Electronics is putting the ‘Great’ into Great Britain
Talk to any major economist and you will hear that the UK is a great place to do business. The taxes and business incentives for manufacturing companies are among the most favorable in the world. Its proximity to continental Europe and its independence from the troubled Euro, make it an attractive manufacturing destination. Some might argue that the British government is trying hard to bring manufacturing back to British shores. But, here is the strange thing – it never really left in the first place!
According to a recent report from ESCO1 (Electronic Systems Community), electronics employs around 850,000 people and produces £80 billion in revenue, which is a massive 5.4% of the UK’s GDP.
British manufacturing output for the electronics sector is even greater than Germany, and yet everyone thinks that German engineering is the engine room of Europe. Yes, our European cousins may well produce more of the mid- to high-volume production, but in terms of innovation, new technologies and sheer entrepreneurial ingenuity, the UK is thinking man’s crumpet! Frankly, this should hardly be a surprise as the British invented such amazing inventions as the telephone, television, computer, world wide web and many other products that are now essential to our everyday life. Some of the household names such as GEC, Racal, Thorn-EMI, STC, Decca, Lucas etc. may have left British shores, but the brains that powered their technologies and inventions, stayed home.
For the most part, they have resurfaced in small- to medium-sized enterprises, making a plethora of high reliability products and devices for tomorrow’s applications.
Electronics in the UK
There are an estimated 30,000 enterprises involved in UK electronics, but on closer examination, much of this employment is concentrated on the 1,250 companies employing more than 50 people. Many of these companies are foreign-owned multinationals that are investing in a set of unique capabilities that offer strategic value to the parent company. The remaining 28,000 enterprises foster microcosms of research and small-scale production that are often the source of rapid growth and disruptive products. Many of these smaller enterprises grow until they are eventually acquired by the larger companies that feed off their innovation. This is by no means an ideal evolutionary path for UK enterprises and more assistance is needed to identify these rapid growth or disruptive product companies, invest in their brands and help them scale their production.
What drives innovation
As any historian will testify, war is a known harbinger of change. When man faces seemingly impossible odds, he is at his most creative. Although the UK is not directly involved in many armed conflicts, it is home to some of the world’s leading military hardware and software manufacturers. The threat may not be on Britain’s doorstep anymore, but the long list of international clients who buy British made weapons systems, constantly drive innovation to new heights. This technology generally trickles down to consumer-led applications over time. Another driver of change is the burgeoning medical device industry. The UK is the largest medical market in Europe, worth £6 Billion ($9 Billion) and includes the electro-medical market, estimated at £400 Million. Electronics monitoring systems, delivery devices and wearable technologies are growing at a fast pace, with much of the research and new technology coming from British start-ups. And automotive – the UK is home to McLaren, the racing car group. Many of the technologies developed in the McLaren labs to improve the performance of the fastest driving machines in the world, from Formula 1 and IndyCar to NASCAR, eventually find their way into domestic cars and other transport systems, such as the Bay Area Rapid Transit System in San Francisco. Not many are aware of the size of the UK automotive business2 comprising Jaguar Land Rover, Nissan, Toyota, Honda, but also a huge bus, truck and tractor sector as well. One production line alone in the UK is producing more vehicles per year than the entire Italian automotive industry combined.
Research and development
R&D is an essential element of the UK electronics sector. According to John Boston, Managing Director at CIL Limited, “increasingly, OEM’s are pushing the responsibility for R&D back onto their suppliers and CEMs”. Much of this research is being performed at an industry level through funding opportunities like the Small Business Research Initiative (SBRI) operated by Lloyds TSB bank. There are also many collaborative opportunities to participate in research projects with the many academic and government funded institutes across the country.
Manufacturing remains a vital wealth generator for any modern economy and is an important driver for growth and innovation. Britain houses around 5,000 manufacturing enterprises employing around 200,000 people. The industry is largely export-driven with over 75% of manufactured goods being shipped to foreign destinations.
Most engineers are aware that there has been a steady flow of reshoring taking place over recent months. According to the ESCO report, 25% of companies who manufactured products overseas have brought it back to the UK, with 85% claiming they intend to increase the number of products manufactured in the UK as many companies assess the ‘real’ cost of manufacturing overseas. The traditional model is called ‘The landed cost of goods’ equation. This takes into account the cost of raw materials, labor, logistics and all other costs involved in delivering the finished product to the end user. What it doesn’t accurately measure are the intangible costs, such as risk. What happens if there is a natural disaster or the price of oil increases sharply. Many OEM’s are working on 3-4% margins and they cannot afford such deviations in their cost model, so reducing risk is one key driver of the recent reshoring trend. Another problem is the ‘disconnect’ between design and manufacturing and the sheer inconvenience of communicating across multiple time zones in a different language. Add in the cost of the flights, hotels and late night conference calls trying to explain engineering requirements and the level of frustration and time to market can be stretched. But there is a premium to be paid for reshoring. It is estimated to be around 20%, depending on what you are manufacturing and how energy dependent you are. However, most companies think this additional cost is more than offset by the benefits of working with a highly skilled workforce and shorter supply chains.
But to grow the British electronics workforce to the magical target number of 1,000,000 we need trained and well educated employees. Trouble is – fewer students are taking math, science or engineering degrees today. And this is not just a British phenomenon. Across the western world there is a sizeable skills shortage in science and engineering degrees. So did we throw the baby out with the bathwater when we sat idly by as our medium- to high-volume manufacturing migrated offshore? The Skills Council for Science, Engineering and Manufacturing Technologies (SEMTA) are acutely aware of the shortage and have implemented an ambitious program to recruit and train 82,000 engineers, scientists and technologists by 2017. The program is centered around industry-sponsored summer work placements, residential summer schools and schools projects across the country.
“To grow the British electronics workforce to the magical target number of 1,000,000 we need trained and well educated employees. Trouble is – fewer students are taking math, science or engineering degrees today.”
The UK presents significant opportunities for companies looking to develop a strategic global relationship with many smaller enterprises working with very specific engineering skill sets on some of the most imaginative and innovation electronics products, solutions and software systems. These will have a major contribution to future development of The Smart Grid, Internet of Things, factory automation etc. The funding assistance, manufacturingfriendly tax incentives and government support, geographical proximity to Europe, political stability and English language, all make the UK a ‘Great’ destination for manufacturing. But if the UK electronics sector is to achieve it’s goal of 1,000,000 jobs, £120 Billion in revenue and electronics representing 7.1% of British GDP by 2020, then it is not without its challenges. Improving the connectivity between academia, industry and funding bodies is important. Likewise is improving communication between trade bodies to identify and flag innovators in their technology segments that are worthy of special attention. Identifying these companies and helping them scale their production and grow their brands will be key to maintaining and growing a healthy and vibrant British electronics community. –
TREVOR GALBRAITH REFERENCES 1. www.esco.org.uk/wp-content/ uploads/2013/06/Release-ESCOCombinedFinal- Web.pdf 2. www.youtube.com watch?v=vmcmqTAu6b8