It’s never promising to break for Christmas holidays with sad and gloomy news. So, the gist of this blog will be encouraging and forward-looking.
Despite general alarming feelings about the UK and European economies, several measures announced in the chancellor’s recent autumn statement are welcomed such as:
With Chinese wages rising at about 17% per year and the value of the Yuan continuing to increase, the gap between Western countries and Chinese wages is narrowing rapidly. Some analysts overseas expect net labour costs for manufacturing in China and the US to converge by around 2015. After adjustments are made to account for American workers’ relatively higher productivity, wage rates in Chinese cities such as Shanghai and Tianjin are expected to be about only 30% cheaper than rates in low-cost US states. And since wage rates account for 20-30% of a product’s total cost, manufacturing in China will be only 10-15% cheaper than in the US – even before inventory and shipping costs are considered. After those costs are factored in, the total cost advantage will drop to single digits or be erased entirely. (more…)
There was, once upon a time, a global trend that caused multinational corporations to move towards locations where the cost of human labour was cheaper… Now this trend may cease and even reverse as industrial automation gets smarter, cheaper and cleaner. Who says that a modern, fully automated factory needs to be placed in the Far East indeed? (more…)
One element of recession coverage that really gets under my skin is the oft repeated view that UK Manufacturing has ‘fallen off a cliff’ recently. Firstly, what cliff are we talking about? Dover? Or, as one commentator recently put it, ‘not so much a cliff, more Mount Everest!”. In fact, the keener the author is to get coverage, the more dramatic the metaphor that is used.
I’m not denying that large elements of the sector are in trouble. It is not a good time to be making cars in the UK. But at the same time, to talk about all manufacturing in this light is at best a generalization and, at worst, simply incorrect.
If you talk to the electronics manufacturers involved with Intellect, and read the data we collect from them on a monthly basis, you get quite a different story. Many members in this area are lower down the supply chain and sell on a business to business basis, rather than directly to consumers. In general, their business model revolves around outsourcing, or contract manufacture of some kind. A recent poll of their customers noted that 59% of expected to increase outsourcing in 2009. There is every sign that their markets are actually growing, rather than contracting. Customers want low-cost added value manufacturing options. Moving production away from in-house facilities saves money. And everyone wants to save money at the moment. Some members are even opening new facilities and expanding capacity to meet new demand.
Those electronics manufacturers even lower down the supply chain, especially those that make items like circuit boards (the base material of all technology products) are little bit more reticent. We’ve seen layoffs here, and order books are generally fairly flat. But there has been certainly been no crash in the same way there apparently has been in other manufacturing industries.
In essence, I’d say that UK Electronics Manufacturing is engaged in a bit of light down-hill skiing (probably on a blue slope) rather than, as the analysts would have us believe, involuntarily base-jumping off Mount Everest. Hopefully as the rest of UK Manufacturing catches up, analysts metaphors will as well.
Thankfully, the most recent data shows that perhaps this process is beginning.