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Growth to manufacturing and engineering hampered

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Growth predictions for the manufacturing and engineering sector remain strong after a highly successful 2012, illustrating the industry’s resilience. This optimistic forecast came from the second annual SME Manufacturing Survey from MHA, who questioned 295 SMEs from a variety of sub-sectors within manufacturing and engineering.

Although last year’s survey saw more than half of the industry predicting growth and 33 per cent anticipating growth of more than ten per cent, the economic crisis had us worry about the accuracy of these predictions. But according to the 2013 benchmarking survey they were, indeed, correct; over half of respondents reported growth in 2012, with 33 per cent reporting a growth rate of more than ten per cent.

Although the survey provides a motivating outlook with 75 per cent predicting further growth in 2013, and more than 30 per cent anticipating growth in excess of ten per cent, MHA stumbled across some worrying results. 

The survey highlights a number of important issues and consistent trends, which cannot be ignored if the sector is to rebalance the UK economy.

1. Red tape

The burden of red tape and the lack of national strategy for the sector continue to trouble the vast majority of manufacturers and engineers. Vince Cable’s recent industrial strategy is doing little to allay difficulties – only two per cent believe his strategy will successfully address the needs of SME businesses.

2. Exports

Exports remain essential to industry profitability. Over half of respondents already take advantage of export opportunities. The survey, however, highlights the perceived barriers to exporting with sourcing and understanding local partners were cited as key barriers, followed by regulatory issues in export locations, funding and cash flow.

3. Funding

There are signs of optimism when it comes to funding; two thirds of respondents feel that they receive adequate funding from their banks, while 86 per cent indicate that they have not had a funding request rejected. The situation for grants, however, is less optimistic. While 40 per cent believe they have no access to grant funding, only 35 per cent have access with intentions to apply.

“Continued concerns over funding, in particular grants, may be indicative of the rigorous administrative process required to gain grant funding. It is clear from the survey results that more needs to be done to educate, inform and raise awareness of access to funding and how to obtain it”, says Chris Coopey, head of manufacturing at MHA.

4. Skills gap

Bridging the skills gap still remains high on the agenda. Some 58 per cent of SMEs questioned indicate their struggle to find employees with the right skills for the job. Respondents feel that the sector does not have the career cachet it deserves. More needs to be done to position manufacturing and engineering as a desirable career option.

5. Staff numbers and apprentices 

Employment plans were stable; only eight per cent of respondents indicated an expectation of reduced staff numbers. Excluding apprentices, 46 per cent expected staff numbers to increase, the majority of which focused on production. Apprentices and trainees remain of paramount importance. Over half of businesses surveyed plan to take on apprentices or trainees in 2013, only eight per cent of which intend to take on more than four.

6. Research and development 

Investment in Research and Development (R&D) is critical if the industry is to achieve long term competitiveness. The number of businesses investing in R&D in 2013 has increased from 37 per cent in 2012 to 47 per cent, who are aiming to invest up to two per cent of turnover in R&D in the coming year.

“Despite increased spend in R&D, there are still too few companies making the most of tax benefits,” commented Coopey.

7. Tax

Just 46 per cent of SMEs surveyed intend to make a tax credit claim. Only half are aware of how Patent Box could benefit their business. There is huge value in schemes like Patent Box and this missed opportunity reduces overall spending on R&D. Only 12 per cent indicated the scheme would be advantageous to their business.

“HMRC must do more to help companies understand tax credits. The revenue has acknowledged that there is uncertainty from businesses about what they can claim for and when. We can encourage our own clients but HMRC could do better to encourage the sector to take advantage of the higher rates of relief available,” reiterates Coopey.

8. Prices 

Pricing and costs emerge as a contentious issue within the report. While 83 per cent of respondents predicted an increase in their cost of production, only 47 per cent felt they could pass on price increases to their customers.

When it comes to absorbing the price increases, improved productivity, sourcing via new suppliers and implementing cost savings were listed as key. Despite indicating a need to improve productivity, plans to develop lean manufacturing processes still remain limited – only 37 per cent of respondents intend to introduce them. 

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