The report from MHA, the UK wide group of independent accountants and business advisers, shows that the sector is up-beat about growth prospects for 2012, with one third (33%) predicting growth of over 10%.  This echoes encouraging findings from Markit's purchasing managers' index (PMI)  earlier this month, indicating strong growth in the sector. However, despite two-thirds of manufacturers predicting growth at some level (a further 45% estimate growth of under 10%), MHA’s Manufacturing Survey of 145 manufacturers and engineers reveals that almost 50% of businesses surveyed are concerned the continuing Eurozone crisis will have a negative impact on the economy.
Mike Brown, MHA chairman comments: “It’s clear from this survey that confidence for growth in manufacturing is improving with the sector looking at new and innovative ways to manage uncertainty in the Eurozone as well as rising production costs.
“Within the UK economy, more guidance and support at the highest level is necessary to ensure growth for this vital sector. We know the Government has expressed a commitment to rebalancing the role of manufacturing in terms of contributing to GDP, but this survey shows immediate and extensive action is necessary to deliver this.  We would urge the Government to consider a wider national manufacturing strategy and increased awareness in the support currently available to support the sector and ensure it maintains its place as a leading player in the global economy.”
This comes as no surprise given the prevailing reliance of UK manufacturers on the Eurozone. MHA’s Manufacturing and Engineering Survey identifies the Eurozone as an export location for almost 90% of the businesses surveyed who currently export.  Despite competition from low-cost producers, Asia was also identified as a key export location, marginally coming ahead of North America. The survey also revealed perceived barriers to exporting with respondents citing sourcing and understanding local partners as a key barrier followed by regulatory issues in export locations.
UKTI, whose aim is to enhance the competitiveness of companies in Britain through overseas trade and investment has been very active in encouraging SMEs to look at exporting. CEO Nick Baird commented: “I am delighted by the results of MHA’s manufacturing survey.  Not only are more SMEs exporting but they are exporting to high growth and emerging markets in Asia.  This is very encouraging and reflects the priorities of UK Trade & Investment’s strategy.”
Elsewhere, the research offers positive indicators including business’ plans for capital expenditure, with nearly half planning to increase this over 2012. The businesses surveyed caveated this with access to funding from their banks.  This follows the confirmation that despite agreeing to make £76 billion available in small business loans in 2011, banks fell short of this target by £1 billion.
Additionally, the MHA Manufacturing and Engineering Survey shows that around 60% of manufacturing businesses plan to take on apprentices or trainees in 2012. Despite the availability of Government funding for taking on Apprentices, almost half of the manufacturing firms surveyed believe they are not eligible for any grants. Of those businesses, which believe they have access to grants, just 20% are currently planning to take advantage of them.  Manufacturers commented on the red tape involved as being one of the factors against applying.
Investment in Research and Development is one area of concern, with a quarter of respondents having no plans for any R&D spend in 2012.  Of the rest, around 35% are planning to spend between 1-2% of their turnover on R&D. Respondents currently spending over 3% of turnover on R&D indicated that an immediate credit from Government for R&D expenditure would encourage almost three quarters of them to invest more.
Mike Brown continues: “While the effects of the recession have clearly put pressure on investment such as R&D spend, we would urge manufacturing businesses to focus on the significant benefits of long term competitiveness and in the shorter term, tax credits in this area. Reduced investment at this key point could threaten competitiveness in the longer term.  Recruiting and building the right talent across the sector is very much a part of this.”
Pricing and costs emerge as a contentious issue within the report. While 61% of respondents believe that ongoing price increases within the supply chain can be passed on to their customers, 39% feel they are unable to do so.  When it comes to absorbing the price increases of raw materials, improved productivity is key, cited by 86% of businesses. Sourcing via new suppliers and implementing cost savings were the other key routes to managing growing costs (68% and 62% respectively).