7. SECTOR FOCUS
7.1 Analysis of the generic issues facing
manufacturing give part of the story, and of course the macro
issues are common to many. But in addition, it is important to
understand the circumstances that are unique to individual sectors
and therefore for government to have a strong sector focus in
its manufacturing support.
7.2 The sectors detailed below are intended
to give a flavour of these differing circumstances and requirements,
rather than in any way attempt to represent the totality of manufacturing.
7.3 The United Kingdom aerospace industry
is one of the most successful of all our manufacturing sectors
and one that is genuinely world class. The United Kingdom is the
largest player in Europe and a global presence second only to
the US, with a turnover in 2000 of $18.25 billion and employing
over 150,000 people in 2000, making it the largest aerospace employer
in Europe. In fact, a third of all aerospace jobs in the EU are
within the United Kingdom. Aerospace as a whole contributed a
positive £3.8 billion to the United Kingdom trade balance
in 2000. In real terms, the industry has contributed an average
of £2.5 billion to the trade balance each year for the past
7.4 Clearly the global aerospace industry
has been the most directly affected by the aftermath of 11 September.
United Kingdom aerospace is the most globalised aerospace industry
in the world, and whilst this usually works in our favour, in
this case it has meant that United Kingdom aerospace has been
more exposed than most to the effects of the downturn.
7.5 The Society of British Aerospace Companies
(SBAC) has calculated that since 11 September, the United Kingdom
has suffered 22 per cent of the job losses in the global aerospace
industry, compared to a market share of 13 per cent. SBAC expects
at least 40,000 jobs to be lost in United Kingdom aerospace, with
the effects falling heavily on the supply chain,with at
least 26,000 job losses anticipated. SBAC estimates suggest that
for every job lost in leading companies, a further three are lost
in the supply chain. It is possible that some of the best supplier
companies may not survive the loss of revenue.
7.6 These short term impacts are set against
a backdrop of globalisation and consolidation throughout the industry.
Whilst United Kingdom aerospace companies are well placed to take
advantage of these developments, capacity and employment may be
threatened by increased outsourcing and the location of production
7.7 Looking ahead, it is crucial that "strategic
control" over investment continues to rest in the United
Kingdom, and that the degree of technology leadership acquired
by United Kingdom aerospace companies in key programmes and markets
remains high. The supply of technologically skilled and qualified
labour throughout the supply chain is a critical success factor.
7.8 The United Kingdom has traditional strengths
in automotive manufacture, and the United Kingdom is home to 17
of Europe's top 20 automotive component suppliers. In terms of
volumes, 2001 was a record year. 2.46 million units were registered
in the United Kingdom, beating the previous record set in 1989
by almost 160,000 units. Total car production in the United Kingdom
was 1.49 million, a fall of 9.1 per cent on the previous year.
7.9 Employment in car and commercial vehicle
assembly is 80,000 with a further 150,000 jobs in the automotive
components sector. Total turnover for the industry is $45 billion,
which equates to 5.3 per cent of GDP. Exports amount to £19
billion. Two-thirds of United Kingdom car production is exported,
so clearly the exchange rate is a critical issue for the industry.
7.10 Despite having some of the most productive
plants in the world and producing record volumes, the major car
manufacturers are losing money in the United Kingdom.
7.11 In the year 2000:
Ford made $7.7 billion in North America,
lost $98 million in Europe, and closed one United Kingdom car
GM made $6.4 billion in North America,
lost $275 million in Europe, and closed one United Kingdom car
Toyota lost £40 million in the United Kingdom
despite sales being up by 9 per cent and reporting record profits
7.12 Many major car manufacturers are reducing
their assembly or sourcing levels in the United Kingdom. A recent
Study by A T Kearney has found that:
Manufacturing of high sales-volume
models in the United Kingdom will continue to decline in the long
term, as a result of the United Kingdom remaining outside the
Euro zone, excess capacity and a shift in the centre of market
demand eastward in Europe.
Premium car manufacturers, such as
Jaguar, Land Rover and BMW, may take up some of the slack, benefiting
from different economics, growing demand and broader markets.
Suppliers will continue their flight
to the Euro zone and low cost economies such as Poland and Hungary,
as a way of meeting manufacturers' demands for lower costs and
Remaining United Kingdom suppliers
must focus on the premium sector and achieve the quality and technology
levels that are a prerequisite of serving those customers.
7.13 Looking forward, key issues for the
Skills, particularly vocational training
in manufacturing disciplines.
Achieving genuine partnership between
unions and employers.
Long term investment in modern equipment
and R & D.
Support from government for manufacturing.
7.14 United Kingdom steel producers have
successfully raised productivity by 10 per cent per annum or nearly
four-fold in the last 25 years. However, the industry is suffering
from weak steel prices worldwide, chronic surplus steel capacity,
a bias across industry to overproduce, which is all against a
backdrop of exchange rate pressure. Between 1996 and 2000 the
average sterling price of each tonne of steel exported fell from
£410 to £300. In addition, cost burdens such as the
climate change levy has fallen disproportionately on the steel
sector, with the levy estimated to take £10 million out of
United Kingdom based steel firms.
7.15 A report commissioned by United Kingdom
Steel in June 2001 (undertaken by Business Strategies) found that
the United Kingdom steel industry has weathered the storm of increased
global competition better than many of the United Kingdom's "traditional"
manufacturing sectors. This is due largely to the productivity
gains that have been made, though clearly the transformation has
impacted on the number of jobs employed in the sector.
7.16 The report concluded that in order
to maintain a viable steel industry in a tough global environment,
the support of an engaged and willing government, addressing concerns
in the following areas, is vital:
The reduction of global overcapacity
in steel in an orderly fashion.
Arresting the continuing erosion
of the United Kingdom manufacturing base, which is essential for
the viability of a steel-producing sector.
An improvement in the taxation regime
for the industry (including capital allowances and business property
A reduction in the burden of energy
The elimination of unfair subsidies
wherever they exist.
A resolution of trade issues in a
way which safeguards the United Kingdom's position.
7.17 The United Kingdom possesses the sixth
largest chemicals industry in the world. It generates a trade
surplus of £4,550 million, of which £2,447 million is
in the area of pharmaceutical preparation.
7.18 The December 2001 Economic Bulletin
from the Chemicals Industries Association highlighted that United
Kingdom chemicals output growth is weakening, which reflects the
global economic slowdown. Overall output growth was forecast to
slow from 4.1 per cent in 2000 to 3 per cent in 2001 And 1 per
cent in 2002. Although world demand was already slowing, the events
of September 11 undermined prospects of an early recovery.
7.19 The deterioration in the macro-economic
situation combined with the major swings in energy prices has
had a major impact on the world chemical industry. Industrial
marketsespecially petrochemicals and polymershave
been more seriously affected than consumer markets and pharmaceuticals.
7.20 The relative price of sterling against
a weak euro continues to undermine UK competitiveness. Some chemical
companies have indicated an increasing number of customers, particularly
in engineering/engineering polymer markets and textiles, either
going out of business or transferring activities to countries
in the euro-zone. Rising costs due to new legislation, such as
the climate change levy and increasing environmental charges are
also undermining the case for operating from the UK.
7.21 Looking forward, the Foresight Chemicals
panelwhich reported last yearfelt that the UK chemicals
industries will have to operate in an increasingly competitive
global marketplace, but that we do have the assets that can ensure
future success. These include commitment to scientific excellence,
advanced technology, working to high operational standards and
an integrated supply chain. The Foresight Chemicals panel put
forward the following requirements for future success:
A stable economic and legal framework
to encourage long-term investment in capital and intellectual
A cost competitive edge so we can
seize opportunities at regional and global levels.
A need to implement sustainable development
Only to be subject to regulations
based on sound science and risk-benefit analyses.
Integrated chemical supply chains,
and industry "clusters" that bring the benefits of close
Multidisciplinary approaches to identify
new processes, products and services, by building upon the strengths
of the UK's science, engineering and technology base.
Ability to attract and train skilled,
flexible workforce, committed to excellence.
Motivation to found "start-up"
companies by academics and create "spin-out" businesses