The current unpredictable geopolitical environment makes corporate planning more challenging than ever before. Simon Knowles, Chief Marketing Officer at Maine Pointe, argues that, along with the problems uncertainty creates, there is a significant opportunity for executives to improve productivity and increase competitiveness.
A shifting global landscape
Earlier this year, making good on his election promise, President Trump announced tariffs on solar panels. Since then, the situation has escalated quickly, leading to tariffs (or the threat of tariffs) on billions of dollars of goods among the world’s largest trading partners.
The Bank of England has done some simulations and estimated that a full-blown global trade war could end up hitting global GDP by 2.5% over three years, with the UK economy suffering a 2% hit. A recent survey of 100 CEOs and chairs carried out by recruiting firm, Odgers Berndston, showed that 60% of UK firms are concerned about the impact of tariffs and rising nationalism on their business. With Brexit negotiations offering little reason for optimism, the continuity of global supply chains is under threat. With so much uncertainty, it’s all too easy to adopt a ‘wait and see’ approach, but this is the last thing business leaders should be doing. Now is the time to start thinking practically and pragmatically about what you need to do to protect your supply chain.
A shifting global landscape
For companies that are global in outlook and willing to embrace new technologies, there are a number of opportunities to be seized:
1. Explore new markets
A recent report from Sheffield Hallam University found that 83% of British manufactures are preparing for a hard Brexit and because of this are actively forging relationships with new potential international markets. The increasingly bitter relationship between the US and China presents UK businesses with a chance to work more closely with both markets. In particular, industries such as agriculture and pharmaceuticals have a real opportunity to show the Chinese market what they are capable of.
British Manufacturers should pay particular attention to Beijing’s Made in China 2025 (MiC) plan which aims to make China a ‘first class’ manufacturer. The impetus behind this plan is to influence global supply chains, drive innovation and raise manufacturing standards around the world. In the short to mid-term this offers opportunities for high-end British manufacturers to export technology, offer consultancy services, take part in joint R&D and also to sell high-tech IP. The risk is that the drive for technological progress will lead to more IP infringement, British companies need to protect themselves by registering IP in China before exploring the market. Also, in the longer-term, there is the very real possibility that your new partner will become a competitor, so don’t stint on your due diligence to find partners who are in it for the long haul.
2. Give consideration to direct or indirect reshoring
As overseas production becomes less cost effective, more and more companies are considering bringing all or part of production back to the UK. A 2017 Survey by The University of Warwick and Reshoring UK found 70% of companies have undertaken shoring activity in some form since 2008. 52% had indirectly reshored, (i.e made a strategic decision to increase capacity at home instead of abroad) while only 13% directly reshored (i.e. relocated all offshored production capacity back to the UK). Examples of direct and indirect reshoring include UK vacuum cleaner maker, Gtech, which plans to shift some production from China, shoemaker, Clarks, which is bringing some manufacturing home to the UK from Asia and Cadbury’s chocolate, which is planning to invest £75M into bringing some of its production back to the UK from Poland.
Why reshore?
The main reason is quality, followed by certainty and speed of delivery, transport costs and reducing the risk of supply chain disruption. Reshoring is neither easy nor cheap and, for UK manufacturers, high energy costs and a shortage of skilled labour present significant barriers. To combat this, businesses need to think creatively and restructure the supply chain in the way that makes the most sense for them. There’s no reason why a company can’t be global for raw materials, regional for manufacturing and local for distribution.
3. Drive productivity improvements
According to figures from the Office for National Statistics, productivity in Britain has stagnated since the global financial crisis. To remain competitive, businesses have to find a way to reverse this trend. There are a number of key operational areas executives can look at to drive productivity, cash and growth improvements. These include
- Increasing supply chain velocity - as the true impact of tariffs and Brexit are felt across the manufacturing sector, every function in the value chain must play its part in ensuring that the process is efficient and The key is to drive synergy savings by breaking down cross- functional silos
- Sourcing restructuring and more effective supplier negotiation - protect margins by sourcing suppliers in countries less likely to feel the impact of price increases. Procurement needs to work hand-in-hand with financial and commercial teams and be ready to advise the business depending on how global trade shapes up in the future
- Optimizing the operational footprint - robust product lifecycle management and new product introduction processes are essential to survival in an ever-changing global marketplace
- Developing an optimized product portfolio- as the costs of raw materials, energy and labor rise, it will become increasingly important for executives to frequently review and optimize their operational footprint.
Bringing in third party experts to provide specialized analysis on specific categories or supplier environments can also add value.
4. Embrace the Fourth Industrial Revolution (4IR)
Workplaces and organizations are becoming “smarter” and more efficient as connected devices are increasingly used to enhance supply chains. According to the Sheffield Hallam research, the majority of UK manufacturers believe Brexit will accelerate the introduction of artificial intelligence and automation technology in industry. This could lead to an increase in manufacturing volume and enable businesses to meet demands from wider global markets. The introduction of technology is also expected to help drive down the cost of production to enable Britain to compete.
Exciting times lie ahead
Despite the current geopolitical uncertainty, this is still a very exciting time for industry in the UK and the economic gains could be significant. As it always has, UK manufacturing will find ways to adapt and thrive in the new world order. We are helping business leaders to lead the way as they navigate the complexities and challenges presented and seize the many opportunities it will afford.