High Value Manufacturing in the UK

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High Value Manufacturing in the UK

• Manufacturing Futures
• Strathclyde University
• 25th April 2007
• Finbarr Livesey
• Centre for Economics Policy, IfM
• tfl20_at_eng.cam.ac.uk

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The governments vision for UK manufacturing

• The aim of our strategy is to help more
  manufacturers to move up the value chain and to
  reap the benefits of high-skilled,
  knowledge-intensive manufacturing operations.
• Government Manufacturing Strategy 2002

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The governments vision for UK manufacturing

• Future success for UK manufacturers lies in
  moving up the value chain.
• Review of the Governments Manufacturing Strategy
  2004

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Project outline

• Project co-sponsored by the DTI and the CBI
• Purpose of the project is to develop a definition
  of high value manufacturing
• Approach
• Development of cases on companies who might be
  considered to be high value
• Workshop with companies and other stakeholders on
  value
• Desk based research
• Outputs
• A framework for thinking about high value
  manufacturing
• Case studies of companies who would define
  themselves as being high value manufacturers

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Defining manufacturing
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Defining Manufacturing

• Modern definition of manufacturing is broad
• The full cycle of activities from research,
  design and development, production, logistics,
  and service provision to end of life management
• This definition makes a strong distinction
  between production (the physical processes of
  making, bending, etc.) and manufacturing (the
  overarching process of getting from raw materials
  to goods and their associated services)

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How to categorise manufacturers?

• Currently the Standard Industrial Classification
  codes (SIC codes) are used for economic analysis
• Breaks economic activity into broad groups

National economy
Agriculture
Fishing
Mining
Manufacturing
Electricity
Construction
Manufacture of food products
Manufacture of textiles
Manufacture of transport equipment
Manufacture of aircraft and spacecraft
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Categorising companies

• Our current categories for analyzing the macro
  economy are relatively blunt
• These categories do not reflect the reality of
  how companies span activities
• Based on that broad categorisation, the SIC codes
  are also weak in providing detail on the
  development of the economy
• Can we build a framework that doesnt work in
  this hierarchical manner?

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Categorising manufacturers
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Example Siemens
Design Development
Logistics
Services
Research
Production
Marketing
Majority of revenue from
Services
Products
Production
Non-Production
Majority of costs in
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Example IBM
Design Development
Logistics
Services
Research
Production
Marketing
Majority of revenue from
SIC code 3002 - Manufacture computers process
equipment
Services
Products
Production
Non-Production
Majority of costs in
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Example - Innomech
Design Development
Logistics
Services
Research
Production
Marketing
Majority of revenue from
SIC codes 2956 - Manufacture other special
purpose machine7415 - Holding companies
including head offices
Services
Products
Production
Non-Production
Majority of costs in
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Quantitative categorisation example
This plot shows revenue outside of production
versus of costs outside production. A (0,0)
company is one with 100 revenue and costs
associated with production, whereas a (100,100)
company would have no production revenue or
costs.
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Possible categories for manufacturers?
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How do we think about value?

• Dominant concept is value added
• One time historical measure
• Company oriented
• Financially based
• Can we develop measures that
• Provide greater detail, especially of linkages
  between activities within a company
• Acknowledge other stakeholders
• Extends beyond the financial measures that are
  currently used
• Provide a future oriented perspective

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Types of value?

• Financial
• Measurable, we can do analyses of NPV etc.
  Essentially a way to corral all of the financial
  indicators in one place
• Strategic
• Looking for the strategic issues that would not
  get reflected in an economic indicator
• Some quantitative, some qualitative indicators
• Example Importance of a technology/process to
  the broad economy
• Social
• Qualitative, but important in the full analysis,
  i.e. quality of life measures
• Will include things like social embeddedness,
  environmental impact etc.

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A broader set of stakeholders

• National/State
• What is of value to the country? How is value
  created within a national economic system?
• Investors
• How do institutional investors measure value for
  companies?
• Individuals
• What value do individuals derive from
  manufacturing, either as an employee or as a
  consumer?

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External value matrix
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Bringing this together
Overall Value Measure e.g. Value Added
What type of manufacturer you are
Revenues
External value impact
Costs
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Key messages

• Manufacturing is not production and vice versa
• Manufacturing is a complex, multi-actor process
  that spans activities from research, through
  production, and on to services
• Manufacturers can be service or product led, a
  single category does not capture all
  manufacturers
• When speaking about value, we have to be
  absolutely clear who is receiving the value
  (customer, company, investor, country)
• Thinking in terms of financial value alone will
  not provide the breadth of understanding that we
  are looking for strategic and social value
• A simple definition is not possible for HVM

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Challenges for the UK?
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The time available to exploit opportunities is
shortening ...
Agarawal, Gort First Mover Advantage and the
Speed of Competitive entry 1887 - 1986 Journal
of Law and Economics, April 2001
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Already strongly internationalised
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Comparatively low RD spending at the national
level
Public spending on RD
Private spending on RD
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And RD is increasingly mobile
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Do UK manufacturers control their innovation?
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Can you hold on to your value chain?
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Questions raised by this work

• How can we better understand the linkages between
  activities for companies?
• Which activities should government support?
• Can we map current national statistics for
  companies into this framework?
• Project ongoing in the DTIs Manufacturing Forum
  to try to map existing data into the value chain
• Does this provide another perspective that is
  useful when thinking about sectors and the macro
  economy?
• How are other countries dealing with these
  issues?
• Ongoing work at the IfM as input to the Sainsbury
  Review

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High Value Manufacturing in the UK

• Manufacturing Futures
• Strathclyde University
• 25th April 2007
• Finbarr Livesey
• Centre for Economics Policy, IfM
• tfl20_at_eng.cam.ac.uk