Manufacturing makes up a sixth of the economy, and accounts for over half of our exports, and around 80% of all business research and development. It is also a significant contributor to employment – generating around 3.5 million jobs directly – and millions more through the supply chain and related services.

Source: DTI website 2004

Despite a general decline in the output of the manufacturing industry across the world over a number of years, it rose last year and is set to rise further this year. However, according to the Office for National Statistics (ONS), manufacturing output fell by 0.5% in the first quarter of 2004 compared to the last quarter of 2003. Most significant decreases were found in:

• paper, printing and publishing industries 1.4%
• electrical and optical equipment industries (which includes computer hardware) 1.5%
• machinery and equipment industries 1.7%
• other manufacturing industries 3.2%

In the chemicals and man-made fibres industries, output increased by 1.8%, and in the transport equipment industries it was up 1.3%. The CBI do expect manufacturing outputs to rise, as their survey revealed that orders had risen in most UK regions, which perhaps the ONS statistics do not reflect yet. The short-term challenges that UK manufacturers have recently faced include:

• falling manufacturing output
• low global demand for products
• the relative weakness of the euro

These challenges have resulted in job losses and profits have fallen to significant lows. Demand and output are increasingly picking up, though, and the productivity gap may narrow. The increasing pace of globalisation also presents many opportunities for increasing trade as barriers come down and capital becomes more mobile, although it also means that companies face increasing competition from goods and services produced in lower-wage economies. Companies that rely on labour-intensive products and processes will find it ever more difficult unless they evolve to meet the challenges. The evidence is clear that more innovative and knowledge-intensive products, processes and management are vital.

Sources: Foresight Manufacturing 2020 Panel, The Manufacturer and DTI website 2004

Manufacturing sub-sectors

The wider picture of decline in manufacturing hides the growth in some sub-sectors. For example, the UK is has a strong position in the global market in electronics areas, such as design, mobile networks and broadcast technologies, attracting global companies and creating a sector with a turnover of £45 billion. In addition, the pharmaceutical sector is the largest R&D investor in the UK. In the 1990s the UK was the most successful country in Europe attracting new research and development investment projects.

There are lots of small and medium sized enterprises (SMEs) in the sector, although some sub-sectors have experienced consolidation, with mergers of many firms.

Source: Government Manufacturing Strategy 2002

Ffor more information on the manufacturing sub-sectors click here.

The SSDA estimates there are over 4.3 million people employed in the manufacturing industries. The technological changes that have occurred in the sector have led to more IT-related jobs being created, with the related skills being more in demand. Of the manufacturing employees:

• 91% are full-time
• 91% are permanent workers
• 5% of the workforce are self-employed
• only 25% are female
• ethnicity and age distributions are comparable with the whole economy

Most of the reported vacancies are in skilled trades (20%) and process, plant and machine operatives (31%) and skill shortages were reported in these occupations. Hard-to-fill vacancies account for only 1% of employment in manufacturing and skill-shortage vacancies account for only 0.5% of employment, which are both lower than average.

Sources: Skills in England 2003, Employers Skill Survey 2003 and SSDA Sector Skills Matrix 2004

There is an expected decrease of 521,000 in employment in manufacturing between 2002 and 2012, although it is still expected to account for over 10% of total employment in 2012. Although total job losses are high, there is still a need for recruitment to replace members of the existing workforce. Despite a decline in expansion demand, replacement demand is high for skilled trades and machine operatives, notably in the metal and food, drink and tobacco industries. There will be significant requirements for managers, associate professionals and technical workers across most manufacturing sub-sectors.

Key challenges for the sector include the need: to attract young people into the industry; to adapt the workforce skills to the fast-paced technology advances; and to develop standards of safety and competence to ensure that the highest levels of health and safety are achieved.

Sources: Working Futures 2004a and Skills in England 2003

There has been a decline in manufacturing in all major economies, although it is recovering. There has been a reduction in the global demand for manufactured goods. British businesses have had to cope with the relative weakness of the Euro and the low output growth of the 1990s. British manufacturers require investment and innovation to improve its competitiveness as the global economy recovers.

In the long-term, manufacturing is open to technical progress and productivity growth. New technologies will lead to new products, new processes and higher value added manufacturing. However, technology and automation leads to fewer workers being required. This can be overstated, as some functions that have been contracted out, such as software design. 

There is an inter-relationship between the manufacturing and service sectors, as each requires the functions and products of the other. For example, a machine tool factory will require designers, marketing, accountants, software and caterers. Therefore, investment and innovation in the manufacturing sector will benefit the whole economy.

Increased requirements for manufacturers to recycle their components, for example in the automotive and electronics industry, implies new investment in recycling equipment. This short-term cost outlay should be recouped in the long-term and implies growth in the recycling sector.

The customers’ emphasis on high quality products rather than low cost mass production means that productivity needs to improve to pay for customers’ higher expectations. Many businesses will re-position themselves to compete with high volume, low cost products or find alternative niche markets. There has already been growth in niche markets in some sub-sectors, e.g. organic food and specialty foods, to meet consumer behaviour and attitudes.

In the food and drink industry further mergers will result in greater concentration. Further job losses and restructuring are set to continue with further rationalisation and technological improvements. The wood industry expects a continued growth in imports and there are no substantial generation projects for its use as a renewable or sustainable energy resource. There will be a fall in employment in the pharmaceuticals, rubber and petrol industries because of the technological advancements. Also further job losses are expected in the metal and metal goods sector.

Sources: Working Futures 2004a, Proskills 2003 and DTI 2002