1. Manufacturing in Scotland

2. Content 1. What is manufacturing? 2. Manufacturing and the Scottish economy 3. Why is manufacturing important? 4. The changing policy context 5. A manufacturing strategy for Scotland?

3. What is manufacturing?  National Statistics classifies a business under ‘manufacturing’ if more than half its revenue comes from ‘making things’  But the boundary between making things and selling services has undoubtedly become blurred  NS definition does not capture jobs and activities which depend on, or are closely allied to, manufacturing – for example, design work undertaken by a specialist non-manufacturing firm.  It is possible for a company to have more than half its revenues generated by manufacturing but a minority of employees directly engaged in making the product  Current statistics significantly underestimate the economic importance of manufacturing?

5. EU27Non-EUTotal exports Agriculture, Forestry and Fishing 9540160 Production and Construction 7,4407,33014,765 Of which manufacturing7,2406,77014,010 Services1,9953,4155,730 Total9,52510,78020,660 Scottish exports by sector & trade area (£million), 2008

6. 2008 (£1000s) Manufacturing: total407,018 Chemicals159,898 Electrical machinery109,108 Other manufacturing113,237 Services91,703 Other: Total48,165 Grand total546,886 Expenditure on R&D performed within businesses in Scotland 2008

7. Economic significance  Jobs, R&D, exports  Creates genuine wealth  Drives innovation and productivity growth  Enlarges the pool of skills and good jobs  Sustains local supply chain industries and services  Supports the ‘export’ of business services

8. Social significance? “With 3m jobs spread around the country – a good number in the middle income category – manufacturing is a force for social cohesion in a way that financial services are not”. Richard Lambert, Director, CBI

9. High value/low value “Manufacturing has a strong future. That future is based on generating high value – to the company, to shareholders and to the country. High value manufacturers have strong financial performance, are strategically important and have positive social impact” (IfM, University of Cambridge) “The UK along with other OECD countries has successfully retained large ‘low tech’ manufacturing sectors and we should build on the comparative advantage that implies…in knowledge based manufacturing we also need a ‘low tech strategy to complement the traditional ‘high tech’ one” (Work Foundation, Manufacturing and the Knowledge Economy)

10. Pop (mil lion s) Persons employed (1000s) Labour costs (euro 1000 per employee) Value added (euro million) UK623,24639.5210,720 Germany827,17155.0429,471 France653,73742.8214,014 Italy604,61033.1208,907 Sweden979746.249,948 Finland540743.030,078 Czech Rep101,35411.126,490 Poland382,4737.648,298 Europe: jobs, labour costs and value-added 2009

11. Changing policy context  Previous UK Government policy: New Industry, New Jobs; Advanced Manufacturing etc  EU policy  UK election manifestos

12. Levers (1)  Build on current momentum to design and implement a modern industrial strategy for Scotland; built on comparative advantage with flexibility to address industry renewal and replacement  Fixing finance – Scottish Investment Bank is a positive start but new relationship between finance and industry is required  Skills and skills utilisation – sustainable productivity enhancement is vital to Scotland’s manufacturing future; investment in STEM subjects is essential

13. Levers (2)  Image – quality employment is fundamental; so is visible and unrelenting Ministerial support  Ownership and control – create a level playing field through implementation of a public interest test for takeovers and buyouts  Public procurement – extend the Defence Industrial Strategy approach to other key sectors?  State aid – increase to EU15 average and use strategically to support industrial strategy

14. Conclusion  The continuing decline of manufacturing jobs is neither inevitable nor desirable  Manufacturing can thrive in ‘high cost’ jurisdictions  Increasing manufacturing’s share of GDP will contribute disproportionately towards meeting economic and social targets  Fixing finance is fundamental to elicit the levels of patient investment required to sustain and grow manufacturing  Scottish Government should revisit Economic Strategy to examine whether it provides sufficient support for manufacturing in Scotland