MANUFACTURING AND THE WELSH ECONOMY

To the surprise of many, manufacturing continues to not only be an important sector within Wales, but is one of the few that is growing within a relatively flat recovery following the worse economic downturn since the 1920s.

Indeed, manufacturing still accounts for 18 per cent of the Welsh economy, as compared to 11 per cent of the UK economy.

More relevantly, the manufacturing sector has grown by 7 per cent between 2009 and 2010, mainly on the back of increased exporting activity. This is twice the growth rate for the rest of the Welsh economy over the same period.

The other good news is that this growth in output is being accompanied by a growth in jobs.

For example, the latest Labour Force Survey figures had shown that the number of manufacturing jobs in Wales had reached 153,000. This represented an increase of 14 per cent over two years as compared to a 2 per cent rise for the rest of the UK.

But it is not only in Wales where we have seen a revival in a sector that had been largely written off during the last decade by many economic commentators and following the 2008 global economic crisis, there has been a re-assessment by developed nations around the World as to the importance of manufacturing within their economies.

In the USA, there has been renewed interest in manufacturing because of its broader effects on the economy and innovation. For example, the President’s Council of Advisors on Science and Technology published a report on “Ensuring American Leadership in Advanced Manufacturing”. This emphasised the importance of developing a strong innovation policy to support advanced manufacturing.

This would develop tailored incentives and through improved education and training of the workforce to use and develop advanced technologies, support new technologies that would form the basis of new industries; and establish shared infrastructure facilities that could be accessed by small and medium sized firms for widespread benefit across industries.

In Europe, there has also been a growing appreciation of the importance of advanced manufacturing to both individual nations and the continent as whole.

For example, it is estimated that manufacturing accounts for 20 per cent of all direct jobs (and 40 per cent of indirect jobs) as well as the generator of two thirds of all R&D investment.

The European Commission has recognised this role through developing specific programmes, such as ‘Factories of the Future’, which is a partnership with the manufacturing sector that aims to strengthen the European industrial base, create sustainable industry and secure well paid manufacturing jobs in Europe.

Yet, despite this increased focus by policymakers on supporting manufacturing, there remain challenges considerable to not only the development of manufacturing in Wales but also its survival.

For example, whilst off shoring of lower value added activities to emerging economies is continuing, the same emerging economies are also moving up the value chain to compete directly in high value industries. This poses a direct threat to those companies that originally moved to Wales because of lower labour costs.

Despite this threat, there are, nevertheless, opportunities for Welsh manufacturers in utilising innovation to develop new markets based on new technologies, especially though integrating services into their business models. There is also enormous potential to further expand manufacturing within a range of industries in which the economy has specific strengths, including aerospace and automotive products, food and drink processing, optoelectronics, defence and medical technologies.

To do this successfully, not only will Wales have to continue with the attraction of foreign direct investment, but will have to focus specifically on growing the indigenous manufacturing sector which has been largely neglected during the last two decades.

The Welsh Government’s sector panel for Advanced Materials and Manufacturing has certainly helped to create a focus within the heart of policymaking for driving forward the case for the manufacturing industry.

But there is certainly more that could be done to support the sector, especially in linking directly with other policies in science and innovation currently being developed in Wales and, more importantly, with strategic priorities for the next round of European Structural funding.

In fact, I would like to see manufacturing not only identified as one of the key sectors for the Welsh economy within such a strategy, but that the financial resources are actually put into place to ensure that it remains so.

The recent revival of manufacturing in Wales is something that all of us should welcome not only in terms of the number of jobs, but for high quality employment, innovative products and processes, export potential and a route for many less academically qualified young people into excellent careers through apprenticeships.

The role for politicians and policymakers, both at the UK and Welsh Government levels, is to ensure that this revival is not a ‘flash in the pan’ but is one that will make sustainable long-term contribution to the Welsh economy.

LESSONS FROM THE FASTEST GROWING FIRMS IN THE USA

On Wednesday, the Wales Fast Growth 50 initiative, which was started fourteen years ago to recognise the best of Welsh indigenous business, will again showcase companies that are making a real difference within their sectors and, more importantly at this time of economic difficulties, are creating jobs within their local communities.

In fact, the fifty Welsh firms featuring on this year’s list, despite being only an average of twelve years old, will have collectively created nearly 10,000 jobs since they were started, which is an incredible achievement.

When the Fast Growth 50 project was launched back in 1999, its inspiration was a similar, but far larger, initiative since 1982 run by Inc magazine.

Indeed, the Inc 500, which identifies the 500 fastest growing firms in America, is a truly inspirational list that not only demonstrates incredible entrepreneurial feats within the World’s largest economy, but also gives clear pointers as to how future business practice is developing in key sectors.

The 2012 Inc 500 list was released earlier this month and the data for the companies featured is fascinating for those of us studying the characteristics of fast growing firms.

Whilst, the overall turnover of all Inc 500 firms in 2011 was $15.8 billion and they employed a total of 46,609 people, the median annual revenue of $8.9 million is relatively modest, as is the median employment of 36 employees (which is similar for this year’s Wales fast growth 50 firms).

More relevant is information on how the companies have achieved fast growth, especially in terms of accessing funding that, at least in the UK, is of major concern to many small businesses.

The surprising finding from Inc is that external funding is not as important to growth as expected - 77 per cent of the founders of the five hundred fastest growing businesses in the USA set up using only their own personal savings, with two thirds needing less than $100,000 to get started.

And whilst 34 per cent stated that access to external capital has been essential for growth, 42 per cent have not utilised external funding in developing their business. In fact, three quarters of companies have financed their growth over the past three years largely through cash flow from operations.

This seems to fly in the face of the popular belief that successful companies require external capital to fuel their growth. This is an important lesson for many entrepreneurs in that, contrary to popular belief, self-funding does not equal slower growth.

Whilst external capital does play a part in a number of growing firms, it can also have its problems such as ownership dilution, loss of control, and management team distraction. In fact, the entrepreneurs questioned for Inc magazine consider the biggest obstacle to growth is not finding money but actually finding good people to help the business grow, which is a vital lesson for governments in supporting businesses to expand.

Whilst entrepreneurship is increasingly seen as a young person’s game, those businesses in the USA that achieve substantial growth are managed by entrepreneurs who are overwhelmingly middle-aged white males, although they had, on average, started their first business at the age of 27.

But despite the fact that the majority of these founders are above the age of 45, they saw themselves as innovators who love launching companies and developing products. Also, unlike many entrepreneurs in the UK, they are very hands on with social media with a third directly involved in writing their companies’ tweets and Facebook updates.

The sectoral make up of the fastest growing firms in the USA also has important lessons for governments that are still tending to follow a “picking winners” policy. Rather than the high technology sectors beloved of policymakers, the fifty fastest growing firms in the USA are overwhelmingly located in traditional sectors such as advertising and marketing, consumer products and services, government services and financial services.

As various research studies continue to show that a small number of businesses create a disproportionate percentage of jobs in the economy, there are lessons to be learnt from such firms.

Given this, I urge anyone with a real passion for entrepreneurship and growth to read the stories behind such performances, regardless of whether the companies are found in the Inc500 or the Wales Fast Growth 50.

12 CRUCIAL CONSUMER TRENDS FOR 2012

The main consumer trends for 2012, as identified by trendwatching.com.

View more documents from trendwatching.com

WHAT ARE THE TRENDS THAT WILL AFFECT YOUR BUSINESS IN 2012?

Fascinating slides on the global themes that affect every type of business, regardless of country in 2012. How will you take advantage of these over the next 12 months?

Next week, a list of 12 Consumer trends for 2012.

THE DECLINE OF MANUFACTURING AND THE RISE OF THE PUBLIC SECTOR IN WALES

They say a picture can take the place of a thousand words.

Below is the relative contribution of the manufacturing industry and the public sector to the Welsh economy for the period 1997-2009.

And the graph below is the overall monetary contribution of the manufacturing industry and the public sector (in £million) to the Welsh economy for the same period.

THE RELATIVE PROSPERITY OF WALES 2010

Last Wednesday, the latest GVA (Gross Value Added) data was released by the Office for National Statistics.

It showed that this measure of prosperity had, following the recession of 2009, increased in all UK regions.

The good news for Wales is that, along with the East Midlands, it had the fastest growth in GVA/head of population in 2010 at 3.3 per cent. Before anyone gets excited about this news, it can probably be explained by the fact that both regions are the most manufacturing intensive in Britain and that the brief export led recovery experienced in 2010 was beneficial, at least in the short term. In fact, the bad news was that Wales is still the poorest part of the UK with a GVA/head of £15,145. In contrast, the richest part of the UK – London – had a GVA per head of £35,026.

And if we look at the growth of London since 1999, the year of the establishment of the National Assembly for Wales, the economic prosperity of Britain’s capital city has grown by 73 per cent. In contrast, the Welsh economy had only increased its wealth by 48 per cent.

So what has been happening by industry, where data lags regional GVA by one year? It shows that, despite the fact that Wales is still one of the main regions for manufacturing, its importance has decreased from being 22 per cent of the Welsh economy in 1999 to 15 per cent in 2009. In contrast, the public sector has grown from 23 per cent to 27 per cent over the same period. And ironically, given the way that the First Minister suggested this week that financial and insurance services was only important to the City of London, it is this sector that has experienced the largest growth in Wales since 1999, expanding by 125 per cent during this period.

What about the different parts of Wales? Has growth been even over this period? As many of you are no doubt aware, two thirds of Wales of Wales has qualified for around £4 billion of European Structural Funding since 2000 as one of the poorest regions in Europe. The aim of this funding was to close the prosperity gap.

The question is whether this has happened?

Unfortunately not, at least compared to the UK economy, with West Wales and the Valleys declining from 65 per cent of the UK average prosperity to 63 per cent since 1999. That is not to say that the difference between the richest and poorest parts of Wales has not been reduced. It has, but that is only because the growth in East Wales, which includes Cardiff, Newport, Wrexham and Flintshire, has been slower.

On a more local level, the good news is that Anglesey is no longer the poorest part of the UK. Unfortunately, it has been replaced by the Gwent Valleys, which now has a GVA/head of £10,654 in 2009 as compared to a UK average of £20,000.

So what does all this tells us.

Obviously, it shows that Wales remains the poorest part of the UK despite billions of pounds in additional European funding and a so-called devolution dividend. Not surprisingly, there remains the argument that the Welsh economy has suffered from long-term structural issues for decades, especially in relation to manufacturing.

Yet, the evidence suggests that the decline in this important industry, so critical for high value activities such as exporting, has actually declined at a faster rate in Wales since 1999 after actually growing during the early 1990s. There is also the issue of whether the Welsh Government could have done more or whether all the economic levers lie with the UK Government?

Certainly, some will look enviously at the growth rate of the Scottish economy, which has expanded by 60 per cent whilst Wales has demonstrated the lowest growth of any of the four nations. Critics may also argue that most of the effort of politicians and civil servants has been equivalent to shuffling deckchairs on the Titanic, bringing in a new economic document every few years rather than taking a long term view of how to truly transform the economy. From “A Winning Wales” in 2002, to “Wales: a Vibrant Economy” in 2005 to the “Economic Renewal Programme” in 2010, what we have seen is policymakers tinkering at the edges of economic development rather than coming up with a real vision for the future of the nation’s prosperity, one that truly changes the way that this country’s economy is managed.

Certainly, the lack of real and consistent strategy has had a major impact on the nation’s economic potential and, consequently, much of the billions of European Structural Funding, as well as the money available from the Welsh Government’s own funds, has been largely squandered, despite having the highest proportional spend of any region on economic development.

Back in 2001, the then Assembly Government under the leadership of Rhodri Morgan set targets to increase Wales's GVA to 90 per cent of the average for the UK by 2010. Unfortunately, we have gone nowhere near that target with Wales’ prosperity being 74 per cent of the UK average in 2010.

 Rather than writing yet another grand document, what is now needed is real action to drive forward entrepreneurship, innovation, productivity, exporting and skills to ensure that, in the next decade, the Welsh economy can make some major strides towards closing the prosperity gap and finally get off the bottom of the UK economic league table.

THE SINGAPORE ECONOMY - WILL IT CONTINUE TO GROW?

Arrived in Singapore yesterday afternoon for a four day jetlagged visit.

Given the fact that the island economy is still seen as one of the growth regions of the World, it is always revealing to examine what has been going on in recent months.

Certainly, growth has been outstripping that of the UK, with the Straits Times reporting that Singapore's economy is expected to grow by around 5 per cent in 2011.

Despite this good news, the expansion of the economy is not expected to last and is expected to slow down next year - growth is estimated at  anywhere between 1 and 3 per cent. The last time Singapore experienced such weak growth was in 2008 when the economy expanded by just 1.5 per cent (although it contracted by 0.8 per cent in 2009).

However, in calculating the state of the economy in 2012, the Ministry for Trade and Industry has not factored in downside risks to growth, such as that of a worsening debt situation leading to a full-blown financial crisis in the advanced economies. In fact, the outlook for Singapore's export-dependent economy seems volatile, with some economists even warning of a contraction if global demand continues to falter, especially following a 16 per cent drop in non-oil exports in October, double what the market had expected.

With non-oil domestic exports to the US falling by 51 percent and to the European Union by 31 percent, it demonstrates that the Asian economy is still affected by what goes on in the old economies of the World.

However, Singapore remains a growth centre with which other nations are keen to do business, which is not surprising given that it was ranked first in the World for employment in knowledge-intensive industries, innovation linkages and export performance by the Global Innovation Index (and third overall in the World).

Take, for example, the France-Singapore Innovation Days programme, put together to facilitate greater linkages between the two nations, which included showcasing five French companies and four Singaporean companies at different stages of development. Certainly, I would like to see the Welsh Government trying to do more to support linkages, especially in linking up our university sector with both higher education and industry in Singapore.