Time for manufacturers to take risks

Risk averse manufacturers in the Midlands are stifling potential growth in exports and in doing so are stalling economic growth in the region, according to a leading academic and business commentator.

Professor David Bailey from Coventry University Business School said the UK was too reliant on the US and Eurozone for its exports and needed to look further afield to countries such as China and India, where there are rapidly expanding markets.

“We are going to see fairly sluggish growth in the UK given the scale of government cuts coming through and there is uncertainty in our major export markets in the US and Eurozone,” he said.

“Manufacturers therefore need to take more risks and look much further afield for export opportunities. The only way we can rebalance the economy and drive growth in the region is if manufacturers make a concerted effort to target export markets in the Far East and Asia, for example, which, if successful, will also help boost employment.”

Prof. Bailey, who was speaking at Deloitte’s annual Midlands Manufacturing Dinner in Birmingham, said although there had been modest growth in export markets, the growth had not been as much as expected.

“We have seen some growth and that’s very positive as it means that manufacturers have been exporting their way out of trouble and in doing so have helped rebalance the economy,” he said. “However, the growth has not been as much as we had hoped given the 25 per cent depreciation in Sterling.

“I think there are two reasons for this. Firstly, we are too reliant on the Eurozone as our major exporters and, secondly, manufacturers have looked to take the opportunity of the exchange rate depreciation to increase prices abroad, boost profits at home and not increase volumes.

“So what we now have is risk averse manufacturers holding back possible growth in exports, which at some point needs to be tackled.”

Jane Lodge, Midlands manufacturing industry leader at Deloitte, said the export market was critical to Midlands manufacturers.

“As we move forward out of recession it is important that we are able to export goods and services all around the world, in order to bring in the revenues we need to the region,” she added.

“What we need to see is more businesses in the Midlands taking a risk and looking to export to China and India, where our exports are at a woefully low level compared to some of our competitors.”

As well as taking risks, Ms Lodge said manufacturers needed to keep a strong focus on working capital.

“Cash is king is a well-used adage in business but it is extremely important,” she said.

“As the UK emerges from recession, there will be opportunities for manufacturers to take a step forward, but it’s really important they continue focusing on research and development, spotting the opportunities overseas and ensuring they operate their business in a smart and efficient way, which includes keeping an eye on working capital.”

Prof. Bailey said the manufacturing industry needed more support from the government and voiced concerns about the widespread cuts to public expenditure.

“One of my concerns is that support for business may be cut too hard,” he said. “The abolition of Regional Development Agencies, for example, may result in a lot of support for manufacturing in the West Midlands effectively disappearing.

“One thing I think government could do more of is to support exports, in terms of being more generous with export credit guarantees, as well as doing more to help businesses find new markets overseas. 

“2011 could be a challenging year for manufacturers, given the scale of the cuts that are coming in and the reduction in confidence, so it will be a case of getting through what will be a period of quite slow growth.

“Some overseas markets will be growing and manufacturers need to tap into those. There’s also the opportunities arising from green technologies and I think the low carbon agenda will be a big issue for the future too.”


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