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Return of UK manufacturing is held back by skills shortages and property prices

  • Efforts to entice back production from China and India are offset by conditions in the UK
  • ‘Near-shoring’ is replacing ‘reshoring’ as businesses are attracted to low-cost economies in eastern Europe instead
  • Only a tiny proportion of British firms lost since 1990s are likely to return in the next decade

High property costs and a shortage of skilled manufacturing workers are likely to prevent the return of most British small businesses from Asia, a Civitas report warns today.

The government is committed to supporting the emerging trend of “reshoring” by companies that took production to China and other low-cost nations like India and Bangladesh but are now considering the benefits of a return to the UK.

But research by former FT journalist Marcus Gibson shows there are considerable barriers to bringing manufacturing production back to Britain.

Only a very small number of British SMEs – just 64 as of August 2014 – have so far returned to the UK. It is likely that others will choose “near-shoring” instead, which sees companies move production to cheaper countries closer to home soil, such as in eastern Europe.

The coalition government declared its support for reshoring in January 2014 when it established Reshore UK, a one-stop-shop to “help companies bring production back to the UK”. The government has also set up the £245 million Manufacturing Supply Chain initiative to strengthen the UK supply chain.

Research by the Gibson Index, a leading database of 49,000 UK SMEs, suggests about 95% of light manufacturing companies disappeared from Britain during the last Labour government.

But a variety of factors, highlighted by Gibson in a series of interviews with SME chief executives and managing directors, has reduced the early advantages of offshore production. The most common problems include poor quality production, the length of the supply chain, time delays, counterfeiting and even theft.

But Gibson says that only a “tiny” proportion of these companies are likely to return to the UK in the next five to 10 years.

“It is likely that much reshored manufacturing will move to low-cost economies in Eastern Europe such as Poland, Bulgaria and Czech Republic, or to Asian nations such as Indonesia and Vietnam,” he writes.

A key factor is that property prices remain so high in the UK compared with most other countries in Europe. “The sad truth is that UK industrial companies must work very hard to produce goods that are worth more than the four walls in which they are made,” he writes.

Further obstacles include the lack of spare production capacity in the UK and the loss of supply chains given the high proportion of UK manufacturers now in foreign ownership.

“Conditions in the UK sharply militate against the resumption of production in key sectors which largely disappeared in the UK from the mid-1990s onwards, such as textiles, toys, building products and consumer goods,” Gibson concludes.

“The British SMEs that do bring production home are likely to be a small number of manufacturers, such as Mulberry, which make high quality, high margin items.”

Gibson argues that government departments responsible for encouraging the rebalancing of the economy, such as the Department for Business, Innovation and Skills, are not well enough informed about the SME sector to work out an effective plan.

“Overall, the UK Government is unusually ignorant of the structure, status and circumstances surrounding the SME sector of the economy, especially the micro-SME sector of 1-9 employees, where the majority of investment goes unlogged and unrecorded by any state institution,” he writes.

Notes

The full report, ‘Bringing Manufacturing Back: Is the tide of offshoring beginning to turn towards reshoring?’, can be downloaded below.

Marcus Gibson is a former journalist for the Financial Times and BBC who now runs Gibson Index Ltd, a company that has pioneered a comprehensive index of 49,000 small UK technology companies across 54 trade sectors. The index is recognised as the leading expert source of accurate information on the UK’s smaller companies.

For further information contact:

Marcus Gibson
T: 020 7629 4064
E: info@gibson-index.com

Or:

Daniel Bentley
T: 020 7799 6677
E: daniel.bentley@civitas.org.uk

Civitas: Institute for the Study of Civil Society is an independent, cross-party think tank that facilitates informed public debate on important issues of the day. It is not affiliated to any political party and receives no state funding


Bringing Manufacturing Back: Is the tide of offshoring beginning to turn towards reshoring?

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