All the recent data from industry surveys indicate that engineering firms are enjoying something of a resurgence. Orders levels are strong, export markets are booming, and there has even been anecdotal evidence of recruitment picking up. The sector seems to be in a healthier shape than it has been for many years. And long may it continue.
But, despite this good news, there has been one aspect of performance that shows little sign of improving. Time and time again research from organisations like the manufacturers’ organisation the EEF shows that investment intentions remain stubbornly weak. Instead of investing in new capital equipment, many companies seem content to meet growing demand by sweating their assets and working longer hours. It’s a hesitance that is likely born of nervousness from what have been a tough few years and a desire to remain cash-rich rather than rely on lending.
There’s an element of sense in that conservative approach. But experts fear that, unless investment intentions start to rise, British firms risk losing pace with foreign rivals.
“For UK manufacturers there’s no such thing as sustainable competitive advantage – only continual investment in machinery, innovation and skilled people will keep them ahead of the competition,” says Lee Hopley, chief economist at the EEF. “The rapid obsolescence of machinery means manufacturers need to continuously reinvest in plant and machinery. Capital investment is not just about replacement – in high labour cost economies like the UK the productivity gains generated by state-of-the-art machinery are essential to staying competitive. Similarly, the increasing scale and complexity of manufacturers’ supply chains in a globalised economy places a premium on the ability to run them as productively as possible.”
Hopley says that investment in new machinery was a significant casualty for manufacturing and the wider economy during the recession. And she fears that, even though the sector is currently performing admirably, a lack of long-term visibility about the strength of demand combined with constraints on access to external sources of finance could hamper the recovery in investment through this year. “The rebalancing of the UK economy towards growth generated through investment, innovation and exporting is critical for sustainable growth across the economy,” says Hopley. “With the Chancellor’s budget statement not far off there is a timely opportunity for government and tax policy to send a strong signal to manufacturers that their next investment should take place in the UK.”
Some organisations have made a conscious decision to invest heavily off the back of their performance during the recession in an attempt to build momentum and secure continued expansion. Vehicle engineering and test organisation Mira is a good example of that kind of assertive attitude. It plans to invest £300 million over the next 10 years to support an aggressive drive into new countries and new market sectors.
The investment will see the construction of a 43,000m2 advanced engineering centre at Mira’s site in Nuneaton, allowing it to expand its range of design engineering, computer simulation, test and validation and certification services. Mira will also expand its adjacent technology park which is at 98% capacity. These investment intentions, Mira predicts, will see it grow from having a £37 million turnover in 2010 to £100 million by 2020. It also plans to create 2,000 jobs during that period.
“We have actually found that there is a very positive investment market out there. People are looking to support good ideas,” says George Gillespie, Mira’s chief executive.