Focus on services and niche markets recession buffer
UK manufacturers have entered the recession in a stronger position than ever before having made innovative adaptations in response to the threat from emerging economies, according to research.
The study by manufacturers’ organisation EEF and business advisors BDO Stoy Hayward identifies two key stategies adopted by UK firms to enhance their competitive position – service provision and supply to niche markets.
More than two thirds (68%) of UK manufacturers now offer services such as maintenance contracts, functionality upgrades and design services on the back of production activities compared to only half in 2007.
Around one third of companies now offer functional upgrades, mainly within technology-intensive sectors such as machinery and electrical and optical equipment.
According to the study those services are helping to boost the bottom line by contributing an average 14% to total annual turnover in UK manufacturing.
Meanwhile, one in eight manufacturers now generate more than a quarter of revenue from services.
Results also suggest that certain sectors are more experienced at pricing services than others.
The report found that sectors such as transport, which offers an average number of services, reported a much larger proportion of revenue from them while sectors such as machinery (the largest service provider) gain less revenue from service activities as a proportion of turnover.
Adopting the strategy of going for niche markets has also reaped rewards for UK firms with 61% of firms now manufacturing specialist components or machinery compared to 45% in 2004.
However, the report revealed that many firms had not yet considered offering any services to customers despite the obvious advantages.
Alan Hall, EEF’s regional director, said that the move into services continued to highlight the versatility and responsiveness of UK manufacturing.
“Increasingly firms are exploring new ways to add value, but with production remaining at the heart of company strategies,” he added.
“The upfront investments that firms have made in order to adapt to the changing competitive landscape and to offer greater value to customers suggest that companies are in this for the long haul. What may have started as a survival tactic in the face of emerging economies is now helping manufacturers fight the next challenge, that of economic turmoil.”
Jason Whitworth, corporate finance partner at BDO Stoy Hayward in Leeds, that manufacturers should take the lead in niche markets and develop or reposition products and services in a way that adds value to a distinct customer base.
He continued: “For many manufacturers managing through the current economic turbulence is now the prime concern, but they should not be blind sighted to the long and short term benefits of offering services or developing a niche positioning.
“The return on investment can be much faster than expected. Companies that have established or can quickly develop the service and niche positions outlined in this report will be in better shape to maintain a competitive global position.”
