Memorandum 28
Submission from the UK Electronics Alliance
1. EXECUTIVE
SUMMARY
1.1. The UKEA (see "Introduction"
below) welcomes the many initiatives that have been introduced
by Government to encourage business growth and, in particular,
those that are bringing benefit to the UK's electronics sector.
1.2. Our sector's manufacturing capability
in particular has suffered significant decline, especially since
the `dotcom crash' but still remains highly innovative and contributes
significantly to UK GDP despite many challenges including high
costs and skills shortages and what are often perceived, especially
by SMEs, as complex and onerous legislative control on one hand
and uncoordinated business support initiatives on the other.
1.3. An innovative, efficient and competitive
manufacturing capability is vital to the future prosperity of
the UK economy and particularly so in electronics, a sector that
continues to grow rapidly in global terms. Clearly the UK cannot
and should not try to compete in those markets already dominated
by low cost geographic regions but should increase its capability
to develop innovative and high value products.
1.4. Where Government intervention is appropriate,
its policies should promote the development of the sector's capability
to develop innovative and high value products. Of great concern
is that our sector has an emerging demographic problem with an
ageing and male dominated workforce, while the number of undergraduate
applications for electronics engineering, computer science, information
systems and software engineering courses has declined sharply
since 2002 and UK domiciled women account for a small fraction
of total acceptances into computer sciences, electronics, electrical
and software engineering degree courses.
2. INTRODUCTION
TO THE
UK ELECTRONICS ALLIANCE
2.1. The UK Electronics Alliance (UKEA)
was formed in response to the Electronics Innovation and Growth
Team (EIGT) Report published by the DTI in 2005 to address "the
fragmented, diverse nature of the (electronics) industry, and
its difficulty representing itself to Government and vice versa,
(which has) led to delays in addressing some of the key issues
which impact on its performance"
2.2. The UKEA is an alliance of the UK's
leading electronics industry trade associations with a combined
membership of over 1,200 UK companies, of which over 950 are SMEs,
and an overall `reach' of over 13,000 UK companies, which enables
two-way communication between its members and the BERR.
2.3. The UKEA has welcomed the opportunity
to participate in the Strategic Plan for Electronics, which has
been produced jointly by the Electronics and IT Services Unit
of the BERR and the Electronics Leadership Council. The plan has
the aim of addressing a broad range of issues affecting the electronics
sector in the areas of technology, regulation, supply chain, skills,
image, public procurement, and business support. The following
aims within the plan may be of particular interest to the Innovation,
Universities, Science and Skills Committee:
2.3.1. To create an environment that encourages
an increase in investment in research and development activity
2.3.2. To Ensure that the sector has access
to the high level skills it needs to compete in global markets
2.3.3. To ensure that the UK has a regulatory
environment that facilitates growth and innovation and
2.3.4. To ensure that business support provided
by public authorities is seen as relevant to and accessible by
all sizes of business in the UK sector so that the UK is seen
as a leader in innovation and exploitation.
3. INFORMATION
3.1. While the global electronics industry
continues to grow, the migration of production to low cost regions
has had a profound effect on all high cost regions. Western Europe
accounted for 21% of global production of electronic goods in
1995 and declined to 17% by 2005.[100]
3.2. The UK is the second biggest manufacturer
of electronic equipment in Western Europe with a €25 billion
turnover in 2005, 14.3% of the total[101].
The electronics sector is vital to the health of the UK economy.
In 2006, the whole ICT sector accounted for 6.4% (£66.4 billon)
of UK GDP and employed 1m staff[102].
3.3. However, this should be seen in the
context that the UK's manufacturing capability has been in decline
for a number of years. In contrast, the UK electronics wholesale
sector has grown, indicating the strong demand for electronics
equipment, for which UK manufacturing has a decreasing capacity
to meet. This may be of less concern if, in the longer term, the
UK's electronics sector is to develop its capability to produce
innovative and high value, and by definition low volume, products
rather than compete in high volume markets already dominated by
low cost geographic regions.
3.4. However, the number of UK manufacturers
in the electronics sector has declined faster since 1997 (by 38%)
than in all engineering sectors including mechanical, automotive,
aerospace, rail and ship (by 28%),[103]
which suggests that the electronics sector should be of particular
concern, the more so because the innovation from the electronics
sector underpins not only those other engineering sectors but
also other sectors vital to the UK economy such as financial services,
healthcare, retail and logistics.
3.5. At the same time, the UK's electronics
manufacturing sector continues to be highly innovative. In particular,
the high proportion of SMEs in the sector relative to UK manufacturing
as a whole indicates the level of innovation and entrepreneurship
prevalent in the sector. 91% of electronics manufacturing companies
employ less than 250 staff compared with 80% in total UK manufacturing[104]
while 84% of electronics manufacturing companies employ less than
200 staff compared with 68% in total UK manufacturing.[105]
Government policies towards this sector should pay particular
attention to the needs of SMEs.
3.6. The UKEA is currently undertaking a
survey of SMEs' views on the business issues affecting them and,
while the survey is still in progress and the sample of responses
received thus far is relatively small, it is of interest that
the three dominant issues, cited by more than 60% of respondents,
are high material costs, high level of legislative control relative
to other countries and difficulty recruiting technical staff with
appropriate skills or experience. The supply of highly skilled
engineers is vital to enable the sector to increase its capability
to develop innovative and high value products. The UKEA would
be pleased to share the final results of the survey with the Committee
if required.
3.7. Skills shortages in particular, are
a major threat to the UK's electronics sector. The number of graduates
in engineering and technical subjects has declined from 20,511
(9.68% of total degrees) in 1995 to 19,765 (7.1% of total degrees)
in 2006[106].
3.8. Further, undergraduate applications
for electronic engineering courses have declined by 38% since
2002 while applications for aerospace, chemical, civil, general
and mechanical engineering courses have all increased over the
same period, chemical and civil by 62% and 63% respectively. Undergraduate
applications for computer science, information systems and software
engineering courses have also declined over the same period, by
38%, 42% and 60% respectively.[107]
3.9. In 2006, UK domiciled women accounted
for only 10% of all acceptances into electronics and electrical
degree courses, 12% of all acceptances into computer sciences,
and 9% of all acceptances into software engineering, degree courses.[108]
3.10. Currently, 32% of all staff employed
in the IT sector are women,[109]
which suggests that a longer term decline in the number of women
is inevitable unless remedial action is taken.
3.11. In addition, 37% of UK electronics
industry staff are in the 45 to 64 age group compared to 22.3%
in the UK's total workforce while the proportions are almost reversed
in the 16 to 24 and 35 to 44 age groups[110]
indicating a fundamental demographic problem for the sector. The
overall view is that the sector is predominantly male and ageing
with little prospect of this trend reversing in the short to medium
term unless remedial action is taken.
4. RECOMMENDATIONS
4.1. While the many initiatives that have
been introduced by Government to encourage business growth and,
in particular, those that are bringing benefit to the UK's electronics
sector are to be welcomed, we recommend that progress within the
Business Support Simplification Programme, currently being undertaken
by the BERR, be communicated widely to the business community
on a regular basis. We understand that the programme is scheduled
for completion by 2010 and that it will lead to a significant
rationalization of the business support schemes currently available.
Businesses need to be kept fully informed during this period of
transformation so that they are aware of the schemes that are
available at any one time and will be available in the future.
4.2. Following completion of the programme,
we recommend an awareness campaign to be supported by industry
and further periodic reviews, again to be supported by industry
provided feedback on the take-up and effectiveness of the revised
schemes.
4.3. Recognising the wide range of public
sector initiatives available in support of recruitment and training
and collaboration with academia, the UKEA is currently producing
a navigation tool for use by industry to aid greater take-up of
the existing schemes. Guidance from various public sector bodies
is currently being sought to provide assistance in ensuring the
accuracy of its content. Subject to the tool proving useful, we
envisage that periodic updating will be required and the support
of relevant public sector bodies in the maintenance of the tool
will ensure its continued accuracy and effectiveness.
4.4. While the Innovation, Universities,
Science and Skills Committee's inquiry into engineering is to
be welcomed, we trust that the Committee will take into account
the recommendations already put forward in the Review of Government's
Science and Innovation Policies, "Race to the Top",
produced by Lord Sainsbury of Turville and published in October
of last year. The following recommendations within the review
may be of particular interest to the Committee:
4.4.1. "The Higher Education Innovation
Fund (HEIF)|.. should move to a fully formulaic basis and increase
support for knowledge transfer between business-facing universities
and local small and medium sized enterprises (SMEs). The Research
Councils (RCs) should agree and be measured against firm knowledge
transfer targets, including specific targets for knowledge transfer
from their own institutes, and for the funds they will be spending
on collaborative R&D through the TSB. The successful Knowledge
Transfer Partnerships (KTPs) |.. should be doubled in number,
subject to the Business Support Simplification Programme (BSSP).
To improve access for SMEs, a shorter, more flexible, mini KTP
scheme should be introduced, subject to the BSSP. The Review sees
considerable scope for further education (FE) colleges to help
raise the innovation performance of SMEs and recommends that KTPs
are further extended to FE colleges."
4.4.2. "Government should continue
its drive to increase the number of young people studying triple
sciences, and consider entitlement for all pupils to study the
second mathematics GCSE (due to be introduced in 2010). The Review
believes that there is a major need to improve the level of career
advice given to young people, so that they are aware of the |..
opportunities open to those with science and technology qualifications."
4.4.3. "|..careers advice be built
into the curriculum for pupils and into Continuing Professional
Development (CPD) for teachers. The rationalisation of extracurricular
STEM schemes is supported, with suggestions for those schemes
that should be taken forward, including a national science competition.
The Higher Education Funding Council England (HEFCE) "Strategic
and Vulnerable Subject Advisory Group" should be turned into
an "Advisory Group on Graduate Supply and Demand" which
produces an annual report detailing the number of students graduating
in particular subjects, how easily graduates get jobs in particular
areas, and in what areas industry foresees shortages of graduates
arising."
4.4.4. "Innovation should be embedded
in Departmental Strategic Objectives and the Director of Innovation
at DIUS should produce an annual Innovation Report on the innovation
activities of the DIUS, including the TSB, other government departments
and the RDAs. Chief Scientific Advisors should work more effectively
with their departments and with the Treasury spending teams to
agree and manage their R&D budgets, and together to identify
and act on cross-cutting areas of research."
4.5. Government policies towards business
development in the UK should promote the development of the sector's
capability to produce innovative and high value products, particularly
within the SME community, and support the sector in the development
of overseas markets, and existing policies should be reviewed
to ensure that they meet the needs of industry. Industry has a
major role to play in providing intelligence on the effectiveness
of current and future proposed policies to ensure their effectiveness.
For example, the research and development tax credit scheme is
particularly welcomed by this community but initial research by
the UKEA, which has been communicated to the BERR and DIUS, indicates
that wider promotion of the scheme, clearer guidance on the type
of activity that might be eligible and how to apply for tax credit
may be needed. Further development of the scheme to encourage
overseas companies to conduct research and development work in
the UK should also be considered.
4.6. Government and industry should work
together to ensure that the provision of STEM subjects in schools
is appropriate to the needs of industry and industry should be
encouraged to perform a more active role in promoting electronics
engineering as an attractive career prospect as part of the National
Curriculum.
4.7. The provision of incentives to encourage
the take-up of and graduation in engineering and technical degrees
should be considered, perhaps by the provision of student loans
at advantageous rates linked to continued employment in a related
engineering or technical role during the loan payback period.
4.8. The provision of financial support,
especially to SMEs, for the development of existing staff through
approved training schemes should be considered, perhaps through
a tax credit scheme. The temporary loss of vital staff from their
business roles and the cost of providing training is often considered
onerous by SMEs despite the clear potential long term business
benefits. If such a scheme were to be implemented, it should be
subject to periodic review to ensure its continued effectiveness
and corrective action taken where necessary. Industry can play
a significant role in helping to monitor the ongoing effectiveness
of such initiatives.
4.9. Although it may be difficult to make
a special case for the electronics sector, while our sector appears
to have a fundamental demographic problem, whose effects will
become apparent within the next few years, consideration should
be given to the short term provision of incentives to encourage
skilled and experienced staff nearing retirement age to continue
working, until the decline in engineering and technical graduates
is reversed. Consideration should be given to enabling recruitment
and retention of appropriately skilled and experienced individuals
from other countries, again at least until the decline in engineering
and technical graduates is reversed.
4.10. Government consultation with industry,
such as for this inquiry, is welcome. The initiatives undertaken
by the Electronics and IT Services Unit of the BERR in fostering
the creation of, and coordination of the work of the Electronics
Leadership Council and the UKEA to improve communication between
Government and the electronics sector should be provided with
additional financial support to enable further progress to be
made to address the issues identified in the Strategic Plan for
Electronics. Similar support should also be considered where bodies
such as the Electronics Leadership Council and the UKEA are invited
to perform a role in enabling communication between Government
and the electronics sector in support of other initiatives.
March 2008
100 Source: Reed Electronics Research-European Electronic
Markets Forecast-Jan 2007. Back
101
Source: Reed Electronics Research-European Electronics Manufacturing
Services Industry 2006-11. Back
102
Source: UKTI ICT Marketing Strategy launch. Back
103
Source: Findlay Publications Manufacturing Database. Back
104
Source: ONS UK Business-Activity, Size and Location 2006. Back
105
Source: Findlay Publications Manufacturing Industry Database. Back
106
Source: Higher Education Statistics Agency. Back
107
Source: Professors and Heads of Electrical Engineering Conference,
January 2008. Back
108
Source: Professors and Heads of Electrical Engineering Conference,
January 2008. Back
109
Source: Intellect, Perceptions of Equal Pay 2007 survey. Back
110
Source: Labour Force Survey-2003 and 2007. Back
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