David Merlin-Jones: We still have chance to save UK manufacturing

There is no doubt that Chinese wages are still a fraction of British ones, but two factors are eroding this advantage. Firstly, and taking the recession into account, Chinese wages grew by 19 per cent per annum from 2005-10. In comparison, the UK’s wages actually shrank by 0.2 per cent over this period. Many companies, including iPhone manufacturer Foxconn have doubled their salaries, while Chinese regional governments have pushed up minimum wages and in the last year alone, 20 regions have experienced minimum wage hikes of over 20 per cent.

By 2015, the average Chinese worker will earn roughly a sixth of a UK worker’s pay, but this is up from a 25th in just seven years.

Secondly, labour constitutes a declining proportion of overall production costs. To keep ahead of the competition, many manufacturers increasingly rely on automated production, which requires fewer staff. On average this means that companies offshoring to China only save one fifth of their costs, which is hardly earthshattering, and this is before other costs like shipping are taken into account. Shipping alone has tripled in price over the last decade, and, for some, this single-handedly wiped out the saving.

Yorkshire will be one of the regions to benefit the most from companies repatriating their production. Companies will look to return to areas with low labour costs, and average earnings in industrial work are £10.32 an hour in Yorkshire and the Humber, 10 per cent less than the national average. It is fitting that the areas that saw their industry emigrate should be the first to benefit from its return.

As the benefits are falling, the problems with Chinese production are coming into focus. ‘Made in China’ has never elicited positive feelings to the same extent as ‘Made in Britain’, and it is not hard to see why. Many British firms outsourcing production to Chinese counterparts have found the quality poor and delivery erratic. Worse, given the frequent lack of onsite presence, problems are often discovered only when the product is delivered, which can render a shipment useless while other faulty goods are en route. These are issues that simply do not occur in UK production.

While certainly positive, the onshoring trend is no economic panacea: it will create many new jobs, but never as many as were originally lost. Companies returning to the UK will not be competing on cost, but on quality and service provided. They will be producing goods with high-tech, computerised machinery, and hiring staff to maintain and program this, rather than manufacture anything themselves. This means the incoming generation of employees needs to be technologically literate, and many ex-industry workers cannot return to their old sectors without training: production processes have moved on. This is where the Government needs to step in and ensure training courses like apprenticeships teach the relevant skills.

It is clear that China is no longer the default option when a British company is looking for a location from which to produce goods, but it would be wrong to think this means Britain is now the default choice instead, it is not. Businesses still need to be motivated into repatriating British production and this is the Government’s responsibility.

The US has had great success in developing onshoring, not least because President Obama has made it an economic priority and created specific funds to encourage it. Electrolux recently received a total of $188m through various funds and benefits to set up a new $190m plant in Tennessee.

If the Government fails to champion onshoring, it is unlikely to reach its potential or even last long: other attractive locations such as Eastern Europe will lure British companies away. The UK is still at a critical juncture in terms of retaining a critical mass of industry: if we lose much more, the process will speed up. Onshoring offers a chance to avoid this – we cannot waste this opportunity.