Homeward Bound? Seizing Manufacturing Onshoring Opportunities. Part 2
This is the second of three blogs which develops and extends my recent Birmingham Post column on 'onshoring' opportunities in manufacturing which can be found here. The first blog in this series can be found here. Part 3 is on Friday.
As highlighted in earlier blogs, for various reasons the possibility of repatriating certain manufacturing activities - and especially the sourcing of some components back to the UK - does offer potential, particularly in terms of rebuilding some of the UK's fractured supply chains.
The latter has been identified by researchers - such as those at the Centre for Research on Socio-Cultural Change (CRESC) - as a key weakness of the UK's manufacturing base. Froud et al (2011: see here), for example, note that in the UK's largely foreign owned branch assembly plants, broken supply chains effectively undermine high British content and limits domestic backward linkages.
The danger here is that attempting to foster 'rebalancing' and manufacturing revival is superficially attractive but could simply mean more assembly in the UK, with increased spending on components and other intermediate products then leaking abroad. Work by CRESC notes the example of JCB, where the British content of its diggers declined from 96% by value in 1979 to just 36% by 2010.
In other work CRESC has highlighted the case of Bombardier; while arguing for a more sophisticated government procurement policy to support jobs at Bombardier jobs, it also stresses the effects of broken supply chains which limit the upstream national benefits of the firm's activities in the UK (Froud et al, 2011: see here).
Of course, increased international trade coordinated by multinational firms across borders has been a key feature of the 'deeper' form of globalisation witnessed in recent years, and this involves more sourcing of components by manufacturers across borders in general.
But the CRESC research is especially interesting in highlighting that the trend of overseas sourcing from UK based firms has been especially pronounced; in British machinery and vehicles some 50% of intermediate purchases are imported as against just 30% in Germany where the propensity to import is much lower (Froud, 2011).
Similarly, while the recent news of GM's Ellesmere Port being saved from closure after a landmark deal on flexibility and wages was very welcome, at present only 25% of the components going into Astra cars assembled at Ellesmere Port come from the UK. This puts into stark contrast how fractured and weakened local supply chains have become as GM - like other assemblers - shifted sourcing out of the UK.
That needs to change, and there is some hope that it could, with a bit of help. Under GM's latest plans for the plant, costs will reduced by running three shifts a day, increasing output, more flexible working but also by sourcing more parts locally in the UK - a very recent trend given higher transport costs making local sourcing a more competitive option.
In fact, Ellesmere Port was seen as vulnerable to possible closure in part precisely because it currently sources a large proportion of components from mainland Europe and exports assembled cars back to the continent. As well as huge effort by workers and unions to save the plant, government support was also important, and the challenge now is to use that support so as to foster spillovers in terms of wider capacity building in the supply chain.
On the latter, the Coalition government has recently unveiled a £125 million Advanced Manufacturing Supply Chain Initiative (AMSCI) to help develop local suppliers around the UK's major manufacturers (including auto). The fund is aimed at supply chain companies and can be used for capital expenditure, skills and training, and R&D projects. The scheme aims to build on an earlier auto-focused Regional Growth Fund bid by several Local Enterprise Partnerships (LEPs).
While a welcome start, the overall amount of funding on offer, £125 million, is limited, and due to the minimum project threshold value of £2 million, bids often need to be from several companies clustering together. Extending the scheme so that smaller firms can directly access the support available seems critical, especially when the lack of access to finance is a major issue for such firms - more on that later in the week.
Professor David Bailey works at Coventry University Business School