Will UK manufacturers ever be competitive enough to compete effectively with overseas companies? (40)
As globalisation continues and western values spread around the world some UK manufacturers are slowly becoming more competitive again. However being competitive can be defined as many things for some businesses like Rolls Royce it is quality, so they have never had much of a problem, but for others who rely on tight margins it is price and in many cases they have been massively squeezed by overseas competitors. Although, some UK manufactures are still lacking competitiveness compared to other countries lots are improving as stated in item A 34% of UK manufacturers have seen an increase in orders in the past 3 months.
One reason UK manufactures will very soon be highly competitive in comparison to the rest of the world is because of rising overseas costs in rapidly developing economies like China. As wages remain stable in the UK they have rapidly increased in China 500% in the last 8 years because there are more jobs than people. This coupled with the high rate of Chinese inflation and export costs to the UK means many businesses are now not bothering moving production overseas. A good example of this is Caldeira UK they produce cushions partly in the UK and partly in China. Last year the difference between producing a cushion in China and a cushion in the UK was 55pence now it is just 8. With a reputation for good quality as well this shows the UK is a competitive place to manufacture.
Another reason the UK can already be seen as a good place to manufacture in comparison to other countries is because of high quality of employees in the UK. Despite finding fewer jobs now in manufacturing the UK has managed to improve its output 1.4% every year. The ONS also found more and more businesses felt encouraged to manufacture in the UK due to the higher skill set of employees. This is especially relevant for manufactures that are producing products renowned for their quality. Jaguar Land Rover recently opened a new £500m factory in Wolverhampton to take advantage of the skill base to produce the Jaguar Saloon engines. Although the UK may not be as competitive as far eastern countries on wages, if UK manufacturers are able to produce better quality products they can sell these for much more and make their profits that way.
However, there is an argument to be had to say that UK manufacturers will never be as competitive as their overseas rivals in some areas. The main reason for this is because although labour costs may be decreasing at the moment they tend to be significantly lower in overseas countries like Indonesia and Taiwan. Although quality may suffer and the ethics of a business can often come under question, for big businesses like Primark it is much cheaper to manufacture overseas. A good example of a company which is highly unlikely to manufacture in developed countries like the UK and the US is Nike. One of the reasons Nike is such a successful business is because of the massive profit margins they make on their products. For the majority of Nikes’ trainers it costs them just £20 to make. They then sell these trainers on for north of £45 making at least a huge £25 net profit per trainer. The reason Nike are able to produce their trainers at such low cost is because at their factories in Indonesia and Vietnam they pay workers just £2.50 a day. Although this is seen by many as highly unethical it is something that could never be achieved in the UK. This is a clear argument against the UK ever being able to be competitive on labour costs compared to far eastern countries.
Overall, I believe the UK is already competitive on the world stage when it comes to manufacturing. Although, we may not be in some areas like labour costs it is impossible to say the UK will never as there is evidence in China the gap is decreasing, and no one can really say they know for sure what will happen in the future. In the short term the UK should continue to remain ultra-competitive in its strong areas like quality and not it slip. Whilst in the long term businesses should try and maintain steady wages to increase competitiveness on labour costs as many countries. However this depends on many factors. Firstly, what the government plan to do in regards to the minimum wage if they plan to increase it, this could squeeze UK manufacturing margins. It also depends on the type of business, as for some like Primark it is highly unlikely to ever be a pragmatic solution to manufacture in the UK.
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