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Thursday, April 24, 2014
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UK manufacturers are ploughing investment cash back into businesses

21/08/2013 13:54 (245 Day 21:00 minutes ago)

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The FINANCIAL -- UK manufacturers will be significantly ramping up their investment spend despite the hostile economic environment, however more speculative attempts to break new export markets are less attractive, according to new research from Barclays.

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The survey questioned UK manufacturers on their attitudes and intentions towards investment and export growth, finding that whilst more than 8 in 10 (84%) found business conditions to be difficult, the tough economic environment seemed not to deter manufacturers from investing in their businesses.

Over half of respondents (54%) will be increasing investment spend over the next 12 months, while only 20% envisaged cutting back. These current investment intentions are robustly underpinned by both historic and longer term intentions. Looking back over the past five years more than two thirds (67%) of firms have been steadily increasing their levels of investment and a similar number (62%) plan on continuing to do so over the next five years, according to Barclays, a major global financial services provider.

When asked what kind of investments they will be making over the next year, the greatest focus will be on new machinery and machine tools (63%) followed by new product development (62%). Almost half (49%) will be upgrading their factory fixtures and fittings while more than 4 in 10 (42%) will be putting new investment behind research and development; however only 30% will be using investment funds to help them enter new markets.

Of those surveyed, 45% state that less than a quarter of their total sales currently come from exports, and only 35% see international trade growing beyond a quarter of their sales by 2018. Regardless of the extent to which they were exporters, most have been selling abroad for a long time – 62% have been exporting for over 15 years. Only 3% have started exporting in the last 2 years, therefore showing that those who export have been doing so for at least a decade but have little appetite to look at new markets. This will do little to help the government’s ambitions to balance the trade deficit, according to Barclays.

 

“Whilst it’s a tough environment today for UK manufacturers, the survey results show they are in this for the long-run, committed to increased investment to make sure they are in the best possible shape when we come out of recession, and showing that there is confidence in long-term profitability," said Mike Rigby, Head of Manufacturing at Barclays.

“However whilst businesses are ring-fencing cash for new machinery and upgrading factory fittings which are familiar areas that offer secure returns, there’s less appetite for more speculative attempts to grow exports in a far flung market even with the lure of higher returns. Manufacturers appear to still have some reservations about investing in new faster growing markets to try to increase sales, instead they are still focused on the quick wins that cost cutting can bring to the bottom line,” he added.

The biggest barriers to exporting are cost (47%) and competition (42%), with 20% stating a lack of government support, the same number as those admitting their own lack of know-how (20%), according to those surveyed. When asked what their key reasons were for exporting, the approach appears to be more reactive than proactive, with 80% saying they are driven by customer demand, followed by 76% who state sales opportunities.

When it comes to export markets, well established trading alliances continue to be British manufacturing’s favoured foreign customers, with the USA and Germany identified as the best export markets for both sales growth and value. The BRIC-led export growth however has yet to materialise – almost a third don’t sell a single thing in Brazil, Russia, India or China.

There is however recognition amongst those surveyed that emerging markets offer sales growth opportunities for UK manufacturers, with India, Asia (excluding China) and Brazil identified as having the greatest potential, however it appears these opportunities are not being fully explored.

“While being prepared to cautiously probe new markets, UK manufacturers gravitate to what they know, favouring the mature markets like the US and Western Europe. Whilst this further highlights the importance of the successful outcome of current negotiations towards a bilateral EU-US trade agreement, it also shows manufacturers need greater help to go beyond their comfort zone and tap into new and emerging economies,” said Mike Rigby.

Respondents were also asked whether the government’s decision to extend capital allowances had impacted their investment plans, however 63% believe it’s had ‘no impact’ on their plans at all, with only 3% stating it’s had a ‘significant impact’, according to Barclays.

 

 

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