UK Manufacturing: New Challenges, New Opportunities. Vicky Pryce, Chief Economic Adviser, BERR
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1 UK Manufacturing: New Challenges, New Opportunities Vicky Pryce, Chief Economic Adviser, BERR
2 UK Manufacturing at a glance World s 6th largest manufacturer Contributes 150bn p/a to UK economy (13% of GVA) Accounts for half of UK s exports, and exports half of its output Consistently in top ranks of global high tech exporters Contributes 75% of all UK business R&D Increased productivity by 50% since 1997 outstripping rest of economy and helping narrow UK s historic productivity gap with major competitors
3 UK Policy Background 2002: Government Strategy for Manufacturing First strategy for manufacturing for over 30 years Brought together key elements of Government support 2004: Strategy progress reviewed Role of MAS expanded September 2008: Manufacturing Strategy Review New policy focus around 5 major dynamics that are re-shaping global manufacturing Forthcoming: Low Carbon Industrial Strategy On-going: Action for Business Programme of activity focused on helping UK business overcome current financial and economic challenges And looking at ways to help business to prepare for the upswing over the medium to longer term
4 2008 Review rebases policy around Five Dynamics of Change in Global Manufacturing: Global Value Chains Technology Exploitation Intangibles People and Skills Low Carbon Economy
5 1. Global Value Chains The Global Value Chain: Components of the manufacturing process have become modularised and bundled and unbundled around the world.
6 1. Global Value Chains UK manufacturing becoming more integrated into Global Value Chains No perfect measure of engagement in GVCs Trends in traded intermediates give an indication of countries sourcing of inputs from across the globe 30% 29% 28% 27% 26% 25% S hare of im ported interm ediates in total interm ediates, UK Manufacturing Imported intermediate inputs have been increasing as a proportion of total intermediate inputs for UK Manufacturing 24% 23% 22% 21% 20% Source: ONS Input-Output Tables.
7 1. Global Value Chains: New Policy Measures Package of new support for UK companies to identify manufacturing value chain opportunities in India and China Promoting new guidance for UK companies on IP management in key emerging markets. New Cluster Mark award to encourage and recognise successful, innovative and productive clusters
8 2. Technology Exploitation Drives process and productivity improvements Can enable companies to capture higher value components of the value chain. UK has shown strength in high technology exports and adapting to increasingly globalised innovation But there remain areas where UK performance can be improved, on R&D investment and technology exploitation.
9 2. Technology Exploitation New Policies Manufacturing Technology Centre Coventry 24 million for Technology Strategy Board collaborative R&D in high value manufacturing
10 3. Intangibles Increasing investment in intangible or knowledge assets such as design, branding and business processes. Investment in intangibles enables manufacturers to adapt their products to meet the changing needs of consumers. Firms combine intellectual property rights (IPR) with techniques such as speed to market and open innovation to capture the value from intangibles.
11 3. Intangible Assets Investment in intangible assets could be more than double official measures of investment. New building Work 11% Vehicles 4% Management Consulting (external), 7% Software and databases, 8% Brand-building advertising, 7% Market research, 1% Copyright & licensing, 1% R&D, 26% Other Capital Equipment 85% Tangible Investment - 14bn Source: ONS, 2004 Management Consulting (inhouse), 12% Firm-provided training, 14% Intangible Investment - 32bn Source: Jonathan Haskel, 2008 (Emerging Work) New architectural and engineering design, 25%
12 3. Intangibles: New Policy Measures Increase penetration and impact of Designing Demand programme UK Design Skills Alliance - skills required by manufacturers to compete in global markets. IP - mutual recognition for the examination work of accredited patent offices.
13 4. People and Skills A skilled workforce is essential for UK manufacturing to compete globally The growth of global value chains highlights the need for strong leadership and management skills Firms are reporting a requirement for both specialist high level skills Image of Manufacturing: Attracting new, highly skilled people into manufacturing is key
14 4. People and Skills: UK Performance Skills: Increasing levels of degrees (or equivalent) Management: Could do better Ranking of management scores (Average score: 1-5) Source: LFS
15 4. People and Skills Major New Policies MoU on seamless access to skills support UKCES to develop proposals to simplify the skills system and pilot in manufacturing sector 1,500 new high quality apprenticeships Manufacturing Insight campaign and Manufacturing the Future campaign in schools
16 5. Low Carbon Economy Transition to a low carbon economy will require a transformation in business products, processes and organisations Challenges in improving efficiency and reducing emissions, but opportunities for jobs and growth. Low Carbon Energy Technologies Sector alone could be worth as much as $3 trillion globally by 2050 and employ 25 million people (CEMEP, 2008) UK currently has comparative advantage and could develop green business opportunities in software, electronic equipment, business services, financial services, and machinery equipment (Ernst&Young, 2008)
17 5. Low Carbon Major New Policies Low Carbon Industrial Strategy next year; Office of Nuclear Development (OND) will work to develop the UK nuclear supply chain; Establish the Office for Renewable Energy Deployment (ORED); New pilot demonstration programme for electric cars; 20 million for the public procurement of low carbon and zero emission vans; UKTI International Marketing Strategy In association with the CBI, a showcase for low carbon products;
18 Action for Business A programme of activity that will help UK business overcome current economic challenges by: Exploring innovative solutions to the problems and issues faced by businesses Building on existing BERR policy initiatives (including the Manufacturing and Enterprise Strategies) Building on existing relationships across government departments and the regions so we foster both closer working and new partnerships And looking at ways to help business to prepare for the upswing over the medium to longer term.
19 Action for Business We ve already taken action for small businesses: Access to UK bank finance - including increasing the amount of lending available through the Small Firms Loan Guarantee. Working capital and investment needs: including the Small Business Finance Scheme, to enable up to 1 billion of new Government supported lending by banks. Better access to short-term working capital - temporary 1 billion guarantee facility for smaller exporters. Better cash flow management speeding up Government payment of bills and business health checks via Business Link. Help to attend overseas trade exhibitions to win new export orders, through UK Trade & Investment Easily find support by streamlining over 3000 schemes into 30 Solutions for Business Funded by Government.
20 Conclusions The 2008 Manufacturing Strategy sets out the major challenges and opportunities for the UK from the changing nature of global manufacturing. But not the end of the journey: Robust implementation of the strategy is crucial The Strategy is a living document, a developing framework for future work Action for Business will help manufacturers deal with economic downturn and the forthcoming Low Carbon Industrial Strategy with the challenges/opportunities from climate change.
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