UK: The end of the beginning? - BRITISH INDUSTRY.

UK: The end of the beginning? - BRITISH INDUSTRY. - "If what happened to us in the 1980s had happened in the 1950s, we would all be much better off." This view, from the head of a Midlands engineering firm, would be contested by victims of the 1980-81 re

Last Updated: 31 Aug 2010

"If what happened to us in the 1980s had happened in the 1950s, we would all be much better off." This view, from the head of a Midlands engineering firm, would be contested by victims of the 1980-81 recession - and many economists - who believe that the contraction of capacity during those years went much too far and that the Thatcher government's subsequent policies did little to rebuild the country's manufacturing base. Yet it is certainly true that the competitive pressures of the past 10-15 years - the process started before Thatcher came into office - brought about changes which narrowed the efficiency gap between British industry and its overseas competitors.

On the positive side, mistakes of the 1960s and early 1970s have been unwound. Bad habits stemming from the seller's market of the earliest post-war period have been at least partially eliminated. Companies have integrated themselves more effectively into the international market, while the attractiveness of the UK to foreign investors has increase. On the other hand, some sectors and firms have become much smaller, perhaps too small to play more than a marginal role on the world stage. The question for the 1990s is whether Britain's diminished but streamlined manufacturing industry provides a platform for growth in production, investment and exports.

Lack of competitive pressure was one of the factors that lay behind Britain's lagging productivity growth in the first 25 years after the war. In the 1960s, while the six founder members of the Common Market were steadily integrating their economies, the structure of British industry and the attitudes of many companies were still geared towards domestic and Commonwealth customers. Although there were some notable and far-sighted exceptions, for much of industry it was not until the 1970s that this comfortable world began to disappear. Import competition increased after entry into the Community; several sectors had to contend with the incursion of Japanese and other Far Eastern exporters. the economic slowdown following the 1973 rise in oil prices added to the financial strains.

These changes in the economic environment set in train a re-orientation of British industry which gathered pace during the 1980s. The supply-side measures of the Thatcher government reinforced and facilitated this process, but did not in themselves initiate it. Companies changed because market pressures compelled them to.

The nature of the adjustment which has been taking place can be illustrated in three areas - higher productivity, the redirection of corporate strategy and the establishment of stronger positions in the world market.

The most striking and visible changes were at the factory level. The big push for higher productivity in the late 1970s and early 1980s involved the closure of uneconomic plants and a vigorous attack on overmanning. In some industries, as in cars, disorderly labour relations had contributed to high costs, unreliable deliveries and poor quality - weaknesses that could not be allowed to persist in the competitive climate to which the industry has to adapt. Sir Michael Edwardes, appointed chairman of British Leyland in 1977, became a symbol of the new spirit of management resolve; the first major plant closure, at Speke near Liverpool, took place in 1978. Although Sir Michael was later criticised for over-emphasising the company's labour problems, correcting them was a necessary condition for British Leyland's survival.

There is room for argument as to whether there was too much confidence and not enough co-operation in driving through the reforms. Was the long 1980 steel strike, for example, an unavoidable precursor to the changes in payment arrangements and work practices which were implemented later in the decade, or could union assent have been secured? Perhaps the circumstances of the time required a new style of management, with the determination and the confidence to tackle sources of inefficiency left untouched for decades. Their task was made easier by high unemployment, which weakened the ability of trade unions to resist; the balance of power was further shifted by the 1982 and 1984 Employment Acts, which imposed strict curbs on strike activity.

Modernisation of work practices was one response to competitive pressure. Another was the refocussing of corporate strategies towards products and businesses which had a long-term prospect of viability in a competitive world market. A common phenomenon of the 1950s and 1960s had been for profitable companies, faced with slow growth in their traditional business, to diversify into other fields. Now companies like GKN and Tube Investments (later renamed TI Group) found they had neither the resources nor the management skills to compete internationally in all their activities. GKN decided to concentrate on vehicle components, where it had a technical edge - especially in constant velocity joints - that could be exploited internationally. Tube Investments sold off many of is acquired businesses - aluminium, machine tools, bicycles, domestic appliances - to concentrate on specialised engineering.

The reduction, of strategy was often associated with new managers, more willing than their predecessors to challenge old assumptions. Fisons at last abandoned its traditional emphasis on fertilisers to focus on pharmaceuticals. Courtaulds split itself into two quoted companies, one dealing with textiles and the other with speciality materials. ICI, perhaps belatedly, hived off some of its plastics interest and sold some of the older activities that had been part of the company since its creation in the 1920s.

The unscrambling of diversified groups has the welcome consequence of restoring the independence, through management buy-outs, of enterprises that had languished under unfocussed parents. Two examples were Kenwood, the kitchen appliance company bought by Thorn in 1968 and sold to its management in 1990, and Aveling Barford, the construction equipment concern bought by British Leyland in the 1960s and subjected to several other changes in ownership before emerging as an independent business. Some buy-outs provided no more than a short interlude before resale, though the buyer - often an international company - was usually better equipped to run the acquired business than the previous parent.

Greater specialisation is linked with the third response to competitive pressure - a determined effort to achieve fuller integration into the world market. For many companies Western Europe has been the priority. In the early 1970s, just before and after Britain's accession to the Community, there had been a flurry of take-overs and joint ventures on the Continent. Perhaps because of excessive haste or unfamiliarity with the business environment, the results were often disappointing, leading to a disenchantment with the Continent and a renewed interest in the US. But as the integration of the Community and Britain involvement in it have deepened, Europe has assumed a more central role in corporate strategy. Companies that had traditionally been orientated towards the Commonwealth like BICC, the cables group, saw that it was not too late build a position in Continental Europe - in this case mainly by acquisitions.

The need for a European strategy seen by Ford as long ago as 1968, when it established Ford of Europe - is now recognised in most industries, including those which had been dependent on dominant, state-owned purchasers. With little need or opportunity to penetrate other European markets. An example is the pooling of the power engineering business of General Electric Company in Britain and Alsthom in France, combining the technical and market strengths of two national leaders.

As European industries become more integrated, acquisition, joint ventures and partnerships are increasingly necessary to ensure Britain's participation in the market opportunities that are opening up. The Anglo-French merger between Carnaud and Metal Box in cans and between Arjomari and Wiggins Teape in paper illustrate the trend. More productive factories, more coherent corporate strategies, more intelligent approaches to the world market - all these improvements, often implemented during the 1980s, have put British industry in a stronger competitive position.

At the same time, as memories of the "British disease" has faded, foreign investors have come to see the UK as an attractive base in which to build or acquire manufacturing facilities. The most spectacular case in the car industry, where three Japanese companies, Nissan, Toyota and Honda, are not only leading revival in production and exports, but also giving valuable lessons to their competitors and suppliers in modern techniques of product development, quality control and personnel management. Successive French governments have perhaps been unwise in keeping the Japanese out and thus depriving their industry of a valuable competitive spur.

In another industry, paper and board, once thought to be doomed to genteel decline, a combination of British entrepreneurial effort and foreign investment, mostly from Scandinavia and North America, has brought about extensive rationalisation and modernisation. The UK has become more integrated into the world paper industry, but new investment ensured that its domestic advantages - a large consuming market, substantial waste paper availability, and limited but important home-grown timber supplies - were fully exploited.

The Thatcher government has rightly taken a relaxed view of acquisition by foreign companies. The purchase by Fujitsu of Japan of Britain one-time national champion in computers, ICL, aroused little opposition among politicians or public; the revival of ICL during the 1980s, albeit with strong technical links to Fujitsu which paved the way for the ultimate sale, is in marked contrast to the troubles of Bull in France where a more nationalistic approach on the part of the French government has complicated the company's search for international alliances.

What matters more than ownership is the ability of British based manufacturing industry to participate profitably in the world market and expand its share of it. One may regret the loss of some headquarters functions when a company like RHP, the ball bearings producer, is bought by NSK of Japan or Lansing, the lift truck company, by Linde of Germany, but it is a reasonable hope that the new owners will invest in it and develop the acquired businesses in a way which the original owners would have found difficult to afford.

Whether the driving force comes from established companies, home-grown entrepreneurs or foreign investors, the task in many British industries is to restore competitiveness to businesses which have fallen along way behind the international leaders and to build new ones. The size of the rebuilding task should not be underestimated. Some of the sales to foreign companies - like the purchase of Leyland Vehicles, one a potential world leader in heavy trucks, by Daf of the Netherlands - stemmed from extreme weakness on the British side. While the link with Daf corrected a long-standing Leyland problem, the lack of a sales network on the Continent, the combined business remains hard pressed to lift its market share in an industry led by stronger companies.

Again, although the Japanese presence in the car industry is welcome, it will not by itself transform the rest of the British based industry, vehicle assemblers and component suppliers alike. The most obvious benefits should accrue to the component makers, some of whom, like GKN, BBA, T and N and Lucas, already have respectable positions as suppliers to the world vehicle producers. But they will have to work hard to meet Japanese standards; competitors from the Continent, such as Bosch of Germany and Valeo of France, are expanding their operations in the UK partly in order to supply the Japanese transplants.

Rover, helped by its alliance with Honda, is making good progress in raising quality and efficiency. Ford still has a significant productivity lag to overcome in its British factories; the opportunity clearly exists to shift more of its production to its factories in Germany and Spain. As Europe becomes more of a unified market, the political and commercial arguments for maintaining a strong manufacturing presence to support a large market share may become less compelling. The danger is that, partly because so much ground has been lost in the past, the UK could become a peripheral part of Europe, somewhat isolated from the mainstream of technical and industrial advance. A case in point is the machine tool industry, which has held a great deal of capacity in the last 15 years. Inward investment, from the Japanese among others, strenuous efforts by the survivors and new entrepreneurial entrants hold out some promise for the future, but there is a long way to go.

There are doubts, too, about the UK's stake in the information technology industries, including electronics, computers and telecommunications. Investment from the US, Japan and continental Europe has played and will continue to play an important part. Moreover the UK has probably been more successful than most other European countries in fostering high-technology entrepreneurs in this field. But one problem which these entrepreneurs have faced as they seek to grow to international dimensions is access to markets.

Because the largest demand for their products and most innovative customers are in the US, it is the American rather than the European market on which they have had to concentrate; as the difficulties of Rodime, the Scottish-based disk drive manufacturer, have shown, it is not easy to establish a strong American position in this industry from a British base. The hope must be that as European information technology markets become larger and more unified, high-technology firms will find wider opportunities and more dynamic customers closer to home.

For manufacturing industry as whole the integration of the Community and its likely enlargement should provide both the competitive pressure and the market opportunities which were lacking in the earlier post-war period. If part of Britain's industrial weakness was due to a lack of consistency economic and industrial policy, that problem, too, should become less serious in coming years. Closer agreement between the political parties on the role of the market together with membership of European monetary system, seems to rule out the wild policy swings that were a characteristic of the 1960s and 1970s.

At the corporate level the last decade has been marked by a correction of past errors, a clearing away of barriers to higher productivity. Forcing a way through this obstacle course has called for courage and resilience on the part of managers. They may find it difficult to redirect their energies to building businesses for the long term.

At the same time, the desire to avoid head-on clashes with established giants in their field may be causing some companies to retreat too quickly into niches, where margins are higher and competition less fierce, and hence to neglect opportunities which their Continental rivals have seized. In textiles, for example, German mills, through investment in new equipment and product development, have exploited opportunities for high-volume fabrics more effectively than their British counterparts. British managers in the 1980s proved themselves adapt at shrinking production costs, cutting overheads and redeploying assets from unprofitable to profitable uses. That restructuring was necessary, but something more is now needed. Any sense that the battle had been won, which some companies may have felt during the mid-1980s, will be highly damaging. Meeting international competition in the 1990s will require an unrelenting drive for quality and efficiency; upgrading the skills and commitment of the workforce will be crucial. The changes of the 1980s helped along by Thatcherism, were only a beginning.

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