There is little doubt that manufacturers will be looking at 2012 with a degree of anxiety. After the Government heralded manufacturing as the potential saviour of the UK economy early in 2011, many businesses felt the government failed to deliver a framework to help the sector deliver this growth. We expect the Government to continue to focus on rebuilding the sector in 2012, including some tactical incentives for manufacturing businesses. We would, however, like to see the government develop an explicit strategic long-term framework with absolute clarity on how they intend the sector to support the country’s economic growth.
2012 looks set to be extremely challenging: as the turmoil continues in the major markets, the resultant drop in demand will impact the manufacturing sector. Furthermore, the huge pressures on sovereign debt, bank debt and balance sheets will continue to hamper access to growth capital.
With the latest UK and global PMI indices already showing a significant deterioration in confidence, it seems worried business owners are already implementing cost control measures to help prepare for 2012: whilst 30% of businesses took on new workers in Q1 2011, the figure was just 5% in Q4. Furthermore, most SME firms plan to cut spend on new plant and equipment next year. Whilst there are pockets of good news – Caterpillar, JCB and Michelin all have plans to invest in their manufacturing facilities in 2012 – it is would seem inevitable that many manufacturers will need to shed further labour in 2012 to keep in balance.
One area which continues to see huge success is our export market: a balance of 10% of manufacturers witnessed growth in overseas orders in 2011. Whilst Europe and the USA will continue to be the primary export markets, manufacturers should focus on the rapidly emerging giants (China, India and Brazil) in addition to the new emerging markets such as the CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa) to harness the richest export opportunities in 2012.
The automotive sector has seen particular export success: output rose by 11% in 2011 and further growth is expected in 2012. Jaguar Land Rover, Aston Martin and Lotus expect export success to emerging economies to continue into 2012. Jaguar Land Rover’s recent announcement that it is to create a further 1,500 jobs in the UK to cope with demand, is a clear illustration of the sectors optimism.
Despite worries surrounding capital, we expect innovation to remain core to businesses’ growth strategies, due in part to a recent smattering of Government initiatives such as the reformation of R&D tax credits, the new “patent box” and a £125m fund to encourage growth in advanced manufacturing sectors. However, the onus remains on businesses to ensure they are fully aware of these schemes, taking advice where necessary on how to implement them.
Finally, after many manufacturers suffered margin pressures in 2011 as a result of increasingly prohibitive input prices, 2012 will likely bring some relief – even though prices will remain volatile. Manufacturers reported lower costs of key raw materials in November 2011 and it is hoped this trend will continue in 2012.
Overall, whilst 2012 will be challenging, opportunity for growth remains. Whilst the Government needs to provide a framework to support this growth, it is still up to manufacturers to grab the opportunities available to them and ensure they take full advantage of the schemes and funds available to support them.
If you would like to find out more please call Tom Lawton on 0121 352 6372.
10 January 2012