Spend to stay in the race

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The Independent Online
Britain's manufacturers have gained a significant share of the headlines in recent months with their claims that they are being hit hard by the high level of the pound. However, serious as this issue undoubtedly is, it appears that a greater threat to their well-being is posed by a continuing lack of investment.

A report from the Institute of Manufacturing's centre for economic and manufacturing policy, published at the end of last month, says that unless spending on new premises, plant and products is stepped up from the present "disappointing levels", there will be a further decline in international competitiveness.

Of course, these two issues are not unconnected. As Elaine Barnett, the policy centre's economic adviser, said: "The difficult trading conditions which many manufacturing companies have experienced over the last couple of years, have certainly exacerbated the problem."

That said, though, many manufacturers appear to divert funds from investment towards other activities.

"Whether the problem lies with the preference of UK companies to invest overseas, or the need to divert cash flow away from investment and into dividend payments, or some other factor, the net result is to put at risk the long-term future of more and more parts of British manufacturing industry," Ms Barnett said.

With the Government putting particular emphasis on productivity and competitiveness in its industrial policy, the findings are worrying. For the past four quarters, capital spending has fallen on a year-on-year basis.

Moreover, the findings provide a concerning counterpoint to the generally upbeat results of another survey released at the end of last month. Cautious optimism regarding future turnover and profit performance against a background of increasing cost pressures is the theme of the 1999 Bourton Index, announced by the Bourton Group.

The index aims to "take the pulse of UK industry over time, looking at practical operational matters, as opposed to the purely financial performance tracking approach adopted by other reports," Keith Bissett, Bourton's managing director, said.

Noting that "everyone is having to work very hard to stay competitive", he points out that nearly 60 per cent of respondents rate themselves as "above average" in terms of coping well with competitive pressures.

Overall, based on respondents' rankings of their companies' competitiveness, a higher proportion than previously falls into what the firm calls the "fire-fighters" group, and fewer into the middle-ranking "followers" category. However, there has been no increase on the 1998 figure of 15 per cent who see themselves as world class or near - or what Bourton calls the "front-runners".

Mr Bissett says that Bourton's surveys over the past decade have consistently reported a strong commitment to change within the UK manufacturing industry.