationally, including: scientific innovation and knowledge, a focus on customer value and the development of customer facing service offerings.

“What the majority of these thriving sectors do share however, is a focus on exports, which shows how manufacturers have turned globalisation to their advantage.”

Dr Colin Herron, manager of manufacturing and productivity at One NorthEast, said: “There are some examples where there are companies doing well and companies doing badly in the same sector.

“Generally, those doing well are those focused on exports who see places such as China and the EU accession countries as lucrative markets.

“Overall we are seeing a mixed picture – there are offshore companies like Wellstream doing well, and Nissan has just added a third shift, but then companies exposed to housebuilding have struggled. In some sectors, you can be as lean as you want, but you will be in trouble. We live in economic cycles and you will never get a situation where everybody is happy.”

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On Teesside, manufacturers are a shining light in deepening economic gloom.

The safety blanket, protecting Teesside from the worst of the credit crunch, appears to be small firms, which overall account for more than 50% of the economy.

Joanne Fryett, head of member relations at the North East Chamber of Commerce (NECC), just over a quarter of whose 4,500 members are in manufacturing, said: “Smaller firms have quicker decision-making and corporate processes so that they can adapt in an economic downturn. Many have been able to absorb higher input prices by increasing sales or adopting lean manufacturing techniques.

“Building efficiencies have allowed firms to increase production and productivity. Forward order books have been healthy and businesses are giving every indication that this will continue.”

Although the report did not cover a further 83 sectors, which represent more than 70% of the UK’s total manufacturing output, EEF North-east regional manager Tony Sarginson described it as “the final nail in the coffin of the myth that manufacturing is in decline”.

He said Teesside firms were cashing in on large-scale projects in the oil and gas, petrochemical, process and offshore sectors.

This was echoed by the North East Chamber of Commerce’s latest North East Business Barometer, which covered the three months to the end of June.

It said local manufacturers were coping with the economic downturn “significantly better than service industries.”

The regional picture had been buoyed by particularly strong performance on Teesside where a balance of 45.5 manufacturers reported increased sales compared with an overall balance of -4.3 in the region.

In addition, a balance of 36.4 manufacturers said export orders were up, while the overall regional balance was just 1.1.

James Rainbow, North-east-based divisional director and investment manager at stockbroker Brewin Dolphin, said some firms were scaling back their costs to avoid passing on factory gate price rises to customers. “They are investing in improved IT infrastructure and other energy efficiency measures,” he said.

However, he was “surprised” that some companies had not met with more customer resistance to price rises.

“That said, if they operate in niche markets with not many competitors, in theory they should find it easier,” he said.