For any investor contemplating an investment in the UK manufacturing sector, it is important to pay attention to the details of what is happening. For example, if you were to go by the robust state of the motor vehicles industry, you would be tempted to conclude that the entire industrial sector is in good shape. It is true that manufacturing accounted for more than 30% of the jobs created or protected in 2012-2013 because of the inflow of foreign investment. However, the picture can be misleading because, in spite of signs of recovery, manufacturing output is 8% down from the peak of the British economy in 2008 and down even further from the peak manufacturing output in the year 2000.
The manufacturing sector accounts for around 20% of the total foreign direct investment in the country but there is cutthroat competition for new projects from the likes of Russia, Serbia and Poland. The revival of the motor car industry after its decline in the past ten years is because of investments of more than £6bn from the leading carmakers over the last two years. Flexible labor policies and a favorable tax environment coupled with tax credits on research and development have helped the industry to complete the transformation from low value volume production to high value added niche production.
Notable successes have come from Jaguar Land Rover ( owned by the Tata group from India), Bentley and Rolls Royce ( owned by Volkswagen and BMW of Germany respectively) one other major car manufacturers such as Honda and Toyota continue to make large investments in their UK manufacturing plants. Investments in other sectors have been something of a mixed bag and the UK business of Tata Steel ( acquired from Corus in 2007 for $12 billion has been shedding jobs after taking a write-down of $ 1.6 billion because of continuous losses. European demand for this year for steel is expected to be only around 65% of the demand during the peak years.
Contrary to what you may think, the largest foreign investments have been directed not towards the automotive industry but the food and drink industry which has an excellent record of innovation in technology. U.S. giants Kellogg and Pepsi and Nestlé of Switzerland have substantial investments in research and development in the UK. Bright Food of China spent $1.7bn last year in buying 60% of the equity in Weetabix which manufactures cereals. Other large sectors involving foreign investment include chemicals and aerospace and prominent investors in the latter include Airbus, Finmeccanica from Italy and Thales of France. Overall, the UK continues to have problems attracting new investment accounting for only 12% of manufacturing investment in Europe and 7% of new projects though it managed to acquire 23% of research and development spending. Potential foreign investors will have to identify sectors which have a distinct competitive edge.