SME manufacturers embracing growth strategies

An annual survey of UK manufacturers, supported by North West accountancy firm Moore and Smalley, shows a growing willingness to plan for long term growth.

The latest SME Manufacturing Survey from MHA, the UK-wide group of accountancy and business advisory firms, paints a picture among manufacturers of growing optimism, supported by continuing investment in R&D and capital expenditure and an increase in recruitment, including a 13 per cent rise in those planning to take on apprentices.

Encouragingly 92 per cent of manufacturers surveyed said they were proactively planning for long-term growth.

However, despite nine in every 10 small and medium-sized manufacturers predicting growth in the next 12-months, more than half of these businesses still feel unable to pass on any increased costs to customers.

The survey also highlights that more than a third (36 per cent) of the same businesses are unsure how they will meet the upcoming cost of pension auto-enrolment. Six in 10 also say that ‘red-tape’ is getting worse, despite government pledges to reduce regulation.  Energy costs also remain a major issue.

  • Optimism among manufacturers is high, with 92 per cent predicting growth over the next 12 months – almost half of these anticipate an increase of over 10 per cent.
  • Almost six in 10 companies feel unable to pass on cost increases to customers, reflecting a cautious approach to economic recovery and continuing concern over pricing.
  • 59 per cent expect to see an increase in staff numbers in 2014 and 64 per cent of companies intend to take on apprentices or trainees. However, there are calls for an ‘Industry to Education’ initiative to address the predicted shortage of engineering graduates.
  • 86 per cent of companies intend to invest in R&D this year. Of those who applied for the R&D Tax Credit Scheme in the last 12 months, no respondents reported an unsuccessful outcome to their claim.
  • Africa is growing in popularity as a destination for export and trade, increasing from 23 per cent last year to 33 per cent in 2014, but there are worries over sourcing local distributors and managing the regulatory and tax environment.
  • 36 per cent of respondents are concerned about meeting the future cost of pension auto-enrolment and its impact on their competitiveness.

Ginni Cooper, head of the manufacturing team at Moore and Smalley, one of nine MHA members, said: “The underlying trend is very positive for those small and medium-sized businesses operating in the manufacturing sector. It’s possible that many had to restructure during the economic downturn and now they are reaping the benefits of improved productivity. For the time being most are looking to absorb any cost increases rather than passing them on, however, this is unlikely to be a sustainable option for the long term.”

One area of increasing concern is the availability of motivated recruits, skilled engineers and graduates. While apprentice recruitment is due to increase among 64 per cent of companies, the shortage of skilled and experienced engineers – and graduates – is becoming an increasing challenge, with 65 per cent of companies experiencing problems.

Ginni added: “While the trading environment is showing positive improvement – with the increased R&D support, the £7bn package to cut energy bills and the increases in the Annual Investment Allowance in the Budget particularly welcome – there are still many immediate challenges for our SME manufacturers, particularly around energy prices, increasing regulation and the costs associated with auto-enrolment.

“We also need to get to grips once and for all with motivating our young people to consider a career in engineering and manufacturing which has to start by target setting at secondary school level which pump primes the whole system. Failing to grasp this nettle will mean that the manufacturing renaissance the UK need will be strangled at birth and the competitive ability of UK manufacturers looking to trade around the world will be seriously compromised.”