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The MTA Report on Advanced Manufacturing of 29

The MTA Report on Advanced Manufacturing


Index 1. Introduction .................................................................................... 3

Executive Summary ....................................................................... 6 2. A Competitive Environment .......................................................... 8 3. Strong support for Exports ......................................................... 13 4. A skilled workforce ...................................................................... 16 5. Advancing Technological Innovation ........................................ 26 6. It’s a global world ........................................................................ 28


1. Introduction

1.1. About the Manufacturing Technologies Association The MTA was founded as the Machine Tools and Engineering Association in 1910 and reconstituted as the Machine Tools Trade Association in 1919. In the late twentieth century it became clear that rapid developments in manufacturing technologies and production methods needed the Association to provide a broader range of services to a widening potential membership base, and in 2001 the organisation changed its name to MTA. With a record of serving and representing the UK’s engineering based manufacturing sector stretching back over a century – and kept close to the modern realities through its organisation of the UK’s biggest manufacturing technologies trade show, MACH – the MTA has an unrivalled perspective on the industry’s strengths and challenges. The advanced technology developed and applied by the sector delivers the means of production into the UK’s manufacturing companies, helping them innovate and improve, driving up quality and standards while reducing real costs. The MTA’s members’ products and services feed into a wide range of technology driven industries, both in the UK and abroad. Central to the future of UK manufacturing are the highly sophisticated machine tools used in production. They are, quite literally, the cutting edge of manufacturing. Without them, the ground breaking technological successes that are celebrated every time the chequered flag is passed on the Formula 1 circuit would not be possible, nor would the continued innovations in communications technologies that depend upon satellites, or the fundamental reliability and safety that we all assume when we board an aircraft. The MTA represents UK companies that build and deploy machine tools, and those companies that drive innovation and technology in engineering based manufacturing. The advanced technology developed and applied by our sector delivers the means for UK producers to continuously innovate and improve, driving home-grown and export sales alike. As part of the value chains for all of Britain’s advanced engineering industrial sectors, from aerospace through oil and gas to automotive, the MTA’s members are well placed to understand the cross-sector issues that the UK economy faces. The scope of our nation’s industrial base should be understood not just in terms of its breadth and the number of sectors we have in evidence. It is also crucial to appreciate the depth of knowledge and expertise underpinning our base, by understanding just how many parts of various technologies’ value chains can be found here. Whether it is parts for US aircraft designed using British software, high-precision automotive powertrain components ground on purpose built UK-made machinery, or specialist medical devices made from high-purity materials, the picture of the UK’s engineering based-manufacturing is a rich and diverse one. The ability to manufacture the most complex, safety critical, parts, machinery and systems is a widely underappreciated British strength. The MTA is justifiably proud of its members’ achievements. But the MTA is not complacent; in a highly competitive global economy, it is absolutely essential that our members continually innovate, create, build and test to the highest imaginable standards.


1.2. The MTA’s mission in 2012 and beyond The Manufacturing Technologies Association is committed to supporting the activities of companies, regulatory bodies and government to achieve a strong, balanced economy with manufacturing at its heart. Manufacturing, particularly technology-based manufacturing, is as strategically critical to our nation’s well-being and security as the ability to provide health care, a credible military force and the means to grow food through sustainable agriculture. For some economic commentators, investment in UK manufacturing to maintain its competitive edge is viewed as the economic equivalent of building a higher sea-wall to protect the coast from an inevitably rising tide. They opine that as the skills-base and technological expertise in ‘low cost’ regions continues to develop, commercial pressures will force even the most high-tech western factories to relocate. This conclusion has certainly not been accepted by our EU partners and rivals, or by Japan and the USA. On the contrary, these economies have continued to develop policies, deliberate incentives and efficient regulatory mechanisms that drive investment – mainly from the private sector – in manufacturing technologies. The MTA and its members believe that it is in the interests of UK plc to gain long-term, sustainable and growing advantage from its manufacturing base. The financial crisis has shown how dangerous a strategy of relying so heavily upon financial services for the UK’s economic future would be. Tourism, valuable contributor that it is, is not enough either. Service industries, crucial in any knowledge-based, developed economy, can only go so far in generating revenues. Government rightly celebrates the ‘creative industries’. The MTA believes that UK manufacturing is a key creative industry. There is a real opportunity for a truly powerful nexus between our innovative energy, our research excellence and first rate production facilities, to act as a catalyst, pushing UK manufacturing once again to the head of any international league table. By most international benchmarks, UK manufacturing is doing well and leading the way in its export push. But with better, more focused and directed support and investment, UK plc could do even better. This is not necessarily about ploughing in more funds; it is more about enabling existing investments to be better targeted and spent, on training, genuine partnership between companies and research institutions, and the development of the manufacturing intellectual property that will power our economy. Central to the future of UK manufacturing are the highly sophisticated machine tools used in production. They are, quite literally, the cutting edge of manufacturing. Without them, the ground breaking technological successes that are celebrated every time the chequered flag is passed on the Formula 1 circuit would not be possible, nor would the continued innovations in communications technologies that depend upon satellites, or the fundamental reliability and safety that we all assume when we board an aircraft. The MTA represents UK companies that build and deploy machine tools, and those companies that drive innovation and technology in engineering based manufacturing. The advanced technology developed and applied by our sector delivers the means for UK producers to continuously innovate and improve, driving home-grown and export sales alike. In these fiscally straightened times, it is clear that UK government is unable to inject substantial public funds into new, unproven schemes. But without improving the effectiveness of the work it does to promote skills, secure strategically critical contracts and encourage entrepreneurial investment, UK plc will be the ultimate loser. This ‘effectiveness


agenda’ spans elements such as the public perception of engineering and manufacturing, as represented by news and media organisations, to the frequently reported shortcomings of Government procurement. A clear industrial strategy with advanced manufacturing at its core, loudly advocated and genuinely demonstrated at the highest levels of UK government, is unashamedly recommended. The MTA’s key messages are:

• A vibrant engineering-based manufacturing sector is essential as part of a balanced,

thriving UK economy • Manufacturing exports are vital to the UK’s prosperity • Engineering based manufacturing demands a highly skilled workforce – it also

provides a secure employment base in many areas of the country • The manufacturing technology industry is at the forefront of technological change; • Manufacturing Technologies will play a vital role in transitioning to a lower carbon

economy • As part of a profoundly global industry the Manufacturing Technology sector

understands globalisation and can make a positive contribution to the UK’s competitive position

This report proposes clear action on a number of fronts, actions which – if implemented effectively – will lead to the transformation and establishment of an even stronger, more sustainable, knowledge-based advanced manufacturing sector, providing much needed balance to our economy and securing many millions of high-value jobs into the future.


Executive Summary This report has been produced by the Manufacturing Technologies Association as a snapshot of Britain’s advanced manufacturing sector and contains recommendations on how to improve its position. Many of the recommendations build on existing Government Policy or are in line with the direction of travel. 1.3. Summary of Recommendations

1.3.1. Maintaining a competitive Environment

• Endorse an Industrial Bank • Develop Mezzanine Finance • Maintain and build on the Business Growth Fund (BGF) • Use Capital Allowances and R&D Tax Credit to boost investment • Frame regulations with SMEs in mind

The MTA believes that there is a significant market failure in SME finance. However we recognise that banks too are in a difficult position. Therefore we need to think creatively about non-bank sources of lending. We welcome the Breedon Review as a step forward in this process. The MTA welcomes the Government’s cuts to Corporation Tax but also believes that the tax system could be used more proactively to encourage investment. The MTA would like to see more progress on aligning regulation with the Growth agenda.

1.3.2. Supporting exports

• Better allocation of UKTI resources • Developing a level playing field for UK Manufacturing • UKTI to focus further on sectoral support • Greater transparency in issuing export licenses

The MTA welcomes the priority given to the promotion of exports by the Government. This should be built on in terms of expanding the capacity of UKTI to assist British businesses, particularly SMEs. UKTI recognises that there is role for trade associations in this endeavour. UK companies in the sector are not as well supported as those from competitor nations and too frequently encounter difficulties with export licensing.


1.3.3. Growing a skilled workforce

• Introduce a Manufacturing Technologies Scholarship to support higher level skills

• Expand the number of University Technical Colleges (UTC), with an increased focus on ways to involve SMEs

• Expand the number of levels 3, 4, and 5 apprenticeships • Offer a new Bursary for levels 3, 4, and 5 apprenticeships • Introduce tax credits for apprenticeships • Introduce Industrial Teacher Partnering • Introduce Industrial Student Mentoring • Introduce an Employer Partnership Working Hub Fund • Revalue the Level 2, 14-16 year old engineering Diploma • Protecting the status of D&T within the Curriculum

We strongly support the Government’s drive to boost the number of young people undertaking apprenticeships. The MTA believes that it is of vital importance to ensure that the demand and quality of apprenticeships is secured. There is also a need to bring some of our best engineering students into manufacturing industry and into SMEs in particular. To this end we are proposing a flagship scheme for SMEs to access a pool of talent through a scholarship.

1.3.4. Advancing Technological Innovation

• Ensure Catapults encourage the involvement of small and medium sized

businesses in their delivery • Protect the funding available through the TSB for Catapult centres through

this parliament, and increase it during the next We welcome the establishment of the Advanced Manufacturing Catapult and have a large number of members already in partnership with the AMRC and developing links with the MTC and other centres. We welcome moves to make the benefits of participation in the Catapults Centres more easily available to SMEs.


2. A Competitive Environment

2.1. Overview Engineering based manufacturing is one of the most global of industries. With value chains constructed on a global basis the UK’s strengths may be found on display in some areas where one would not expect to see it. For instance the new Boeing 787 Dreamliner is in fact made up of as much as 25% British components and Boeing has secured 821 orders for the aircraft worth £97bn.1 The mobile revolution in computing has been powered by chips made in the far east but designed in Cambridge, UK. We estimate that turnover for the manufacturing technologies sector in the UK is about £1.2billion, of which more than 80% is exported. Without Manufacturing Technology there can be no manufacturing. Even a ‘domestic’ order for a subcontractor may be a component of a product that is likely to have an export market or indeed be the result of an order placed by a foreign controlled company. Just as manufacturers are part of a globe spanning web, the UK economy is also but a part of a complex ecosystem. Thinking about the UK in isolation is the wrong way to approach advanced manufacturing. The Government’s consultation on a Framework for Advanced Manufacturing published in 2010 asked respondents to identify barriers that Government placed in the way of business. We do not believe that visualising the Government as erecting ‘barriers’ is the right way to understand the underlying issues around the UK’s relative performance in manufacturing. What matters is that UK firms are not placed at a competitive disadvantage. When framed in this way the tax system, with its relatively low recognition of the specific needs of manufacturing; in terms of Capital Allowances, Research and Development and perhaps above all the constant chopping and changing that it undergoes, must be seen as a key factor. Nobody in manufacturing now believes that the Government is inherently hostile to it; one has only to listen to speeches made since the 2008 financial crisis to appreciate that. Government of course is only one, albeit probably the most important, actor in the economic landscape. For many companies the determining relationship that they will have is that with their bank. As George Osborne said in March 2012: “We are doing the things that are needed to put British manufacturing at the heart of Britain’s recovery.”2 This is not the place to rehearse the arguments that have been described as a dialogue of the deaf, between financial services providers and business, particularly SME business around the availability and affordability of credit. While the financial services sector narrowly missed its Merlin target in autumn 2011 for lending to Small and Medium Sized businesses there is clearly more liquidity in the market than there was in the immediate aftermath of the credit crunch. But these aggregate figures do not paint the full picture.

1 http://www.thisismoney.co.uk/money/markets/article-2054303/CITY-FOCUS-How-Boeing-s-787-Dreamliner-best-British.html 2 http://www.hm-treasury.gov.uk/press_19_12.htm


2.1.1. Access to Finance SMEs are an integral part of the UK economy and current market and lending conditions have hit them hard, making it difficult for businesses to maintain pre-recession levels of investment. According to BIS estimates, at the start of 2011, there were around 4.5million SMEs forming 99.9% of all businesses by number, accounting for over half of private sector employment and nearly half of all private sector turnover.3 In 2011 net lending to business by Britain’s five main banks fell by £9.46bn. The banks apportioned the blame to declining demand for credit as economic growth slowed whereas industry has reported being discouraged from borrowing on account of high loan costs and strict conditions. Having guaranteed via Merlin to increase lending of £190bn available to businesses in 2011 (including £76bn for small companies), banks ended up lending £214.9bn overall and £74.9bn to small businesses.4 Banks have become risk averse due to the credit crunch and because of the imposition of new financial services regulations that require them to hold more capital/ liquidity. Despite this risk aversion, BIS research suggests that because of the decline in the Bank of England interest rate, most SMEs are now paying less for finance overall: average interest rates on variable rate lending were 5.39% in November 2008 compared to 3.5% in November 2011.5 These are average figures; many companies are paying considerably higher rates. MTA welcomes the interventions that Government has put in place to address these issues such as the Enterprise Financial Guarantee, Enterprise Capital Funds and the National Loan Guarantee Scheme. Unless credit conditions improve along with the willingness to lend by Banks, SMEs will be unable to take advantage of any economic recovery. SMEs have had to manage the downturn whilst simultaneously maintaining their long-term competiveness. For example a recent survey of 15,128 SMEs has shown that in comparison to other sectors, the manufacturing sector was most likely to end up without an overdraft facility. The SME Finance Monitor also reports that manufacturing were disproportionately likely to be rebuffed by their banks when asking for finance with only a minority (38%) being successful in receiving the facility they sought and only a bare majority (52%) getting any loan place at all.6 Despite lukewarm reports of the economy improving which helps in the restoration of confidence across the manufacturing sector, any sustained recovery must address the hidden costs involved in commercial lending such as the administrative and processing fees for loans and overdrafts as well as the length form-filling process.

3 http://www.bis.gov.uk/assets/biscore/enterprise/docs/s/12-539-sme-access-external-finance.pdf 4 http://www.ft.com/cms/s/0/6f09ba14-562f-11e1-a328-00144feabdc0.html#axzz1oVvzO0fH 5 http://www.bis.gov.uk/assets/biscore/enterprise/docs/s/12-539-sme-access-external-finance 6 http://www.sme-finance-monitor.co.uk/


2.2. Recommendations to develop a competitive environment

2.2.1. Endorse an Industrial Bank In 1945 the Attlee government established the Industrial and Commercial Financial Corporation (ICFC) to serve the small and medium sized business sector through the provision of long term and permanent capital. The funding came exclusively from the Bank of England and the major clearing banks. The fundamental aim was to provide capital to growing independent businesses. In the 1970s ICFC merged with its sister organisation, Finance Corporation for Industry (FCI) and a decade later became rebranded as ‘Investors in Industry’. After successful entry into the FTSE 100 in 1994 it became “3i”.

Similar innovative financial architecture is required now for an environment severely damaged by the credit crunch and on-going EU crisis. SMEs are financially constrained by the unwillingness of Banks to lend and consequently recovery is inhibited. Despite being saved by the taxpayer, state-owned banks continue to adopt a risk averse approach to SME lending. A new strategic framework could help plug that gap. The MTA along with other Associations has continued to advocate and support the idea of an ‘industrial bank’ and welcomes the Government’s latest thinking with regards to the Royal Bank of Scotland.

An Industrial Bank could assimilate the best practices of Germany’s KfW. This Bank could provide ‘industrial financial initiatives’ (Ind.IFI) such as mezzanine financing arrangements that cater to lower and middle-tier SMEs and enhance the cooperation between banks and business angel networks.

KFW was set up in 1948 to assist with the reconstruction of German Industry. With the help of low-interest loans Industry started to slowly recover. It is currently designing innovative financing instruments in order to optimise the overall financing conditions for the SME sector. Its federal guarantee enabled the Bank to borrow very cheaply and pass on the savings to small businesses. As of 21 December 2010, its balance sheet was €442 bn. The SME financing products are structured according to the three pillars of loan, mezzanine finance and equity capital. The UK should learn from this German model especially with regards to mezzanine finance.

2.2.2. Develop Mezzanine Finance As highlighted in the recent Roland Report mezzanine financial products may be able to support the demand for growth capital by SMEs. It is considered particularly suited to SME growth because it ‘occupies the middle ground between the lower risk and return of bank turn and the higher risk and return of equity investment’. Mezzanine Finance has also been endorsed at the European level, with the European Commission in 2006 recommending member states to 'encourage the expansion of the market for mezzanine finance. In addition the Commission suggested that banks in cooperation with financial advisors such as accountants should consider introducing information programmes which would educate SMEs about innovative financing tools such as mezzanine finance.

We welcome the key finding of the recent Breedon Review that a Business Finance Advice scheme be established with the accountancy bodies in the lead. Trade Associations may be able to act as useful partners for the scheme to push it out to ‘hard to reach’ companies.

We further welcome Breedon’s conclusion on prompt payment and the potential of supply chain finance in unlocking growth in supply chains. As Breedon states, taking forward these recommendations will require further detailed feasibility studies in a number of cases and it


is now for government to work with industry to reshape the finance landscape to make it serve better the needs of British businesses.

Mezzanine Finance defined “Mezzanine finance is a form of debt which shares characteristics of equity but ranks below senior debt. Mezzanine is a flexible product that can be tailored to the risk and repayment profile of the business or transaction. Whilst there is no single model, mezzanine debt usually contains three distinct features: a cash coupon; payment-in-kind or PIK, which increases the amount of principal outstanding and is only paid at the maturity of the loan; and warrants or a share in the profits or growth of the company.”7

An Industrial Bank would lend money to the SME but involve an element of equity. Such an arrangement would enable the loan provider to benefit from any upside when the borrower achieves its growth objectives. This framework would allow loan applicants who are considered high-risk the opportunity to access loans. Banks would become more willing to lend as they would participate in future profits. Unlike with private equity investors the SME would not have to surrender equity and the existing shareholdings do not become diluted. In terms of repayment, debt associated with mezzanine finance arrangements is generally redeemed in a one off payment rather than monthly thereby not putting a strain on cash flow. As identified in the Roland Report it can help address the problem of SME aversion to parting with equity.

Lower-tier SMEs usually cannot access mezzanine finance because they do not have a proven track record, experienced management team and solid cash-flows and tend to rely on business angels, not-for-profit organisations and small private financial institutions. More funding mechanisms are required that address the financial requirements of a company. An Industrial Bank should provide seed capital but also have a selection of financial instruments that cover the different needs of a small business depending on the stage of its development. Expensive overdraft penalties and hidden transactional costs hinder growth.

2.2.3. Maintain the British Growth Fund (BGF) The MTA welcomes the establishment of the BGF which was one of the key recommendations of the Business Finance Taskforce set up in July 2010. We believe that it could represent a useful way to fund growth for many companies. However it is not for everyone. It would be foolish pretend that there is not an aversion to equity finance among a substantial number of companies. Having acknowledged that “SMEs are particularly important as a source of job creation and growth” it is important for banks to continue to invest in the fund so that UK SMEs can grow.8

7 http://www.bis.gov.uk/assets/biscore/enterprise/docs/b/12-668-boosting-finance-options-for-business.pdf 8 http://www.bba.org.uk/media/article/business-finance-taskforce


2.2.4. Corporation Tax We welcome the Government’s direction of travel on Corporation Tax. A sector as globalised as advanced manufacturing is well aware of the importance of maintaining internationally competitive rates of taxation. Securing the UK as a prime location to invest is of key importance. But though important the headline rate is not the only key driver.

2.2.5. Use Capital Allowances to boost investment The history of Capital Allowances in British economic policy is a chequered and inglorious one with Governments of all hues promulgating them and rolling them back at, if not random, then certainly too often for predictable business planning and at rates which are highly uncompetitive.9 It is widely understood that the Coalition Government is committed to simplifying the tax system, this is a laudable and overdue aim. However in a business environment in which growth is at a premium there is an opportunity to use the fiscal leaver of Capital Allowances to boost investment. We welcome the extension of the short life asset exemption, but continue to believe that action on the main rate would be the most effective means to boost investment.

2.2.6. R&D Tax Credit

R&D tax credits are an excellent way to support companies but care must be taken to ensure that SMEs are at the heart of the process. The MTA welcomes the Government’s commitment to increase R&D Tax Relief to 225%. Any further change to the tax regime should have a continued focus on SMEs. We welcome the plans announced by the Chancellor of the Exchequer in the Autumn Statement and expanded on in the Budget, to consult on the provision of above the line recognition for R&D expenditure in the tax system. However we would be loath to see the widely understood and appreciated regime, as it applies to SMEs, changed. An above the line system entails an application process which would act as a disincentive to time pressed SMEs.

2.2.7. Frame regulations with SMEs in mind Regulations should be framed with small businesses in mind. What seems like a reasonable step or minor incremental change when looked at across the board of the whole economy can have devastating consequences when played out in a small company with a handful of employees. Small businesses have to be flexible to survive. The application of flexibility to their regulation is highly desirable.

9 CBT


2.2.8. Certainty in investing in people Business need predictability, something more true of manufacturing SMEs who invest disproportionately to their size. Labour force measures such as extended maternity/paternity provision and the removal of the statutory retirement age are having and will have a detrimental effect on the propensity of employers to recruit staff. The removal of the statutory retirement age poses particular problems in manufacturing environments. While automation has meant the roles seldom require the level of physical exertion needed only a generation ago, manufacturing remains a ‘hands on’ business where there are sometimes health and safety, as well as productivity, issues around older workers. In the case of apprenticeships, it takes four years to develop a skilled person in our sector. Moving up the chain, the gestation period for a professional engineer is around seven years. By removing the certainty of retirement, businesses will find it difficult to develop a succession plan for such skills and talents. UK companies are also at a clear competitive disadvantage when recessions strike and they must look at ways of trimming their costs in order remain in business. In almost every other European country some form of short time working support is available for a period of time in order to allow companies to retain the skilled pool of labour that they have laboriously built up. In the UK such support is not available with the result that it is much more difficult to maintain employment levels. These factors affect the international competitiveness of the UK’s manufacturing sector. Tax is key but it is not the only issue.


3. Strong support for Exports 3.1. Overview UK Manufacturing industries contribute an estimated £140bn a year to the UK economy and accounts for 55% of total UK exports.10 From February 2011 to February 2012 the Government has helped more than 20,000 SMEs to export and break into new high growth markets such as Brazil, China and India.11 Competing successfully in overseas markets is essential to the future prosperity of UK manufacturing. The wealth generated through exports helps to address the needs of the UK: tackling the deficit, delivering growth and addressing climate change. Moreover for manufacturers themselves, selling their products into overseas markets helps them achieve levels of sustainable growth not otherwise possible in their home market. The MTA welcomes the Prime Minister’s support in launching in November 2011 a National Export Challenge to get 100,000 more companies exporting by 2020. The MTA supports the Government’s ambition of increasing the number of British companies who export from current levels of around 20% to 25% or more.12 We are keen to play a constructive role along with other partners to help the Government reach that key 5% of companies and make sure the Government targets the right groups.

The Government rightly places continued emphasis on its support for UKTI exports and the MTA is committed to working with UKTI to help them identify cost effective ways to support exporters who are going to make a commercial success of their efforts. As acknowledged by UKTI, the 2012 Olympic and Paralympic Games in London will provide a perfect platform for UK companies to showcase their expertise and do business in overseas markets. Government should encourage businesses within the UK supply chain to be more engaged with the export successes of UK OEMs. As new, emerging, markets are opening up there are opportunities to leverage the strength of some of the UK’s world beating companies to the advantage of their suppliers. Anecdotal observation suggests that UK companies are less skilled at doing this than those of competitors such as Germany. It may be that the comparative paucity of medium sized companies in the supply chain is part of the reason for this. There is a role for Government in the shape of UKTI to help smaller UK companies take advantage of opportunities through targeted sectoral support. SMEs prefer predictability and often do not have the spare capacity to respond to inquiries from UKTI in relation to such support; for example in relation to future trade missions and would benefit from longer lead-in times whenever possible.

10 http:/www.epsrc.ac.uk/newsevents/news/2011/Pages/researchboost.aspx 11 http://www.bis.gov.uk/news/topstories/2012/Feb/uk-trade-and-growth-one-year-on 12 http://www.ukti.gov.uk/export/howwehelp/item/213720.html


The Government must also acknowledge that despite some SMEs sending their products overseas not all SMEs consider themselves “exporters”. Identifying and targeting these companies will be a better route to success than an indiscriminate blanket policy. There is a value adding role for Trade Associations in this process. Having argued for change, the MTA strongly welcomes the change in emphasis that has come about through the broadening and bolstering of what was Export Credits Guarantee Department (ECGD) and which has now adopted the new operating name of ‘UK Export Finance’, the UK’s official export credit agency. It is important to continue its core services of: insuring UK exporters against non-payment by their overseas buyers; helping overseas buyers to purchase goods and/or services from UK exporters by guaranteeing bank loans to finance those purchases; and insuring UK investors in overseas markets against political risks.

In 2010-11, ECGD provided £2.92bn in support to UK exporters and it is important for this support to continue and exporters obtain the short-term trade and risk protection required.13

The new products that it has developed should address significant needs that exist on the part of SMEs, particularly those outside the, reasonably well served, Civil Aerospace sector. This particular sector is dominated by the UK content on exports of Airbus aircraft and includes the supply by Rolls-Royce of engines to both Airbus and Boeing aircraft.14 Further initiatives tailored to SMEs seeking short term export finance facilities such as the Export Enterprise Finance Guarantee (ExEFG) should be developed. As Lord Green recently said “SMEs are the main job creators of the economy. Almost 60% of private sector jobs have been created by SMEs.”15

3.2. Recommendations to support exports

3.2.1. Better allocation of UKTI resources

Whilst the UKTI has made significant strides forward in recent years, it still fails to make best use of its allocated resources. In particular, there are on-going concerns over reductions in its budget for exhibition support and the over-emphasis on inward investment over export support.

SMEs continue to report that the ‘on the ground’ intelligence UKTI currently provides is of variable quality, and therefore value, to them as they look to exploit new and emerging markets. For SMEs, intelligence of this nature is vital to their quest for export success and because their size makes it hard for them to devote the resources necessary to gather it, its provision should be a key task for UKTI.

Many SMEs believe that the export support that does exist is not well configured to support them. This is especially true of second and third 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. This method of market entry is insufficiently supported by UKTI.

In order to win business abroad we must have confidence in our own goods and services, and UKTI needs to be the shop window, displaying our best assets. It is a common refrain heard from British Business that other European countries have better funded trade show presences than the UK. These other European countries are currently showcasing new

13 http://www.ukexportfinance.gov.uk/news-and-events/news/ecgd-publishes-annual-report-and-accounts 14 http://www.ukexportfinance.gov.uk/assets/bispartners/ecgd/files/publications/plans-and-reports/business-plans/ecgd-business-plan-2011-to-2015.pdf 15 http://www.ukti.gov.uk/uktihome/media/item/217740.html


products; benchmarking themselves against the competition as well as seeking out possible agents and distributors. UKTI must raise its game, or risk hampering UK export opportunities.

3.2.2. Greater transparency in issuing export licenses This is an area which continues to be problematic with MTA members and we welcome greater transparency from the Government in the whole process of issuing export licenses. The current process needs to be amended. Whether or not an export license is required for an SME’s goods is determined by four factors: nature of the goods due to be exported, destination concerned, the ultimate end use of the goods and licensability of trade activities. Failure to meet the set criteria means that the export license is rejected, yet crucially – the customer may receive no details on why they did not meet the criteria. MTA members 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. The MTA would like to see the Government give a full explanation of why this happens. If a license is denied, the Export Control Organisation has a professional responsibility to ensure that SMEs are guided through their shortcomings as much as reasonably possible. Creating an M.O.T. styled application would allow those who fail to meet the requirements to explicitly understand ‘why, where and how’ they failed to meet the standards. This, in effect, is low cost for government, but with high rewards for the industry and government more generally.


4. A Skilled Workforce 4.1. Overview The scale of manufacturing employment is often underappreciated. Contemporary statistics for employment in manufacturing are distorted by the issue of service contractors. Whereas 50 years ago, manufacturers would include on their pay role all the associated staff for running the factory, today these jobs have been sub-contracted out. Cleaning, catering, security and all associated jobs with the general running of the factory no longer appear in employment statistics. This inevitably means that the figures relating to employment in manufacturing inevitably are understated. The manufacturing industry has a significant and beneficial effect on the socio-economic landscape of the UK. Not only does it provide employment throughout the country, more crucially it helps to spread employment across the regions. If the UK were to be economically dependent on a purely financial/service sector, employment would be even more disproportionately focused on London and the South East. The consequences of this would not only exacerbate the North/South divide, but would also impact on the economic stability of London and the South East. Engineering’s main problem in all of this is that it suffers from a poorer image than the other ‘glamorous’ service sector industries. Many of the best STEM graduates are lured away from the industry by high pay and the perceived higher status that other industries have to offer. Stereotypically, the industry is seen as a dirty, hazardous place to work, with little or no personal reward. This image does not reflect the realties; manufacturing is in fact rewarding, stimulating and increasing cutting edge. Today, a career in high-tech manufacturing is about looking to the future and delivering on technological innovation. That it is a hugely rewarding and versatile career option is the UK’s manufacturing’s best kept secret, and likely to be its biggest downfall. The high-tech UK manufacturing industry is dependent upon a highly skilled workforce, which combines vocational and academic skills in a way that has previously been ignored. The crucial element in improving manufacturing skills is investing in education. Therefore the ability of the educational system to provide training and apprenticeship schemes which deliver the advanced skills needed for a healthy manufacturing technologies industry is dependent on the quality of, and access to, relevant educational courses. Without these strong educational foundations the UK economy will fail to successfully compete with international competitors such as Brazil, Russia, India and China and fall even further behind leading advanced manufacturing giants such as Germany in the productivity and exports stakes. The failures in attracting sufficient young people into engineering have meant many SMEs find their employees lack the relevant skills. According to CBI research, 58% of employers report difficulty in recruiting employees with STEM skills. The CBI also estimated that by 2014, an additional 775,000 roles will have been created that require high levels of STEM knowledge and professional skills.16 This is supported by research from Birmingham University, which suggests that approximately 46% of 2009 engineering graduates were in jobs directly related to their 16 http://www.hays.co.uk/prd_consump/groups/hays_common/@uk/@content/documents/webassets/hays_008516.pdf


degree subjects six months after leaving university; that 20% were employed in jobs that were not directly related to their degree, while 24% were in ‘non-graduate’ employment, such as working in retail shops and cafes.17 School leavers entering the industry, be it post GCSE or A-level, often lack the numerical, and scientific knowledge required by the manufacturing industry. This problem reflects the lack of uptake in STEM subjects in schools. Industry needs the curriculum to focus on science and maths, in order to properly equip their workforce with the appropriate skills. Failing to do this means that industry is forced to play catch up with the school leavers who are entering the workforce, and put resources into raising their education to suitable levels. The changes mooted in the National Curriculum which downgrade the role of Design and Technology subjects are a step backward in this respect. What is required is a distinct technical offer in the English education system that can produce the applied science innovators, engineers, technicians and designers needed to power the renaissance of advanced manufacturing in Britain. The new generation of technical schools being delivered through the Government’s University Technical College programme represent a key opportunity to deliver part of this ambition. 4.2. Recommendations to develop a skilled workforce

4.2.1. Manufacturing Technologies Scholarship The problem for many potential STEM students is that career paths are often unclear and undeveloped. Many students take STEM subject degrees at university without knowing what skills employers require in high-tech manufacturing. This leads to a skills-gap for high-tech manufacturing industry. To combat this the MTA recommends the introduction of a Manufacturing Technologies Scholarship, which will give students the structure and information about their career paths, through sponsorship by SMEs. The scholarship will provide financial and academic support for students throughout their A-levels and university. Upon completion of their studies, the student will enter industry for a minimum of three years. Drawing on similar themes previously highlighted by Sir James Dyson in his Report Ingenious Britain and going back at least as far as the Finniston Report (1980)18, enticing students into STEM is only one part of the solution. Focus needs to be put too on the ‘formation’ of these engineers - as an integrated process involving study and training. Looking ahead to the next decade, a thorough model to underpin the future engineering community needs to be developed. New entrants would need a detailed scientific understanding, but also to have the ability to balance this with practical abilities, synthesis and creativity, and commitment to the notion of engineering practice in a commercial environment. Efforts to inculcate the right skills together with developing the mind and ability of the engineers should start at an earlier age. With this in mind, the industry, through the

17 ‘Is there a shortage of scientists?’, Birmingham University report, September 2011 18 ‘Engineering — Our Future: The Engineering Profession’, The Finniston Report. H.W. PAYNE, FRSA, Hon. FSLAET,1980


scholarship scheme should engage with these future engineers post GCSEs, or post A-levels, guiding them through their studies and into university. Our proposed sponsorship model would obligate students to a number of ‘positive’ choices. For instance, what A-levels they study, which university they attend, and the course they study there. All of these issues revolve around getting the best possible outcomes for students’ future careers from educational participation. One of the central aspects of our proposed Scholarship is the obligation on the part of the student to enter industry for a minimum of 3 years upon graduation. Industry and Government will see a guaranteed return for their investment from the student. This contractual obligation would revolve around the fees and maintenance paid by the scheme. If students opt out of the scheme before entering the industry, they would be required to pay the full tuition fees and maintenance that the scholarship paid on their behalf. In effect this means that students would not be financially worse off by opting out than if they had completed university via the normal route. However, students would still have significant incentive to stay in the scheme and complete the minimum of three years. Long-term investment vs. short term concerns: A real and acute concern of SMEs and the Government in supporting and funding such a scheme would inevitably be the long term nature of the programme. At its longest, the investment could take up to 6 years for firms before they would see a return to be able to have their graduate in full time employment. By their very nature, SMEs cannot be fully certain of their projected skills needs of the longer-term future, or even if they will be operating under the same conditions. For these reasons, SMEs often find it more difficult to invest money in long term projects. Flexibility in long term investments, together with supported government funding is crucial. By enabling them to invest in a scheme rather than a specific individual performance risk is significantly mitigated. The company may not know at the start of the scheme exactly ‘who’ is get but they will have the reassurance that they will have completed a rigorous programme. In addition because all individuals within the scheme will have participated in placements with a range of companies; the SME will get a candidate with a more rounded manufacturing education than if they had only been exposed to one company.


To ensure SME uptake, the Manufacturing Technologies Scholarship model must be flexible in its approach, and have a number of different time/costing plans that reflect the concerns of industry. Naturally, the more money invested in the scholarship the better the quality of education the graduate eventually coming to the company will receive – to the long-term benefit of the firm. However, a lower cost/faster return model remains available:

To incentivise SMEs to partake in the Scholarship scheme, the government would offer tax credits for all companies who run the scheme as an example of its commitment to the manufacturing technologies industry. SMEs would be able to reclaim up to two thirds of the cost of the Scholarship through government tax credits at the end of each financial year. Under such a system SMEs would be able to recoup:

The net cost of each funding stream for the industry sponsor would be:

4 years:

University Sponsorship

£44,000 6 years:

A-level

AND


£46,000

4 years:


£29,333 6 years:

A-level

AND


£30,666

4 years:


£14,667 6 years:

A-level

AND


£15,334


Structure of the Engineering Scholarship scheme:

Ensuring this quality threshold is maintained would be done by:

• Enlisting students on the scholarship scheme upon entering A-levels. This would give the industry the opportunity to agree and determine which A-levels the students study, ensuring a suitable engineering focus. The focus would naturally revolve around Maths (including further Maths), Sciences, Design Technology and possibly the inclusion of a modern foreign language (e.g. German or Mandarin Chinese).

• Monitor academic progress closely throughout A-levels.

Beyond A-levels, and entering university, industry would:

• Shape modules students study whilst at university. • Be able to ‘mould’ the students beyond their studies through compulsory

extra-curricular activities, most notably placements in industry, and engagement and interaction (leadership development programmes, innovative development, annual competitions which encouraging competitiveness in innovation and delivery).

For the student, this scheme means:

• Engaged in a competitive scheme, held in high esteem. • £1,000 each year whilst studying for their A-levels. Under the EMA scheme A-

level students received approximately £1,500 pa. • Choose their degree programmes, guided by professionals. • Guaranteed place at one of the top engineering universities. • University tuition fees fully funded. • An annual ‘wage’ of £2,000 during university to help with living costs. • A guaranteed placement year with the industry sponsor, with a competitive

salary. • A guaranteed and fast tracked career in cutting edge manufacturing. • The opportunity to study a ‘relevant’ language as part of their degree. • The opportunity for industry placements in the EU and worldwide, with leading

manufacturing firms.

In return, the student would be required to:

• Commit to at least 3 years’ service in UK manufacturing after completion of their degree

• Commit up to one month during their summer holidays to a fulltime placement in industry.


4.2.2. Greater Industry involvement in education provision The Coalition Government has made significant reforms aimed at increasing the involvement of private industry in the provision of STEM education, and apprenticeships. In particular the MTA welcomes the £250 million ‘Employer Ownership of Skills’ and the £100 million ‘Growth Investment Fund’ programmes. However while these funding streams will enable industry to take greater control over the provision of education and training for their future staff, the MTA is concerned that the majority of these funds will be directed towards larger companies, as has been the case previously with apprenticeships. The UK is very fortunate in that we have a world leading higher education sector. It provides not just a source of engineering talent but also a resource to be tapped. Knowledge Transfer Partnerships (KTPs) represent a successful way to move knowledge and skills into industry. Contrary to views sometime expressed, SMEs in the MTA’s membership have found these to be useful mechanisms benefiting both HE and the company. Participation in KTPs should be encouraged and incentivised with the process demystified for SMEs.

4.2.3. University Technical Colleges University Technical Colleges have been described as the next great poverty-busting, structural change in the English school system by the Prime Minister, and have been lauded repeatedly by Michael Gove and Vince Cable. At present funding to support the expansion of the programme should see the creation of around 30-40 UTCs by 2015. To date, major employers such as Bombardier, National Grid and JCB have been in the vanguard of the UTC movement, but smaller employers are also playing an important role in shaping the curriculum of the first wave of UTCs. It is important that Government recognise that UTCs can also play an important role in allowing smaller and medium size enterprises who are part of the supply chain process for major infrastructure and manufacturing sectors to play a bigger role. The MTA urges the Government and the Baker-Dearing Educational Trust to give more priority to UTC bids that envision a substantial role for SMEs in supporting learning and training in future application rounds. Although smaller and medium size enterprises may not have the resources to develop extensive curriculum projects as major employers have done or donate/ loan large amounts of high-tech equipment to the UTC for use, they can still play an active and positive role in supporting the educational development of young people. This can be achieved through industrial mentoring schemes, such as that to be trialled at the University of Aston Engineering Academy scheduled to open in Birmingham in September 2012, but also through students visiting manufacturing centres to observe or use equipment and through ‘guest’ teachers and trainees from SMEs delivering one-off or periodic master-classes under the supervision of qualified teaching professionals. The MTA welcomes the additional financial support earmarked for the development of UTCs in the 2011 education capital budget but we believe that the clear demand up and down the country from employers, universities and MPs for UTCs in their areas merits further investment in the programme. We support the Baker-Dearing Educational Trust’s stretching ambition to open 100 or more UTCS by the time of the 2015 General Election and would like to see the Government take action to provide funding.


4.2.4. Apprenticeships

The sustained expansion of public investment in apprenticeships and the creation of a dedicated National Apprenticeships Service has been a key success story in Britain’s industrial strategy in recent years. The MTA welcomes the strong priority that the Government has given to engineering apprenticeships in particular; however there remain companies, and not just conventionally hard-to-reach ones, within the engineering and manufacturing sector that the NAS has not been successful in engaging. As well as NAS there are a number of other public and professional bodies that substantially influence the funding, management and quality of apprenticeships in the manufacturing sector including the Skills Funding Agency, the Young People’s Learning Agency and various Sector Skills Council including, SEMTA for the engineering based manufacturing sector. This landscape can at times be confusing for educational professionals and baffling for SMEs who are considering investing significantly in apprenticeships to develop their workforce. If the NAS can make the interface for SMEs clearer then they will reap a significant benefit in terms of employer engagement. Recent work undertaken to simplify the application process and administration of apprenticeship programmes for SMEs is encouraging; however the MTA has received testimony from a number of members that direct contact is not always applied in a timely enough manner and is of a variable quality. The MTA urges the Government to focus on ensuring that the NAS continues to review and improve the quality of its interaction with employers, by tailoring apprenticeship programmes to their distinct needs. Growing Talent – The MTA’s own Apprenticeship programme There is considerable bureaucracy involved in taking on an apprentice. Trade Associations such as the MTA are well placed to understand and support small companies in taking on apprentices. The MTA’s own scheme, which makes grants and an interest free loan to companies with a turnover of less than £5m, was established in 2008, partly out of frustration with the lack of support available. The scheme is targeted to help companies meet ‘set up’ costs (£2,000 grant) and at making the apprentice cash neutral in their first year (£10,000 interest free loan). Research within the industry told us that these were specific barriers that small companies faced.


Concerns around the future of the Apprenticeships ‘brand’ There are huge concerns in engineering based manufacturing around the quality of many of the offerings in the apprenticeship marketplace. Engineering apprenticeships are a very well understood system, traditionally lasting for three or four years with one year focussed on theoretical learning followed by two years based largely in the workplace. This model has been developed over decades and is valued and, most importantly, trusted. Young people who had completed such programmes were and are sought after employees able to progress in the workplace or indeed into higher study. The MTA believes that the apprenticeships brand is at risk of being damaged by the growing coverage of short-course apprenticeships. The Government must also focus on ensuring that there is genuine progression from Intermediate to Advanced Apprenticeships and from Advanced to Higher Apprenticeships where there is clear demand from employers. To remain innovative and internationally competitive the UK manufacturing technologies industry needs a skillful and motivated workforce, which feels there is real scope for professional progression. The MTA recommends that the Government increases the number of highly skilled apprenticeships, by focusing on expanding the availability and take-up of levels 3, 4, and 5 apprenticeships, while offering bursaries for apprentices who might wish to undertake degree level study after completing a Higher Level apprenticeship. Through offering a funding incentive the Government would demonstrate its ‘stated’ commitment to the high-tech manufacturing industry and the value it represents for UK PLC. The bursaries will be offered to exceptional candidates with the stipulation that they continue to study a related subject at the next level; for example those taking the level 4 apprenticeship will be expected to continue to level 5, while those taking level 5 will be expected to continue to a degree in a similar subject. We would be very keen to share our experiences of encouraging SMEs to engage with this agenda, working with the Government to introduce apprenticeships tax credits, based on the existing Research and Development tax credits for SMEs, thereby supporting essential investment in high-tech workforce skills. The model of tax credits used to promote R&D should be adopted to promote investment in skills. Apprenticeship tax credits would reduce a company's tax bill, or for some small or medium sized enterprises provide an actual cash sum. SME's can, in certain circumstances, surrender this tax relief to claim payable tax credits in cash from HM Revenue & Customs. In particular the Government should primarily direct these tax credits to levels 3, 4, and 5 apprenticeships, as these are the skills levels which the high-tech manufacturing industry currently has a lack of supply of. The Government needs to break the skills and apprenticeship monopoly the larger companies have on the supply of highly skilled graduates. Extending this model to cover apprenticeships will encourage small and medium sized companies to invest in larger apprenticeship programmes, and in doing so, support the long term skills base of the UK manufacturing technology.


4.2.5. Education Working with Industry A greater degree of engagement with the high-tech manufacturing industry on the part of the deliverers of careers advice is needed. Anecdotal horror stories abound, but there is a lack of clarity about what they are actually advising young (and not so young) people to do. There is a significant challenge in the attitude of some teachers to manufacturing industry. This may be because attitudes were formed some years ago and they have not been appraised of the modern realities of manufacturing. We still labour to a worrying extent under the ‘dangerous and dirty’ stereotype. The MTA attracts teachers and students to the MACH exhibition which enables them to experience the latest technology, but although this is very good at engaging young people, most of the teachers who attend are generally not to be the ones who would benefit from learning the most recent manufacturing practices. There is an element of preaching to the converted. One way to broaden such initiatives would be to enable them to be recognised as elements of Continuing Professional Development for teachers. At the root of the problem seems to be poor knowledge about advanced manufacturing on the part of advisors. Given employers interests in engaging and retaining good candidates, there is scope to develop a participative element to the provision of careers advice, which would fit within the Government’s Big Society vision of increasing local participation by employers in supporting positive initiatives within the communities they work in. Firstly, Industrial Partner Mentoring could be a new model under which private companies sponsor the training of FE teachers in the latest industrial techniques and tools. Only through such a scheme will the quality of teaching provision in STEM subjects and apprenticeships reach the level that high-tech manufacturing requires. Secondly, the MTA encourages the Government to introduce a Student Mentoring Scheme linked to the above scheme whereby industry professionals are brought into schools and FE colleges to mentor relevant STEM and engineering students. Such a programme could offer an invaluable experience to students, exposing them to a manufacturing professional who will inform them of, and prepare them for, continued education in a manufacturing related subject, and eventually a career. Under such an arrangement there would be no need for any significant injection of public funding as the colleges and the industry participants cover each other’s cost with payments in kind. The quid pro-quo might be either discounted rates for stand-alone generic or tailored adult training and management courses for mid-level managers and senior technicians. Thirdly, the Skills Funding Agency/ YPLA should set up a ‘FE – Employer Partnership Working Hub Fund’ to enable FE learners to use real life high-grade technology such as CNC cutting tools and precise measurement tools as part of their projects. There should also be an emphasis on showing them how companies plan and use software to support engineering skill. The fund could support regional programmes delivered by either the Association of Colleges (AoC) regional chapter organisations or by local employer-education partnerships to provide a brokerage service for manufacturing sector employers and FE to develop partnerships.

4.2.6. Revaluation of the Level 2 Engineering Diploma


The MTA is deeply disappointed with the Government’s downgrading in the school ranking tables of the Level 2 engineering Diploma for 14-16 year olds from being the equivalent of 5 GCSE’s to only 1 GCSE. The MTA believes this was an ill-thought-out policy decision and is not consistent with the Government’s commitment to industry and manufacturing, and its stated goal of rebalancing the economy. The unintended consequences of this downgrading are severe for the manufacturing industry. The downgrading effectively sends the signal that the Government think this qualification is worthless, and more broadly that the Government has little faith in the value of technical education. Downgrading the Level 2 engineering Diploma for 14-16 year olds, could unintentionally send a signal to bright students with a strong interest in STEM subjects that the engineering and manufacturing is not a high status career path. This move will cut off the supply of young students with an interest in engineering before they have even had the opportunity to explore that interest at FE level. The MTA urges the Government to reconsider the equivalence weighting of the Level 2 engineering Diploma for 14-16 year olds, in Key Stage 4 performance tables. It is quite right that all educational courses, vocational and academic, are valued appropriately to the benefit they have for students. If the Government truly believes that the current Level 2 engineering Diploma for 14-16 year olds is only worth 1 GCSE then the MTA would like to work with awarding bodies and other engineering sector stakeholders to establish an engineering Diploma that is worth 5 GCSEs.

4.2.7. D&T in the National Curriculum We strongly support the retention of D&T Subjects in the National Curriculum. It is imperative, for the future strength of the supply of young people into manufacturing that we expose them early to the design and technology. Unfortunately many of the D&T teachers with whom we have regular contact are fearful for the future of the subject. They know that it is relatively expensive to provide and worry that, pace modern foreign languages, it will be squeezed out of the optional curriculum. We understand and are supportive the drive to focus on the core subjects but we believe that not all subjects are of equal weight and that decisions about what the full cohort is exposed to are too important to the future of our economy to be left to individual schools.

4.2.8. Recommendations:

1. Introduce a Manufacturing Technologies Scholarship to support higher level skills

2. Expand the number of University Technical Colleges (UTC), with an increased focus on ways to involve SMEs

3. Expand the number of levels 3, 4, and 5 apprenticeships 4. Offer a new Bursary for levels 3, 4 and 5 apprenticeships 5. Introduce tax credits for apprenticeships 6. Introduce Industrial Teacher Partnering 7. Introduce Industrial Student Mentoring 8. Introduce an Employer Partnership Working Hub Fund 9. Revalue the Level 2, 14-16 year old engineering Diploma 10. Protecting the place of D&T in the curriculum


5. Advancing Technological Innovation The future of the UK’s manufacturing industry depends on it maintaining its technological competitive edge. There is no future for UK manufacturing that fails to add significant value to the process. As a result of the structural changes that UK manufacturing has undergone in the last three decades we have been left with a manufacturing capability that is technology led and highly innovative. Those changes must be exploited. The following case study illustrates this in practice. A useful case to illustrate the application of innovation to gain competitive advantage is provided by Holroyd machine tools and its specialist sister company Precision Components, based in Rochdale. The caption shows a set of specialised compressor rotors supplied to a German manufacturer of high-integrity process gas compressors used in the petrochemicals sector. The rotors are made from solid, high-grade stainless steels, and operate under extremely demanding process conditions, compressing and pumping corrosive gases across trans-continental pipelines. Gas transmission at the required pressure, temperature and quality can be achieved using several competing technologies, and the use of a twin-rotor compressor system has to offer distinct commercial and technical advantages. Reliability and minimum service demand are key success criteria, and the technological driver for this is the meshing and contact accuracy of the rotors, through the full range of operating temperatures and load conditions. Achieving the required accuracy in profile (tooth shape) and lead (flank angle and contact length) on such large rotors is difficult; the rotors are over 800mm diameter and weigh approximately 4000kg each in their finished condition. Working closely with the customer, Holroyd's engineers adapted a specialised machine tool and developed a controlled manufacturing process, enabling the parts to be produced with sufficient accuracy and repeatability This example demonstrates the importance for high-tech manufacturing in staying at the forefront of technological development. The MTA supports the Government’s policy of creating a network of world-leading technology and innovation centres (Catapults) through the Technology and Strategy Board (TSB). We have called for the creation of ‘technology innovation hubs’ in the past and hope that the Government’s Catapult centres enhance the science base, and increase technological innovation. The MTA welcomed the opening of the first Catapult centre in October 2011; the High Value Manufacturing Catapult, and is pleased the University of Sheffield Advanced Manufacturing Research Centre (AMRC), and the Manufacturing Technology Centre (MTC) are both partners. One of the most laudable aspects is that the High Value Manufacturing Catapult and the MTC both represent new models of collaborative partnership between industry, universities and research and technology organisations (RTOs). This move also reflects the need for manufacturers to move away from competing simply on cost and to compete more on knowledge. The MTA is encouraged by the initial performance of the High Value Manufacturing Catapult. It is a sign of the potential that new Catapult centres hold, that after six months the High Value Manufacturing Catapult employs 625 staff and has a projected commercial income of £10 million, and additional £10 million in-kind contributions from clients. We are also


encouraged that the High Value Manufacturing Catapult has invested approximately £50 million in capital and revenue programmes in its first six months. The MTA welcomed the Chancellor’s announcement in the Budget regarding the opening of a further two new Catapults; the Future Cities and Transport Catapults. We are pleased that the Government is continuing their commitment to technological innovation, in particular the new £50 million investment fund to stimulate innovation in the five areas of research and development where Catapults do not reach. The current Government criteria for establishing new Catapults is sensible and measured. In particular the Government’s stipulation regarding whether UK business has sufficient capacity to exploit the technology and make use of increased investment is a valid one. However, the MTA is concerned that these centres will rely heavily on input from the largest companies in the manufacturing sector. The Catapult centres represent a huge opportunity for small and medium sized businesses and the Government should recognise this. The MTA urges the Government to ensure that Catapults should encourage the involvement of small and medium sized companies in their delivery. The MTA recognises the huge level of public funding earmarked for Catapults, and welcomes this as a step in the correct direction. Given this level of funding, it is important that the Government receives the best value for money. The MTA believes the best value for money will be met through using the new Catapult centres to reach the parts of the manufacturing industry that need the greatest support; the small and medium sized high-tech companies. The MTA also urges the Government to protect the funding available through the TSB for Catapult centres through this parliament, and increase it during the next. Only through such a financial commitment will the UK maintain its international competiveness. If the Government maintains its financial commitment to increasing the number of Catapult centres, and adds a stipulation regarding the need to encourage small and medium sized businesses to be involved in their delivery, the MTA believes the new Catapult centres will advance technological innovation for years to come, maintaining British high-tech manufacturing’s international competitiveness. Finally the demographic changes that the world’s richest economies are facing as their populations age and healthcare consumers raise their expectations present massive opportunities for manufacturers engaged in health and well-being. This is much wider than simply the pharmaceutical industry, important though that is. Medical devices are growing ever more sophisticated and UK companies are at the forefront of the process of moving


6. It’s a global world Globalisation is the process of increasing the connectivity and interdependence of the world’s markets and businesses. Technological advances have accelerated this process making it easier for people to carry out business internationally. IT advances and the Internet (invented by a British engineer) have helped manufacturing to become internationalised. Emerging economies are enlarging the global workforce.

The roots of globalisation lie in the Industrial Revolution, in the process of which the UK became a global economic power due to its superior manufacturing technology and transport networks. Having given rise to globalisation, the UK manufacturing technology sector is now well-placed to make a positive contribution to it, ultimately through the ‘global value chain’.

Whereas in the past the UK faced competition from France, Germany and the US, the UK is now facing increasing competition from emerging economies such as the Brazil, Russia, India and China (BRICs). In March 2012, Brazil overtook the UK economy and now ranks as the sixth largest economy.19

Whereas supply chains focus more on efficiency and security, value chains focus on where the competitive advantage is created. The chain consists of a series of activities that create and build value and culminate in the total value delivered by an organisation. It looks at the entire value-adding process. It is important to acknowledge UK manufacturing in this holistic context.

The UK must aim to be at the top of any value chain. Manufacturers do not simply specialise in creating things but also specialise in the accompanying knowledge intensive services such as R&D and Concept Design. According to Government statistics, of the £16bn spent by UK businesses on R&D in 2008, approximately £12bn was by manufacturing businesses.20 Participating in a global value chain exposes UK manufacturers to different product markets or innovation systems. Opportunities exist for the UK to capture higher-value activities and to specialise in high-tech and R&D intensive products.

India has benefitted from the IT boom and has started to challenge multinationals in this area. In order to secure energy supplies and natural resources which are essential for manufacturing, China continues to invest heavily in sub-Saharan Africa. In recent years, offshoring has started to reverse with companies repatriating their supply chains to the UK.

19 http://www.bbc.co.uk/news/business-17272716 20 http://www.bis.gov.uk/assets/biscore/business-sectors/docs/m/10-1333-manufacturing-in-the-UK-an-economic-analysis-of-the-sector

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