APMG co-chair Chris White MP writes for the April newsletter on the renewed interest in 'industrial policy'. 

02/04/2012

Over the last twelve months, both as co-Chair of the APMG and as an MP representing a constituency in the traditional manufacturing heartland of the Midlands, I have listened to a variety of opinions around what would deliver the most successful relationship between Government and Industry: a relationship that brings growth, jobs, and ensures that what is ‘Made In Britain’ is world-beating.

It is the APMG’s job to engage with industry, find cross party consensus, and help embed that consensus in both Parliament and Government. For that reason the research output of the APMG is about to increase, starting with a Manufacturing Strategy, which we’ll publish in the next couple of months. This will set out clear objectives for any new Industrial Policy, whilst recognising the particular strengths of the UK’s manufacturing sector.

Our Manufacturing Strategy will be broad, and purposely so. Industry, and those who buy our products or invest in our companies, need clear messages and measures from Whitehall that send strong signals about the kind of industrial base upon which the UK economy should be built.

There has been no shortage of debate about Industrial Policy, particularly since we came back from the Christmas recess: with Vince Cable’s sector-driven approach and Ed Miliband’s call for a more patriotic industrial strategy.

I think that Vince Cable’s sectoral rhetoric is sensible: what is right for the Food and Drink industry will not always match the needs of Aerospace corporations, for example. To say simply that Government should ‘get out of the way’ may be true for a small business overburdened by cumbersome regulation, but not for a manufacturer who cannot get the private sector to invest in an innovative new product, or needs financial support to connect with potential buyers in Asia or South America. Similarly, whilst we all want to champion our national industries, no one wants barriers to go up to foreign investment or international trade. Furthermore, no manufacturing strategy will work unless the playing field is level across all UK businesses in a diverse economy, and that they are given space to grow. No manufacturing sector will survive without a strong financial sector to support them, or service sector to advise them.

Across all these discussions, papers, articles, and conferences, there are still some elements of the debate that aren’t given enough air time. They often come up, but are rarely interrogated deeply enough. These missing elements involve thinking more laterally about the manufacturing sector as a whole, understanding why successful businesses are successful, and being honest about particular weaknesses and failings. Understanding these more complex issues makes any strong interventionalist policy much more likely to work.

Manufacturing: not just production

The debate is still dominated by a misunderstanding of what manufacturing actually is, and where jobs and economic value are to be found. The APMG takes a view of manufacturing that includes R&D, product testing, the confirmation of IP, production, assembly, marketing, and subsequent delivery and long term supplier/customer relationships. A manufacturing strategy must be designed to match the needs of all those activities, although the production and assembly of products is the essential bedrock of a strong manufacturing sector. If we forget these other important parts of manufacturing our strategic approach will be weaker.

Why are companies re-shoring?

Many commentators are noting a growing trend for manufacturing businesses to re-shore parts, or all of their activity, to the UK. A detailed examination of the re-shoring process should be part of any industrial strategy, as it is certain to reveal important factors that shape a company’s decision making processes. Whilst headline-grabbing measures such as corporation tax rates are welcome (and likely to play a key role), a pharmaceutical manufacturer may be more likely to base themselves in the UK because of R&D and IP policy than, say, an automotive manufacturer who may be tempted by the strength of a local supply chain, or skills ecosystem. And we can be sure that any international factors, such as rising labour costs, are being recognised by our competitors, who know that they have to now compete on quality as well as cost.

The German question: What can we learn from other countries?

Germany is an example of how a country has, over a period of decades, developed a strong economic model, born out of an understanding of the importance of industry and long-term commitment to manufacturing by Government.

If we want to develop that kind of embedded culture, we have to start now, and take bold steps to achieve it. Why not provide grants for students to study engineering above other subjects, or a student loan-style enterprise award for young entrepreneurs? But Germany’s success is about institutions – a hugely diverse and regionally-focussed banking sector, the Mittelstand family-owned business culture, and a highly valued apprenticeship system that underpins almost all economic activity. Clearly, UK industry does (and should) envy these institutions, but they didn’t appear out of nothing, and cannot easily be replicated in a nation where apprenticeships tend to be undervalued, the banking sector is not geared to industry, and the business-owning culture is different. The UK must follow Germany’s example and develop a pro-industrial culture, and pro-manufacturing institutions, but it must do it in its own way.

Germany is also strong in encouraging SMEs to export internationally. Across the EU on average around 1 in 4 SMEs export, in the UK the average is 1 in 5 SMEs. If we are going to strengthen our manufacturing sector then we need more of these businesses to export. This means looking at how our competitors have managed to get their SMEs to export successfully and what changes we can make to UKTI and the products we offer, to encourage more to follow their example.  

A ‘Made in Britain’ mark

We are supportive of any initiative that seeks to celebrate the UK manufacturing sector, and are excited to be working with BIS and the EEF through our own Made By Britain project.

We have seen how the Mary Portas initiative ‘The Bottom Line’ has captured the nation’s imagination and for many companies, having their product made in the UK has substantial brand value already, for example BMW’s Mini or potteries in the historic Stoke.

However, a generic MADE IN BRITAIN stamp on all products made here underestimates the actual value of ensuring that manufacturing activity, from R&D to servitisation, happens in the UK. Some products made in the UK might not sell better if their country of origin were known to the end consumer, for example.

But a ‘Made in Britain’ mark could mean many things, not just a product’s country of origin. It could mean certain sustainability credentials, or recognition of good business practice, quality, engagement with local communities and strong apprenticeship programmes. ‘Made in Britain’ must mean more than merely being made in Britain.

Beyond putting a mark on a product, this has to be about making Britain itself a brand. In the same way that Germany is known for highly technical precision manufacturing, Britain needs to rebuild its reputation so that the ‘Made in Britain’ brand conveys some meaning – this will be a long term process, and must be a key part of the Government’s strategy.

Why aren’t the banks lending?

Clearly there are problems with the supply of credit. The APMG is looking hard at proposals for a bank (or banks) for industry, and are holding a debate on the topic at the end of this month. We need to be clear about why and how the market has failed, if indeed it has. Are the risk models currently being used by high street banks suitable for manufacturers? We frequently hear that those processing applications in regional braches simply don’t understand how a manufacturing business works – how do we make sure that civil servants managing a state-sponsored Bank for Industry do? Similarly, are manufacturers as credit worthy as they might hope, and how targeted should any state-supply of credit be? These questions will be examined in greater depth in forthcoming Group meetings.

What about the softer stuff?

Our Made By Britain project has provided a fascinating snapshot of the manufacturing sector: over 350 products that are regarded by their local MP as special, cutting edge, or exciting in some way. We have learned a great deal about how the manufacturing sector, right across the UK, promotes, markets, and brands its products. Whilst some UK manufacturers are world leaders in this – taking advantage of the UK’s design and marketing prowess – there are some that still don’t appear to understand the value of good design, of brand, and of co-ordinated promotion. We have also heard how businesses aren’t adapting to changing times; companies are ‘doing what they’ve always done’, but have the potential to grow from small into medium sized businesses with a slightly more creative mindset. For some, the problem is as simple as the need for a better website, or a better logo. For others, perhaps it is new ways of training managers, some soul searching around their product offering, or branching out into post-manufacturing service support. 

These are just some of the areas that need consideration. The APMG will continue its investigations in the coming months through its Parliamentary events programme and our Manufacturing Strategy.