A Department of Trade and Industry report published this week says even the largest, most successful companies have lower productivity than competitors elsewhere in Europe.
The report, A Benchmark for Business, explodes the accepted view that the reason for the UK's low average performance is that, while the top- ranked companies excel compared with international competitors, the average is lowered by an ill-performing "tail" of companies. "A number of British star performers match their counterparts, but with some notable exceptions such companies tend to be small, and few in number," said the report.
The report suggests that UK plc is too inward-looking and its workers too low-skilled and poorly paid. British companies fail to invest enough in research and development, and export efforts are weak, especially by small businesses, which rank 13th among the 15 EU exporters. Overall, productivity is a quarter to a third lower than in France and Italy. British companies tend to be smaller in industries where there are significant corporate economies of scale elsewhere.
"The climate for business in the UK is strong. How else could we lead Europe in attracting inward invest-ors?" Margaret Beckett, Trade and Industry Secretary, told last week's Confederation of British Industry conference in Birmingham. "We've got some excellent firms, big and small. Our best firms are among the very best in the world. But our overall performance on several accounts - innovation, skills, productivity - remains behind other developed economies."
The Government recommends that UK plc study the best practices of companies abroad to increase productivity and profitability instead of comparing itself with domestic rivals. The DTI proposes to use A Benchmark for Business as a discussion document for five working groups examining how to improve British competitiveness, which will feed into a white paper drawn up by the Government and business. Mrs Beckett also wants a discussion of competitiveness at EU level, when Britain takes over the EU presidency next year.
The DTI report looked at seven sectors of the economy accounting directly for around one eighth of gross domestic product, with a combined turnover of around pounds 90bn.
Chemicals, the largest UK manufacturing sector and the industrial star of recent years, increased productivity by 44 per cent between 1990 and 1996; the overall average is 21 per cent for UK manufacturing. The UK introduced labour flexibility before its competitors, particularly helpful for chemicals, which is prone to severe cyclical swings. But UK companies do less R&D than overseas competitors and have invested more abroad than domestically. The sector turnover is pounds 41bn and workforce is 400,000.
Telecommunications is the fastest growing services sector, but is global and fiercely competitive. Challenges facing UK telecoms firms include the need to encourage the growth of small, technologically innovative firms and increased training of the workforce. Deregulation means UK companies will be pressed to maintain UK market share. Sector turnover is pounds 19bn, workforce is 200,000.
Automotive Components is the world's largest manufacturing industry. Productivity improvements in the UK have outstripped other developed countries in past few years, but absolute UK levels still remain below those of overseas rivals. The UK sector suffers from below average investment and R&D. Sector turnover is pounds 12bn, workforce is 150,000.
Textiles. As in most European countries (except Italy), employment in clothing and textiles has declined sharply in recent years. The UK has a substantial trade deficit in the sector, but exports are growing steadily, rising 10 per cent in 1996. Britain is quicker than many competitors to add value through design and high-tech products. Sector turnover is pounds 20bn, workforce is 426,000.
Semiconductors. The UK is on course to pass Germany as largest European semi-conductor maker. UK productivity is close to the world best, but R&D is low and there is a shortage of qualified, skilled labour. Sector turnover is pounds 4bn, workforce is 25,000.
Printing industry is undergoing big changes with many small firms but few big companies. Leading firms have adapted quickly to technological change, but half UK companies still rely on old methods. Even so, exports rose to pounds 361m in 1996 from pounds 325m in 1990. UK has a trade surplus in the sector. Sector turnover is pounds 10bn, workforce is 170,000.
Retail has changed greatly in the past 15 years, with larger businesses taking over from small shops and growth in out-of-town shopping centres. Retailers have more power over suppliers and are improving profits, and are aware of the potential of the Internet. Sector turnover is pounds 157bn, workforce is 2.2 million.