Manufacturing in Scotland

Content1. What is manufacturing?

2. Manufacturing and the Scottish economy

3. Why is manufacturing important?

4. The changing policy context

5. A manufacturing strategy for Scotland?

What is manufacturing?

National Statistics classifies a business under ‘manufacturing’ if more than half its revenue comes from ‘making things’

But the boundary between making things and selling services has undoubtedly become blurred

NS definition does not capture jobs and activities which depend on, or are closely allied to, manufacturing – for example, design work undertaken by a specialist non-manufacturing firm.

It is possible for a company to have more than half its revenues generated by manufacturing but a minority of employees directly engaged in making the product

Current statistics significantly underestimate the economic importance of manufacturing?

Manufacturing employment in Scotland

150000

200000

250000

300000

350000

1998

2000

2002

2004

2006

2008

2010

Year

Em

plo

ymen

t

Employment

EU27 Non-EU Total exports

Agriculture, Forestry and Fishing

95 40 160

Production and Construction

7,440 7,330 14,765

Of which manufacturing 7,240 6,770 14,010

Services 1,995 3,415 5,730

Total 9,525 10,780 20,660

Scottish exports by sector & trade area (£million), 2008

2008 (£1000s)

Manufacturing: total 407,018

Chemicals 159,898

Electrical machinery 109,108

Other manufacturing 113,237

Services 91,703

Other: Total 48,165

Grand total 546,886

Expenditure on R&D performed within businesses in Scotland 2008

Economic significance Jobs, R&D, exports Creates genuine wealth Drives innovation and productivity growth Enlarges the pool of skills and good jobs Sustains local supply chain industries and

services Supports the ‘export’ of business services

Social significance?

“With 3m jobs spread around the country – a good number in the middle income category – manufacturing is a force for social cohesion in a way that financial services are not”. Richard Lambert, Director, CBI

High value/low value“Manufacturing has a strong future. That future is based on

generating high value – to the company, to shareholders and to the country. High value manufacturers have strong financial performance, are strategically important and have positive social impact” (IfM, University of Cambridge)

“The UK along with other OECD countries has successfully retained large ‘low tech’ manufacturing sectors and we should build on the comparative advantage that implies…in knowledge based manufacturing we also need a ‘low tech strategy to complement the traditional ‘high tech’ one” (Work Foundation, Manufacturing and the Knowledge Economy)

Pop (millions)

Persons employed (1000s)

Labour costs (euro 1000 per

employee)

Value added (euro million)

UK 62 3,246 39.5 210,720

Germany 82 7,171 55.0 429,471

France 65 3,737 42.8 214,014

Italy 60 4,610 33.1 208,907

Sweden 9 797 46.2 49,948

Finland 5 407 43.0 30,078

Czech Rep 10 1,354 11.1 26,490

Poland 38 2,473 7.6 48,298

Europe: jobs, labour costs and value-added 2009

Changing policy context Previous UK Government policy: New

Industry, New Jobs; Advanced Manufacturing etc

EU policy UK election manifestos

Levers (1) Build on current momentum to design and implement

a modern industrial strategy for Scotland; built on comparative advantage with flexibility to address industry renewal and replacement

Fixing finance – Scottish Investment Bank is a positive start but new relationship between finance and industry is required

Skills and skills utilisation – sustainable productivity enhancement is vital to Scotland’s manufacturing future; investment in STEM subjects is essential

Levers (2) Image – quality employment is fundamental; so is

visible and unrelenting Ministerial support Ownership and control – create a level playing field

through implementation of a public interest test for takeovers and buyouts

Public procurement – extend the Defence Industrial Strategy approach to other key sectors?

State aid – increase to EU15 average and use strategically to support industrial strategy

Conclusion The continuing decline of manufacturing jobs is neither

inevitable nor desirable Manufacturing can thrive in ‘high cost’ jurisdictions Increasing manufacturing’s share of GDP will contribute

disproportionately towards meeting economic and social targets

Fixing finance is fundamental to elicit the levels of patient investment required to sustain and grow manufacturing

Scottish Government should revisit Economic Strategy to examine whether it provides sufficient support for manufacturing in Scotland