INNOVATE OR DIE: BEATING THE RECESSION

An article by Honorary Professor Kevin Morley, WBS

The UK manufacturing industry can't compete with China on Long Run manufacturing, where a million mobile phones could be produced in a month, but that's no reason to write off its capabilities. Professor Kevin Morley looks at how a concentration on specialised, innovative Short Run manufacturing could be the answer to the UK’s current financial woes.

If this current recession has taught us nothing else, it’s that over-reliance on one sector in the economy can be dangerous, especially if that sector happens to be financial services. It’s no coincidence that casinos also use the word ‘bank’ to describe the House.

The current small but significant spurt in growth in the UK economy is almost entirely down to one long-forgotten sector – manufacturing. Germany powered out of this recession simply because of its strong manufacturing base which shows the way for the rest of the West, despite more and more manufacturing heading towards China.

Almost the entire focus of Chinese manufacturing is on Long Run Manufacturing. If you want a million mobile phones a month, indeed, if you want a million of anything a month, go to China. And this is likely to continue despite economic competitors claiming increased demand will lead to higher wages and a subsequent loss in price competitiveness. When I was on the board of a company with a factory producing electronics in Shenzhen Province and wage increases became an issue because of increased demand for labour, we simply moved production further inland to Guandong Province, where wages were much lower. China is so huge and populous that this process can be repeated for decades.

No self-respecting country that purports to be a leading force in the economic world would be without its motor industry.

So we in the West have to focus our manufacturing energies on the Short Run end of the spectrum. This will involve the more specialised and therefore high end manufacturing processes and must be led by innovation. Many studies have shown there is a strong and enduring link between innovation and productivity growth. The seminal study by Solow found that nearly 90 percent of the increase in US labour production in the 20th century was caused by innovation and technical change. A recent study by Coe and Holpman (1993) estimated that the elasticity of UK manufacturing output is around 0.2 for every 1 per cent increase in research and development capital stock, and this growth is a continual curve.

The motor industry is often used as the bell weather of the health of manufacturing industry and indeed no self-respecting country that purports to be a leading force in the economic world would be without its motor industry. It is no surprise that the BRIC countries have been playing catch-up with their own individual manufacturing plants. As an example; China’s car industry grew by over 60 per cent in the last 12 months and it is clear that even motor manufacturing will migrate Eastwards over time. It will then be left to the more specialised and innovatory industries to provide the West’s manufacturing output.

And with manufacturing employing about 2.6 million people in the UK and accounting for 13 per cent or over £150 billion of our National Economic Output, it is clear that it’s an industry to be cherished and this has to be done by innovation and new technology. As the old proverb so accurately states, innovate or die!

Kevin Morley started his working life with Ford and was headhunted to Rover where he quickly climbed the ranks to become Managing Director and a member of the board. Having regained Rover’s profitability, he left to set up his own marketing agency which became the 6th largest in Europe before it was purchased by Interpublic. Kevin is Chairman of one PLC and Non-executive Director of two others, owns three marketing agencies, a five-star hotel, and has interests in a number of smaller companies. He continues to work as a consultant in marketing, and speaks at events worldwide. He is Vice President of the British Dyslexia Association, and a Charter Member of the Duke of Edinburgh Award Scheme. Kevin is an Honorary Professor at Warwick Business School.