WEBVTT

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Between 1995 and 2008, the UK
manufacturing sector more than doubled its

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productivity and was a major contributor
to the UK economy.

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But since 2008, productivity
has flatlined.

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Meanwhile, the global frontier, driven
by the likes

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of the US, Switzerland
and Denmark has continued to advance,

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meaning the UK has fallen further
behind the best in the world.

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But is it all bad news for UK
manufacturing?

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I'm joined by Arjun -

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manufacturing sector expert
and Managing Director

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and Partner here in our BCG London office
to discuss.

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When you look at the most productive UK
manufacturing firms,

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how do they compare to the best globally
and what are they doing differently?

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So the most productive manufacturing firms
in the UK are roughly

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as productive as the most productive
manufacturing firms globally.

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So the top of the line in the UK is still

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as good as anywhere else in the world.

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It's more the laggards that have been
drawing down the average, so to speak.

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And what have these companies been doing
differently?

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These companies, one,
have found a very specific niche

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in which they are number one, two
or three globally,

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right. Two,  I think by and large,
they play the product quality

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differentiation role
rather than the cost differentiation role,

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which I think makes a very big difference
because in the UK,

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I think it is very difficult to compete
on cost alone.

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Right.

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And three, I think these companies,
if you take a look at,

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they've all got a certain

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aspect of high technology attached to them

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and hence as industries globally

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get more technology oriented,
these companies have a natural advantage.

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Right.

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And these could be in high-end
automotive, luxury automotive.

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High end components for aerospace,

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a lot of very specialised components,

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like even simple things
you would think like pumps and gears.

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Which are used heavily in a lot of process
industries.

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The UK has got a couple of companies that
are simply the best in the world at it.

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So this, this, this differentiation
is absolutely key. Across the sector

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we see lots of firms
that know what good looks like

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and know what the global best is,
but struggle to get there.

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What holds them back?

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So in the last five years, as you know,
there have been many more, six years,

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there's been many more crises
than one could count, right, between Covid

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and the Ukraine crisis
and the interest rates going up.

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And, you know,
now what we're seeing in the Middle East.

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So investment in general
is difficult to come by, right?

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We also see that a lot of these firms,

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you know, the manufacturing firms
that are highly specialised

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manufacturing firms in the UK

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have been investing a lot to protect
their supply chains rather than to grow.

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Right.

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So a lot of their sustaining CapEx
goes into that, which obviously leads

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to a position where you are staying still,
but you're not really growing.

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Right.

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And I think that is a big gap between

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the answer we know and how to get there.

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Given the global productivity frontier
does continue to advance in manufacturing,

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what is the one thing that UK firms
can take from the likes

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of US, Swiss and Danish firms,

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if they want to catch up
or keep up with the best.

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So I'll give you two. One on the,
on the revenue side of things,

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I think, organisations
really need to find their niche

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and their strategic positioning very,
very carefully.

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And we have to differentiate on quality,

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because cost
differentiation, as I said, is hard to do.

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Right?

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I think, secondly,
we need to massively increase

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our investments in technology,
both industrial technology,

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which is how automated plants are and,
how much,

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IT/OT is present in, in manufacturing plants,

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but also in managerial technology,
which is where a lot

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of the artificial intelligence
applications come in right now.

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Because ultimately what this will lead
to is

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significant productivity benefits,
which can then be invested back.

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Right, because these organisations
have got distinct opportunities

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to invest for growth, which is something
not every company in the UK has.

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Arjun, you work in the sector
and you speak to our clients

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every day about some of the challenges
and opportunities.

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Looking to the future,

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are you broadly optimistic
about UK manufacturing

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or do you think there's
some major challenges to overcome?

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So I'm cautiously optimistic.

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I think again, the UK has managed to keep

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a healthy manufacturing base

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despite a lot of doomsaying in the past.

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However, there are definitely

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structural fixes
that need to come into place.

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For example, the energy prices in the UK
are unsustainably high.

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You cannot have heavy industry for
extended periods of time at these prices.

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We also, I think, are

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behind the curve in terms of,

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the skilling of people

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to get into certain, manufacturing jobs.

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I think other countries are

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approaching
that in a much more scientific way.

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But overall,
I think I'm cautiously optimistic

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that there are enough good companies here.

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And enough good high-end

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manufacturing jobs here that,

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can lead the world in the future.

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Arjun, it's been really great
to hear your perspectives

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on the UK manufacturing sector.

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If you're interested in learning more
about manufacturing productivity

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and productivity across other major
UK sectors,

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check out the Centre for Growth’s
report, The Productivity Frontier.