It may only seem like a moment ago that we lined the floors of polling stations to cast our respective votes in the 2016 referendum, but with the March 2019 deadline for Britain’s exit from the EU approaching at lightning speed, many businesses are becoming increasingly concerned about the impact that Brexit will have on the UK manufacturing sector.
Perhaps somewhat surprisingly, Qimtek’s Contract Manufacturing Index (CMI) has reported an 18.6% rise since the referendum vote in June 2016, with the latest results closely tracking that of similar indexes, such as the Markit CIPS Purchasing Managers Index. This shows that despite the mounting anxiety, outsourcing levels have grown by almost a fifth. But does this growth dictate reports of heightened fear of Brexit’s impact on the UK manufacturing sector - or does it, in fact, support it?
Mind the Gap:
The skills shortage within the UK manufacturing and engineering industries has been well-documented - especially within the last few years. The UK Shortage Occupation List makes for sombre reading, with many engineering professions including mechanical engineering, electronics engineering and design & development engineering represented. In fact, the list is dominated by engineering-based occupations, proving that the skills gap is a tangible problem which threatens the growth of the engineering and manufacturing sectors.
Here at Qimtek, we constantly receive feedback from both our manufacturing buyers and our subcontract suppliers who are feeling the effects of the skills gap. In fact, it is the number one factor inhibiting expansion, with many who are keen to take on more work but are prevented from doing so due to staffing issues. With a very limited pool of candidates to choose from, employers are unable to grow their business; what’s more, it can be difficult to prevent existing staff from accepting attractive offers from other employers, all of whom are equally as desperate to solve their own recruitment dilemma.
Whilst a majority of manufacturers now offer apprenticeship schemes in a bid to entice the younger generations, this has not proven successful enough to counter the problem. In addition, the UK government named 2018 the ‘Year of Engineering’ as a means to drum up national interest in engineering occupations and close the gap. The impact of such campaigns will not be visible within the workforce for the foreseeable future, leaving an interim period of uncertainty and high demand.
Unfortunately, there are no quick-fix solutions to the problem. Many manufacturing companies are heavily reliant on skilled European workers to make up for our own national shortfall and with migration under threat as a result of Brexit, there are a great deal of questions to be answered surrounding the future of UK manufacturing.
Rise in Outsourcing = Rise in Confidence?
Although Britain has not yet left the EU, the manufacturing industry as a whole has experienced a range of knock-on effects - for instance, a rise in material prices has impacted costs throughout the supply chain. With no clarity to date regarding global trade agreements and mounting fears of a no-deal Brexit, it is difficult for manufacturing organisations to plan ahead or predict what will follow.
The 18.6% rise in outsourcing reported by our own Contract Manufacturing Index initially looks out of place when confronted with the bigger picture. However, when you consider that a post-Brexit Britain could be even more devoid of the skilled workers it so desperately needs, is it any wonder that organisations are utilising outsourcing as a way to tackle internal shortfalls?
The 2018/2019 Investment Monitor, conducted by EEF and Santander Bank, reports that only 34% of companies are planning to increase investment in plant and machinery, hinting that scaled-back spending in light of the turbulent climate could also attribute to the rise in outsourcing. By subcontracting production to third parties, manufacturing companies are buying themselves heightened flexibility which cannot be achieved by investing in in-house plant. Furthermore, outsourcing is a viable contigency strategy that allows companies to keep up normal levels of production whilst they weather the political storm, without the need for long-term financial commitment.
Therefore, the rise in outsourcing does not necessarily correlate with a rise in confidence - in fact, it could signal quite the opposite.
Will Heightened Outsourcing Last?
At this stage, it’s impossible to say whether the increased levels of outsourcing experienced since the referendum are here to stay, or whether they are a temporary measure whilst UK manufacturers wait for the mist to clear. Either way, the recruitment problems surrounding skilled staff are set to increase - the level of outsourcing only dictates where in the supply chain is most affected.
The writing isn’t on the wall yet, however. The Migration Advisory Committee is lobbying for a system that favours highly-skilled workers, which may mean that the detriment to engineering and manufacturing won’t be quite as pronounced. However, such a system would still discriminate against low-skill workers, whom still remain a key piece of the jigsaw that has seen the UK rise to the ninth-largest manufacturing nation in the world.
If you’re worried about the impact of Brexit on your business, EEF have a wide range of resources available to help with preparations and better understand the possible outcomes. Please click here for further information.
To gain a more in-depth insight into the climate within manufacturing outsourcing, you can also read the latest Contract Manufacturing Index (CMI) report by clicking here.
What are your thoughts surrounding Brexit’s impact on the UK manufacturing industry? Leave us a comment below!