Emerging markets are being targeted by UK manufacturers says EEF

17 January 2012

UK manufacturers are targeting non-traditional markets, responding to the changing tastes of consumers and taking advantage of supply chain opportunities, according to a new survey of senior manufacturing executives conducted by the Engineering Employers' Federation (EEF). Britain’s manufacturers are looking past economic gloom and focusing on generating continued growth in their own business through 2012. They are seeking to achieve this by increasing exports to emerging markets.

EEF Chief Economist, Ms Lee Hopley

The Manufacturing Executive survey, published together with EEF’s 2012 Economic Prospects report, shows the outlook for the economy in the year ahead comes with a high degree of uncertainty. The main challenges stem from the unresolved eurozone crisis and its potential negative impact this on access to finance and the ability of other markets to shake off the effects of recession . This uncertainty is shared by manufacturers and has fed through to a deteriorating view of growth prospects for the economy as a whole. A fifth (21%) of executives expecting conditions the UK economy in 2012 to be better than in 2011, but half ( 49%) believe conditions will worsen.

Manufacturers are much more optimistic about growth potential within their own businesses in the year ahead. Whilst there are signs that companies have already adjusted their business plans in response to the growing global economic uncertainty, firms are hunting out new, global markets for their products and services to take advantage of growth opportunities. UK manufacturers are targeting non-traditional markets, responding to the changing tastes of consumers and taking advantage of supply chain opportunities.

Executives see these strategies paying off with our survey showing continued confidence about their performance in export markets, with over four fifths expecting sales to be the same or greater in 2012 compared with last year. Responses on likely sales in the UK market are also broadly positive, especially amongst SMEs. This should also lead to some recruitment of permanent employees.

Furthermore, the actions that manufacturers are putting in place to drive productivity growth and develop new products and services will also stand the sector in good stead for medium- and longer- term growth prospects.

Commenting, EEF Chief Economist, Ms Lee Hopley (pictured), said: “UK manufacturing has posted solid growth in the past few years but the environment has clearly become a lot more challenging. The road ahead for manufacturing and the UK is extremely uncertain but there still some grounds for optimism. Manufacturing has proved to be agile and resilient through a bumpy recovery and companies are continuously looking for new sources of growth. Most manufacturers continue to grasp the opportunities in untapped markets for services and in faster growing emerging markets. Together with the diversification of supply chains, these factors are underpinning some confidence at firm level that sales will end 2012 higher.

“However, this year won’t pass without challenges. Uncertainty about the wider global economy, lingering problems with the supply of affordable to businesses and supply chain constraints and raw materials shortages could impact on production levels and confidence. If we can navigate these hurdles, manufacturing should again play a role in delivering the balanced growth our economy needs.

Despite the confidence around firm level performance, the report also highlights risks to growth plans.

According to the survey the greatest risk to manufacturers’ prospects in 2012 comes from raw materials shortages. Concerns that growing pressure in supply chains and shortages or stretched lead times of some raw materials could impact on production are cited as a top risk to growth by two-thirds of executives. And inevitably the events in Europe and potential knock-on consequences on the UK and on the provision of finance are seen as major risk by two-fifths of companies.

Executives’ upbeat assessments of their own prospects are matched by positive attitudes to the UK as competitive location for manufacturing in the year ahead, However, the report highlights concern that this sentiment has slipped since 2009, particularly among some larger manufacturers. This argues for keeping up the momentum on the government’s reform agenda or risking longer term challenges, not just for manufacturing, but for the economy as a whole.