“Almost two-thirds of Businesses asked intend to increasingly move supply back to the UK”
Manufacturing in the UK accounts for around 10% of the economy and 9% of employment in the UK. This is a primarily service-driven economy, meaning services such as Research and Development, Legal and Financial Services, account for the majority.
Although making up a relatively low percentage of the economy, manufacturing’s importance is evident. This contributes a highly disproportionate share of total exports (45%). Wages in manufacturing are around 15% higher than the national average. Following this manufacturing accounts for around 60-65% of private sector research and development spend.
Taking service industry links to manufacturing into account, it can be said manufacturing is responsible for 15-22% of the economy and 18-27% of employment in the U.K.
Globalisation is not a new or recent invention, merchants have always traded goods across continents. As early as the first century BC, luxury products from China found their way to the edge of the Eurasia continent.
Fast forward to the early 19th century, the first wave of globalisation began as the British Industrial Revolution caused shockwaves within global trade. On one hand innovations such as the steam train, allowed for goods to be carried across the country. This also allowed exports to other countries much quicker than with previous methods. In addition, the industrialisation of Britain meant it could manufacture products which were highly sought after worldwide.
Following the Second World War, the EU and other free trade countries became responsible for a lot of the growth within international trade. When the Soviet Union fell and the dividing wall in Germany was brought down, globalisation began to accelerate further. The World Trade Organisation was founded in 1995, encouraging countries to enter into free trade agreements. China joined the WTO on 11th December 2001.
The internet was invented during the third wave of globalisation, connecting people across the world. Orders did not have to be made by post or phone but instead were done by the click of a button. The internet, allowed for further global integration of value chains within businesses. R&D can be done in one country, sourcing and production in others, and then the end products shipped worldwide far easier than ever before.
Once signed with the WTO, it did not take long for China to dominate global imports, exports and manufacturing. China currently stands as a global manufacturing powerhouse, accounting for nearly 30% of global manufacturing. This is over 10% higher than that of America, which sits as the second biggest global manufacturer. Key reasons for this include lower labour costs, a strong business ecosystem, lack of regulatory compliance, low taxes and competitive currency practices. China has been accused of deliberately lowering the value of the Yuan, to bring down the value of its exports against competitors.
As a result of this, there are many winners, such as workers being able to move to higher-income economies. Additionally, economies with low labour costs have the infrastructure to export.
One loser to come out of globalisation is manufacturing in Britain. Lower costs and increased output prompted a lot of brands and manufacturers to begin sourcing their component parts and even fully manufactured goods from the likes of China and South Korea.
The last few years have provided some incredible challenges socially, economically and environmentally across Britain.
Brexit caused a surge of uncertainty when it was first announced in June 2016. With other major events markets get used to the changes relatively quickly and the uncertainty subsides. With Brexit, this has persisted and looks to continue for the foreseeable future.
Harvard Business Review conducted a study of how Brexit impacted variables such as prices, sales, investment and employment. It shows it led to a 6% reduction in investment in the first two years after the referendum. A 1.5% decrease in employment and the majority of businesses anticipate Brexit will eventually reduce sales and increase costs.
This opinion of Brexit being disruptive and negative to the industry resonates with most manufacturers too. The extent of just how disruptive and negative was reliant on a deal happening and the outcome of the deal that has been done still raises concerns around tariffs on some goods, and long delays at the GB-EU border.
To add to this, a global pandemic has caused monumental levels of disruption around the world for a wide array of reasons. It has impacted global supply chains with increased import and export costs. Also drastically increased lead times for businesses who import products from across the world into the UK.
For example, air and sea freight costs have risen to some of their highest levels due to fluctuating levels of demand throughout the pandemic. The cost of shipping one 40-foot container from Asia to Northern Europe has increased from around $2000 to more than $9000.
The Institute for Supply Management conducted a study on the impact of Coronavirus on global supply chains. At the time of the survey, 86% of respondents reported longer lead times from China, with 57% stating lead times had doubled.
The Coronavirus pandemic coupled with Brexit has forced businesses to review their supply chain. Businesses across varying industries now choosing to bring production back to Britain.
Christopher Nieper, the chief executive of David Nieper, said: “Manufacturing in Britain makes business accountable and allows control over each step of the production process.”
This trend has been happening for several years as the weaknesses within global supply chains and heavy reliance on sourcing products from countries are now on show. This, however, has been accelerated due to recent events.
A sponsor of the Reshoring UK facility showed 37% of companies asked, were in the planning stages of reshoring their manufacturing processes back to the UK. Data showed 71% of respondents at this time, said a primary reason for this decision was to improve quality.
Looking ahead, a study from Make UK found that over a third of manufacturers said they intend to moderately increase their use of UK-based suppliers. Following this, a further 12% stated they would significantly increase their use of UK-based suppliers.
Moving forward, mitigating risks with dual-sourcing will likely become a common trend – opting for shorter lead times, lower shipping costs and improved service and quality over low manufacturing costs.
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