Business LRO Lincolnshire Research Observatory Manufacturing in Greater Lincolnshire Introduction Manufacturing has been identified by the Greater Lincolnshire Local Enterprise Partnership as a priority sector. This is because of its importance to the area in terms of employment, value to the economy, and its potential for growth. This report uses both national statistics and results from local surveys to provide an up-to-date picture of manufacturing in Greater Lincolnshire. In particular it looks at its areas of strength and weakness along with opportunities and barriers to growth. Headlines Manufacturing plays a major role in the economy of Greater Lincolnshire area contributing 3.4bn (20 per cent of total economic value) and employing approximately 57,000 people (14 per cent of total employment). In a recent survey over 70 per cent of manufacturing employers reported improvements in financial measures last year and over three quarters expect performance to improve next year. The lack of skilled workers is the biggest barrier to growth, according to manufacturing businesses in Greater Lincolnshire. Approximately 42 per cent of manufacturing businesses have introduced new products or processes in the last 12 months. Around 35 per cent of manufacturing employers in Greater Lincolnshire export.
Definitions Please note that throughout this report we are looking at the Manufacturing sector in its totality, i.e. including engineering and food manufacturing, both of which have been identified by the Greater Lincolnshire Local Enterprise Partnership as priority growth areas. Productivity Manufacturing is Greater Lincolnshire's single most important sector in terms of its contribution to the value of the local economy. It contributes approximately 3.4bn 1 to the economy, which equates to approximately 20 per cent of the GLLEP s total GVA. Figure 1: Workplace based GVA ( m), Greater Lincolnshire Source: Office for National Statistics Gross Value Added by Broad Industry Group 2011 The Value of manufacturing to the GLLEP economy is highlighted in Figure 1. This shows the latest workplace based GVA by industry sector. The county of Lincolnshire and the unitary authorities of North Lincolnshire and North East Lincolnshire are coloured separately to show their relative contribution to Greater Lincolnshire. NB some sectors have been combined into broad industry groups. Production, which consists mainly of manufacturing, accounts for almost a quarter of the value of productivity in the area. 1 Latest figures 2011 Page 2
Employment Structure The manufacturing sector in Greater Lincolnshire employs 57,200 workers and is the second most important sector in employment terms in the area. Although the Health sector has the highest percentage of employees, as can be seen in Figure 2, manufacturing runs a very close second at approximately 14 per cent of total employment. Figure 2; Employment by industry sector Source: Business Register and Employment Survey (BRES) 2012, including 2010 Agricultural Census figures 2 Significant Manufacturing Areas in Greater Lincolnshire By investigating location quotients we can see where the highest concentration of manufacturing employment is across the area. Location quotients compare the industry share of employee jobs in a local area compared to in Great Britain as a whole. A score of 1 means the concentration of employment in the sector is the same as nationally. Therefore, the higher the location quotient the more a local area has a specialisation in that industry relative to Great Britain overall. Referring to Figure 3 there are two particularly high concentrations of manufacturing employment in the area. 2 Employment figures from the DEFRA Agricultural Census have been added to give a more accurate figure for employment in the Agricultural sector. However this alters the percentages slightly from those published by the LEP Network. Page 3
In the south, the local authority district of South Holland has a location quotient of 2.5 and has a particularly high concentration of agri-food manufacturing businesses including Bakkavor and Kerry Foods. It also has significant subsectors of related and supply chain activities in areas such as packaging and agri/horticultural equipment manufacturing. Figure 3: Location Quotient - Manufacturing Sector Source: Business Register and Employment Survey (BRES) 2011 In the north, North Lincolnshire has a location quotient of 2.3. North Lincolnshire, particularly Scunthorpe, has a strong manufacturing base and is known for its steel works. In addition it has important manufacturing employers in the fields of refined petroleum products, oil refining, plastic products, and manufacture of paper and paperboard containers. The area is also home to a number of agri-food manufacturers such as Two Sisters Food Group and Tayto. Together with other major food manufacturers in North East Lincolnshire, it makes up a significant food manufacturing hub. Indeed North East Lincolnshire is home to a nationally and internationally important centre for fish processing and seafood production, and for innovation, research and development in this area. North East Lincolnshire's two major employers, Youngs Seafood and Coldwater Seafood are responsible for the employment of over 2,000 people locally. However the area also has other significant niche manufacturing activities including the manufacture of paints and the manufacture of pharmaceutical products. The only area which has a lower location quotient than the national average for manufacturing in Greater Lincolnshire is the local authority district of Lincoln. However, the area does have significant niche and nationally significant sub sectors Page 4
of manufacturing. Most notably Siemens have been a major employer in the city for a number of years, specialising in the manufacture of gas turbines. Other specialist manufacturers based within the Lincoln area include Dynex Semi- Conductors Ltd which manufactures electronic components and James Dawson Ltd which manufactures specialist tube piping. Business Count Compared to the percentage of people employed in manufacturing, the number of manufacturing businesses in the area is relatively low at 6 per cent. This figure is similar to the national average. However, although the percentage of manufacturing businesses as a proportion of all businesses is relatively low, the sector has fewer small businesses than average and more medium and large businesses than average compared to other sectors (Figure 4), hence the higher numbers employed in the sector compared to other sectors. Figure 4: Percentage of businesses by size band Source: Office for National Statistics UK Business Count Enterprises Around 4.6 per cent of manufacturing businesses employ 50 249 people compared to an average of 1.7 per cent for all businesses. Similarly the sector has a lower proportion of micro businesses (employing 0-9 people) than average at 77 per cent, compared to 88 per cent for all businesses. Manufacturing Business Performance Nationally the manufacturing sector has been performing relatively strongly. Figure 5 shows the UK figures for manufacturing output since 2012 which, as can been seen, has shown sustained growth since autumn 2013. Page 5
Figure 5: UK manufacturing output, percentage change year on year Source: Office for National Statistics The Quarterly Economic Survey, which is a local business survey undertaken on behalf of the Lincolnshire Chamber of Commerce, shows how the sector has performed locally (Lincolnshire county only) according to survey participants, over the same period (Figure 6). As can be seen local performance mirrors national performance. Since the beginning of 2013 results show manufacturing businesses gradually emerging from the recession, posting increasingly strong performance figures in areas such as sales, profitability, turnover and growth in workforce. Figure 6: Survey of Lincolnshire businesses, manufacturing sector performance Source: Quarterly Economic Survey 2009-2014 Page 6
These local results have been borne out by other manufacturing sector specific surveys from organisations such as EEF 3 and the Manufacturing Advisory Service 4. Furthermore in the Greater Lincolnshire Employer Survey 2014 5 approximately 70 per cent of manufacturing businesses reported an improvement in financial measures including profitability, market share and turnover during 2013-14, whilst 77 per cent reported they expected a similar improvement over the coming year. Both of these measures were higher for manufacturing than the average for businesses in general. Qualifications, Skills and Training Qualification levels in manufacturing are generally lower than other sectors both nationally and locally (Figure 7). The fact that Greater Lincolnshire also has a lower level of skills generally in comparison to England means the sector has particular issues with regard to skills gaps and with recruiting suitably qualified staff. Figure 7; Qualification levels Source: Office for National Statistics Census 2011 According to the 2011 Census, 11 per cent of those employed in Greater Lincolnshire have no qualifications compared to 9 per cent nationally. In the Manufacturing sector the proportion of employees with no qualification is higher both locally and nationally at 14 per cent. At the other end of the scale Greater Lincolnshire has a lower proportion of people with NVQ Level 4 equivalent qualifications (26 per cent) than nationally (35 per cent). Once again, in the manufacturing sector there are fewer people with higher level 3 Manufacturing Outlook June 2014 4 MAS Business Barometer Q2 2014 5 The Greater Lincolnshire Employer Survey 2014 surveyed over 1500 local businesses during April and May 2014 Page 7
qualifications with 19 per cent in Greater Lincolnshire compared to 24 per cent nationally. Greater Lincolnshire does however have a higher proportion of apprenticeships in general than nationally (Figure 7) and there are a higher proportion of apprenticeships in manufacturing locally than nationally. Barriers and Opportunities This final section of the paper draws exclusively on findings from the Greater Lincolnshire Employer Survey 2014 (GLES) and looks specifically at manufacturing business responses to questions around barriers to growth and opportunities. The Survey was undertaken during April and May 2014 and surveyed over 1500 businesses across all sectors, including a statistically representative proportion of manufacturing businesses. Barriers to Growth Significant Factors for the Manufacturing Sector As discussed above manufacturing is a key priority sector within the Greater Lincolnshire economy because of its value to the economy and because of the numbers employed in the sector. It is crucial that the local sector should thrive if it is to keep its relative importance as a manufacturing centre. Growth in the manufacturing sector is dependent on a number of factors. Businesses in this sector are reliant on a good quality transport infrastructure for the transport of raw materials and finish products, particularly given the sector's higher propensity for exporting. For example transport infrastructure was a major factor in attracting Siemens to the Teal Park development. The improvement in infrastructure was required for Siemens to expand its business and operate in a more efficient manner. Businesses in this sector also often require relatively larger premises and expensive machinery to improve the manufacturing process as technology is developed. Therefore the provision of fit for purpose sites, cash-flow and access to capital is another key factor for growth. For businesses in general the road infrastructure in Lincolnshire was cited as the biggest barrier to growth by GLES respondents. However this was not the case for manufacturing businesses. Although this issue was significant the biggest barriers were the availability of skilled staff, lack of capital for investment and poor cash flow (See Figure 8). The fact that these issues were more significant for manufacturing businesses than for other sectors highlights the focus of this sector over the past year. The ability to access a skilled labour force and business finance are crucial to growth. Page 8
Figure 8: Barriers to Growth Greater Lincolnshire Employer Survey 2014 Skills and Training It is widely acknowledged that the skills set required to work in the manufacturing sector have shifted in recent years. There has been a move towards specific skills geared towards software and systems rather than manual skills. The UK Commission Employer Skills Survey 2013 warned economic growth may be constrained by skills shortages with particular sectors being harder hit than others. The GLES revealed a number of findings around the issue of skills that highlights the problem for the manufacturing sector. Approximately 15 per cent of manufacturing employers reported a significant gap between the type of skills that employees have and those that they need to meet their current business objectives. This compares to a lower 10 per cent of employers in general. The biggest skills gap for manufacturers is in the area of technical skills. Also around 23 per cent of manufacturing employers said that they have employees that are not fully proficient at their jobs compared to 17 per cent of all employers. As a result, and in comparison to other business sectors in Greater Lincolnshire, skills are seen as a much greater issue in manufacturing than other sectors. Approximately 30 per cent cite this as a barrier compared to less than 20 per cent of businesses in general (Figure 9). Page 9
Figure 9: Barriers to Growth Skills Source: Greater Lincolnshire Employer Survey 2014 The availability of skills training, however, is seen as a barrier to growth by fewer manufacturing sector employers with around 15 per cent (See Figure 9) saying this is a problem. It is, nevertheless, more important to manufacturing sector employers than employers in general. Despite fewer manufacturing businesses highlighting the issue of training as a barrier, the GLES made more detailed findings on this topic. The survey found fewer manufacturing businesses arranged training for staff than the average for all businesses. Around 40 per cent of manufacturing businesses said they had provided on-the-job training in the past 12 months, compared to 51 percent of businesses in general. The percentage which had provided off-the-job training was only slightly higher at 44 per cent, compared to 48 per cent of all businesses. Overall 59 per cent of manufacturers said they have arranged some type of training for staff in the last 12 months compared to 64 per cent of all employers surveyed. This may have been because manufacturing sector respondents found it more difficult than average to provide or source suitable training (53 per cent of manufacturers compared to 46 per cent of all employers). A whole variety of reasons were given for the difficulty. Areas of more concern to manufacturing sector businesses than businesses in general include the content of training courses, the flexibility of the provision, the capacity of businesses to undertake training in house, and the capacity of businesses to manage training for staff. Page 10
Where the sector obtains its training may also be significant. Approximately 45 per cent go to sector specific training and 50 per cent to private trainers, compared to 31 per cent who use local FE colleges and only 4 per cent universities. Therefore, the manufacturing sector doesn't appear to be developing its own staff through the use of Higher Education providers. However, as mentioned above, this sector has a higher proportion of apprenticeships in comparison to other sectors (see Figure 7 above). In addition The University of Lincoln engineering centre is aiming to address some of these skills issues. Recruitment However, some manufacturing businesses also appear to prefer to recruit staff with the qualifications needed rather than develop staff in house. Only 42 per cent of businesses surveyed said they have a training budget compared to 50 per cent of businesses in general. Recruitment, particularly of more highly qualified staff, is a problem for the sector. Findings from the GLES show that a lower proportion of manufacturing businesses recruited last year compared to average. However where they did recruit they were more likely to be to newly created rather than existing posts, and were more likely to be for professional and skilled technical posts. A third of manufacturers who tried to recruit to professional posts and almost half who tried to recruit to associate professional and technical posts said the posts were hard to fill. Given the skills shortages at the higher end of the skills spectrum, competition in this area of the labour market for the most qualified people is fierce. Previous consultations have revealed a poor county profile is a factor in attracting experience and skilled individuals to join the workforce 6. This was also borne out in finding from the GLES. Approximately 20 per cent of manufacturing sector employers said a poor county profile is a barrier to growth (see also Figure 9) Capital and Cash Flow Previous 7 consultations with manufacturing businesses have indicated an issue around lack of capital which is inhibiting investment in machinery, premises and staff. As can be seen in Figure 8 lack of capital for investment and poor cash flow were ranked highly by manufacturers as barriers to growth, only sitting behind lack of skilled work force in terms of significance. This is particularly important given the fact that businesses in the manufacturing sector were more likely to borrow for the purposes of business growth (Figure 10) than for any other reason, and more likely to borrow for this reason than businesses from other sectors. Whilst approximately a quarter of businesses in general said the finance was sought for working capital and to support cash flow this was the case for only 5 per cent of manufacturing business (Figure 10). In the case of employers from 6 Survey of Top 100 Businesses 7 Quarterly Economic Survey Additional Questions relating to borrowing activity and business finance. Page 11
this sector approximately half of those who sought finance did so for expansion and growth purpose compared to just over a third of all businesses. A further 20 per cent said they needed finance to purchase capital equipment or machinery. Figure 10: Reasons for borrowing - manufacturing sector Source: Greater Lincolnshire Employer Survey 2014 A fifth of manufacturers in Greater Lincolnshire sought finance within the last year compared to sixteen per cent of all businesses. Of those manufacturers who sought finance 21 per cent experienced difficulty obtaining it. This was a lower proportion than businesses in general (33 per cent). Where business experienced difficulty obtaining finance they were asked to give the reason for the difficulty (Figure 11). Numerous reasons were stated but by far the highest proportion of businesses said lack of adequate business plans was the reason, cited by 39 per cent of manufacturing employers compared to 6 per cent of all businesses. This highlights a clear area where support to businesses in this sector would be beneficial. However around a third of manufacturing employers rejected the terms of the loan compared to 11 per cent of businesses in general. This suggests financial institutions remain cautious in terms of risk which may be reflected in their loan terms. Significantly, although some businesses were unable to obtain finance because of insufficient security, risk, or because they simply didn t meet the criteria, this does not appear to be the case for manufacturing sector respondents (Figure 11) as no manufacturing respondents listed these as causes for rejection. Page 12
Figure 11: Reasons for difficulty in obtaining finance Source: Greater Lincolnshire Employer Survey 2014 Businesses were also asked about the amounts they wished to borrow. The highest proportion of businesses sought loans of relatively modest amounts. However a higher proportion of manufacturers sought to borrow at each level than businesses in general. Approximately 36 per cent of manufacturers wished to borrow between 10K and 50K compared to 31 per cent of all businesses whilst 30 per cent of manufacturers sought a higher amount - 100K 500K compared to 18 per cent of all businesses. The nature of the survey responses to questions related to finance supports other survey findings 8 that indicate the manufacturing sector is more growth orientated than some other sectors. A relatively larger 9 per cent of manufacturers said they needed finance to buy land or building compared to 6 per cent of all businesses, and 8 per cent said the funding was needed for training and development of staff compared to 3 per cent of all businesses. A higher proportion of manufacturers (89 per cent) than average (84 per cent) intend to invest in their business over the next 2 years with approximately two fifths saying they intend to invest in areas such as plant machinery and equipment and new products and technologies. Transport Infrastructure Transport infrastructure was listed as the main barriers to growth by businesses in general in Greater Lincolnshire (Figure 8). Demand for the movement of people and goods continue to grow across the area, putting increased stress on existing transport networks. Over 4 million lorry loads of goods per year add to pinch-points. Poor road conditions are frequently mentioned in business consultations across sectors and poor infrastructure is deemed a risk to the sector. 8 EEF Manufacturing Outlook June 2014; MAS Survey Page 13
However, of manufacturing businesses surveyed, lack of sufficient transport infrastructure was deemed as a barrier by 23 per cent (Figure 8). This is lower than the overall figure of around 30 per cent of all businesses surveyed, regardless of sector. However, around twice as many businesses in the south of the area (South Kesteven, Boston and South Holland) said transport infrastructure was an issue compared to businesses in North and North East Lincolnshire. Given these areas both have a high density of manufacturing businesses, the relative differences in businesses views relates directly to differences in the quality of the road infrastructures in each area. IT/Broadband In terms of other infrastructure, poor IT was deemed as a barrier to growth by around one quarter of manufacturing businesses surveyed (Figure 12) Figure 12: Barriers to Growth IT infrastructure Source: Greater Lincolnshire Employer Survey Having appropriate internet speeds is vital for modern businesses and whilst this is currently deemed an issue by a significant minority of manufacturing businesses, we would expect this to decline as the broadband plan rollout continues up to 2016. However businesses which export were about a third more likely to list this as an issue than those that did not export. Around 35 per cent of manufacturing businesses export according to GLES findings, compared to 13 per cent of businesses in general. Supply Chains Approximately 14 per cent of manufacturing businesses said a poor local supply chain is a barrier to growth compared to 10 per cent of businesses in general (Figure 13). Page 14
Figure 13 - Barriers to Growth - Supply Chains Source: Greater Lincolnshire Employer Survey 2014 Businesses were asked where they source their supplies and in general manufacturers were less likely to use local supply chains. Only 2 per cent of manufacturers' source everything within Greater Lincolnshire compared to 24 per cent of businesses in general. When asked what were the factors that prevented businesses from sourcing locally over 80 per cent of manufacturers said it was simply lack of availability. Sites and Premises Many manufacturing businesses are long established within Greater Lincolnshire, with just under half of manufacturing businesses surveyed having been in business for over 20 years. Figure 14: Barriers to Growth Sites and Premises Source: Greater Lincolnshire Employer Survey 2014 Page 15
Such long established businesses are likely to have been in the same site for many years as their equipment and premises are very much tailored to requirements. Previous consultations with manufacturing businesses have indicated an issue where a minority of businesses are 'stuck' in ageing premises with lack of capital and/or lack of alternative premises being an issue. In the GLES, around 10 per cent of manufacturing businesses surveyed cited lack of premises as a barrier to growth (Figure 14) which was relatively low compared to other barriers listed. However this is an issue which is very individual to the company concerned. Where it affects a large manufacturing business it may have a serious impact on growth prospects and even to the question of whether the company remains located in the area. The survey also asked businesses if they had any intention to relocate outside of Lincolnshire in the next two years. Only a small minority of 2% said they were considering this with a similar proportion of manufacturing businesses considering this. Business Support Businesses were asked to rate Greater Lincolnshire as a place where support is available to help their business grow. Over 50 per cent gave the area a positive rating whilst almost 30 per cent gave it a very positive rating. Perhaps for this reason manufacturing businesses were less likely than businesses in general to cite business support as a barrier to growth (Figure 14). Around 11 per cent of manufacturing businesses said it was a barrier compared to 13 per cent of all businesses. Opportunities for Growth in Manufacturing Exporting Exporting is particularly important to the manufacturing sector. According to the GLES approximately 35 per cent of manufacturers in Greater Lincolnshire export their products or services compared to 13 per cent of businesses in general ( Figure 15) More than half the exporters (55 per cent) anticipate an increase in their level of exports in the next 12 months. This increases to 67 per cent of exporting manufacturers. The GLES shows that only 4 per cent of non-exporting manufacturers (3 per cent of all non-exporting employers) are planning to begin exporting their products and services in the next 12 months. However a relatively high proportion of manufacturing said they would like help to develop new export markets (Figure 15). Around a quarter of all manufacturing businesses, i.e. not simply those that export, said that support to develop export markets is an area that would help their business grow. This compares to 16 per cent of businesses in general. The implication is that if such support were available it could lead to an increase in the number of manufacturing businesses moving into Page 16
export markets. There is therefore an opportunity to help the sector grow its export sales through the provision of such support. Figure 15: Support to develop new export markets Source: Greater Lincolnshire Employer Survey 2014 New products and processes Critical to growth is a sectors ability to innovate. In Greater Lincolnshire the GLES found that over a third of private sector businesses (38 per cent) have introduced new or significantly improved products or processes in the last 12 months. However manufacturing businesses are even more likely to innovate with 42 per cent saying they have introduced new products or processes over the past year. The manufacturing sector also has a number of traits such as size, propensity to export and propensity to collaborate, that make it more likely to be innovative. For example the GLES found that around two thirds of 100+ employers have introduced new products or processes over the past year. A significant proportion of the area's biggest businesses are manufacturing businesses. Exporters are also significantly more likely than non-exporters to have recently introduced new or significantly improved products or services (57 per cent, compared with 35 per cent). Once again a higher proportion of manufacturing business export compared to other sectors. Finally, the ability to collaborate is cited as beneficial in the development of Page 17
new products and services. The GLES found a higher proportion of manufacturing employers collaborate (62 per cent compared to 59 per cent of all businesses). Collaboration to develop new products and processes can also lead to growth across the supply chain. For manufacturers the overwhelming majority (84 per cent) collaborate with other businesses of which 43 per cent are supplier. However approximately a quarter of manufacturing businesses in Greater Lincolnshire have no local supply chain. Developing local manufacturing supply chains would therefore have an added value effect of assisting with local collaboration and local business growth. Sources and Notes Sources Office for National Statistics BRES 2011, 2012 and 2013 Office for National Statistics UK Business Count 2013 Office for National Statistics Census 2011 Quarterly Economic Survey of Lincolnshire Businesses 2009 - date Greater Lincolnshire Employer Survey 2014 Standard Industrial Code Greater Lincolnshire consists of the County Council area of Lincolnshire plus the Unitary Authority areas of North Lincolnshire and North East Lincolnshire. The area is a Local Enterprise Partnership area. The GLLEP has identified manufacturing/engineering as a priority sector, along with Agri-Food, the Visitor Economy, Health and Care, Renewable Energy and Environmental Technologies and Ports and Logistics. The manufacturing/engineering priority sector does not include food manufacturing and related activity which instead come within the Agri-Food priority sector. However for purposes of this paper and in order to enable comparison to national statistics and other LEP areas, Manufacturing (C) based on Sic 2007 broad industry group has been used throughout instead of the Manufacturing/Engineering priority sector group. Page 18
Produced by the Research and Information Team (Economy & Culture) for the LRO LRO Lincolnshire Research Observatory www.research-lincs.org.uk LRO@lincolnshire.gov.uk 01522 550567 Enabling effective strategy, planning and decision making through high quality intelligence, analysis, and data