Made in Scotland

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By Ivan McKee

My involvement in manufacturing stretches back more than 30 years, and for all of that time the manufacturing narrative has been the same.

The UK suffers from a lack of focus on the importance of manufacturing in general and engineering in particular. The Finniston report of 1980 spelled this out, and little has changed.

By Ivan McKee

My involvement in manufacturing stretches back more than 30 years, and for all of that time the manufacturing narrative has been the same.

The UK suffers from a lack of focus on the importance of manufacturing in general and engineering in particular. The Finniston report of 1980 spelled this out, and little has changed.

This has manifested itself in the lack of understanding of the longer term impacts of de-industrialisation in the 1980s, the dash towards a service driven economy in the 1990s and the primacy placed on the banking sector at the expense of manufacturing in the 2000s. There are many explanations for this, some stretching way back to historical class perceptions that ‘real gentlemen’ do something in the city and don’t get their hands dirty making things. All the brightest and best have always been directed towards financial services and not the ‘real’ economy.

It’s no accident that successful small European countries like Finland and Sweden have manufacturing sectors significantly larger than Scotland’s – despite neither country enjoying the historically strong legacy in engineering and manufacturing that Scotland does.

The challenge facing western (let’s call them ‘high cost’) economies is often portrayed as how to deal with low cost competition. For sure that is a big part of the story, but by no means is it the full story, and as the Scandinavians amongst others have shown it’s perfectly possible to build and sustain a thriving manufacturing sector in a high cost economy.

Consider a competitive situation where a factory owner in China say is trying to win orders in the west to put into his low cost manufacturing facility. The only real strategic advantage he has is the fact that he has (for now) lower labour costs. And even that advantage is time-bound. Shanghai now boasts labour costs not much lower than Europe, and wage inflation across China is high.

Everything else is against our Chinese businessman in his quest to fill his factory by winning business from Europe. Compared to his western competitor he is further from the market, has higher transport costs, poorer communication, less flexibility, less responsiveness to changes in demand or design, less access to technology, lower brand awareness. Over time these disadvantages erode as we have seen China move up the value chain to produce more technologically advanced goods. But that is accompanied by rising living standards and rising labour costs. The next low cost economies stand ready to take China’s place at the bottom of the supply chain: for now India, Vietnam and Indonesia. But the picture is the same, with a clear focus on the right strategy, and the determination to deliver; there is a place for strong manufacturing in western economies.

The cure for Scottish manufacturing’s ills isn’t difficult to prescribe. Like many things in business, the hard bit is the execution.

  • 1.  Focus on higher ‘added value’ – technology and innovation – you can never win a race to the bottom against low cost economies on cost alone.
  • 2.  Provide support for small businesses to grow (through loans and grants), design a (much simpler) tax system that incentivises longer term growth and risk taking. Far too much time is taken up at senior levels in trying to navigate through the highly complex tax code. Great for the accountancy profession, but not good use of time for business leaders.
  • 3.  Identify sectors that we can excel in and nourish them. (There’s nothing wrong with picking winners). Build ‘clusters’ around sectors and technologies where there is existing expertise and a proven market, and aim to be world class in them.
  • 4.  Don’t be afraid to let ‘lost cases’ go to the wall and to focus instead on backing proven success stories.
  • 5.  Provide an education system that delivers highly trained technical graduates capable of thinking for themselves, and include business skills and entrepreneurship as part of that education.
  • 6.  Be unashamed about learning from the best in the world. There are no prizes for reinventing the wheel, and there are plenty of examples of economic success stories in small/medium sized economies to learn from.
  • 7.  Build on brand strength (including ‘brand Scotland’) particularly where this allows for premium pricing. Food and drink being good examples of this.
  • 8.  Build on academic links with industry to foster R&D and use government as a catalyst to make this happen.

What we need is an industrial policy that understands the importance of manufacturing – including research and development – as a key driver of economic prosperity, and actively works to ensure that this is developed at a strategic level. It needs to have a long term strategic direction at its core and not suffers from the short termism that plagues current decision making

The key question is how best to ensure this policy is delivered.

The UK is focussed far too heavily on the City of London and ignores the prospects for manufacturing businesses as a consequence. I’ve been watching this particular movie for 30 years now and the ending is always the same.

The structure of support that Scottish Enterprise provides is a good building block, as is the recognition of the need for an industrial policy and the identification of sectors where Scotland needs to build on strengths and opportunities –oil and gas and the manufacturing that supports the offshore sector, renewables, premium food and drink, software to name a few.

I have done work supporting manufacturing companies all across Europe as well as in Mexico, China and India. Everywhere you go in the world there are Scots running manufacturing businesses. Scotland has a deep reserve of such talent and experience. The skills are certainly there. The strategic focus on manufacturing, rather than the City of London, together with control of the economic levers required to deliver that strategy is what is missing.

This article was first published on Business for Scotland, and is republished here with kind permission.