Memorandum submitted by the Manufacturing
Technologies Association
EXECUTIVE SUMMARY
1. The Committee's Inquiry is timely and
the identification of the importance of manufacturing in the Call
for Evidence welcome. The UK remains a leading manufacturing nation,
although its industry is too often overlooked or misrepresented.
Manufacturing is indeed well placed to take a lead in exporting
out of recession
2. The Manufacturing Technologies Association
represents over 270 companies involved in the production
and supply of manufacturing technology. Key constituent parts
of the sector include; machine tools, cutting tools, metrology
(measurement tools) and software for computer aided design and
manufacture.
3. MTA's members support almost all UK engineering-based
manufacturing in some way. This unique range and diversity of
interest gives the MTA a position at the heart of UK manufacturing.
4. The economic downturn that gained momentum
with the onset of the Credit Crunch has presented serious challenges
for UK manufacturing. Key sectors, notably automotive engineering,
have experienced serious setbacks. This recession presents particular
difficulties for sectors, such as the manufacturing technology
sector, that are heavily capital intensive.
5. There are a number of areas of export
policy that need to be addressed as a matter of urgency. Several
are centred on the role of UKTI.
6. UKTI needs to re-focus on providing support
directly to actual and potential exporters. An example of such
direct support, which is in danger of being cut, is the valuable
work UKTI does on overseas exhibitions.
7. The effectiveness of UKTI is hampered
by its regional structure. It would be beneficial to organise
it along sectoral lines.
8. UKTI needs to be more flexible in order
to enable it deal more appropriately with the needs of SMEs.
9. Urgent action is needed to secure the
availability of Credit Insurance for exporters.
10. The Export License system needs to simplified
and clarified.
INTRODUCTION
11. In its call for evidence the Committee
was right to highlight the contribution to the national economy
made by manufacturing. Too many people in the commentariat, and
indeed Westminster and Whitehall do not fully appreciate that
the UK remains the world's sixth largest manufacturer, lying significantly
behind only larger countries; the US, China, Japan and Germany
and comparable with Italy and France. The UK's manufacturing base
has developed in such a way that our engineering sector is now
focused on high technology, with high added value.
12. Partly as a result of the lack of recognition,
there is always a sense the manufacturing has to justify itself
with the mix of the UK economy in a way that seems incredible
to our counterparts in Continental Europe, the Far East and indeed
North America.
13. The present economic stringencies are
such for the first time in decades politicians are talking about
"industrial activism" and intervening directly in markets
that are seen to be failing, most notably in the financial services
sector. Manufacturing is not asking for a bail out, it does not
need one, but it is asking for support from Government in order
to play the role that it is capable of in driving the recovery.
Exporting lies at the heart of that role.
14. At the MTA we are committed not only
to helping our members build on their strong positions and exploit
the positive opportunities that exporting offers but to showcasing
UK manufacturing at its best.
15. Delivering enabling technologies, MTA
members help improve efficiency and productivity in UK engineering
based manufacturers. Much of what our members produce is exported
overseas, but our members also deliver into UK component manufacturers
and Original Equipment Manufacturers, whose production also is
exported.
Manufacturing Technologies
16. The Manufacturing Technologies Association
directly represents over 270 companies involved in the production
and supply of manufacturing technology—some 90% of the core
industry. They consist of manufacturers, importers (many of whom
subsequently re-export) and companies supplying services to them.
This sector is modest (circa £1.2 billion in value)
in comparison to the manufacturing sector as a whole, but its
position as the "enabler" means that it affects all
engineering based manufacturing directly.
17. Manufacturing technology equipment is
vital for the creation of all modern products, either directly
or at some point in the manufacturing process. Machine tools are
used across engineering (including aerospace, automotive, defence,
railways, medical equipment, construction equipment, agricultural
machinery, and consumer durables) and indirectly by almost every
part of the manufacturing sector.
18. Alongside machine tools, cutting tools
and work-holding equipment are also a vital part of this process.
Other aspects of manufacturing technology such as metrology (measuring)
equipment and computer aided design and manufacturing systems
(CAD/CAM) combine with the machines, tooling and work-holding
equipment to make up complete systems used to fashion components
used in every part of our daily lives. The sector is fundamental
the nation's economy.
We draw our unique reach and insight into UK
manufacturing from contact with the incredible range of companies
that our members serve. Without the products made and supplied
by our members UK manufacturing would not be able to function—we
are embedded in its very heart. This gives us a second interest
in manufacturing exports, one derived from the activities of the
customers we represent. We estimate that turnover for the manufacturing
technology sector in the UK is about £1.2 billion, of
which more than 80% is exported. National data on the output of
machine tools, cutting tools, and tool/work-holding equipment
gives a total of around £850 million, of which about
£750 million is exported.
19. Beyond this, we estimate that output
of metrology equipment is worth in the region of £250 million,
again with a high export ratio; and that finally, the turnover
for other manufacturing technology is estimated at £100 million,
giving the total of £1.2 billion.
20. Exports of machine tools grew in 2008 and
reached their highest level in cash terms since 1999; the growth
was concentrated in European markets, although there was also
a strong improvement in shipments to both China and Brazil. Building
these markets, and those in the other BRIC countries, is imperative
to exporting out of the recession. MTA has dedicated offices in
both China and Russia. The table below covers only the discrete
Machine Tool market, for which reliable export figures are available.
It is the largest part of the sector.
21.
LEADING EXPORT MARKETS FOR MACHINE TOOLS
2006-08 (by country of destination, values in £ million at
current prices)
| | |
| | | |
| |
| 2006 |
| 2007
| | 2008 |
| Countries | Value
| Countries | Value
| CountriesValue |
| | |
| | | |
| |
| All Countries | 477.8
| All Countries | 471.7
| All Countries | 507.3
|
| European Union (15) | 193.0
| European Union (15) | 229.3
| European Union (15) | 260.5
|
| 1 | U S A | 71.1
| 1 | Belgium | 81.1
| 1 | Belgium | 88.1
|
| 2 | Belgium | 63.8
| 2 | Germany | 66.7
| 2 | Germany | 75.2
|
| 3 | Germany | 44.4
| 3 | U S A | 45.5
| 3 | U S A | 42.3
|
| 4 | China | 33.7
| 4 | India | 19.8
| 4 | China | 27.1
|
| 5 | India | 19.8
| 5 | China | 18.0
| 5 | Poland | 16.6
|
| 6 | Irish Republic | 17.2
| 6 | Irish Republic | 14.6
| 6 | Spain | 16.6
|
| 7 | France | 13.3
| 7 | Iran | 13.7
| 7 | Irish Republic | 14.9
|
| 8 | Italy | 12.6
| 8 | South Korea | 12.5
| 8 | India | 14.8
|
| 9 | Spain | 11.5
| 9 | Spain | 11.8
| 9 | Italy | 13.3
|
| 10 | Japan | 9.2
| 10 | France | 11.4
| 10 | Brazil | 12.4
|
Source: HM Revenue & Customs
NB the position of Belgium is inflated by the practice of re-export,
largely to the rest of Europe, from that country
THE MANUFACTURING
CONTEXT
22. The size of the UK's manufacturing sector has reduced
relative to the rest of economy over the past forty years. That
decline has seen a consequent fall in the number of people employed
in the sector and the fostering of a belief that UK manufacturing
is struggling, if not dying. In fact UK manufacturing has been
one the country's success stories over the last decade, with an
increasingly lean, entrepreneurial, edge.
23. We welcomed the publication of the Government's Manufacturing
Strategy: New Challenges, New Opportunities in the autumn of 2008.
We hope that it heralded a step change in Government's perception
of manufacturing, which we believe, has been seen as a Cinderella
Sector for too long. The report gave due praise to the increases
in productivity that UK manufacturing has achieved in recent years.
24. The recent relative devaluation of Sterling has created
a source of competitive advantage for many UK exporters. This
provides an opportunity for a real step change in exports, if
the support is right. The exchange rate is not the "be all
and end all" of investment decisions and it is important
to recognise that, while it will have positive effects for some,
in and of itself this is not a magic bullet. The international
nature of many of today's supply chains mean that many exporters
are also importers of raw materials or other goods for use in
the manufacturing process.
25. The dramatic change in economic circumstances in
the final quarter of 2008 has changed the environment in
which manufacturing is operating. There has been a substantial
decline in activity. The graph below (Table 1) shows the decline
in sales and orders for manufacturing technology towards the end
of 2008 and at the beginning of 2009. The further graph below
shows the decline in the sectors that are the heaviest end users
of manufacturing technology.
26. Figure 1
The relationship between orders and (subsequent) sales is
complex. The pattern shown in January, with sales, agreed months
in the past, outstripping Orders, for future delivery, can be
expected to continue for some months as firms refrain from making
investment decisions until absolutely necessary.
27. There are four principal end-user sectors for the
products of the manufacturing technology sector; the performance
in terms of output of these sectors is shown in Table 2. Since
the base year for the index series in 2003, the machinery and
other transport (dominated by aerospace in the UK) sectors have
seen the best performance, while metal products has seen only
modest growth and motor vehicle output struggled to get above
the level seen in 2003. The recent, well known, problems in the
automotive sector are clearly shown in the chart, with output
collapsing from the middle of 2008.
28. Table 2
29. The customers of the manufacturing technology suppliers
are, in turn, often also producing capital goods; this means that
those who supply capital goods (ie machine tools and some aspects
of the metrology industry) suffer more than most from cycles of
demand in the economy. Being dependent on investment means that
confidence (which is hard to measure or predict, more so now than
ever), finance and capacity utilisation are the principal drivers
of demand. In addition, there is often a time lag between a recovery
in demand and investment, as well as one between orders and shipments
within the industry. This makes large parts of the manufacturing
technology sector highly cyclical and, therefore, significant
percentage changes in business from year to year are common, even
under "normal" business conditions.
SPECFIC AREAS
WHERE ACTION
CAN AND
SHOULD BE
TAKEN ON
EXPORTS
30. Intro
The role of UKTI
31. UKTI has made strides forward in recent years and
in some areas, notably in organising unified, catalytic, UK presences
at international trade shows, MTA—and other Trade Associations,
such as SBAC with whom we have collaborated—are working
more closely with the organisation. A recent example of such cooperation
was a joint UKTI/MTA presence at CIMT, an international manufacturing
technology show in Beijing. A similar arrangement is being carried
forward for Metalloobrabotka, the principal Russian manufacturing
technology show, which will take place in May of this year.
32. However there remain substantial concerns with the
operation and strategy of UKTI. These are outlined below.
We are concerned at the reductions in UKTI's budget for exhibition
support and the over emphasis on inward investment (which, while
welcome, sees profits go overseas) rather than on export support
which can help British companies identify new opportunities and
markets for exports. We believe this will inevitably put us at
a competitive disadvantage. We would like to see a level playing
field with our competitor nations, many of whom invest more in
trade promotion. For instance at the CIMT show in Beijing, mentioned
above, both Italy and Switzerland had better funded presences
than the UK. Synergies and savings can be achieved by UKTI through
working with Trade Associations; however there is scope for a
considerable increase here with isolated good practice needing
to be applied more evenly. The MTA runs its own exhibition, MACH,
on a bi-annual basis. This exhibition, which attracts substantial
foreign interest is a key shop window for British manufacturing
technology.
33. There is a perception that UKTI spends a substantial
part of its budget on non-core activities, which lack the relentless
focus necessary to push export success. An example is the undertaking
of seemingly generalised and unfocussed marketing campaigns (one
member recently reported seeing an UKTI billboard advertisement
on a suburban railway platform in North London—it was unclear
to what purpose).
34. It is widely felt that the regional structure of
UKTI is unhelpful. The inability of the International Trade Advisors
to offer advice to companies outside their regions, even if they
are sector specialists in the relevant sector, is a wasteful and
leads to considerable duplication of provision. We would be very
supportive of any moves towards adopting a more sectoral approach,
which looked to provide coverage across the UK. This would help
the organisation to be more market led—investing in the
right people to deliver relevant strategies to the sectors they
represent.
35. Many SMEs believe that export support that does exist
is not well configured to support them. This is especially true
of 2nd and 3rd tier companies in complex supply chains. Companies
of this size will often initially follow a major company into
a market as part of their supply chain. Where help could be given
is to exploit subsequent, secondary, opportunities in the new
market.
36. UKTI, not unreasonably, looks to exploit new and
developing markets. However this approach can tend to overlook
the export opportunities that exist on our doorstep in Europe.
For many SMEs, perhaps with little experience of exporting, Europe
is a natural first step.
Credit Insurance
37. Credit Insurance is a pressing issue, and one that
has become even more so since the onset of credit crunch. Credit
Insurance has a vital role to play in getting the world economy
up and running again. Government stepped in when there was a crisis
of confidence in the banks but that crisis has had knock on effects
that have damaged businesses' confidence in each other.
38. For companies engaged in capital intensive international
trade this is particularly acute. Delivery lead-times can commonly
be up to 12 months, or even longer. The issue has become
particularly acute for those serving certain sectors on which
the weight of the economic slowdown has disproportionately fallen,
notably the automotive sector. Members report credit insurance
providers ruling whole sectors unfit for cover. It is widely reported
that HMT is considering providing some sort of cover—such
moves will be welcome, provided they are properly resourced and
easily accessible to the widest possible range of companies.
Export Licensing
39. This is an area which has been problematic for many
MTA members over the years. MTA believe the Government needs to
be more transparent in the whole process of issuing export licenses.
40. In practice it can be unclear at times what the criteria
are. Of course we recognise that the specific circumstances in
relation to given countries may change, but there is a lack of
transparency about when and how such changes are made. Member
companies report that they have been able to gain a license, perhaps
after some difficulty, when an overseas order is initially placed
but then are later rejected for the same order. We would like
to see the Government give a full explanation of why this happens.
CONCLUSION
41. As an industry we are potentially well placed to
take advantage of the UK's economic recovery. Historically manufacturing
technology has led the curve, as companies place orders with our
members in anticipation of swelling order books. There are advantages
too in the relative devaluation of sterling that has occurred.
We at MTA believe that once again our sector will be a crucial
one for "green shoots spotters" to watch. It is more
important than ever before that in order to facilitate the "exporting
out of recession" that this Inquiry anticipates Government
stands ready to support, with renewed impetus, those companies
that are prepared to do so.
42. It is very welcome that the Committee has chosen
to look at this subject now, while we are in recession and when
its recommendations can be acted on in time to have some effect.
However the necessity to submit evidence before the budget means
that there is a danger that such evidence will date very quickly.
We would welcome the possibility of submitting addendum evidence
after the contents of the budget are known. There may be impacts
on things that have been raised in this submission and new issues
may arise.
21 April 2009
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