Select Committee on Trade and Industry Minutes of Evidence

Memorandum by the CBI


  1.1  The CBI is the premier organisation speaking for business in the United Kingdom, with a direct membership employing over four million people and a trade association membership representing over six million of the workforce.

  1.2  This paper has been prepared to support the CBI's evidence to the House of Commons Trade and Industry Committee inquiry on "productivity and competitiveness of the United Kingdom manufacturing industry". The paper covers:

    —  The backdrop for this inquiry—the current state of manufacturing, the impact of September 11, and the short term forecasts for manufacturing performance.

    —  An analysis of the underlying trends and structural issues impacting on manufacturing, including the United Kingdom's wider productivity issue, key manufacturing performance indicators and comparisons with European (particularly France and Germany) and US competitors.

    —  An analysis of the factors affecting the performance of the manufacturing sector, both at the macro level and also those issues specific to individual firms (additionally, a brief examination of particular sectors within manufacturing and the circumstances unique to them is appended to this paper).

    —  A summary of the implications of the changes currently taking place within manufacturing—what does the future hold for United Kingdom manufacturing, what is the vision for manufacturing, and what role can government play in this?


  2.1  The economic backdrop at present sees manufacturing facing extremely tough challenges, with many sectors experiencing the worst conditions since 1991. Exports, output, employment and business confidence are all suffering.

  2.2  Much of these current difficulties relate to the economic cycle and the global slowdown. Clearly the events of September 11 have had a negative effect both overall and for specific sectors such as aerospace. But ultimately they have served to exacerbate the underlying trend rather than change the course of overall manufacturing fortunes.

The Current Situation in Manufacturing

  2.3  The CBI's Quarterly Industrial Trends Survey provides a snapshot of recent and imminent trends in key manufacturing variables. It is recognised as the leading survey of manufacturing activity. The latest results published in January made depressing reading.

    —  Over the past four months, domestic prices fell at the second fastest rate since the survey began in 1958—only the Asian crisis in January 1999 saw prices falling more quickly. Price expectations are now the worst in the survey's history.

    —  United Kingdom export orders fell by even more than anticipated.

    —  Domestic orders also weakened.

    —  Manufacturing output fell at the fastest rate since July 1999. Lack of demand will limit output over the coming four months.

    —  Efforts to rein in costs have resulted in severe job cuts. Anticipated job cuts in the coming four months are expected to show the change in numbers employed in manufacturing to be the most negative since October 1992.

Impact of September 11 on Manufacturing

  2.4  One month after the atrocities of September 11, the CBI and MORI commissioned a survey across all business sectors to ascertain the economic outlook for business post-September 11.

  2.5  63 per cent of respondents said the attacks had damaged business prospects. Of these, 52 per cent said prospects were "slightly worse" while 11 per cent said "much worse", indicating that the overall impact was serious without being disastrous.

  2.6  The survey highlighted that those firms close to the domestic consumer expected to fare better than those that are more exposed to international trading conditions. This meant that manufacturers of industrial goods were more adversely affected than manufacturers of consumer goods or indeed retailers and others in the service industries.

  2.7  Official data and further surveys subsequent to September 11 have supported the notion that whilst there should be no doubt the events had a negative effect, they served to heighten concerns and underlying trends that were already apparent.

Short Term Forecasts

  2.8  The CBI's latest Business Outlook (published November 2001) forecast that 2002 will be a painful year for British business, but that the UK will avoid outright recession. However, the global slowdown is set to exacerbate Britain's two-speed economy, with the manufacturing sector bearing the brunt of the global downturn.
ONS Out-turns (%) CBI Forecasts (%)
20002001 20022003
Total GDP2.92.3 1.62.6
Manufacturing Output1.9 -1.1-1.22.8
Non-Manufacturing Employment1.6
Manfacturing Employment-2.7 -2.8-3.1-1.1
Fixed Investment4.9
Manufacturing Investment0.1 0.0-4.9-0.1

  2.9  Perhaps of greatest concern is the sharp slowing of investment growth, with manufacturing investment forecast to fall in 2002 and 2003, whilst investment for the economy as a whole bounces back. Manufacturing output, however, is expected to return to growth in 2003.


  3.1  But the current situation and short-term forecasts are set against long-term trends and changes in the structure of manufacturing. The United Kingdom has some historical factors at play here too, including investment shortfalls and major strides still to be made on the productivity front.

The United Kingdom and Productivity

  3.2  It is widely accepted that the United Kingdom has historically performed poorly in terms of productivity, particularly when compared to our leading international competitors.

  3.3  A number of recent reports, including McKinsey (1998), O'Mahony (1999), and HM Treasury (November 2000), confirm that the United Kingdom has a productivity gap with the US and with leading European competitors such as Germany and France. The size of the gap varies according to which measure of productivity is used and the interpretation in various studies. However, there is common consensus that the size of the gap in all cases is substantial enough to suggest that a significant productivity shortfall exists.

  3.4  Since 1997, HM Treasury has made productivity a priority issue, and set out a number of measures aimed at closing the gap.

  3.5  In 1998, the CBI and DTI jointly launched "Fit for the Future", the national best practice campaign, with the aim of securing a "massive increase in the number of companies engaged in the transfer of best practice". The campaign was launched on the premise that if United Kingdom manufacturers could reach the average levels of performance of leading international competitors then they would contribute an additional £60 billion to the economy. Applying this principle across the whole economy would add a further £300 billion per annum.

  3.6  More recently, HM Treasury invited the CBI and TUC to work together to produce recommendations on how to address the United Kingdom's historic poor performance in productivity. The CBI and TUC undertook work in four key areas where there was common ground and joint-working was likely to bring measurable benefit. These four areas were:

    —  Investment

    —  Skills

    —  Technology and innovation

    —  Best practice

  The joint report and recommendations contained therein can be downloaded from

  3.7  This submission does not set out to replicate the various analysis that has been done to date, merely to reiterate some of the key findings.

    —  Depending on the measure used, the United Kingdom continues to have a sizeable labour productivity gap compared with other major industrialised economies. Output per employee is highest in the US, with France then Germany just behind. The United Kingdom trails the US by 45 per cent, France by 18 per cent and Germany by 11 per cent.

    —  In terms of output per hour worked, the United Kingdom is again behind the US, France and Germany, though the latter two countries' performances are much closer to that of the US. This is attributable to the fact that employees in the US and the United Kingdom tend to work longer hours than in Continental European countries.

    —  In terms of total factor productivity, (which captures the level of labour and capital inputs used, and the efficiency with which these inputs are deployed), the United Kingdom is again behind all of its major competitors, although its shortfall is reduced. The United Kingdom trails France by 20 per cent, the US by 18 per cent and Germany by 13 per cent. The reason the United Kingdom has less of a shortfall on this measure is because although we have relatively low levels of capital stock we do appear to use this stock relatively efficiently.

  3.8  On another measure, value added per person employed, the United Kingdom again falls way short of France, Germany and the USA. Between 1990 and 1999 the United Kingdom improved productivity by 22 per cent, whilst the USA achieved gains of 41 per cent.

Manufacturing Productivity

  3.9  The United Kingdom's productivity gap for the whole economy is also apparent in manufacturing. The United Kingdom has a longstanding historic productivity gap in manufacturing with our leading international competitors. Whilst the gap with the US is not as stark as it was in 1950, the United Kingdom also now finds itself behind France, Germany and Japan.

  3.10  Work by Robert Rowthorn, Professor of Economics at the University of Cambridge, highlights that since 1973, British and American manufacturing output have increased by 14 per cent and 114 per cent respectively. Labour productivity has shown strong growth in British manufacturing since 1973, yet output has been almost stationary. American firms now produce more than twice as much with the same number of workers as they did in 1973, whereas British firms produce almost the same as before with only half as many workers. Productivity growth in Britain has therefore typically been achieved through labour shedding.

Explaining the Productivity Gap

  3.11  Particularly with the US, there are structural and statistical reasons why the gap is so large. They have the benefit of greater economies of scale and homogenous domestic markets. But in addition to this, numerous factors have been put forward to explain where and why the United Kingdom is weaker than it should be in terms of productivity. These include:

    —  Investment shortfalls (both in the public and private sector).

    —  Weaknesses in intermediate skills, lifelong learning and utilisation of skills in the workplace.

    —  Difficulties in identifying and applying best practice.

    —  The United Kingdom placing insufficient focus on product and process innovation.

    —  The United Kingdom possessing a culture that gives insufficient encouragement to entrepreneurship and enterprise.

    —  Variations from sector to sector meaning that not all industries are fully exposed to globally competitive environments.



  4.1  Manufacturing employment in the United Kingdom, measured by employee jobs, currently stands at around 3.8 million. This represents a fall of 1.1 million jobs since 1988. In the same time frame, employee jobs in all industries have risen from 23.5 million to 25.5 million jobs. Put another way, manufacturing employment as a percentage of total employment has fallen from 21 per cent to 15 per cent of total employment.

  4.2  Invariably, large-scale job losses in manufacturing attract media headlines. But it is important to look behind these headlines. The absolute numbers employed in manufacturing should not be looked at in isolation as an indicator of the relative strength or importance of the manufacturing sector. The statistical definitions of manufacturing account for at least some of the loss in employment figures. In addition, the employment trends we have seen in United Kingdom manufacturing are also apparent in other mature manufacturing countries.

  4.3  Much of the statistical job losses in this period of time can be attributed to outsourcing. If a manufacturing firm has outsourced functions such as IT, logistics or security for example, then for statistical purposes they would be re-classified under services.

  4.4  The UK is not alone in seeing substantial reductions in manufacturing employment, as many of the well-developed manufacturing economies shift from low-cost, labour intensive manufacture to high value-added, capital intensive manufacture requiring highly skilled labour.

UKFrance GermanyJapan US
198028.329.5 33.924.722.1
199917.918.6 20.815.0
Source: OECD, 2001

Output: Gross Value Added

  4.5  Manufacturing output (measured in terms of Gross Value Added) was £155 billion in 2000, an increase of 34 per cent since 1992 when output stood at £115 billion. In the same time period, total service industry output rose from £362 billion to £583 billion, an increase of 61 per cent.

  4.6  So whilst manufacturing output has grown in absolute terms it has been outstripped by growth in the service sector, with the inevitable consequence that manufacturing as a proportion of GDP is falling, from A 21.2 per cent share in 1992 to 18.7 per cent in 2002.

  4.7  This underlying trend is similar in all of our leading international competitors, and has been even more marked in certain other countries as they react to the world economic slowdown. The manufacturing sector is struggling in all of the world's major economies. Japan is the worst hit, with output falling by 4.4 per cent in Q3 2001 on the previous quarter. Manufacturing output in the United Kingdom is declining at a similar rate to the US, while Eurozone output is dropping at a slightly slower rate.


  4.8  Manufacturing is vitally important to the United Kingdom economy in terms of our balance of trade. Trade in semi-manufactured and finished manufactured goods accounts for 83 per cent of all goods exported. Manufactured goods equate to 59 per cent of all United Kingdom exports of goods and services, though it should be recognised that some imported materials are involved in the manufacture of these goods.

  4.9  The value of manufactured goods exported has increased from £47 billion in 1980 to £188 billion in 2000. Over the last ten years the value has increased by over £85 billion, or 83 per cent. But although the United Kingdom trade deficit had been falling for much of the 1990s, it has sharply increased since 1998. Nonetheless, the value of services does not come close to providing sufficient surplus to offset the widening deficit on goods exported.


  4.10  Net rates of return in manufacturing were running at 8.7 per cent in 2000, compared to 14.1 per cent for the service sector. However, by Q3 2001 manufacturing profitability had plunged to 4.3 per cent, whilst the net rate of return in services was holding up at 12.5 per cent. Clearly these figures are representative of manufacturing as a whole, and there are differences within various sectors of manufacturing. Many companies have been operating at little or no margins in an effort to hang on to market share in export markets, in the belief that there will be some correction in the exchange rate in the medium term.



  5.1  Growth in the economy is heavily dependent on investment in physical capital to augment the productivity of labour. Historically, the capital stock of firms and the stock of public infrastructure in the United Kingdom have been well below that of its main international competitors.

  5.2  United Kingdom manufacturing investment was just under £4 billion for Q3 2001, which represents a fall of 8.9 per cent quarter on quarter and a drop of 13 per cent compared to the corresponding quarter of the previous year. This contrasts to non-manufacturing investment, which has risen 1.9 per cent quarter on quarter, and 2.7 per cent on the corresponding quarter of the previous year.

  5.3  Investment is a key driver of productivity improvement and given our historically low levels of capital investment it is hardly surprising that it has impacted upon our relatively poor productivity performance.


  5.4  In order to compete at the value-added end of manufacturing, which is where the United Kingdom has to position itself, innovating more successfully than the competition is key to driving profitable growth. Research and development (R&D) is a crucial factor in developing more advanced products and processes, which ultimately enable people and capital to operate more productively.

  5.5  The DTI R&D scoreboard is an invaluable guide to R&D performance across various sectors in the United Kingdom and also provides information on how we compare to leading international competitors. Overall United Kingdom R&D intensity (R&D as a percentage of sales) is 2.1 per cent compared to the international average of 4.2 per cent.  

SectorsUK companies International 500USA Japan
All sectors2.1%4.2% 4.3%4.2%
All sectors except pharmaceuticals and oils 1.9%4.3%4.3% 4.2%
Pharmaceuticals14.8% 12.8%10.9%11.1%
Oil and gas0.3%0.4% 0.4%0.3%
Source: DTI R&D Scoreboard, 2001

  5.6  The UK does have some sectors that are leading performers. The UK spend on R&D is dominated by pharmaceuticals (38 per cent) and aerospace (10 per cent), both of whom invest in R&D above international levels. The top two international sectors are IT hardware (27 per cent) and automotive (18 per cent), which amount for 45 per cent of total R&D compared to 13 per cent in the UK.


  5.7  The United Kingdom faces skills challenges on two fronts: management and vocational levels. The US enjoys an advantage in terms of highly skilled workers (degree level and above) whilst Germany leads the way in terms of intermediate and vocational skills.

  5.8  The CBI/TUC productivity report submitted to HM Treasury in October 2001 reiterated that skills was one of the major areas that determines productivity performance. Investment in education and training in the United Kingdom has risen over the last decade. On two measures, employer expenditure and participation in training, the United Kingdom has one of the highest levels amongst OECD countries. In 2000, employers spent £23.5 billion on training, a rise of 25 per cent in real terms since 1993.

  5.9  However, maximising the quality and effectiveness of training in the United Kingdom remains a key consideration. There is further progress to be made on reaching individuals with low skill levels and enterprises with limited resources for training. Too many adults in the United Kingdom have low or no qualifications in relation to those of our major competitors:

    —  About seven million adults, one in five adults of working age, have low levels of literacy and numeracy—half of them are employed.

    —  Almost nine million people, 32 per cent of the workforce, are not qualified to level 2 (equivalent to 5 GCSEs at grades A*-C).

    —  Low skilled employees receive less training than highly skilled employees.

    —  Part-time workers have less training than full-time or temporary employees.

  5.10  The CBI/TUC productivity report also flagged up concerns that qualified scientists and engineers in the United Kingdom may lack managerial and other skills, and that craftsmen, technicians and IT specialists are in limited supply.

  5.11  There are many examples of successful United Kingdom companies that have inspiring leaders and very able managers. However, evidence from various studies suggests very strongly that in relation to leadership and management, too many United Kingdom companies fall short of world-class performance.


  5.12  Physical infrastructure, particularly in the form of road, rail, sea and air ports, are crucial in order for United Kingdom manufacturing to compete successfully with our international rivals. The ability to get goods to market and people to work is paramount. The need for this increases given the modern methods and trends apparent in manufacturing today. Firms rely on finely honed just-in-time procedures throughout the value chain and need to move goods around rapidly. Additionally, the trend for sourcing components from outside the United Kingdom means international access is increasingly fundamental.

  5.13  In addition to transport infrastructure, modern manufacturing techniques and business processes increasingly require world class information and communications technology (ICT) infrastructure. The ability to conduct collaborative real-time design and manufacture relies particularly on broadband internet technology.

Exchange Rates

5.14  The high proportion of United Kingdom manufacturing exports that are sold into mainland European markets means that exchange rates have a huge impact on the ability of United Kingdom manufacturers to compete effectively in these markets. Similarly, United Kingdom based manufacturers selling to domestic markets are being forced to reduce costs to combat the threat of relatively cheap imports.

  5.15  Exchange rate instabilities inevitably provide an obstacle to certainty and planning, and there is no doubt that the current weakness of the Euro relative to Sterling is resulting in a cost disadvantage for United Kingdom exporters. In "old money", at the height of the Sterling/DM exchange rate, Sterling had risen to DM3.43 in May 2000 from DM2.75 at the beginning of 1999, an increase of 25 per cent in just over 16 months. Many manufacturers took a decision to accept minimal or even loss-making margins in the short run in order to retain market share in their key overseas markets. However, almost two years on Sterling remains valued at 3.16 DM/£, equivalent to 1.62 euros, and if this continues it will inevitably accelerate the trend of sourcing from, and relocating production to, low cost economies.

Economies of Scale, Exposure and Openness to World Markets

  5.16  One of the key factors in the ability to drive productivity is inevitably volume. Here the US, and to a lesser extent Germany and France, have a fundamental advantage over the United Kingdom in terms of scale of operation and size of the market. The US in particular sells a high proportion of its manufacturing output into its domestic market. This means it is less susceptible to the performance of the global economy and also less exposed to the implications of exchange rate fluctuations.

  5.17  A measure of openness of trade can be calculated by imports plus exports of goods and services as a proportion of GDP.
Openness to Trade GDP (US $billion)
Source: OECD, 1999

  5.18  The above table shows that Germany, France and the United Kingdom are similarly open to trade, and to a far greater extent than the US and Japan. This brings the United Kingdom tremendous advantages in terms of technology transfer, choice of product and potential markets. But it does demonstrate the importance of having an environment for manufacturing that is as globally competitive as any of our leading international rivals. The mobility of manufacturing operations in the 21st century should not be underestimated.

Firm level factors

Manufacturing techniques and Workplace initiatives

  5.19  The recent "Uncle Sam" series of reports by the Engineering Employers Federation (EEF) has examined many of the factors explaining the differences in the United Kingdom and US productivity performance. Two of the areas where differences were found are in the areas of lean manufacturing and workplace initiatives.

  5.20  The EEF report showed that there is a significant proportion of United Kingdom firms that do not make use of lean manufacturing techniques. In fact, the take-up of lean manufacturing in the United Kingdom is polarised. The report highlights that a third of firms utilise lean techniques across the whole organisation, while just over 40 per cent are not undertaking any lean manufacturing. The major reason US firms were found to be having greater success with lean manufacturing than United Kingdom firms was due to them using the lean tools across the whole organisation and with a greater intensity.

  5.21  The EEF study also reveals that the US makes far better use of workplace initiatives to offer employees greater incentives and improve employee involvement and communication. The EEF found that it is not the adoption of any single practice that is crucial, but the combination of a number of them and the involvement of employees in decision making that is helping to drive productivity.

Deployment of technology and Workplace Organisation

  5.22  Deployment of technology and process innovation has a major role to play in enhancing productivity, an issue looked at in some detail in the CBI/TUC productivity report submitted to HM Treasury in October 2001. The CBI/TUC report drew on work undertaken by Professor Toby Wall on the use made by United Kingdom companies of various working practices and on how successful they are.

  5.23  In order to maximise the benefits from technological innovation the adoption of new people practices is necessary. The findings from the report show that:

    —  Overall, United Kingdom companies adopt fewer innovative work practices than their foreign counterparts, although take-up is increasing. United Kingdom owned companies in the United Kingdom show lower use of total quality management, just-in-time techniques, teamwork, empowerment and a range of practices compared with foreign owned companies in the United Kingdom. United Kingdom companies abroad adopted fewer such practices than either the home owned or foreign owned companies in the country concerned. Companies in the United Kingdom report less success with the practices than companies abroad.

    —  People practices such as empowerment and learning culture are the strongest predictors of subsequent relative productivity and profits; investment in Information and Communications Technology predicts relative productivity but not profits; profit sharing had a small positive effect.

    —  The success of new technology and practices are limited by inadequate developments in work organisation, but while organisations often invest heavily in technology they underinvest in people practices. Although people practices, in particular empowerment, have demonstrable success, organisations were often tentative in pursuing them.


The importance of manufacturing

  6.1  Recently, some commentators have questioned the importance of possessing a strong manufacturing sector in the context of the economy as a whole. The CBI strongly refutes this claim and believes that a strong manufacturing base is fundamental to the future prosperity of the overall economy.

  6.2  In spite of all the difficulties confronting manufacturing, it is directly responsible for almost four million people in employment and in a wide range of skill sets. In output terms, manufacturing contributes £150 billion GDP per annum to the United Kingdom economy (equivalent to 19 per cent of total GDP).

  6.3  But the importance of manufacturing stretches well beyond these headline figures.

    —  It is the bedrock for economic activity, the underpinning layer of the pyramid upon which much service sector activity is built. Simply through the direct supply chain links between industrial sectors a further 2.4 million service sector jobs depend on manufacturing, and the total interdependencies reach far beyond this. All manufacturing organisations make use of design, marketing, accountancy and legal professions. The success of manufacturing and services are inextricably linked, and such linkages should be recognised as a source of competitive advantage for United Kingdom manufacturers given our strengths in the service industry.

    —  Manufacturing is vitally important to the United Kingdom economy in terms of the value of trade exported—crucial as we pay our way in the world. Trade in semi-manufactured and finished manufactured goods accounts for 86 per cent of all goods exported. Manufactured goods equate to 62 per cent of all United Kingdom goods and services exported. As a nation so heavily dependent on international trade we should not underestimate the strength that manufacturing gives to the "United Kingdom brand".

    —  Manufacturing is an important element of regional policy and economic development, particularly in areas such as the Midlands, North West, North East, Yorkshire and the Humber, Scotland and Wales, where manufacturing makes up a higher than average proportion of total employment.

A need for action

  6.4  Manufacturing is in the midst of significant structural change. This situation is not unique to the United Kingdom. The increasing shift towards both sourcing from and relocating to low cost countries is a trend faced by all developed manufacturing economies.

  6.5  But the CBI is concerned that although this trend is to some extent inevitable, it is being prematurely accelerated by a combination of the relative value of Sterling compared to the Euro, the lack of a clear manufacturing strategy and the ever-increasing burden of regulation. To counter this, we need a strong DTI that is championing the cause for manufacturing right across government and beyond.

  6.6  There is limited time for action if there is not to be an irrevocable shift in our manufacturing base overseas. We are reaching the point where there is a real danger of the United Kingdom manufacturing base shrinking below the critical mass required to sustain the skills base and necessary range of component suppliers to support manufacturing.

A strategy for manufacturing?

  6.7  The CBI believes that a commitment to having a strong and sustainable manufacturing base in the United Kingdom and a recognition of the importance of manufacturing to the prosperity of the economy as a whole should form the platform for a government strategy for manufacturing.

  6.8  This isn't a call for a prescriptive command economy, and it isn't about picking winners. That would be a fundamentally flawed approach. But it is a call for government to do more for manufacturing, to speak positively about its successes and its future, to make sure we have an economic climate conducive to manufacturing, and to ensure we have in place the critical success factors for the manufacturing of tomorrow.

  6.9  A manufacturing strategy should start by setting out a vision for the future of manufacturing in the United Kingdom. This should provide inspiration for where the United Kingdom wants to be positioned, what key capabilities we need to possess and what the critical factors are that will determine the success of key sectors that will be vital to future competitiveness.

  6.10  Structural changes mean that UK manufacturing has to change and adapt. We have to possess agility, be nimble and have the flexibility to change. Quality is now a given, rather than a source of competitive advantage. We cannot be competing on a low-cost basis in labour-intensive commodity manufacture. But we can compete given economies of scale and capital intensity, and by focusing on high value added products and processes driven by technology, design, innovation and service provision. Manufacturing needs progressively to redefine itself as a lifetime service provider based around a core manufactured product. But we also need to retain a critical mass of production capacity in order to sustain the required skills and range of component suppliers necessary to support the strong and diverse manufacturing base which is essential to a healthy economy.

  6.11  In order to achieve this vision and make the transition successfully, the CBI believes a set of strategic objectives should be drawn up that form the basis for a manufacturing strategy, with action points for government, industry and others set against each objective.

  6.12  The objectives should start with having a conducive business environment in which to manufacture. This should include a government commitment that all policies and legislation being considered right across government will be carefully assessed to ascertain the impact on manufacturing competitiveness before being introduced.

  6.13  The strategic objectives need to include the macro-level factors that are fundamental to any prosperous environment for manufacturing. We need a trained workforce that excels in technical skills, in science, technology and engineering. The education system needs to be better aligned with the higher skills and technology needs of tomorrow's manufacturers. The industry-academia axis needs to be strengthened, so that historic strengths in innovation are turned into commercial reality and competitive advantage. To build on this, academia must develop a business-like interface so that industry can easily access the wealth of research being undertaken in our academic institutions.

  6.14  We need world class infrastructure in the form of roads, rail, sea and air ports. All are vital for manufacturing in an age of just-in-time delivery and global sourcing, and particularly so for the United Kingdom given our higher exposure to international trade flows. Today, infrastructure also means information, communication technologies. Government must deliver on its commitment to make the UK the best place in the world to do e-business. Broadband infrastructure is key to this.

  6.15  Capital investment and a massive increase in research, development and innovation are necessary if the United Kingdom is to be at the leading edge of manufacturing. It is for government to create a tax framework that encourages this and in doing so make a compelling argument for investment and innovation to be carried out in the United Kingdom. We should be at the forefront of technology developments in key sectors right across the spectrum of manufacturing.

  6.16  And we need to develop sectoral capability. We need to identify the sectors fundamentally important to manufacturing right now, and consider how they can be fostered and developed. We need to identify the core strengths we possess in the United Kingdom and determine how we can best build on these. Analysis of the generic issues facing manufacturing gives part of the story. There are many horizontal issues common to all sectors of manufacturing—skills and infrastructure to name but two. But there are also vertical issues that are unique to each sector and these require specific actions. So it is important therefore for government to have a strong sector focus in its manufacturing support. To demonstrate that a "one size fits all" approach is not sufficient, an analysis of some of the particular circumstances and issues facing various sectors within manufacturing is appended to this paper.

  6.17  The onus is rightly on industry to make the transition to high-value added manufacture and achieve the vision set out above. But government too has a role to play. United Kingdom manufacturing industry would welcome further strategic direction to assist this process and a government commitment to play its part in putting the necessary building blocks in place.

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