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UK manufacturers continuing to 're-shore' production, according to industry survey

Out-Law News | 04 Mar 2014 | 9:45 am | 2 min. read

The number of UK companies "re-shoring" production back to the UK or sourcing UK-based suppliers is continuing to increase, according to research from EEF, the manufacturer's organisation.

A new report from the industry body said that one in six companies re-shored production back in-house in the last three years, with a further 6% set to do so over the next three years. Companies surveyed by EEF cited improved quality of products and components, closely followed by speed of delivery and minimised logistics costs, as their reasons for doing so.

"The trend may be gradual but is highly encouraging to see more re-shoring continuing," said EEF chief executive Terry Scuoler. "While it will always be two-way traffic, the need to be closer to customers, to have ever greater control of quality and the continued erosion of low labour costs in some competitor countries means that in many cases it makes increasingly sound business sense."

"It is now key that government policy supports the most competitive business environment possible so that we continue to see more high value innovative manufacturers invest in and sell from the UK," he said.

Respondents to the survey also indicated that the benefits of the re-shoring trend were being felt down the supply chain, with one in six also saying that they had switched to a UK-based supplier for parts and components.

The results of the survey emerged ahead of this week's EEF National Manufacturing Conference. Business Secretary Vince Cable is due to speak at the event, and is expected to announce additional funding to "rebuild British manufacturing prowess" and help firms bring back production from overseas, according to press reports.

EEF's survey indicates a reversal in the previous trend by manufacturers to offshore production to China, where labour costs have traditionally been cheaper. It found that China was the main country from which production was being brought back, particularly by smaller companies; followed by Eastern Europe, where larger companies were more likely to have previously off-shored production.

However, only 16% of respondents said that the increasing cost of labour offshore had formed part of their decision to return production to the UK. Over one third of companies said that their main reason was to improve the quality of their products, while just under one third cited certainty and speed of delivery alongside minimised logistics costs. Companies also said that longer delivery times from overseas suppliers were incompatible with shorter order books. The overwhelming majority, 84%, of companies saw the UK's reputation for quality as an advantage to being based here.

Despite the overall positive response, businesses also highlighted disadvantages to production in the UK including high energy costs and tax burdens, and a lack of suitable skilled employees. In response, EEF called on the government to commit to keeping UK energy costs "at, or below, the EU average" as well as reforms to capital allowances and other business taxes and continued progress on skills and apprenticeships. More clarity about reform priorities in Europe and the UK's future in the EU was also needed, EEF said.