Harbouring fears: Increased freight rates and problems with longer supply chains have made companies consider reshoring (photo courtesy of the Port of Felixstowe)
Given the noises the coalition makes – frequently and at the highest level – about the importance of manufacturing, it’s not surprising that the government is keen to talk up the notion of reshoring – bringing production and jobs back to the UK from overseas.
This government, some engineers would argue, has paid more attention to the sector than any in recent memory. Any gains, however modest, are likely to be trumpeted from the rooftops. So it was at January’s World Economic Forum in Davos, Switzerland, where prime minister David Cameron identified reshoring as a growing trend in which firms that had previously taken jobs and business overseas brought them back to a resurgent British economy.
There were further signs that reshoring was being taken seriously at manufacturers’ organisation the EEF’s annual conference in Westminster last month, where a report was launched that found that one in six companies surveyed had done this in the last three years.
Meanwhile, the rhetoric from Whitehall escalates. Business secretary Vince Cable has no qualms in calling for the next ten years to be “the decade of the engineer” as part of a rebalancing of the economy toward manufacturing. In short, making things is seemingly fashionable again. In an era of austerity, jobs coming back to the UK, of any kind, is good news. As for manufacturing jobs coming back to the UK? It is nothing short of a massive reversal of fortune.
The Manufacturing Advisory Service (MAS), a notable survivor of the ‘cull of quangos’ that saw the abolition of a number of public bodies in the wake of the last election, has recently joined forces with UK Trade & Investment (UKTI) to launch Reshore UK, a new service to help companies bring production back to Britain.
MAS believes that companies are increasingly looking to reshore things as diverse as textiles, software production and call centre work to the UK. This is due to a combination of a strong economy, competitive corporate tax rates, good regulatory environment, strong legal frameworks and a dynamic labour market, it says.
Cipriano Beredo, a partner at US law firm Squire Sanders, which helped the EEF prepare its reshoring survey, says the States is also experiencing a return of work thought to have been lost overseas. The swing has caught experts by surprise, he says, because it was believed that those manufacturing jobs were lost forever.
“But the cost of labour is rising rapidly in the Far East, freight rates can be punitive, and working with suppliers in different time zones and cultures is not always easy,” says Beredo. “I think manufacturers have learned that having this far-flung supply chain limits your ability to control your brand, and limits your ability to be nimble and make changes to the product. It also limits your ability to work closely with end markets.”
In terms of numbers, reshoring so far is a modest rather than sweeping trend. For example, UKTI has identified 1,500 manufacturing jobs reshored in Britain since 2011. A MAS survey shows companies citing costs, quality and reducing lead times as the top three reasons for moving production. According to a recent survey by the Institution of Mechanical Engineers, 28% of engineering companies said they were still offshoring manufacturing and just 20% said they were bringing capacity back here.
Of the firms reshoring, quality, intellectual property and cost issues were cited as the most important reasons for bringing work back home. When this takes place, other British suppliers may benefit as companies look closer to home to source components.
Even if new jobs are not created, production is more efficient in the UK and US compared to Asia, Beredo says, adding that reshoring will be based on profit as opposed to any altruistic desire to bring jobs back. “Manufacturers know they are going to get quality in Britain and solve the problems associated with a far-flung supply chain.
“But there need to be business policies in place that make sure the investment in reshoring jobs to the UK pays off. It is a matter of labour policy and energy policy that will keep those costs manageable over the long term.”
Last month’s budget contained measures aimed at reducing manufacturers’ energy bills by £7 billion over the next five years. Beredo says keeping energy costs down will be critical to maintaining reshoring momentum in Britain. An important element of this could be an increase in shale gas production. Fracking may be a controversial process but the boom in the US shows how attractive energy security and subsequent cost reduction are to manufacturers.
“As long as the UK has energy costs that are competitive with western Europe and a built-in advantage of proximity, then manufacturing jobs to service the British and European markets can come back,” says Beredo. “I think even in the absence of that, you can have an energy policy that can help bring back jobs that are in Asia.”
Nigel Stein, chief executive of aerospace and automotive engineering group GKN, confirms that he wants to do more in the UK, and at every opportunity, but maintains a pragmatic view: “I think the UK can definitely see more reshoring and we have already seen signs. We never went offshore: but we followed customers to Russia and China in order to manufacture in the regions where we sell.”
Home textiles manufacturer Caldeira Group has reshored work in Britain as currency movements in Asia have become unfavourable. Chief executive Tony Caldeira says that it became more favourable economically to manufacture here, and the company created scores of new jobs on Caldeira’s native Merseyside as a result.
“Companies that survived the first wave of globalisation were all of a sudden able to compete a lot better,” he adds.
But despite the desire to work locally, there are familiar problems, he adds: “We found young people didn’t want to get involved in manufacturing: as a result we have started to train a lot more. And other manufacturing companies’ misfortune has been our gain – we have picked up staff as they have gone to the wall.”
In part, a generational shift is afflicting the industry: the average age of staff at the textiles plant is 40. Caldeira wants to ensure that young people are actively encouraged to go into manufacturing careers.
“It is more difficult, and it isn’t as glamorous, but the reality is that in my Chinese factory the cost of labour has risen eightfold in 10 years,” he says. “Even before globalisation it was always better to be close to your customers, to be in same time zone, and operate in the same currency.
“But China still has an important role to play: there are some elements that are more cost-effective. In addition, that side of the world is becoming a huge market for British products, and the fact that we have a base there means we can sell our products to China.”
Breaking the mould: Plastic parts that were once made in Asia are now coming back to the UK
Injection moulding might have been thought to have all but disappeared from these shores, and it was certainly thought especially vulnerable to attack from lower cost countries. But Barkley Plastics has been in business in Birmingham since 1965 and now says it is seeing work coming back from the Far East, helping to create more than 25 new jobs so far this year. Turnover has gone from £5.5 million to £6.2 million, partly down to reshoring. The company has also invested £300,000 in new machinery.
Working in markets including automotive, medical and consumer goods, Barkley serves customers including BMW, Aston Martin and Bentley. It is also a second tier supplier to Nissan, and now makes mouldings for the Qashqai that had formerly been produced overseas. It has also won some work for retail giant Marks & Spencer that had been produced in China.
“We have seen prices rising in China,” says Matt Harwood, Barkley’s business development manager. “Because of the skills and technology we have, we’re seeing more work come back to us. As China’s prices rise, it’s more effective to work in the UK.”
The company worked with Warwick Manufacturing to develop a range of cable tidies for M&S, which were formerly made in the Far East. The customer was even happy to pay a little more because the end product was better: “It was our reputation for quality that helped us win the work,” says Harwood.
Family-owned Martin’s Rubber Company, based in Southampton, has an even longer story of survival, having been in business since 1865. Manufacturing has been a critical activity for the firm since before the Second World War, working in the defence, aerospace and nuclear sectors. Typical products include high tech anti-vibration mountings, gaskets, specialist mouldings and seals.
Adam Hooper, director, says its clients first started offshoring work from the mid-1980s, but the experience was not always a good one for them. Cost reduction was, of course, the reason why so many shifted production to China, but there were side-effects.
“Sure enough, when things started to get delivered back from China, British companies had to do a massive amount of reengineering,” says Hooper.
“They were re-machining to get components back in tolerance and they were never really sure of the materials certificates. This was for aircraft components and military vehicles, not consumer products – quite serious stuff.”
Although firms in, say, India could undercut British companies on cost by several thousands of pounds for a project, Hooper says, engineers ended up having to fly to the country to deal with problems, and quality issues afflicting the final part were common. “People were turning back to us because they could come and see us and have a chat: they knew they were going to get what they wanted.”
In terms of offshoring, Hooper says, delivery times are always an issue and agility is definitely a problem: “Often you have to pay upfront for all this stuff as well, and you also risk losing some intellectual property – which for some of our key customers is a definite no-no.”
IP was cited as the second most common reason by firms surveyed by the IMechE for reshoring work. “As soon as you release a production specification you are essentially giving somebody all they need to know to manufacture something,” Hooper says. He adds that in China, even if a number of different suppliers are used to manufacture components, there is the possibility of all a company’s engineering drawings ultimately being collated and your design copied. But he concedes that if you set up your own quality-controlled factory in China, with your own people, then it can work.
It is clear the competitiveness of British manufacturing is higher now than it was some years ago, he says. Hooper adds that a reputation for quality can sustain engineering firms. “Because there is less of a price advantage, we can get back to the real conversation – which is that the price we charge represents value for the product you are buying.”
He says he has confidence that Martin’s Rubber won’t lose more business and is in a better position to win back work. “That is something we are beginning to do. Now that cost is an issue, people are paranoid about quality.
“Fifteen years ago the message from policymakers and bankers was, ‘Close your factory down and sub everything out’. Some of our higher volume competitors were doing just that. I always felt that someday the tide would turn.”