There’s an interesting phenomenon emerging right now and it might just help UK recover its manufacturing. It’s re-shoring – the movement of manufacturing by British companies from India and China to the UK. Whilst worthy of a cheer and a hearty “about time, too” comment, it’s not without its problems. So what are the issues? Can UK emerge from relegation to lead the First Division of manufacturers? Can Britain recover its manufacturing prowess?
It started in the 90s
The off-shoring trend started in the 90s. Great firms of the day like Philips and Motorola could no longer match the downward pressure on market price. They valiantly fought back by introducing ‘lights out’ factories stuffed with robots but in the end they had to admit defeat and move production to the Far East.
A model firm emerged. Design was in UK and manufacture was first in South Korea and then in India or China. As wages rose in South Korea to match the West, firms moved to the poorer countries in pursuit of the lowest labour cost. And generally manufacturing was contracted out to a specialist factory. The designers bought the custom test gear and other quality control devices and implemented these in the foreign factory. A perfect cost structure with minimum capex (capital expenditure), you might argue?
Now there’s something that’s very often missed by those in favour of offshoring. It’s that generally getting high product quality in the offshore factory is quite a problem. UK design and production engineers have to live on the shop floor or rotate week about to ensure a permanent presence. Without this attention, timescales and product quality suffer.
Quality’s a cost. It’s just one that doesn’t appear on the P&L. So what the advocates of re-shoring argue is that by the time you’ve put costly UK engineers on planes and put them up in hotels in China, and once you’ve considered the real cost of (poor) quality, you might as well have put the extra costs into paying higher UK wages. And making things near the market in which they are to be sold saves 10,000km in shipping costs and avoids inflexibility and delays.
From South Korea then to China today
And just as South Korea wages rose as the country adopted a dual track of relatively wealthy city dwellers and poor farmers, the wages in China and soon India are set to rise.
And so you have a simple equation to balance. As Roger Canham of Hornby, the model maker, said in The Guardian, “You can no longer apply the rule that manufacturing can be done elsewhere”. That’s good news for UK. Hornby brand Airfix recently announced that it was to move production from the Far East to a plastics factory in Newhaven, Sussex.
But there’s one snag.
Missing skills and knowledge
In the intervening twenty years since this author sat on airplanes and negotiated with Korean managers in Chungju in Chungcheong Province, UK has lost it’s manufacturing skills and knowledge. When compared to our European partners we’ve slipped way down the table. Just as we allowed the French to dominate the world in nuclear power, so too we let the Germans lead in manufacturing skills and knowledge. And now we need to fight to have UK manufacturing rise again.
But can we do it? Are firms up for it? Does a labour pool exist with the foundation skills to learn manufacturing? Can we achieve the required competence? And will the City support it?
What do you think?