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BRITAIN’SINDUSTRIAL FUTUREFINANCIAL TIMES SPECIAL REPORT | Thursday June 24 2010
Still plenty of lifein the old bulldog
Expressions of concern aboutthe UK’s global position inmanufacturing have beenvoiced for so long that it that
it may seem odd to come across somevoices of optimism.
“I feel that British manufacturingand engineering is in a good positionto do well in the next few years,” saysMaurice Critchley, the 61-year-oldchief executive and owner of Glouces-ter-based Severn Glocon, a maker ofspecialist valves for the oil and gasindustry.
“We’ve got a lot of good people andtechnology, a strong historical baseand the English language is helpingus sell our goods and services inmany parts of the world.”
Mr Critchley has built up his com-pany over the past 20 years toexpected sales of £60m this year.Assuming that figure is reached, itwould be up approximately a thirdhigher than the figure for 2009, whenpre-tax profits came in at a healthy15 per cent of revenues.
The company has 370 employeesand makes two-thirds of its sales out-side the UK, mainly from relativelyfast-growing economies in emergingmarkets, including India, Brazil,China and Saudi Arabia.
Towards the other end of the agespectrum is Mark Cropper, 34, whonext month takes over as chairman ofKendal-based James Cropper, one ofthe world’s leading makers of high-value coloured paper for use in arange of applications from luxurygoods packaging to books.
Mr Cropper, the sixth generation ofthe Cropper family to be in charge of
the company and currently deputychairman, is also in an upbeat mood.“We’ve got several hundred customersbut the capabilities of the companyare such that we’re only scratchingthe surface of what’s possible,” saysMr Cropper.
James Cropper, with sales last yearof about £75m and 600 employees, hasadded about 20 staff during the reces-sion. “We don’t have standard prod-ucts,” says Mr Cropper. “We ask cus-tomers what colour or texture ofpaper they would like. Then we makeit for them.”
Such points of view illustrate a feel-ing among some in UK manufacturingthat the sector could be in line for a
renaissance over the next 10 years,built largely on the strengths of mid-sized companies in fairly narrow prod-uct areas and offering what amountsto a mix of customised goods and con-sultancy when selling around theworld.
This sunny perspective may seem atodds with the difficulties suffered bymanufacturing during the 2008-09recession, when the sector saw outputdecline by a larger amount than theeconomy as a whole. Also, the basicfigures usually used to describe manu-facturing paint a picture of long-termdecline.
Last year, manufacturing in the UKaccounted for only about 11 per centof the economy, compared with morethan 30 per cent in the 1960s, and justabove 20 per cent in 1997. Meanwhile,the industry has suffered a loss of 4mjobs since 1980, making the total fewerthan 3m.
In 2009, the UK accounted foronly about 2.6 per cent of globalmanufacturing output, down from1980’s 5.4 per cent. Last year’s positionwas a long way below the heights thatthe country reached in 1880, whenBritain’s global manufacturing sharewas 23 per cent, making it by far theleading producer of factory items.
The UK kept this heady position of“the world’s workshop” for only arelatively short period – fewer than40 years. It took over from China asthe biggest manufacturer in about1860 and relinquished this position tothe US during the 1890s.
In spite of the changes over thepast century, the UK was theworld’s seventh biggest manufacturerlast year, just behind France. Thefact that manufacturing output asa percentage of the economy ismuch smaller than 50 years agopartly reflects the fact that in the
Many of those active inmanufacturing see causefor cautious optimism,reports Peter Marsh
Inside this issueEnd of destocking signals uptickThe engineering sector has made thenecessary painful adjustments, writesMichael Kavanagh Page 2
Manuservicing Selling products isoften only the beginning of a longand fruitful relationship, saysAndrew Bolger Page 3
Aerospace and defenceSylvia Pfeifer discovers that a clearvision is needed for the sector tostay ahead Page 4
EPM aims high in ChinaThe West Midland expert incarbon fibre is finding new markets,reports Jonathan Guthrie Page 4
Bright future? JCB, maker of excavators and forklift trucks, has been a continuing success story APContinued on Page 2
InsideInterview withRon Dennis,chairmanofMcLarenPage 3
www.ft.com/britainindustrialfuture2010 | twitter.com/ftreports
2 ★ FINANCIAL TIMES THURSDAY JUNE 24 2010
Britain’s Industrial Future
Plenty oflife inthe oldbulldog
ContributorsPeter MarshManufacturing Editor
John ReedMotor IndustryCorrespondent
Sylvia PfeiferDefence IndustriesCorrespondent
Andrew BolgerScotland Correspondent
Andrew BoundsNorth of EnglandCorrespondent
Jonathan GuthrieEnterprise Editor
Michael KavanaghEd HammondCompanies Reporters
Patrick StilesCommissioning Editor
Steven BirdDesigner
Andy MearsPicture Editor
For advertising, contactLiam Sweeney on:+44 (0)20 7873 4148;fax: +44 (0)20 7873 4006;email:[email protected]
UK, as in other advancedeconomies, productivityincreases have made manu-factures cheaper relative toother parts of the economysuch as services.
Meanwhile, the same pro-ductivity advances – causedby a mixture of machines,technology and betterworking methods – have ledto a lot fewer people beingrequired to turn outincreasing volumes.
As for other trendsthat have affected worldmanufacturing, the UKmay be in a good positionto exploit one of the mostpronounced set of changes:the way manufacturers are,to a large degree, perform-ing service functions aswell.
The blurred nature of thedividing line between thetwo activities can be seen inactivities such as FormulaOne racing, a field wherethe UK is a world leader. Inthis sector, companies suchas McLaren, Brawn GP andWilliams F1 make smallnumbers of high-valueracing cars.
But they combine thiswith performing whatamounts to a service activ-ity: using the vehicles toentertain paying customersfor a global and increas-ingly popular sport.
“The UK ‘gets’ the idea ofoffering a service to cus-tomers better than manyother economies, so it is nosurprise that many Britishmanufacturers are good atoffering services as well asmaking products,” saysMatt Alabaster, of the PwCconsultancy.
While the UK has a fewlarge and globally impor-tant manufacturers –examples include the Rolls-Royce aerospace group, theJCB excavator maker andJohnson Matthey, a chemi-cals and materials specialist– it has a much largernumber of relatively smallmanufacturers, many ofthem world leaders inniches.
Such companies includethe engineering seals makerAES and Deep Sea Electron-ics, which makes monitor-ing equipment for dieselengines.
David Cameron, theprime minister, and otherleaders of the Con-Lib coali-tion have expressed a gen-eral wish to see manufac-turing strengthen its eco-nomic position, in the lightof the need to rebuild aneconomy hit by upsets inthe financial services sectorin the past few years.
Mr Cameron and fellowministers have given fewclues as to any new “indus-trial strategy”. However,many onlookers think thatefforts to boost the fortunesof these mid-sized groupsshould form the centralpart of any emerging set ofpolicies.
“While the [mid-sizedmanufacturers] are in gen-eral a lot smaller than theircounterparts in Germany,they constitute a strongpart of UK manufacturingand so could act as a goodbase for growth,” says HansRoehm, head of global man-ufacturing at the Deloitteconsultancy.
Continued from Page 1
‘Hell would freeze over before we became quoted’
David Wernick has strong viewsabout why he thinks his com-pany is much better off stayingprivately owned.
“Hell would have to freeze overbefore I contemplated the step ofbecoming a publicly quoted com-pany,” he says.
“One of the things I reallydo not relish doing is having tomop the brows of a lot of sweatyinvestors in the cause of tryingto inform them what the com-pany is doing.”
For the past 17 years, Mr Wer-nick has been chief executive ofWernick Group, which is 100 percent owned by his family andwas set up in Wolverhampton in1934 by his grandfather as amaker of small poultry housesfor farmers.
Now based in Essex, the com-pany has expanded over theyears into one of the UK’s big-gest producers of modular build-ings, ranging from prisons toschool classrooms and temporaryexhibition areas.
Such family-owned companies
– the UK equivalents of theMittelstand companies in Ger-many – are among the largelyunsung success stories of Britishmanufacturing.
“We think of ourselves as mak-ers of sophisticated manufac-tured products, coupled withoffering a large element of serv-ice to our customers,” says MrWernick.
“We specialise in creating abuilding to order and thenputting it into operation – some-times in just a matter of days,when, if the customer built aconventional structure, the samejob could take months.”
With 470 employees, the com-pany had sales of £60m last year,compared with £66m in 2008.“We did see some impact fromthe recession . With a lot of oursales dependent on governmentspending, we are going to bevery watchful about how cuts inpublic spending might feedthrough to lower orders,” MrWernick says.
He thinks that being privategives the company advantagesover competitors that are part ofpublicly owned groups.
“If we want to take a specificcourse of action, we can justget on and do it, rather thanfeel we have to worry aboutwhat our investors might think,”he points out.
Another manufacturer thatprides itself on its family owner-ship is Bailey Caravans, based inBristol, the UK’s second biggestproducer of touring caravansafter Hull-based Swift.
The company was started in1948 but was bought in the 1970sby brothers Patrick and StephenHoward. While the pair are stilldirectors, Bailey is now run on aday-to-day basis by Stephen’ssons, Nick, who is managingdirector, and Simon, who is mar-keting director.
“Making caravans is a lifestylebusiness where we find our cus-tomers are both very enthusias-tic about the product and alsovery demanding,” says NickHoward.
“There’s a great deal of differ-ence between a [touring] caravanfor the UK market and one builtfor sale in, say, Germany. Britishcaravans are styled rather in themanner of a country cottage,while the comparable productsbuilt in continental Europe areliable to be more utilitarian.”
One of the advances made byBailey in the past few years hasbeen development of a newprocess for building caravansbased on assembly techniquesdevised by engineers at the Uni-versity of Bath.
The methods use aluminiumstructures in place of timber ele-ments traditionally used to con-struct caravans. The process cutsthe time taken in productionwhile also producing a betterlevel of insulation.
“We launched the first cara-vans made using this processlast year and our customersseem pleased with the results,”says Simon Howard.
Bailey’s caravans sell for up to£18,000 and revenues reached£85m in 2008, only to fall to £77mlast year, a level of sales that the350-person company hopes tomaintain in 2010.
A venerable family-owned com-pany that is a mainstay of theLancashire textiles industry isBurnley-based John Spencer,which started in the 1860s.
David Collinge, its managingdirector, is the sixth generationof the Spencer family to be incharge.
The company has slimmedmarkedly since the late 1960s,when it employed 600, but hasmaintained a tradition of weav-ing its own specialist cloth for
applications such as upholstery.It now has 32 employees, gener-ating sales of £3m last year.
Last year, the company took agamble by moving for the firsttime into retailing, through theacquisition of Ian Rankin, a com-pany that runs two fabric shopsin London.
“Ian Rankin was a companywe knew very well, since it solda lot of our fabric,” Mr Collingeexplains. “When it came up forsale, it seemed an attractive ideato buy it, on the basis that wethought we would see some
advantages through having adirect link with the retailing sideof the business.”
With a third of the company’semployees now working in thetwo shops, which provide a simi-lar proportion of total sales, MrCollinge says the move hasworked out well.
“It has been a fantastic move,since we can use the shops as away to gauge trends [in areassuch as designs and colours]among customers, especially inthe world of upholstery,” MrCollinge says.
Family ownershipPrivate companies arefiercely independent,reports Peter Marsh
‘If we want to takea specific courseof action, we canjust get on and do it’ David Wernick with one of his company’s modular buildings
Still in controlalthough atarm’s length
The exodus of manufactur-ing to countries wherelabour-intensive work costsless has long been a causefor concern for those whochampion the UK’s relation-ship with making things.
However, for a smallnumber of British comp-anies, outsourcing the phys-ical manufacturing, farfrom being a national loss,is indicative of the progressthe industry has made inthe past 25 years.
The imbalance of labourand material costs betweenthe developed and develop-ing nations and advances intechnology have fuelled aboom in “virtual manufac-turing”. Producers of any-thing from pushchairs tocar parts have taken advan-tage of the favourable eco-nomics of manufacturingabroad, while keeping theintellectual core of the busi-ness in the UK.
Andrew Hall, a director atArup, the global engineer-ing group, says it makessense to work off a cost-base that is most effectivebut that it does not mean aloss for British industry.
“We have a great collec-tive of intellectual horse-power in this countrywhich is being put to gooduse in researching anddesigning a huge range ofproducts, and there is noth-ing to suggest we won’tmaintain that,” he adds.
Economics may be themain driving force behindoutsourcing the supplychain but it is rapidadvances in technology thathave made it possible.
The ability to do three-dimensional modelling andto shuttle designs quicklyaround the globe meancompanies can be moreinvolved all the way alongthe process, irrespective oflocation.
Mamas and Papas, apushchair maker, shares asimilar philosophy to Arupwith regard to the geo-graphic diversity of its man-ufacturing process. Thecompany, which operates60 stores and had revenuesof £121m in 2009, says it is amisconception to think thatthe most important part ofmanufacturing is the physi-cal building of goods.
“You could reverse thequestion and ask why wedon’t do the building in theUK, with the designers ineast Asia, or wherever theproduct is being puttogether,” says Gill King-ston-Warren at the Hud-dersfield-based company.
As well as reaping thebenefits of lower labour andmaterial costs, Mamas andPapas says the flexibility tooutsource work beyond theUK means it is able to findthe parts of the world best
equipped to carry out differ-ent elements of the manu-facturing process.
“We are not doing it forcost, we are doing it for pre-mium. Otherwise, it makessense to stick the wholeoperation in China. But wemove around all over theworld, depending on thecapability of the people,”Ms Kingston-Warren says.
She adds: “The UK isknown for design and intel-lectual property and othercountries have skills we arenot known for any more.Some countries have strongtraditions of craftsmanship,while others are focused ontechnology”.
However, while outsourc-ing the supply chain hasundoubtedly given manycompanies a competitiveedge, there are some in theindustry who believe thatlosing the skill-base so cen-tral to the process couldsound the death knell formanufacturing in the UK.
If designers are separatedfrom the manufacturingprocess, there are concernsthat the two will becomeincreasingly abstractedfrom one another.
George Kessler, jointchairman of Kesslers Inter-national, a manufacturer ofpoint of sale displays, saysthat by moving manufactur-ing abroad, the UK risksceding its industrial herit-age to China and otherdeveloping nations.
“If we lose the manufac-turing process, we won’t beable to produce designerswho understand what to do,as they won’t have themanufacturers to workwith,” Mr Kessler says.
“The question is whetherwe are in a position tokeep developing new andbetter intellectual propertyand designs. Once thecountries doing the manu-facturing catch up on thatfront, the industry in theUK is lost.”
The issue of the manufac-turing process being beingtaken abroad, wholesale, isnot new, however.
Pure, the UK’s largestmaker of digital radios,which has manufactured inChina since 2002, says thatmost of its competitorswere using the country todesign and manufacturetheir products and weresimply “buying and badginga radio which was madefrom scratch abroad”.
The company, which has30 per cent of the UK’s mar-ket for digital radios, says ithas a team of 450 engineersworking with its designersin Kings Langley to ensurethat the process was cohe-sive as possible.
Tim Lewis, director ofmanufacturing and pur-chasing at Pure, says: “Forcost reasons, work has to bedone in China but to getthe best quality products,we want as much involve-ment in the manufacturingprocess as possible. Wedon’t want just to sendacross the drawings. Wewant to prescribe how itwill work.”
OffshoringBuilding abroadneed not meanlosing oversight,says Ed Hammond
End of destocking signalsslow and steady recovery
Compared with thecarnage of 2009,this has been agood year so far
for the UK’s industrial engi-neering sector.
Amid signs of an end todestocking and an upturnin orders from customers,many UK companies thatacted early to reduce capac-ity, from late 2008, haveweathered the sharp fallsin demand to deliverremarkably robust margins,respectable profits and evena smattering of improveddividends.
Few companies are will-ing to predict a quick recov-ery to peak productionlevels of 2007 or 2008, how-ever. But many, such asaerospace and auto partsmaker GKN and steel cut-ting and welding supplierCharter have signalled anend to widespread short-time working and a willing-ness to add to headcount.
Although business fail-ures among suppliers in thesector continue, Spectris, aprecision instrumentationand controls company, fol-lowed the lead of Renishawis restoring full pay andconditions for staff on the
back of recovery in demandduring the first quarter.
The good news since thenfor investors in most UKengineering stocks is thatupdates by many comp-anies in the sector continueto point to a recovery intrading, in spite of fears ofa double-dip recession inBritain and anaemicdemand in key trading part-ners across western Europe.
Most companies, mean-while, continue to beencouraged by recovery inNorth American demandand continued stronggrowth in the emergingeconomies of Asia andLatin America in particular.
Weir Group, the Glasgow-based industrial pumps andvalves maker, was thelatest engineering companyto upgrade guidance onits trading and expectedprofits this week.
Keith Cochrane, chiefexecutive, pointed to arecovery in orders from itsglobal customer base con-centrated in the mining,power generation and oiland gas sectors. Weir’sshares moved higher mak-ing for a 109 per cent riseover a year in which theFTSE 100 index has recov-ered by just 17.5 per cent.
Weir Group is not alonein achieving market-beatingjumps in its share price.
Other engineering comp-anies, although hit by sharpfalls in sales volumes dur-ing the recession, have
managed to protect marginsand expect to improve onthem as demand picks up.
Like Weir, IMI, the Mid-lands-based manufacturer,has seen its shares morethan double in the pastyear. In its last tradingupdate – brought forward toApril to reflect materiallyimproving conditions – itremained cautious aboutthe extent to which theincreased momentum couldbe maintained in the secondhalf across its range ofvalves, air conditioning anddispensing products.
But IMI said: “There ismore certainty around mar-gin improvement, which isunderpinned by a strongprogramme of cost-reduc-tion initiatives, includingfurther transfers of manu-facturing to low-cost econo-mies.”
Martin Lamb, IMI’s chiefexecutive, in common withthe heads of many other UKengineering groups, saysthis recession has beendifferent in nature fromprevious ones.
This is because manycompanies have managed
to abandon commoditised,more price-sensitive, manu-facturing lines in favour ofsecuring global niches inthe supply of more bespokecomponents and mission-critical systems that canstill command a premiumprice even in a downturn.
Spirax-Sarco, whichdesigns steam systems foruse in a wide variety ofindustrial processes, andRotork, the valve actuatorand gearbox maker whoseproducts are widely used ina specialist water, wasteand oil industries, have alsoenjoyed sharp recoveries.
The improvement reflectsgrowing confidence inmaintenance and capitalexpenditure plans by theircustomers, although outputhas not reached peak levels.
Jim Nicol, chief executiveof automotive and indus-trial components makerTomkins, has himself hadto lead a cost-reduction pro-gramme in response to thesignificant downturn in thegroup’s end markets.
He has overseen a sub-stantial reduction in head-count and the relocation ofmany of its operations tolower cost regions.
But even as demand hascontracted and recovered, akey motivation for custom-ers has been to maintainthe operational perform-ance of their products andto continue to develop newtechnologies.
That is why industrial
customers see no advantagein substituting technicallyadvanced niche productswith alternatives that mayhave cost a few poundsor dollars less, explainsMr Nicol.
In a report this month,Oliver Wynne-James, ananalyst at Panmure Gor-don, paid tribute to theleadership of many UKlisted engineering comp-anies. He said: “Manage-ment teams excelled duringthe 2009 recession andshould, we believe, betrusted to repeat any neces-sary mitigation work.”
The sector may not beout of the woods yet. But,in spite of the threat of adouble-dip recession amidmacro-economic uncertain-ties in big economies, MrWynne-James argues thatthe recent market wobblewidened the valuation gapand the possible gains avail-able to canny investors inthe sector.
“We forecast a rise inorganic margins and aperiod of heightened merg-ers and acquisitions activ-ity,” he says.
“Investors should trustthis sector not to throwaway the hard-won gainsmade since mid-2009.
“Contingency plans canbe rolled out again and, thistime, balance sheets andrevenue mixes are muchhealthier. Our scenario ofhigher margins on low reve-nue growth is intact.”
EngineeringMichael Kavanaghon a sector thathas had to adjust
‘Investors shouldtrust the sectornot to throw awaygains madesince mid2009’
No longer in such a spin: one of Weir’s gas turbines being dynamically balanced before installation NewsCast
FINANCIAL TIMES THURSDAY JUNE 24 2010 ★ 3
Britain’s Industrial Future
Car industry hopes boost to manufacturing will help
Whether by design or neces-sity, Britain’s automotivesector gamely embracedglobalisation long ago.
Hand-wringing over whocontrols the car industry isconsidered passé in a coun-try where most vehicles areexported.
Nissan is the biggest car-maker, and the best known“British” brands, from Mini,Bentley and Rolls-Royce toJaguar and Land Rover, areall foreign-owned.
The skills base in theEnglish Midlands is also
proving a lure for Chinesecarmakers.
Chang’an Automobile,one of the country’s biggestproducers, is to establish aresearch and developmentcentre in Nottingham dueto employ 200 people.
And China’s ShanghaiAutomotive has opened adesign centre at its UKtechnical centre in Birming-ham that employs nearly300 engineers
The dilemma is no longerover who should own theplants but how to keepautomotive R&D and otherjobs in the country at atime of technologicalupheaval in the industry.
“We can’t just rely on ourability to make thingshere,” says Paul Everitt,the chief executive ofthe Society of MotorManufacturers and Traders.
“We need more high-valueactivity”.
With German, Japanese,and even US carmakerstaking a lead in new tech-nologies such as recharge-able hybrid and electriccars, industry lobbyists sayBritain’s industry will havean uphill struggle to avoidbeing cut out of the loop.
Carl-Peter Forster, theGerman chief executive ofIndia’s Tata Motors – whichowns Jaguar Land Rover –and former head of GeneralMotors’ Opel/Vauxhall divi-sion, is better qualified thanmost to comment on theissue.
In Europe, he says, thecontinent – home to Ger-many’s luxury carmakers,the industry’s biggest R&Dspenders – forms the “natu-ral centre for the auto-motive industry”. The UK
needs to hone its education,skills base and supportfor R&D and “constantlypull” or the force of gravitytends to draw investmentand jobs back to centralEurope.
“Over the past few dec-ades, the UK has lostground, [although] this ero-sion has slowed recently”,Mr Forster says. “The newmarket-disruptive technolo-gies provide an opportunityfor the UK to stay in thegame and become stronger– or the threat of droppingout completely.”
While the US and Francebailed out their carmakersduring the crisis that beganin late 2008, GordonBrown’s government wasinitially cool towardrequests from carmakersfor financial aid.
However, it later gained a
name for moderate indus-trial activism by endorsing– and financially supporting– the goal of making Britaina European hub for the pro-duction of low-emissionautomotive technology.
The former governmentapproved a £20.7m grant for
Nissan to produce itsplug-in Leaf car in theUK, and a £360m guaranteefor Ford to develop a newgeneration of low-emission“eco-boost” engines andother low-CO2 technologiesin Britain.
This month, David Cam-eron’s government affirmed
its support for both thoseprojects. Ahead of thebudget, carmakers werestill waiting to hear aboutthe fate of £230m of supportover four years promised bythe old government for low-emission cars, including anincentive of up to £5,000 forpeople buying them.
Yet Britain’s aid for theindustry pales compared tothe prodigious sums of pub-lic money being lavished onlow-CO2 automotive tech-nology elsewhere.
Last year, France’s gov-ernment granted PSA Peu-geot Citroën and Renault€6bn in low-interest loans,on top of aid for their elec-tric car programmes.
The US Department ofEnergy has approved bil-lions of dollars in low-inter-est loans for automakersincluding Nissan, Ford, and
electric-car start-up TeslaMotors. The US also ear-marked $2.4bn of federalstimulus money for thedevelopment of advancedautomotive batteries.
In Britain, both coalitionparties gave carmakershope before the election byspeaking about rebalancingthe economy toward manu-facturing and voicing sup-port for a “green invest-ment bank”.
The Conservatives weresponsors of entrepreneurand inventor James Dyson’sIngenious Britain report.This found, among otherthings, that between 1970and 2003, the UK sufferedthe sharpest decline inmanufacturing as a share oftotal employment of anyadvanced economy.
However, the Tories’ vowto leave no stone unturned
in the name of fiscal consol-idation has raised worriesin the industry that the lim-ited existing levels of sup-port for UK carmakingmight be under threat.
In addition to upholdingloans and grants promisedthe industry by the out-going government, DavidCameron’s team needs to“create an environment” forR&D, says Mr Forster atTata Motors.
Such an environmentwould be created by suchsteps as strengtheningengineering education andsupporting collaborativeprojects in important tech-nology areas.
“We need leadershipon manufacturing”, saysanother industry figure whoasks not to be named. “Thequestion is: are they goingto get to grips with it?”
The start ofa beautifulfriendship
The debate over how bestto rebalance the UK econ-omy after the financialmeltdown can be obscuredby simplistic distinctionsbetween “manufacturing”and “service” companies.
Some of Britain’s mostsuccessful manufacturersrely heavily on providingservices and aftermarketproducts.
Almost half the £10.4bnrevenues of Rolls-Royce, themanufacturer of aero andmarine engines, in 2009came from services, com-pared with 40 per cent 10years ago – an annual com-pound growth rate in serv-ices of 10 per cent.
Sir John Rose, chief exec-utive, points out that Rolls-Royce is a long-term busi-ness, with product andservice lifecycles that span40 to 50 years, and invest-ment and investmentin technology programmesthat look more than20 years ahead.
Rolls-Royce’s Avonengine, for example, modi-fied to produce significantimprovements in power andefficiency, is still used inthe oil and gas sector.
Yet it first entered theindustrial gas turbine mar-ket 40 years ago. Thatengine in turn was derivedfrom the original aero ver-sion, which powered a Can-berra aircraft on the firstnon-stop, non-refuelling,jet flight across the Atlanticin 1951.
For every engine it sells,Rolls-Royce offers a long-term service arrangement,such as the TotalCare pack-age for airline customers.
About 65 per cent of thegroup’s civil aerospacelarge engine fleet and 90 percents of its in-service Trentfleet are managed underTotalCare support.
Another 900 corporateand business jet aircraft areenrolled in CorporateCare,the equivalent for that mar-ket sector.
Rolls-Royce has four oper-ations centres: at Derby,Bristol, Dahlewitz in Ger-many, and Indianapolis inthe US. They use satellitefeeds to monitor the inflightperformance of jet enginescontinuously.
Since the first centre wasopened at Derby in 2004, thenumber of inflight incidentsacross the civil engine fleethas fallen significantly.
The group has 30 marineservice centres around theworld – six of which wereopened in 2009 – and itsenergy business has 300long-term service contracts.
On the military side, thegroup has long-term servicecontract with the UK’s Min-istry of Defence and the USDepartment of Defense.
Rolls-Royce says that,based on its order book,market share and the scaleof service opportunities, itexpects organic revenues todouble in the next decade,with services continuing toaccount for about half.
Sales to the aftermarketare also crucial to the suc-cess of Weir Group, themanufacturer of pumps to
industrial sectors such asmining, petrochemicals, oiland gas. The Glasgow-basedgroup made record profitslast year, even thoughorders for original equip-ment fell 34 per cent. Butaftermarket sales dippedonly 2 per cent and theyaccounted for 54 per cent ofgroup revenues.
Keith Cochrane, chiefexecutive, says: “Ourinstalled base delivers anaftermarket channel thatenables us to stay close tocustomers.
“Our services, spares andsupport services ensurethat we build ongoing rela-tionships with customersand can be responsive totheir needs.”
Weir now has 90 servicecentres around the worldthat both support custom-ers and act as distributioncentres for spare parts thatcan be required frequently.
Companies that are pri-marily focused on servicescan also be interested inmanufacturing opportuni-ties. Aberdeen-based PSN,which provides engineering,construction, operationsand project managementservices to the oil and gasindustry, thinks that carboncapture and storage offers ahuge opportunity to the UKengineering industry.
The government believes
carbon capture and storageis essential for curbinggreenhouse gas emissionsand it plans to support upto four “clean coal” powerstations using the technol-ogy, which is still underdevelopment. By this proc-ess, greenhouse gases willbe removed, compressed,then piped to be stored inunderground reservoirs,such as old oil fields.
The potential value of theglobal market for carbonabatement technology willbe £2bn-£4bn by 2030,according to an independ-ent study for the Depart-ment for Energy and Cli-mate Change.
PSN, which was the sub-ject of a $280m buy-out in2006 from KBR Halliburton,the engineering arm of theTexas oil and gas servicesgroup, now employs 8,500people in 28 countries.
The group thinks it iswell placed to participate inthis new industry, becauseoil and gas producers, itsmain customers, own thepipelines, platforms andrapidly emptying North Seareservoirs that could beused to store carbon cap-tured from power stations.
PSN has formed a part-nership with Aspentech, aBoston-based supplier ofsoftware that optimisesprocess manufacturing, tohelp develop this emergingtechnology.
Bob Keiller, chief execu-tive of PSN, says: “If we canapply our skills elsewhere,we will. That’s where wesee the real attraction ofcarbon capture and storage.A lot of the skills areexactly those the oil andgas industry has.”
Original equipmentsales fell 34 percent; aftermarketsales 2 per centand made up halfWeir’s revenues
Rising demand reveals shortage of talent
This year’s move by SirJames Dyson, the business-man behind the best-sellingbagless vacuum cleaner, todouble the number of hisengineering staff from 350to 700 has helped buoy theprospects of graduatesemerging on to a jobs mar-kets still recovering fromthe deep headcount reduc-tions prompted by the glo-bal recession.
A fragile recovery inengineering demand and
attempts by companies toprotect their skill base byoffering short-time workingas an alternative to redun-dancy have helped improvethe prospects for manyworking in the the sector.
But Sir James’ recruit-ment drive at his headquar-ters in Malmesbury, Wilt-shire, comes in spite of hisacceptance that the UKalong with European com-petitors face a skills gap, asgraduates have driftedaway from engineering toseek employment in moreattractive industries, suchas banking and the serviceeconomy.
The latest annual reportby EngineeringUK, for-merly the EngineeringTechnology Board, suggeststhat Britain’s engineering
industry will need to recruitnearly 600,000 trained staffby 2017 to meet demands ingrowth areas such as powergeneration, aerospace andtransport.
Britain is not alone. Lead-ers of German engineeringcompanies, still reelingfrom the biggest economiccrisis in decades, have alsocomplained recently thatthey face a skills shortagethat threatens to under-mine recovery in the coun-try many consider the engi-neering powerhouse ofEurope.
Sir James’s own recentreport Ingenious Britain –commissioned by DavidCameron when leader of theopposition – called for moregovernment support to cre-ate a renaissance in British
engineering. He insists thatworking on R&D can beboth financially and exis-tentially rewarding.
“It will be a problem –there will be a shortage ofskilled and graduate engi-neers,” he says.
“But a survey suggeststhat just 16 per cent of engi-neers are unhappy, com-pared with 40 per cent ofmedia and 24 per cent inmedicine,” he adds.
A “happiness index” sur-vey regularly conducted byCity and Guilds, the coun-try’s largest vocationawarding body, concursthat engineering ranks inthe top 10 professions,ahead of journalists, archi-tects and the bottom rankedfields of banking, finance,nursing and IT specialists.
In the UK, beauty thera-pists, hairdressers and themilitary top the list, while asimilar survey in the USsuggested that industrialengineering was among thetop 10 occupation for gen-eral happiness in a leaguetable topped by the clergyand firefighters.
And with pay and careerprospects in the financialservices sector also lookingrelatively less attractive,the starting salaries onoffer to graduates in engi-neering-related fields arelooking increasingly com-petitive.
Yet the low prestige asso-ciated with engineering inthe UK, compared with thatcommanded in continentalEurope continues to weighon the sector.
But Sir Anthony Cleaver,chairman of Engineering-UK, remarks in the forwardof its latest report, 85 percent of the general publicclaim they would recom-mend engineering as acareer to family andfriends, up 15 per cent onthe previous year.
Yet he concedes thatresearch also show that,when 11-16-year-olds wereasked how desirable theybelieved engineering is as acareer, only 15 per centwere enthusiastic.
While industrial andpolicy leaders such as SirJames seek ways encourageyoung people into the fieldto plug an anticipated skillsgap, Sir Anthony acceptsthat “we still have a longway to go”.
TrainingA skills gap loomsbut engineering ismore popular, saysMichael Kavanagh
Ron Dennistries a newformulafor success
From his first-floor officeat McLaren’s futuristicNorman Foster-designedheadquarters at Woking,
Ron Dennis looks across an artifi-cial lake towards huge mounds ofearth that mark the constructionof a new factory.
Downstairs, a group of black-jumpsuited production workersare tinkering with three prototypemodels of the company’s forth-coming MP4-12C road car. This isdue to be shown to prospectivecustomers in Europe, the US andthe Middle East.
With its stylish décor, spotless,white-tiled floors and hushedatmosphere, the operation looksmore like a scene out of a JamesBond film or The Matrix than anyconventional car factory.
In the context of an industrystruggling to regroup after a deepcrisis – and a country about tobegin a painful austerity pro-gramme – it has the feel of fan-tasy about it.
McLaren certainly is dreamingbig. Under Mr Dennis’ direction,the company is expanding beyondits Formula One franchise andsmall-volume performance-carproduction into fully fledged top-end road car manufacturing.
If all goes to plan, Woking –where Mr Dennis was born – willbecome Surrey’s equivalent ofMaranello, the Italian hometownof Ferrari’s showcase productionplant.
Even as McLaren battles Ferrarion the racetrack, the 12C – to bepriced at £160,000 to £170,000 – willtake on the Italian producer’s 458Italia model as another car so cov-eted it can command a waitinglist despite its high price.
With series production still sev-eral months away, the companysays it has more than 2,000 peopleclamouring to place orders.
In March, at a launch attendedby McLaren’s star drivers JensonButton and Lewis Hamilton,
Mr Dennis described his com-pany’s expansion, which will cre-ate nearly 300 new jobs, as “goodnews for UK plc”.
Fresh from his team’s victoryat the Canadian Grand Prix, MrDennis sits down for an interviewto expound on his company’splans in the context of a new gov-ernment that promised to supportmanufacturing and tilt the econ-omy away from its reliance onfinancial services.
The interview takes placebefore the new government’sunveiling of its maiden budget.While Mr Dennis acknowledgesthat he is a contributor to theConservative party, he admitsthat he is no policy expert.
He does speak passionatelyabout his vision for high-techmanufacturing in the UK.
“The whole process of workingshouldn’t make you dirty,shouldn’t make you smell”, hesays. “That’s what’s unique aboutour organisation – we brought tobear standards where people don’thave to experience that.”
Mr Dennis is a notorious stick-ler for cleanliness and order.McLaren’s production floor iswhite so that spills can be seenand cleaned up quickly; the facil-ity uses a higher-than-normalstandard of air-handling equip-ment to filter out contaminants,according to McLaren’s boss.
“Engineering isn’t about dirtyfingernails and dirty collars anymore”, he says. “An incentivised,forward-thinking engineeringcompany will pursue a completelydifferent path, which in itself cre-ates different efficiencies and aworkplace that has pride.”
Unlike finance, where the goalsand rewards are both short-term,he says, manufacturing needslong-term support.
This starts with education,where government needs tocontinue its commitment to uni-versities, and “there should beno back-off of funding forscience”.
Students in technical fields whoachieve the highest honours, hesays, should have their feeswaived by the government if theycommit themselves to work for aUK company for a certain lengthof time.
“The manufacturing industry…is a world where long-term incen-tives are required to attract andretain the very best brains”.
This incentivisation, he adds,needs to extend to tax credits forcompanies for research and devel-opment that should also embracecapital expenditure on new plantand equipment for the purpose ofR&D.
“What I hope for from the newgovernment is that they genu-inely realise that there needs tobe a well-balanced incentivisationbetween the service industries –
be it finance or retail – and manu-facturing industries such as phar-maceuticals, engineering, and soon”, he says.
Mr Dennis’ perorations cansometimes sound convoluted andsome of his proposals may proveover-optimistic in the context of anew government with a clearbrief to slash public spending.
However, his views carry someweight, coming from the head of a
company that epitomises highvalue-added manufacturing. MrDennis, who started work at 18as a mechanic, also ranks amongBritain’s wealthiest self-mademen.
As such, he speaks eloquentlyabout the 18 per cent capital gainstax – which he says incentiviseshigh earners to leave Britain –and the 50 per cent income taxthey pay.
“The moment you’re payingback more than half of yourincome, it’s a step too far,” hesays. “It’s not all about money –what’s leaving the country isbrains”.
Company share schemes, headds, need to be amended in away that encourages managers tobuild the long-term value of theircompanies, rather than short-termreturns.
“The tax system should beincentivising companies to growand reinvest in themselves ratherthan delivering profits”, he says.“Shareholders should be incentiv-ised to stay in for the long haul”.
A secretary knocks and opensthe door to Mr Dennis’ office.“The crown prince has moved themeeting back to 2:45”, shedeclares.
By Mr Dennis’s own accounting,McLaren is living by the princi-ples he supports. The companyhas not issued dividends for many
years and has limited bankborrowing to the £35m cost of itsnew factory.
The rest comes from equity. Ata group level, the company isowned by Bahraini MumtalakatHolding Company, MansourOjjeh’s TAG Group, and Mr Den-nis himself.
McLaren is in the process ofraising £260m from Middle East-ern and East Asian investors for a48 per cent stake of the new road-car company. A final deal, saysMr Dennis, will be announcedwithin this calendar year.
He aims to expand the companyto a value of £1.5bn to £2bn withinfive years.
McLaren is now in the processof naming its first 35 dealers, anetwork due to double in size asthe business expands.
While few doubt that McLaren’sfamous perfectionism will yieldan acclaimed road car, analystsand competitors note it facespotentially bigger challenges thanit does in Formula One when itcomes to handling the more pro-saic – but arguably tougher –business of selling and servicingtop-end cars to demanding richcustomers around the world.
“We don’t underestimate thechallenge; we know it’s going tobe difficult”, he says. “But wethink we have the commitment todo the job”.
InterviewJohn Reed talks tothe chairman ofthe McLaren Group
Dennis: ‘The moment you’re paying back more than half of your income, it’s a step too far’ Ben Stansall
Selling topend carsto the demanding richand servicing them ispotentially a tougherchallenge than F1
ManuservicingSelling things isoften only thebeginning, writesAndrew Bolger
AutomotiveThe sector is keento shore up itsskills base, reportsJohn Reed
Paul Everitt:‘We needmorehighvalueactivity’
4 ★ FINANCIAL TIMES THURSDAY JUNE 24 2010
Britain’s Industrial Future
Benefits accrue when trades of a feather f lock together
A clear visionis neededto stay ahead
Profile EPM aims high
The hands of the world’s largestmechanical clock – currently beinginstalled in Ganzhou, China – weremade by EPM, a small Midlandsmanufacturer.
At first sight, this would appear tobe a heartwarming tale of a traditionalBritish metal basher exporting tofaroff locations, as such businessesalways have.
However, the story is more complexand bittersweet. EPM operates in thetechnologically advanced field ofcomposite structures.
It was recruited by 150yearoldclock manufacturer Smith of Derbybecause it could produce carbon fibrehands that were as strong and light asthe racing car bodies that are itsstockintrade.
Each of the four faces of thetimepiece, adorning a tower atHarmony Park in Ganzhou, is13 metres in diameter and the minutehands are 7.8m long. The tower willopen to the public next year, featuringa viewing gallery that will allow visitorsto inspect a mechanism that isaccurate to 30 seconds a month.
The irony in respect of thehighprofile order is that EPM isshifting its strategy under pressurefrom Chinese composites specialiststhat are nipping at its heels in productareas with lower margins.
“If this were made of metal, it wouldweigh six tonnes,” says GrahamMulholland, EPM’s founder andmanaging director, showing off one ofthe mighty hands at his Draycott,East Midlands, factory a month beforeinstallation.
“But in carbon fibre, it weighs just65kg.” Other products on which EPM’s84 staff are working include a largesatellite dish for the military and bodyshells for Formula One racing cars.
The parts that EPM now makesfor automotive customers such asluxury sports carmakers Lotus and
Aston Martin are markedly morecomplex than those it was producing afew years ago.
But the process involved – cuttingout layers of carbon fibre materialand embedding them in resin –has changed little and remainslabourintensive.
As a result, Chinese compositesbusinesses are beginning to competewith British specialists such as EPM atthe lower end of the product scale.
“We are seeing a wave of work goingoffshore,” says Mr Mulholland, 36.Having rejected the idea of opening hisown factory in China, he is focusing onhigher margin products, such as abeautifully finished engine air intake ondisplay at Draycott.
The entrepreneur, who started thebusiness when he was 23, also hopesto break into the clannish aerospaceindustry.
EPM has weathered ups and downsince Mr Mulholland, a competitivecanoeist who became fascinated withthe fibre glass construction of hisboats, set up the business in hisfather’s garage in 1997.
The company came close to collapsein 2005, after acquiring a business thatdid not produce the sales expectedfrom it, partly because its formerparent went bust. EPM was saved byrapid costcutting and the fact that thepurchase price was payable in twotranches, allowing a grace period.
EPM ended up employing 140 peopleacross three Midlands sites. However,stagnating orders then promptedMr Mulholland to close one factory, atIlkeston in Derbyshire, and sell another,at Coalville in Leicestershire.
The severe contraction in UKmanufacturing that followed the 2008credit crunch represented a furtherchallenge. Turnover in the year to Junefell from £5m in 2008 to £3.5m in2009. “We are very numbersfocused,so we changed the business to breakeven at that level,” says Mr Mulholland,who holds a 60 per cent stake. EPMmade £12,000 of efficiency savings foreach of its remaining staff.
Turnover has rebounded, reflecting arecovery in “Motorsport Valley”, aloose grouping of racing teams andmanufacturers in the Midlands andsoutheast England. EPM expects salesof £4.5m in the year to June 2010, forpretax profits of £750,000.
EPM resembles thousands of othersmall businesses in the manufacturingheartlands of the Midlands. It hasmade some mistakes, experiencedadversity but survived through amixture of pragmatism and fortitude.
The entrepreneur is also critical ofsome larger manufacturers, which hebelieves soak up millions in grant aidwhile passing on little of the way oforders to smaller UK suppliers.
However, he is optimistic hisbusiness can thrive, as it improves itscapabilities through investment thatyields such highprofile commissionsas the Ganzhou clock hands.
Jonathan Guthrie
Show of hands: Harmony Park clock
Ken Torres still remembers theglory days of Sheffield’s steelindustry. “You could order yourcastings and they would bedelivered the same day. Theywould still be hot from the forgewhen they arrived,” he recallswith a wistful look.
The days when forges glowedon every street corner, as “littlemesters” bashed out knives andthe big plants rolled out battle-ship plating, are long gone.
Most of the parts Mr Torresneeds for his pumps must nowbe shipped from far away –although he can still source the
more specialist ones from thecity, which has developed into acentre for advanced engineeringand new materials.
Britain’s cities could once beclassified by their industries.Alongside Sheffield with itssteel, Glasgow and Newcastlehad ships, Leeds textiles, Stoke-on-Trent pottery and Birming-ham cars.
There were good reasons ineach case: Stoke had the clayand the coal to fire furnaces,Leeds had sheep nearby and thesoft water to power looms anddye the clothes. Sheffield hadcoal and transport links.
But what is the role of clus-ters in a global age? A 2008report for the UK government’sDepartment for Business,Innovation and Skills noted thata global supply chain was vitalfor modern manufacturing.
Yet it believed that having
companies in the same sectorclustered together was bene-ficial. This was partly becausesmaller businesses faced diffi-culties in gaining access to glo-bal supply networks, it said.Specialisation was vital for that,with companies needing toshare resources and technology.
“Clustering – geographic con-centrations of interconnectedcompanies, specialised suppliersand service providers and insti-tutions such as universities –supports specialisation and cre-ates critical mass to attractinvestors and purchasers,”it concluded.
To encourage this, the Labourgovernment set up an annual“cluster mark” award.
The overall winner in this itsfirst year was the Humber Sea-food Processing Cluster, whichevolved from the death of thefishing industry. Hull was the
UK’s biggest fishing port untilthe 1970s, when the closure ofIcelandic fishing grounds andEuropean Union-imposed quotasdecimated the fleet. Rather thancatch the fish, the area nowturns them into fish fingers,breaded prawns, sliced calamari
and the like, accounting for70 per cent of the UK industry.
It works with a publiclyfunded innovation centre to cre-ate products and with local uni-versities and colleges to providerelevant skills training.
Another winner was theNorth-west biomedical cluster.One of three in the UK, it hassince 2002 seen a 61 per cent risein company numbers, a 35 percent increase in employment inits core business and an 18 percent increase in productivity.
Others commended were: theWest Midlands niche vehiclescluster, which covers green carspowered by electricity andhydrogen; opto-electronics inWales; and Scotland Food &Drink, which improved produc-tivity and exports.
Nevertheless, governmentencouragement can be power-less in the face of the globaleconomy.
In the report, the businessdepartment mentioned the £50mit had sunk into chemical pro-duction around Middlesbroughand Teesside. But last July, US-owned Dow Chemical, the UK’s
sole producer of ethylene oxide,announced it was shutting itsplant – news that immediatelytriggered the closure of nearbycustomer Croda International.
Ethylene oxide is hazardousand hard to transport, so Crodasaid it would move productionof goods that depended on itcloser to supplies in continentalEurope. Dow had shut the plantbecause another product,monoethylene glycol, could notcompete with new plants in theMiddle East, which benefit fromcheap energy.
There are fears others mayfollow suit. The huge Wiltoncomplex, built across 2,000 acresby ICI in the 1940s, was sold offpiecemeal in the 1990s, mainlyto foreign investors.
Now, four of the six operatorshave announced they are clos-ing plants and about 1,000 of thecluster’s 5,000 jobs are under
threat, although in January twoof the plants were bought by aKorean company, with the helpof a £1.8m grant.
The North East Process Indus-try Cluster, which has 500 mem-bers, and other industry bodieshave given the government alist of key strategic materials ofwhich the UK now has only oneproducer.
Krsto Pandza, senior lecturerin manufacturing and technol-ogy strategy at Leeds Universitybusiness school, notes that his-toric clusters, such as Manches-ter’s 19th century textile cluster,grew organically. The questionis, he says, whether govern-ments can stimulate them.
“We found one area wherecompanies can benefit and thatis pre-competition research anddevelopment. But the companiesthemselves should decide whatthat is, not the government.”
ClustersBeing in proximity canfoster innovation,says Andrew Bounds
In a blue and whitebuilding on the edge ofCowes, on the Isle ofWight, engineers and
technicians are researchingthe technology for the nextgeneration of aircraft.
They work at a high-techcentre set up by GKN, theaerospace and automotivegroup, to develop light-weight carbon-fibre materi-als to replace aluminium innew aircraft, such as theA350 mid-size jet being builtby Airbus, the Europeanaircraftmaker.
GKN, which traces its ori-gins to a tiny ironworks inWales in 1759, is among theworld leaders in compositetechnology. Recent contractwins include work to manu-facture the all-compositefront fan case for the engineof the F-35 Joint StrikeFighter, being built by aUS-led consortium that alsoincludes BAE Systems, Brit-ain’s leading defence com-pany.
The two are among doz-ens of big and small comp-anies that make up Brit-ain’s aerospace and defenceindustry, which has devel-oped such classics as the DeHavilland Comet, the Spit-fire, as well as technologiesthat make modern aviationpossible, such as radar.
The industry might nolonger be turning out entireaircraft but the skillsremain. Today, it is a worldleader in the design andmanufacture of wings andengines, as well as a leadingmanufacturer of fuel sys-tems and landing gear.
The government hasplayed a role, providingfinancial assistance to com-mercial aircraft pro-grammes, specific supportfor GKN’s composite tech-nology programme, and,through its military equip-ment purchases, to defenceaerospace technology.
Some in the industry,however, think this supportdoes not go far enough, and
that the government hasfailed to capitalise on Brit-ain’s historic leadership inaerospace and defence.
“We haven’t had a clearvision for manufacturing,”says Sir Kevin Smith, GKNchief executive. Elsewherein the world, he says, thereis “a huge amount of cohe-sion between industrial sec-tors and government aboutwhat they want their manu-facturing industry to be”.
Evidence to support SirKevin’s view comes in howBritain’s leading aerospace
and defence companies arechoosing to invest.
“Companies have dispro-portionately been allocatingresources out of the UK intothe US,” says John Dowdy,a director at McKinsey, theconsultancy. “The marketprospects are better andthey get more favourablegovernment treatment.”
The trend is evident inthe geographic spread ofcompanies’ revenues, aswell as their employmenthistories. Rolls-Royce, forexample, which today gen-erates 85 per cent of reve-nues outside the UK, hasmore than doubled its reve-nues since 1999. It employs2,000 fewer people globally,and 8,000 fewer in the UK.
Although Rolls-Royce hascontinued to invest in itsUK operations over the pastfive years – 65 per cent ofits worldwide £4bn researchand development spendover that period has been inthe UK, for example – it hasopened plants in Germany,the US, Singapore and Scan-dinavia.
These countries sharegood technical and voca-tional education and a com-mitment to manufacturingas a significant componentof their economy.
BAE Systems, meanwhile,today generates just 20 percent of its turnover in theUK. It has made no secretof its aim to expand itsoperations in the US, SaudiArabia, Australia and India– countries where defencespending is on the rise.
In the UK, defence
expenditure as a percentageof GDP almost halved from1987 to 2007, while otherpublic services have seensignificant rises, accordingto analysis by PwC.
Despite the shift abroad,the aerospace and defencesector remains important tothe British economy. ADepartment for Businessranking of the top 800 UKcompanies by value addedestimated that the top 16aerospace and defence com-panies added £12.6bn to theBritish economy in 2007-08.
The aerospace, defenceand security sectors com-bined generate more than£60bn a year for the UKeconomy, according toADS (Aerospace, Defence,Security), the trade body.Salaries are also aboveaverage; in Derby, for exam-ple, Rolls-Royce’s pay is43 per cent above the EastMidlands median.
The government can helpensure these contributionsare not lost.
Dick Olver, chairman ofBAE, says the UK shouldfocus on three priorities toencourage high-value activ-ity in the sector: targetedinvestment to protect itshigh-tech and high value-
added manufacturing sec-tors; a redirection of educa-tion funding into engineer-ing, diverting it from othersubjects if necessary; and aconcerted effort betweengovernment and industry toput equal value on appren-ticeships and degrees.
McKinsey’s Mr Dowdypicks out governmentinvestment in research anddevelopment as critical.“There is a close correlationbetween R&D expenditureand the creation of battle-winning equipment, whichin turn leads to exports.”
In defence, industry exec-utives stress the need forthe strategic review that isunder way to set out clearpriorities. Key areas citedinclude continued invest-ment into pilotless aerialvehicles.
Says Sir Kevin: “It’s
about recognising the areaswhere you want to excel asa nation and having thewhole of the value system,from education throughengineering, research anddevelopment and manufac-turing and support, alignedaround those areas.”
Aerospace & defenceResearch andtraining are issues,says Sylvia Pfeifer
Thirty years ago,Britain still madeentire aircraft,regional andbusiness jets
Body of work: GKN is developing carbonfibre to replace aluminium in the Airbus A350 jetliner – pictured in an artist’s impression above AP
Clusters groworganically. Thequestion is whethergovernmentscan stimulate them
