Viewpoint: The case for optimism in UK electronics manufacturing
Author : Joe Booth | CEO | Altus Group
01 July 2021
Altus Viewpoint_The case for optimism in UK electronics manufacturing
What a ride the last year has been! Both for those of us working within the electronics sector, as well as, just in general, living in the UK. There was a point when every day, the impact & statements made about Brexit were plastered across our newsfeeds & media, dominating conversation. Then, the coronavirus pandemic hit – and suddenly, Brexit played second fiddle to COVID-19 and the devastation it is causing to economies & societies alike.
This article was originally featured in the July 2021 issue of EPDT magazine [read the digital issue]. And sign up to receive your own copy each month.
But here, Joe Booth, CEO at electronics manufacturing capital equipment distributor, Altus Group makes the case for optimism in UK electronics manufacturing going forward…
Although Brexit is no longer front and centre for the media, the impact of the decision to part ways with Europe and open the UK economy to the rest of the world is very much underway. And from what I can see, it could be very positive for UK electronics manufacturing.
I am an optimist. And there is a lot to be optimistic about, if the right policies are introduced and the correct strategy is chosen to shape the future of the UK and how it’s positioned in the new global standing. This is particularly true because of the many macroeconomic and political factors in play. What I can see is a resurgence of electronics manufacturing in the UK, with British companies playing a significant role in developing technologies of the future.
On the pull side of the argument is the future of the UK and our positioning at the global table. We are undeniably a significant player in the financial services area, but I think most would agree that we are underserved by the proportion of our GDP from manufacturing.
Altus Viewpoint_The case for optimism in UK electronics manufacturing_chip
Looking at the grants available currently, it is an area the government is looking to accelerate. We are positioning ourselves as a global player in renewable energy, with a focus on wind, solar and battery technology for EVs and smart grids.
We have also seen the significant benefit of our medical sector across this period and the investment made in biotechnology hubs. This translates to our market in the ‘super deduction’ boost announced in the 2021 budget to support spend on qualifying plant and machinery capital investments, and the various industry grants which are available now.
These schemes, although seemingly small, provide a catalyst for business plans, investments, increases in profitability and many other factors that can make an impact on a sector. I have had many conversations with budding start-ups looking to bring production in-house, with their first SMT line. Each one of them is applying for a grant to help fund the project.
A lot rides on the trade deals that come together with other nations, and I am sure that the damage of Brexit has been significantly masked by the impact of COVID on our economy so far. However, with an economy that is very desirable to gain access to, a population that is well vaccinated and a nation that is opening before many have the chance in Europe and the rest of the world, we have a great opportunity to ride the mini economic boom and make the most of our new trading relationship with the world.
On the push side is the realisation that we are faced with strong import competition from manufacturers in Asia, together with the overall anti-China sentiment of recent global politics. I am no fan of Trump, but it’s undeniable that the American requirement for cheaper products and globalisation has removed large swaths of jobs in the US, along with skill sets and capability to manufacture. They have also given China a leg up in the technology space, an area dominated by Silicon Valley organisations for a generation.
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COVID highlighted that over 90% of PPE was made in a very small area of the world. It is the same for semiconductors, mobile phones and, broadly speaking, many consumer electronics. There are just a few companies with massive production facilities that are holding most of the market. I foresee some problems and the first could be the risk of supply and the reliance on very few sources. This was evident at the beginning of the pandemic when trying to obtain PPE for our front lines.
Another, which is one of America’s issues with China, is the significant loss of jobs and technology, as production has been outsourced over the years to be replicated by local organisations there. As the Harvard Business Review notes in its article, 'Bringing Manufacturing Back to the US Is Easier Said Than Done', “…industrial economies have evolved a highly efficient and productive product manufacturing-and delivery system that provides them with a cornucopia of products at relatively low costs. But inherent in that system are dependencies and expectations that the pandemic has called into question.”
What does anti-China sentiment and risk reduction mean in real terms? It means that many global organisations are splitting manufacturing into several sites, reshoring to Europe or the UK, and setting up more varied supply chains for components. Manufacturers don’t want to feel the pain again of not being able to produce when the demand is there or not having products when they are needed. A good example is Biden’s semiconductor manufacturing plans in the US and the large Honeywell facility in Scotland now dedicated to PPE. This is great news for the UK, because returning production means returning investment, ongoing spend and a cash infusion to local areas and supply chains.
Another huge factor is logistical costs and the monumental increase in the cost of shipping containers. Most people saw the Suez Canal fiasco as the straw that broke the camel’s back for a sector still reeling from a lack of capacity. The increase in pricing to ship goods, which in some instances is +5x the typical pricing, is eroding the gain in profitability that comes from offshoring production, thus making manufacturing products locally even more attractive.
While I know that in this simplified article, many topics have not been covered, and the issue is a bigger one than enabling manufacturing alone, there is a lot of potential for the future to be bright for the electronics industry. We can shape our future, set our runs and, with the correct incentives, spending and mind set changes to purchase more locally sustainable products, there is an opportunity for fast-acting companies to change the outlook for our industries.
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