Manufacturing in Scotland

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Content

What is manufacturing?

Manufacturing and the Scottish economy Why is manufacturing important?

The changing policy context A manufacturing strategy for Scotland?

What is manufacturing?

     National Statistics classifies a business under ‘manufacturing’ if more than half its revenue comes from ‘making things’ But the boundary between making things and selling services has undoubtedly become blurred NS definition does not capture jobs and activities which depend on, or are closely allied to, manufacturing – for example, design work undertaken by a specialist non-manufacturing firm.

It is possible for a company to have more than half its revenues generated by manufacturing but a minority of employees directly engaged in making the product Current statistics significantly underestimate the economic importance of manufacturing?

Manufacturing employment in Scotland

350000 300000 Employment 250000 200000 150000 19 98 20 00 20 02 20 04 20 06 20 08 20 10

Year

Scottish exports by sector & trade area (£million), 2008 Agriculture, Forestry and Fishing Production and Construction

Of which manufacturing

Services

Total EU27

95 7,440

7,240

1,995

9,525 Non-EU

40 7,330

6,770

3,415

10,780 Total exports

160 14,765

14,010

5,730

20,660

Expenditure on R&D performed within businesses in Scotland 2008 Manufacturing: total Chemicals Electrical machinery Other manufacturing Services Other: Total Grand total 2008 (£1000s) 407,018 159,898 109,108 113,237 91,703 48,165 546,886

Economic significance

 Jobs, R&D, exports  Creates genuine wealth  Drives innovation and productivity growth  Enlarges the pool of skills and good jobs   Sustains local supply chain industries and services Supports the ‘export’ of business services

Social significance?

“With 3m jobs spread around the country – a good number in the middle income category – manufacturing is a force for social cohesion in a way that financial services are not”. Richard Lambert, Director, CBI

High value/low value

“Manufacturing has a strong future. That future is based on generating high value – to the company, to shareholders and to the country.

High value manufacturers have strong financial performance, are strategically important and have positive social impact

” (IfM, University of Cambridge) “The UK along with other OECD countries has successfully retained large ‘low tech’ manufacturing sectors and

we should build on the comparative advantage that implies

…in knowledge based manufacturing we also need a ‘low tech strategy to complement the traditional ‘high tech’ one” (Work Foundation, Manufacturing and the Knowledge Economy)

Europe: jobs, labour costs and value-added 2009 UK Germany France Italy Sweden Finland Czech Rep Poland

Pop (mil lion s)

62 82 65 60 9 5 10 38

Persons employed (1000s)

3,246 7,171 3,737 4,610 797 407 1,354 2,473

Labour costs (euro 1000 per employee)

39.5

55.0

42.8

33.1

46.2

43.0

11.1

7.6

Value added (euro million)

210,720 429,471 214,014 208,907 49,948 30,078 26,490 48,298

Changing policy context

 Previous UK Government policy: New Industry, New Jobs; Advanced Manufacturing etc  EU policy  UK election manifestos

Levers (1)

   Build on current momentum to design and implement

a modern industrial strategy for Scotland

; built on comparative advantage with flexibility to address industry renewal and replacement

Fixing finance –

Scottish Investment Bank is a positive start but new relationship between finance and industry is required

Skills and skills utilisation

– sustainable productivity enhancement is vital to Scotland’s manufacturing future; investment in STEM subjects is essential

Levers (2)

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Image

– quality employment is fundamental; so is visible and unrelenting Ministerial support

Ownership and control

– create a level playing field through implementation of a public interest test for takeovers and buyouts

Public procurement

– extend the Defence Industrial Strategy approach to other key sectors?

State aid

– increase to EU15 average and use strategically to support industrial strategy

Conclusion

     The continuing decline of manufacturing jobs is neither inevitable nor desirable Manufacturing can thrive in ‘high cost’ jurisdictions Increasing manufacturing’s share of GDP will contribute disproportionately towards meeting economic and social targets Fixing finance is fundamental to elicit the levels of patient investment required to sustain and grow manufacturing Scottish Government should revisit Economic Strategy to examine whether it provides sufficient support for manufacturing in Scotland