Manufacturers Need Further Clarity To Ride Out Future Turbulence

Issue 22

There has been a lot of commentary about future turbulence for manufacturers following the Brexit decision and wider global political change. In a bid to provide some clarity, the Government has recently launched a Modern Industrial Strategy which seeks to deliver a high-skilled, competitive economy that benefits all, but what do North East manufacturers really need?

Funding could be a key challenge for North East manufacturers unless the Government acts quickly to replace EU funding streams, such as those used to assist plant relocations and improvements. Losing this financial resource will not only impact manufacturers’ financial planning directly, but there may be additional costs involved using an alternative source, once one is found. Further guidance on replacement funding is needed, but in the meantime businesses need to be proactively looking into new sources to cover any gap if access to EU funding is withdrawn.

UK manufacturers will be exposed to more competition from emerging markets once we leave the EU. Countries such as Indonesia, Malaysia and Vietnam can now deliver very high quality products from modern, efficient manufacturing facilities at a low cost. Whilst in the EU, the UK was largely sheltered from the full extent of this and as we renegotiate multiple trade agreements, UK manufacturers will be faced with stiff competition that is not subject to EU rules.

Whilst we will also move beyond the formal reach of EU regulations, the Great Repeal Bill will hold us constant in terms of compliance with EU regulations. Manufacturers need clarity on whether the UK will decide to move away from EU terms, risking political and social resistance and the loss of “equivalency” which could risk access to EU markets, or maintain these standards and learn how to be super productive and operate in compliance with them. This is a problem the UK has struggled to resolve in spite of Nissan Motors at Sunderland’s thirty-seven year exemplar in our midst.

The loss of skilled EU migrant labour will be keenly felt in manufacturing. The supply of young, economically active and trained people is already beginning to slow down as they make their own decisions about where to live now that the UK has signalled its intent to leave the EU. Manufacturers need to ensure that they offer training, remuneration and viable career options to attract and retain more young people in the sector, and to encourage older workers back to making things for a living. Any support from the Government to ensure the UK skills gap doesn’t increase further would be welcome news to the sector.

Whilst manufacturers will hope new trade agreements will be negotiated and implemented quickly, the reality is that there are bound to be delays in the transition. Alongside working with the Government to maintain pressure to execute the trade deals at pace, manufacturers must also be prepared for times when things slow to a crawl. This will put pressure on reserves if revenues are slowed and the cash to cash cycle is lengthened.

This is a time of great uncertainty, but with it also comes opportunity. Waiting for certainty is a high risk strategy, so manufacturers need to take control to ensure they are well-placed to navigate any unexpected challenges. A health check on how the business is structured financially is a good place to start. This will uncover how robust a business is and highlight any areas for concern. In addition, cash management and agile working capital management will be key to success in an increasingly volatile and energetic environment.

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