After years of outsourcing there is a small but definite trend of British companies bringing their manufacturing back home, or reshoring, as it’s called. Will this trickle turn into a storm? Ben Hargreaves writes
The creation of 25 new jobs, an investment of more than £400,000 in production machinery and a 20,000 square foot production facility were announced at the turn of the year by an automotive supplier in the West Midlands.
Small beer, you may think. But the reason for this success may be significant, because it involves the return of manufacturing work to Britain that had been carried out in low-cost economies in Asia.
The investment, by RDM Group, which will see a new factory kitted out with state-of-the-art machine tools and computer-aided design software, is partly devoted to producing special vehicles and low-volume automotive work, and partly dedicated to producing a rechargeable torch for local manufacturer Jaguar Land Rover: a job that RDM Group had outsourced, until recently, to China.
RDM director Miles Garner says the logic behind bringing the torch work back to Britain from China was simple: the quality was not all it could have been, the cost of having the item manufactured overseas had shot up and the difference in time zones made communication difficult.
“As [overseas] companies try to keep up in the domestic market, I believe some are struggling with exports,” says Garner. Like many automotive companies, RDM had a tough time during the financial crisis.
He adds: “Now we are expanding and times are better. And we find we’re part of this trend of reshoring.”
RDM Group isn’t the only one. Indeed, the concept of moving production from overseas back to the UK was also on the Prime Minister’s mind at the World Economic Forum in Davos in January.
In his speech to the forum, David Cameron identified what he described as a “small but discernible trend” in which jobs that had been offshored were coming back to Britain.
He added: “A recent survey of small and medium-sized businesses found that more than one in 10 has brought back to Britain some production in the past year; more than double the proportion sending production in the opposite direction.”
On firm ground
Given that the threat of offshoring can cause social and economic consternation – witness mobile phone giant O2’s spat with the unions over alleged plans to offshore call centre jobs last year – any reversal of seeking cheaper partners overseas would be welcome.
Certainly, Stephen Barr, head of the Manufacturing Advisory Service (MAS), thinks so. He thinks that Cameron’s speech picked up on a trend already observed by MAS in its barometer of SME manufacturers.
Barr says: “We send out a quarterly barometer survey and have had responses specifically about reshoring. A surprisingly large number of companies had either done some reshoring, or were to planning to in the next few months to a year. It got us thinking that there was something in this: we put those ideas to the Department of Business, Innovation & Skills, and the end result of that was we started talking with UK Trade & Investment (UKTI).”
Together, MAS and the UKTI have launched Reshore UK, a service to help companies bring production back to the country. It will offer a matching and location service, as well as access to advice, to both UK and international firms.
It is not a matter of huge numbers or sweeping trends. For example, UKTI has identified about 1,500 manufacturing jobs that have been reshored in the UK since 2011 – modest fare.
According to the Institution of Mechanical Engineers, 28 per cent of companies it questioned said they were still offshoring manufacturing capability, compared to just 20 per cent who were reshoring.
Companies that do reshore can probably expect little in purely financial terms – a survey by manufacturers’ organisation the EEF found that more than 50 per cent did not increase turnover, although some managed to increase profitability by up to 10 per cent (and a few by more than 15 per cent). “It will take another year to determine what the genuine cost is of doing things in the UK,” says Garner of RDM Group.
Encouragingly, however, very few companies reported decreases in turnover or profitability following the decision to bring work back. And cost, time and quality are the issues most repeatedly reported to MAS in the decision to reshore, says Barr. “Wages are levelling up,” he says. “It is getting more expensive when you take freight into account – which takes away the myth about why it was attractive to offshore in the first place.”
Seizing the initiative
ADS, which represents the British aerospace, defence and space industries, has indicated that reshoring is on its radar – for the first time in rather a while, if ever. At any rate, a survey of its members’ efforts to bring work thought to have been lost overseas back to the UK is set to take place this month, the association has revealed.
The billions being devoted to the aerospace sector by the government might make it attractive for companies wanting to expand production in the UK
“The survey should highlight some of the anecdotal evidence that it is taking place among our members,” explains Jeegar Kakkad, chief economist and director of policy at ADS.
He adds that the billions being devoted to the aerospace sector by the government might make it an attractive environment for companies wanting to expand production in the UK – after all, there is little point bringing manufacturing back if there aren’t the skills or capacity to deliver the goods.
“We are expecting some announcements where companies are investing in new capacity at home because of what they’ve seen in terms of the government’s aerospace initiatives, such as the Aerospace Technology Institute,” Kakkad says.
In its industrial strategy report, the CBI has highlighted the need to strengthen British supply chains in areas such as aerospace in the face of fierce global competition.
Companies such as Rolls-Royce, the aero engine maker, are working through initiatives such as Sharing in Growth to improve the performance of an elite group of suppliers. It is hoped this will mean British companies retain and, ultimately, expand their work in the global aerospace market, which, even if no new orders were made today, has about a decade’s worth of production in the pipeline.
But there are still huge areas of concern. In the automotive sector, for example, just a third of all parts that go into the average British-built car come from UK suppliers; in Germany, the figure is double that.
Dr Wolfgang Schreiber, chief executive of Bentley Motors, has urged the government to focus on the “simple supply chain” – making basic metal parts, sealants and rubber parts – as well as mechatronics, and not just invest in research for next-generation technology.
It’s a similar story in the wind sector: Brent Cheshire, UK chairman for Dong Energy, has previously told Business Voice that the company would procure more in the UK, if only it could.
The CBI is also calling for the expansion of the Advanced Manufacturing Supply Chain Initiative (AMSCI) – and emphasises the importance in raising awareness among companies in the supply chain of the support that exists for them.
But Barr of MAS argues that there is a perception of “the great British brand winning through”. And RDM’s Garner believes Jaguar Land Rover generates extra kudos by using components designed and manufactured in Britain. In that context, the reshoring trend, however small, could help to make the UK’s manufacturing revival sustainable – as long as it prompts even greater levels of support to nurture the country’s supply chain capabilities.
British, born and bred
Some companies choose not to go offshore at all. One such is telecoms firm Daisy Telecom, which is based in Nelson, Lancashire. It has decided to retain all its operations in the UK.
Chief executive Matthew Riley says he was determined to provide employment in the region – and especially for his home town of Burnley.
“We simply decided we would give our customers a better experience by staying onshore,” he says.
It's not a decision he thinks will ever be reversed, other than in employing technicians with particular expertise overseas to develop software. Riley is even determined that the company’s cloud computing services are all – despite their ethereal nature – geographically anchored in the UK. “And we are finding that is a selling point for our customers – they want to know where their data is being stored.”
Riley adds: “I don’t ever see any parts of the core business of Daisy being offshored. We have all had shocking customer services experiences when you end up calling overseas. For our business customers, they don’t want to be kept waiting for 40 minutes by a call centre. They just want whatever issue they have to be fixed.”
In addition to the language barriers inherent in operating call centres for British customers overseas, Riley also believes such a move cannot replicate the values of the business. “I think it is language, but it’s also culture. You create your own culture within your company, which is very difficult to outsource.
“The customer service people need to be able to walk around and chat to installations, to the engineers, to credit control. That creates a culture within a company that is important, and difficult to put a value on.”
The best of both
Fashion clothing manufacturer Rapanui is combining the best of British with the best of overseas.
The company, based on the Isle of Wight, used to work with a number of suppliers in the UK and overseas to produce its garments.
It recently took the decision to rationalise production at a dedicated facility on the Isle of Wight, investing nearly £100,000 in a screen-printing facility in Cowes, which has just opened.
Organic cotton is produced in India and then cut, printed, embroidered and finished in Britain.
Simplifying the supply chain for Rapanui products has saved money and reduced waste, says co-founder Rob Drake-Knight. “There are fewer middlemen and that means our products are cheaper,” he says.
“We’ve taken anything that could be done in terms of manufacturing and brought it here: the only things that aren’t are things we are physically unable to do.
For example, we would not take raw cotton from India and do the spinning on the Isle of Wight – it just wouldn’t make sense.”
Textiles is not an industry that one normally associates with the UK – despite the heritage of the Industrial Revolution. But John Lewis recently announced it was also planning to bring textile manufacturing back to the UK. Could a renaissance be on the cards?
“The UK, and especially the North, has a rich history in textiles – so it would be nice to see a little bit of that revived,” says Drake-Knight.
Why manufacturers are reshoring
Quality - 52%
Intellectual Property - 32%
Maintaining unit costs - 30%
Shipping costs - 28%
Exchange rates - 18%
UK skills better - 7%
Source: Institute of Mechanical Engineers