A new age for British industry

Manufacturing in the UK is firing on all cylinders, according to the latest surveys, apparently oblivious to the turmoil in the credit markets. Sean O'Grady reports

Imagine if you'd been chucked into a cold shower in 1973 and never let out. That, roughly, has been the fate of British manufacturing industry for the past few decades. It has had to survive, as best it can, through waves of attack from foreign competition, a wildly fluctuating exchange rate and successive governments who have taken a fatalistic attitude (at best) to the fate of the sector.

Yet now survey after survey reveals British manufacturing output growth at 10 or 15-year highs, optimism all around, and no shortage of investment. The latest, from the Chartered Institute of Purchasing and Supply yesterday, showed industry experiencing its highest level of sustained growth for 12 years. It is a marked change from the old depressing tale of inexorable decline.

Since we joined the European Union in the early 1970s, and with rounds and rounds of trade liberalisation, British manufacturers have had to deal with everyone from the Germans and French back then to the Chinese and the Indians now. Exporters cope with sterling defiantly outside the eurozone, and with its value now at six-year highs against the dollar. And while prime ministers and chancellors seem to go out of their way to protect the City as an engine of economic growth – no other part of the British economy was awarded its own special clause in the five tests to join the euro, for example – the pleas of industry are routinely ignored. The superstructure of employment subsidies, regional aid, state ownership and other official assistance has long been dismantled. The recessions of 1979-82, 1990-92 and 2000-01 were particularly severe for manufacturing. If you made it and you can still "make it" in Britain, you deserve the VC rather than a Queen's Award for Enterprise. While the glitzy financial services sector is being scrunched, the traditional business of making tangible things that people want is doing surprisingly well.

One of the things people apparently want these days is decorative laminates, according to Derek Taylorson of Cova Products, a small enterprise based in Northumbria. Not as glamorous as selling collateralised debt obligations or engineering swaptions, but still not without challenges of its own, and boasting a turnover of £35m a year. The 210 employees at Cova make wood-grain effect coverings for kitchen cabinets, loudspeaker boxes and, their fastest-growing market, uPVC double-glazed windows. The natural look without its frailty, it would seem.

In his 28 years with the firm, Mr Taylorson acknowledges that they've seen some tough times, the most challenging being the recession of the early 1990s, when they endured painful restructuring. It was then that they moved away from generic products such as medical tapes and towards the more value-added end of the market. After that they embraced "productivity, flexibility and lean manufacturing", Mr Taylorson says. "We listen very carefully to what customers want and to what our suppliers can do."

The recent recovery in the European economy and the rise in value of the pound against the dollar has seen not a shrug but a push into new markets – including the latest members of the EU. Cova has seen opportunities and taken them: "A few years ago America was our biggest export market, but the strong pound isn't doing us any favours. Now we probably sell more to Turkey. We also supply Romanian and Bulgarian markets, and a little into east Asia. "Competition with the Chinese is tough. They make more speaker boxes than anyone, but they're great copiers..."

The tangible effect of the Chinese failure to control intellectual property theft can be found in the north of England; but their insatiable demand for capital goods has also helped British and European exporters to fill their order books and keep EU citizens in work. After all, 60 per cent of UK manufactured exports go to the rest of the EU. Another interesting aspect of the Cova Products success story is that the firm is owned by Renolit Cramlington, a private German entity which took control in April last year. They are a "good parent", says Mr Taylorson, investing in the company and its products, and supportive.

It's an echo of probably the biggest single change in the structure of British industry in the past 20 or 30 years – its drift into foreign ownership. Think of some of the biggest household names and you'll often find a proud, non-indigenous custodian of the brands. ICI? Off to Akzo Nobel very soon. Mini? Bought and revitalised by BMW years ago, and making record numbers of cars at the old British Leyland works at Cowley, Oxford. Bentley Motors? Ditto, only this time revamped at Crewe and owned by VW. Rowntrees? Read Nestlé. Shorts aircraft? Bombardier (ditto British Rail Engineering). British Steel? Via the Anglo-Dutch Corus into Tata of India (who may also acquire Jaguar and Land Rover before too long). Racal, plus bits of Marconi and Pilkingtons? Now Thales of France.

Such moves have played a significant part in securing the UK's position as one of the world's favourite destinations for investment. The trend to foreign ownership and control is also taken by some to "prove" that the problems of British manufacturing in the past – poor quality, strikes, unreliability of supply and product alike, backward design – were not so much down to bolshy workers and their shop stewards as incompetent, amateurish home-grown management and short-sighted UK owners.

Yet there are still success stories that are more unequivocally "Made in Britain". GSK is the world's second-largest pharmaceutical company; Rolls-Royce is one of two biggest makers of aero engines; JCB's earth-moving equipment is used to dig holes just about everywhere; British Aerospace, despite its problems (or because of them), makes a substantial contribution to the balance of payments.

Still, we're a long way from the "workshop of the world" . Much of manufacturing has a "last man standing" feel to it. Manufacturing now accounts for less than 15 per cent of the economy; as recently as 1998 it accounted for a fifth, having fallen below a quarter in the early 1980s. In the 1950s it approached 40 per cent of the country's output.

Employment in manufacturing has probably declined at an even faster rate, one reason why productivity is much improved on the past. Besides, the service and technology sectors are melding slightly. Now firms are best placed if, like Rolls-Royce say, they tend to make money from servicing their products and making them as hi-tech and well-designed as possible, thus embodying "service sector" characteristics. Service companies such as BT and Vodafone also have "manufacturing" characteristics, such as the emphasis on R&D and investment in equipment and infrastructure.

Top-end products relying on traditional British craftsmanship have also got a future. Even in Britain it is possible to survive cold, harsh conditions, and even if many others have gone down with pneumonia.