UK manufacturers can create a global edge by backing up their products with high quality support services, according to Work Foundation author Andrew Sissons. The trend, known as manu-services, was the subject of his ‘More than making things’ report, which he launched in March.
Manufacturing is essential for rebalancing the economy and closing the strategic trade gap but the UK is slipping back at the high-tech end. From 2007 to 2010, UK high-tech manufacturing lost a third of its workforce, declining twice as fast as its low-tech counterpart.
Speaking at the Northern Ireland Economic Conference, he explained that manu-services was an entirely new business model, not just an add-on.
Around 42 per cent of manufacturing workers make things but the majority are employed in other processes e.g. design, marketing and after-sales care. Manu-services involves integrating all those operations effectively.
It’s already happening. Complex services are needed to ensure that Boeing’s products (from outsourced plants around the world) match up to specifications. Apple produces the iPhone and then provides after-sales support.
Manu-services often result in manufacturers leasing goods to customers (rather than selling them) and adopting the risk on their products (which they may be able to manage more efficiently). While manufacturers could also lock customers into longer term contracts, the customer could play a greater role in designing the product “and you might not even know when you sign the contract what the final product is going to look like.” Lasting relationships with customers would be developed.
The manufacturing workforce fell from 6.6 million in 1979 to just under 2.5 million in 2010. Services tend to be more labour-intensive and integrating them with manufacturing could help to rebuild employment.
Data suggest that manu-services firms currently struggle and are more likely to go bankrupt. Smaller companies are better at manu-services but less able to get into the market, given the risks involved.
Government policy can support manu-services by creating “world class” networks of businesses, universities, banks and research institutions to develop this work, and by tackling specific barriers to growth. A publicly-backed insurance fund for manu-services could mitigate the risk for smaller companies.
The Work Foundation estimates that manu-services already represent 15-20 per cent of manufacturing turnover and therefore generate around 2 per cent of UK GDP, roughly the same as all lawyers and accountants.
High-tech manufacturing is becoming increasingly competitive, with countries like China catching up, and he sees manu-services as “a new opportunity for Britain to set itself apart”. The processes involved are complex and therefore harder for other countries to copy.
“Given the darkened economic climate, it makes efforts like this as important as ever,” he said. “Really the only way to get out of this sort of situation for Northern Ireland is to focus very heavily on exports. Those exports are going to come particularly from new types of manufacturing.”
Rather than “beating the drum” for manufacturing per se, he urged political leaders to look at the “nuance” behind the changes in the sector and understand its complexity.