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Outlook 2011: Helping UK electronics thrive

The concept of a 'rebalanced' economy has become central to the debate on how the UK can emerge from recession and generate sustainable growth.

Economic 'balance' has come to refer to many things, including the balance between imports and exports, the balance between the public and private sectors, the balance between public spending and tax receipts, and the balance between the South East and the rest of the country. The most popular debate, however, is the balance between different sectors in the economy.

This issue has become particularly topical in the aftermath of the global financial crisis, which has led many to question the decades long rise of the UK's financial services sector at the expense of manufacturing industries.

An important debate has begun between those who believe the UK needs a new balance between its different sectors, relying less on financial services with a greater role for manufacturing and technology, and those who believe that services (in particular financial and business services) will continue to provide the country's 'bread and butter' and its best chance of recovery. Even in times of austerity, the Government has still a pivotal role to play in creating the right conditions to stimulate growth, business enterprise and innovation to meet the economic challenge. As far as electronics is concerned, the aim should be to change the profile of and grow manufacturing in the UK as part of a balanced recovery for the economy.

The increased investment by countries such as China and India into high-value, rather than merely low-cost manufacturing, puts additional pressure on the UK to present itself as the nation in which high-technology, advanced manufacturing should take place. Moreover, the high risks involved in areas such as start-up finance and the constant changes in-built in the electronics sector, trigger questions of the government's role in helping to deliver on its commitment to a recalibration of the economy.

This is indeed the landscape in which Intellect will be operating in the near future. Because manufacturing sectors vary greatly in size, strategies, performance and priorities, they respond differently to common policies across the whole economy. Policies therefore need to be supported by a detailed understanding of sectoral needs and their implementation tailored to differing sectoral priorities. Intellect and its members in the electronic manufacturing and design sectors have hence immense opportunities to shape the debate and assist the Government in better understanding how the sector is changing, identifying the most restrictive barriers and the overcoming them.

So what are Intellect's plans for the sector? Intellect is establishing firm links with the new establishment and facilitating exchanges of information about the strengths and achievements of British electronic manufacturing. At the same time, it is talking with – or, more accurately, listening to – the industry in order to convey a message that is truly reflecting of what UK electronics needs to thrive in a hyper-competitive global economy. Encouraging innovation across the country will require a business environment which encourages a diverse pool of ideas to emerge from universities and companies, promotes entrepreneurial risk-taking, fosters open and competitive markets, provides a supportive financial architecture and a highly skilled workforce.

The technology industry – and electronics in particular – is a key enabler to the competitiveness of other sectors, which is why, as Mark Prisk, Minister of State for Business and Enterprise, has stated recently, it remains a priority for the coalition Government. The latter has indeed assured audiences several times that it is keen on making Britain the leading high-tech exporter in Europe and, as James Dyson highlighted in his influential Ingenious Britain report, manufacturing isn't just assembly; it's intellectual property, technology, design and specialist engineering.

Industry is thus being called to come out and showcase what it is currently doing. The overall policy objectives of business growth and export success ought to go hand-in-hand with raising the political and public visibility of the sector.

Manufacturing in the UK is suffering a rather poor image at present, partially caused by the relative decline experienced in recent years. This view has led to a low profile of the industry, with its contribution to the economy often underestimated, and has made it harder to attract young people into what are, in fact, increasingly highly skilled and well-paid jobs. The idea that in a forward-looking modern society manufacturing is irrelevant is flawed and needs to be reversed starting with the media. A sustainable and competitive economy is in fact the combination of high-tech manufacturing, business and financial services, and this needs to be effectively communicated at all levels.

Any governmental approach should consider the UK's role in a global economy, including monetary policy and currency issues as they have a major impact on imports and exports. Low value-added commodity products will always be manufactured in countries with competitive labour costs heating up the debate over foreign takeovers of UK companies and the loss of strategically important factories.

So what will the British electronic manufacturing sector look like in the future under this scenario? Will it be a niche, highly specialised, sector in a service-dominated economy or will a 'made-in-Britain' high-tech manufacturing industry emerge, perhaps moving towards more intangibles such as software development or design?

Cloud computing is steadily consuming hardware in favour of software and services and some argue this is good for customers, the environment, and those businesses prepared to change. On the other hand, the most dynamic and successful UK-headquartered manufacturing businesses are locating plants in low-cost countries while keeping the low-volume high-value R&D-led capability in Britain.

In order to maintain global competitiveness, the UK needs a sound industrial policy. Whether or not the administration of the day is interventionist, protectionist or liberal, governments will always play a role in tax, education, regulation, and public infrastructures. Some argue that policies need to be sector-specific, and the government ought to develop a long-term vision for each sector to provide companies with the certainty required to undertake long-term investments. Others believe that the government can create an environment for business to flourish without directly funding it in order to avoid distortions in the allocation of capital.

Accordingly, it needs to be stressed that, while governments are ill-equipped to 'pick winners', they can create losers with badly thought policies on, for example, taxation and regulation. For example, Intellect has been especially supportive of refocusing the tax credits to concentrate on the hi-tech industry, which is comprised, by its very nature, of research intensive companies that can be expensive to set up. Intellect has long argued that R&D tax credits are vital to assist companies making a long term investment in the UK, support high value jobs and a thriving export market for the future.

Intellect is therefore delighted that, as things stand, the Government has decided to retain the R&D tax credit as a central part of its strategy to support and encourage innovation in the UK.

Marco Pisano is the programme manager at Intellect

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Marco Pisano

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