The UK Business Economy - Essay Example

Academia- Research d 26th November 09 Business Economics Britain which is reputedly the sixth biggest global manufacturing economy is in problem today.. The UK manufacturing sector is currently in recession and last year it recorded its largest annual decline for a decade. There is puzzling question in the mind of everyone whether UK is changing its hegemony in manufacturing to service industry or gearing itself to the new economic environment that the global economics is gradually taking shape. Gradually the image of UK’s manufacturing sector became poor because of uncompetitive nature and that lost many grounds. Reduced investment and poor image of the sector is put in the backseat without fresh blood in the segment. The industry must get competitive edge by manufacturing those goods that consumers want and Britain has technical and competitive advantages. Manufacturing in Britain is still important. There is a need to keep the economy diversified, that can not be possible without manufacturing. UK requires shifting into more high-tech manufacturing which is less labour intensive UK economic scenario can be viewed from this chart and diagram, which clearly points about the falling gross domestic products every decade from the Second World War when the UK economy boomed (Hundred years of Economic statistics, World Economic Outlook) Average GDP UK in a Decade 1940-49 1950-59 1960-69 1970-79 1980-89 1990-99 4.03 2.59 3.24 1.37 2.17 1.69 Annual growth rate during 1992 to 2007 was in average 2.68% according to IMF. GDP in market prices in UK 2002 2003 2004 2005 2006 2.0 2.5 3.2 1.9 2.2 Source HM Treasury in March 2006. Economy of United Kingdom Wikipedia The boom of the new century ended in 2008 when UK entered a recession caused by the global financial crisis following the collapse of the UK Northern Rock Bank. British economy shrunk by 2.4% in the first quarter of 2009 compared with the previous one as reported by the British Office for National Statistics (ONS). According to the ONS, "output of the production industries fell 5.1 percent, while service industries fell by 1.6 percent, with negative growth in all sub-industries except government and other services." (British economy shrinks 2.4 %-----) Britain is still reputedly the sixth biggest global manufacturing economy. The UK manufacturing sector is currently in recession and last year recorded its largest annual decline for a decade. The manufacturing sector had witnessed the boom in 1995 when it touched almost 8% growth and then moved in between 0 to 2% growth level. After touching more that 2% in 2007 the manufacturing shrunk below in 2008. Services account for 80% of Britain’s G.D.P. Service industry is not entirely independent and depends very much over manufacturing sector only. The UKs services industry as seen as the engine of growth for the national economy does not appear convincing. There is puzzling question in the mind of everyone whether UK is changing its hegemony in manufacturing to service industry or gearing itself to the new economic environment that the global economics is gradually taking shape. First it is very difficult to draw a dividing line between the service and manufacturing industry. Service oriented companies very much depend upon the strength of the manufacturing segment only. For example the financial companies or an express services or airlines services all find business opportunities and revenues from the manufacturing sector only. Other companies that design or market manufactured goods are classified into services but can not be separated by industries. It is generally acknowledged that UK manufacturing has suffered from years of under-investment and manufacturing output accounts for about 20% of the national economy employing 4 million of UK workforce i.e. 14% of UK employment. But as CBI UK puts the fact that 2.4 million of UK employment in the service sector depends upon manufacturing only. Just after World War II, manufacturing accounted for almost 40% of the UK economy (The facts about UK manufacturing, BBC News) in 2008 about 150,000 workforce lost jobs in the manufacturing sector. At the start of the new century the global economy boomed on the strength of high tech sector that supported the manufacturing segment as well. The end of this boom after 2001 and exposure of the economy to the international trade made the manufacturing suffer. The strong pound put UK into added difficulties because their exports became uncompetitive and dwindled in the world market. Other countries’ export looked lucrative and thrived at the cost of Britain’s export. The lower cost of labour in the competing Asian courtiers such as India and China made their produce cheaper for imports by other countries competing UK. This proved disastrous for the UK industries. Manufacturers provide 60% of the UKs exports. This is a sizeable contribution for the country that is heavily involved in international trade. UK Steel industry which was one of the biggest in the world also suffered because of globalization and strong pound. Steel became very much a global. Multi-metal company like Corus formed after merger of British Steel and Hoogovens enabled the new image of steel industry. But stronger pound reduced the revenue earning of this company. The falling demand of steel from the key market such as South Asia, Russia and South America made the UK steel production to fall by 6 percent in 1998. By this year the employment level reduced to just 30,000 compared to 150,000 in 1979. The company could not improve up much and it was ultimately taken over by TATA Steel. (The British steel industry has survived a century of contraction to remain one of)…. Gradually the image of UK’s manufacturing sector became poor because of uncompetitive nature and that lost many grounds. Reduced investment and poor image of the sector put in the backseat without fresh blood in the segment. Service segment in contrast does not require a large capital investment and that attracts young and modern youth to work with interests. The basis of the efficiency of manufacturing sector of UK was its machines that made the products cheaper than the products made by third world countries which used their manpower as primary factor of production. British people used these innovative machines in agricultures which is highly mechanized by now, and efficient by European standards, producing about 60% of food needs with only 1% of the labor force. The UK has large coal, natural gas, and oil reserves; primary energy production that accounts for 10% of GDP. Gradually other developing countries adopted new machines to manufacture goods for the developed markets and achieved the same efficiency and quality that UK had. Their cost of labour remained cheaper that made their products more competitive. This gradually robbed UK of their differential advantage with mechanised production and shifted the advantage in favour of the Asian countries. In this cyclical shifting UK exports became uncompetitive in favour of other manufacturing countries. This is how economic cycle is set for different economies. Once the leader of the manufacturing of sophisticated goods on the strength of their invented machines now turned as onlooker because the machines and technologies are available with other countries also but cheap labours are not with UK. Cheaper labour costs in other countries have attracted some companies to move their production operations to other European countries such east European countries or Asia. (The facts about UK manufacturing) Service sector has recently taken over the manufacturing sector but no one can understate the value of manufacturing. Britain remained the leader in this segment but today because of international factors and currency value the segment has been in low profile. The importance of manufacturing can not be ignored. It requires polishing in the domestic sphere. Producing goods in niche segment even at lower volume may keep this fundamental sector to the economy alive. Manufacturing and engineering sector should be given due importance and regard by everyone. In case it is not done the backbone of the service industry will be weakened. UK should find opportunity in developing most innovative machines that was its forte in the past and sell it to the world as a leader even now. Mass manufactured products in Britain may not be possible for the reason of high wages but niche products in which Britain has strength can be developed. British industry can display its strengths in areas such as small scale high value engineering goods as the motor sport manufacturing industry in which Britain can be leader. People in UK are well of. They receive high wages and maintain good status in the society. They buy well- know brands irrespective of costs, It is only the lower segment of the society who prefer buying cheap goods. UK manufactures must manufacturing according to the demands by different segments of the society and position those in these markets. In case that is not done even the local affluent class will buy foreign goods that are highly priced irrespective of the quality. At present the British goods are deteriorating in quality and therefore losing even the British buyers. The attitude of the governments in UK needs drastic changes. Factories should not be only sources of rates and taxes. They require closer understanding for overhauling the segment with innovative schemes and incentives to be offered by the government. There must be motivation for workers to work for not just high wages but for high incentive based production to compete with the lower wage countries in the world markets. The industry must get competitive edge by manufacturing those goods that consumers want and not cheap goods that do not attract anyone wanting for quality goods. Manufacturing in Britain is still important. The British steel industry can still produce high output but may not create high employment because of sophisticated machines used. There is a need to keep the economy diversified, that can not be possible without manufacturing. UK requires shifting into more high-tech manufacturing which is less labour intensive. Moreover, manufacturing is not just production of goods but also includes researching, designing, service, maintenance, sales, marketing, logistic and distribution. UK should diversify in all these allied activities and keep manufacturing industry alive and active. Environmental industries are also very lucrative today. This industry is growing rapidly at about 10 percent per annum. Diversification in manufacturing green products can provide additional opportunities to UK. Government in UK can frame opportunities to invite global stalwarts to invest in UK and produce high quality items that can capture global markets. BMW of Germany is present in UK to manufacture cars and sale in the world market. TATA steel has recently entered UK by taking over Cores to provide their capital and expertise to provide strength to the UK steel industry and create employment here. This is how Britain can revive their traditional strength in the global market.(Professional Engineering Magazine: The Importance of ...) Over the past decade the financial services industries in the UK and also in USA thrived and new ways of generating wealth through selling ‘creative’ financial products have been developed by them and marketed in several countries. This is a new development and UK must take advantage of that. But the country should not forget about its principal strength of designing and developing new products that everyone can’t do and get clear differential advantage. Moreover manufacturing, affordable and products on demand in global market is very much desirable for balancing trade and generating wealth that sustain an economy and its standard on a long tern footing. Overseas companies coming to UK and taking over companies will be able to support the ailing companies but they will be concerned with their own profits and interest. A portion of wealth will be expatriated to another country and probably the manufacturing acumen and technical skill of UK might be in danger. UK must preserve these assets and intellectual properties for themselves in serving the global interests. UK can do this if people are involved in understanding the customers’ need. Designing and processing products, understanding supply chains and managing and controlling the global distribution themselves and thereby earning bigger acumen and skill will be very much strategic. Manufacturing base of UK need to be strong to retain many value added jobs which otherwise will go to other countries. Made in England label is a matter of prestige that one day thrived in the whole world. This has to be retained in the nation’s capacity. UK has proven and recognised industrial talent that has enabled the world in manufacturing and designing high performing machines, cars. Aircrafts, nuclear power system engineering plastics and so many other equipments. Others simply tried to copy or develop these products later. The scenario is different now when UK is purchasing all new aircrafts from overseas-owned companies. UK today needs better and cleaner, energy efficient cars, aircrafts, ships and trains. If the country does not or does not remain capable to solve these problems themselves by retaining and improving the manufacturing sector in an environmentally responsible way the country would be exhaust its real strength and some one else will rule over to supply these. UK will be lost of its real sheen for ever. (Westminster Forum "The Way ahead for UK manufacturing" -) Today, therefore, the need is to revive back, energise fresh and move forward to change and dictate again with renewed strength and not to be drifted away as the wind blows. There is no room at all for complacency. Every citizen in UK needs to be optimistic, building on the opportunities created by what the IMF has described as “a decade-long record of strong and steady macroeconomic performance”. Government must be determined to build the right conditions for modern manufacturing success. References British economy shrinks 2.4% business.export.by/en/?act=news&mode=view&id=10994 British Statistics, facts and figures. www.totaltravel.co.uk/uk/traveller/about-uk BBC News | TALKING POINT | Are UK manufacturers a dying breed? news.bbc.co.uk/2/hi/talking_point/1880719.stm BBC News | BUSINESS | Steel: strength endures The British steel industry has survived a century of contraction to remain one of ... ``` Economy; Economic Outlook & Analysis, UK, Global, Industry Sectors ... www.modernselling.com/economic-outlook-analysis/ IMF.http://www.imf.org/external/pubs/ft/weo/2006/01/data/dbcselm.cfm?G=2001 news.bbc.co.uk/2/hi/business/551545.stm Professional Engineering Magazine: The Importance of ... 8 Jul 2009 ... www.profeng.com/archive/archive+2009/2212/22120001B.htm  Westminster Forum "The Way ahead for UK manufacturing" - BIS www.berr.gov.uk/aboutus/ministerialteam/.../page42162.html ` Read More