An economy cannot survive on services alone. Just look at China: the country that has set the pace for economic growth is pursuing its ambitious “Made in China 2025” strategy to upgrade its manufacturing capabilities. This stands at odds with the relative decline in developed countries’ manufacturing sectors. Nations that were once the workshops of the world have experienced significant declines in their industrial output this century, including countries like the United States, France and the United Kingdom.
But if manufacturing in “post-industrial” societies is in terminal decline, no-one has seen fit to tell manufacturers themselves. Sage’s latest in-depth report into manufacturing trends in the UK, US and Canada, Riding the Wave of Uncertainty, paints a picture of an industry that’s bursting with confidence, with an astonishing 99 per cent of manufacturers in these countries preparing for future growth.
At the same time, they recognise that the road ahead will be bumpy – not least in terms of regulatory and political changes that will affect their business models. Yet these challenges also present an opportunity for those companies bold enough to adapt to new rules and trading environments.
Globalisation – challenges and opportunities
Brexit provides the best illustration of a country grappling with a major change to its trading relationship with other nations, but it’s far from the only example. Businesses in the US also face significant challenges in the form of bilateral and renegotiated trade agreements, as well as corporate tax reform. These changes could also affect supplier networks and sources of supply, which will undoubtedly push up the cost of raw materials.
This is especially pertinent to process manufacturers, which typically source materials and components from across the globe. As every business knows, increased regulatory hurdles - for example, in the form of tariffs – will ultimately have to be absorbed by the manufacturer or be passed on to the consumer, neither of which is an easy choice.
In fact, our research shows that there are a range of external forces affecting process manufacturers, with preparing for regulatory changes ranked ahead of data breaches/cyber security and globalisation.
Across the three markets we polled, 54 per cent of process manufacturers said regulatory change is one of the biggest external factors impacting their business. Globally, more than 80 per cent of process manufacturers report that import/export changes are affecting their strategic decision making, with a third saying import/export changes are having a ‘very high impact’ on strategic decision making.
Yet these challenges also represent fertile ground for product and strategic innovation. Take the uncertainty surrounding the UK’s proposed exit from the EU. Our research found that process manufacturers saw more business opportunity in creating locally produced, artisanal goods with higher prices than cheaper, mass-produced goods.
Nor is this trend limited to Brexit Britain. Although process manufacturers in the US and Canada saw slightly more opportunity in cheaper international products, more expensive locally produced products were still considered a better opportunity by nearly half of respondents.
In all three countries surveyed, there is still a view that product being made locally is regarded as a badge of quality. This may be why higher pricing does not seem to be a major concern for businesses and consumers for locally sourced products, which will be especially true if the quality of the product is indeed better.
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Seizing the initiative
Opportunities abound in even the toughest and most protean of trading environments. The trick is to identify and exploit them. It may be a case of stressing the product’s provenance and quality or highlighting how it helps to reduce environmental impact – for example, through shortened supply chains. Focusing on local suppliers and markets can also boost profit margins by avoiding tariffs when goods cross international boundaries, or where they experience currency fluctuations.
New regulation is often described as a brake on productivity and a costly burden to shoulder, but in fact it can create new opportunities for manufacturers by encouraging them to develop new product lines, explore new market segments, and create more local supply chains – all of which will align them more closely with a clientele that simultaneously demands greater choice and better sustainability. Meanwhile, regulatory changes also provide important impetus for manufacturers to update their technology estate, ensuring that they are more efficient and competitive.
Although this may seem like a difficult choice in an uncertain trading and regulatory environment, around half of all process manufacturers in all three countries said that they were more likely to invest in technology. Meanwhile, our research showed that two thirds said that Brexit and changes in US trade and tax policy are influencing their decision to invest in new technology.
Reports of manufacturing’s demise are exaggerated, and the service sector should not celebrate its supremacy just yet. Our research shows a process manufacturing industry in rude health – and confident of meeting the challenges of today by investing in the manufacturing of the future.Such investment must dovetail precisely with the opportunities that process manufacturers have identified. For example, the need for greater agility and more streamlined supply chains will require access to technologies like ERP that connect information across the business and give every department access to, say, global trade data to inform their decision-making.