Katja Hall: UK industry can be the workshop for wider world

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WE’VE seen a lot of progress in the two years since the Government announced its plan to form strategic partnerships with 11 key sectors of our economy. From chemicals to creative technology, industry is now embracing this way of working with government across the board.

While we’ve made a strong start on our industrial strategy, we have barely scratched the surface of what’s possible with joined-up government working with business to champion British industry at home and abroad.

One of the areas in which businesses across sectors have identified opportunities for growth is strengthening the UK’s supply chains.

These run up and down the country, criss-crossing sectors and regions. Just look at the Advanced Manufacturing Park in Rotherham, giving opportunities to smaller companies to work collaboratively with larger ones to boost their growth. The University of Sheffield is also heavily involved in the Park, developing partnerships with businesses such as Sheffield Forgemasters, Rolls Royce and Boeing.

Around eight out of 10 businesses identify supply chain development as an important factor influencing their future growth, so we teamed up with management consulting firm AT Kearney to look at the issue in more detail, publishing a new report called Pulling Together.

Shifting global dynamics are leading firms to re-evaluate long supply chains. And as changing customer expectations place a greater emphasis on faster response times and greater product customisation, the path ahead is paved with opportunity.

The good news for the UK is that we have many strengths that we can build on to take advantage of this and grow our domestic supplier base. We have a world class research base, an enviable reputation for quality – “Made in Britain” carrys a weight that resonates globally – and companies of all sizes working together to overcome common challenges and boost performance.

Our report shows that action to boost innovation, quality and service-driven supply chains could be worth up to £30bn to the economy by 2025, and create an additional 500,000 jobs throughout the country. This would mean more products, more exports and increased wages. The prize is out there. But we need to up our game in a few areas to reach it. The message is clear from our report: while we can hope to match our competitors on cost, we should aim to beat them on value.

Firstly, we need to build an innovation environment that is not only globally competitive, but globally leading. In 2012, France, a similar-sized economy to the UK, outspent us on research and development (R&D) by 40 per cent. We need to start putting our money where our mouth is. The CBI would like to see a three per cent target for combined public and private investment in R&D established for the long-term, as a first meaningful step after the election. We’d also like to see the resources of InnovateUK – the Government organisation established to stimulate and support business-led innovation – doubled by the end of the next Parliament, and an extension to the R&D tax credit, to incentivise the later stages of commercialisation and production of ideas in the UK.

Secondly, we need to get to grips with a growing skills crisis. It’s no secret that industrial firms are struggling to recruit science, technology, engineering and mathematics (STEM) graduates and technicians.

We need to double the number of STEM-skilled graduates, triple the number of STEM apprentices, and in both cases greatly increase the level of female involvement.

In the same way we incentivise graduates to become teachers, we should be doing so for engineers. And more immediately, we need immigration reform, such as raising the Tier 2 skilled visa cap, to ensure companies gain access to the talent they need.

Finally, our foundation industries – metals, chemicals and other building blocks of supply chains – are under sustained pressure from international competition and increasingly uncompetitive energy prices.

They have suffered acutely from the effects of the downturn and we are now at real risk of losing these cornerstones to our industrial activity completely. So, we need government and foundation industries to deliver an industry-led materials strategy.

The picture facing the UK’s supply chains today is one of challenges and opportunities. With a strategy to establish ourselves as the destination of choice for high-value supply chains, we can realise them. In particular, we need a focus on value – on innovation and service, and not just cost. By working together to rebuild our supply chains, and thus strengthening the very heart of our industries, we can bring about our national industrial renaissance.

Katja Hall is deputy director-general of the CBI business organisation.