30 May 2014 04:04pm

Its Coming Home

Tried, tested and trusted. Xenia Taliotis examines why manufacturing companies are backing Britain by moving production back to its shores

Made in Britain. There was a time, half a century or so ago, when those three little words appeared on most items Britons owned. Children’s toys, clothes, furnishings, furniture, all were manufactured in Britain. Then things changed. Consumers and marketing folk combined to create a clamour for quantity not quality and for items that could be replaced quickly and cheaply. And in the rush for something new, the Britain in the phrase became one more thing that had been replaced, giving way to made in China, or India, Poland or Turkey.

Recently, though, the tide has begun to turn. The great wave that had carried away one British industry after another to those distant hubs of industry known collectively as ‘offshore’ is slowly but purposefully changing direction.

While Britain will probably never again be known as the workshop of the world – a title it earned back in the 19th century – its manufacturing is on the up. In the past two years alone, DFS, Raspberry Pi, The Paper Cup Company and Aston Martin are among the many companies that have moved at least some of their production back to the UK, thereby helping to boost the economy by £600m and create 10,000 new jobs.

Though Britain is not yet flooded with “onshorers”, ex-pat companies once thought lost forever are nonetheless returning to the UK, making UK prime minister David Cameron’s statement at Davos in January – that Britain could become the “reshore nation” – look hopeful rather than delusional. A recent survey of 271 companies by manufacturers’ organisation EEF and law firm Squire Sanders showed that one in six had reshored in the past three years, with another 6% planning to return by 2017. Figures from the Manufacturing Advisory Service (MAS) are more optimistic still, reporting a 300% increase in the number of companies that had reshored in 2013 (15% of those surveyed, up from 4% the year before).

The reasons for these repatriations are many and nuanced, but broadly speaking greater flexibility and better terms offered by manufacturers at home, plus an increased demand for British products have met head-on with spiralling labour costs, long production times, the threat of intellectual property theft and unpredictable costs overseas – a collision that has resulted in a pull out of Asia and a push towards Britain.

Two bastions of “Englishness” that have recently returned are Symington’s, which has been producing convenience foods since 1827, and Hornby, a fixture on Christmas letters to Santa from children young and old since the beginning of the last century. Leeds-based Symington’s, owner of food brands including Aunt Bessie’s and Campbell’s, last year made the seemingly surprising decision to move its noodle business from China to a new £15m factory in Hunslet, Yorkshire. It did so mainly because it needed to shorten its supply chain so that it could respond quickly to its stockists’ demands for more product, when, for example, they were running a special promotion.

Hornby, meanwhile, has reshored two of its businesses recently. The company, which moved its production to China in 1995, made its last model in Britain in 1999. Two years ago, though, its paint brand, Humbrol, relocated two thirds of its production back to the UK. More significantly, this was followed last year by the move of another of its brands, Airfix, from India to East Sussex. The decision to quit Asia was precipitated by rising costs, labour shortages and inconsistent quality. “Labour costs in China have risen by 15%, making the cost benefits of manufacturing our products overseas less compelling,” says CEO Frank Martin. “And once we’d factored in the need for consistent quality the UK became much more attractive. Five years ago it really wasn’t viable to manufacture in Britain but that’s no longer the case as costs overseas are not necessarily lower.”

Labour costs in China have risen by 15%, making the cost benefits of manufacturing our products overseas less compelling


Ian Monk, founder and CEO of bathrooms.com, which transferred 50% of its furniture and tile production to the UK 18 months ago, echoes Martin’s point. “The face of British manufacturing has changed enormously since we started 10 years ago, which means that the advantages the Far East once had no longer prevail. British manufacturers now offer more favourable terms – not only in reference to costs but also in other more subtle ways, such as credit, service and minimum order quotas. An important determinant for me is being able to order smaller quantities so I can test new products. That’s something I wasn’t able to do in the UK until recently, but manufacturers now are far more willing to meet you half way.”

Flexibility also counts when it comes to pandering to the vagaries of fashion, another area in which, according to Monk, the UK trumps the Far East. “My customers expect me to keep up with trends; if they can’t buy from me something they’ve seen in a magazine, they’ll buy it from someone else. I can’t wait eight weeks for items to ship.” For Monk, being able to react quickly to changes in consumer taste is key; it was one of his main motivations in relocating – that and the fact that far lower transport costs within the UK made the price advantages of continuing in China “marginal”.

Unlike Monk, who has no criticism of the quality of work he received from his offshore suppliers, Dawn White, co-founder and director of Ecoegg, has a different story to tell. Her company nearly went bust because the laundry eggs she received from her Chinese manufacturer fell apart the minute they went into the washing machine. White, whose product, packaging included, is now 100% British-made, had sent out 45,000 items to customers when the complaints started coming. And coming. And coming. “The eggs are made from two intricate, specially-designed, moulded tools that came apart on first use,” she says. “My samples had tested fine but when we went to full scale production it was a disaster – what we got just wasn’t fit for purpose and trying to obtain any kind of recompense from our manufacturers has subsequently proved impossible. Basically we don’t have a leg to stand on. That’s another reason why for us the offshore experience has been one we are unlikely to repeat.”

Though her production line is now running smoothly, she says the return to Britain, in 2012, wasn’t easy, partly because she couldn’t find a single factory in Britain that could take her from production to assembly. She now uses five different suppliers to make the individual parts and has the eggs assembled somewhere else again, in a factory in Kent. “Things didn’t work out for us in China,” she says, “but had we found the right factory there our operations would have been a lot more streamlined, with everything being done under the one roof. We would have liked to have found that in the UK but weren’t able to because no one manufacturer has the complete skills set we need.”

White feels there should be more government help for people in her situation. “When we came back, we had to dig deep to find moulding companies that could make our tools,” she says. “What I really needed then was some kind of knowledge bank that would have matched my requirements with suppliers who could meet them. It was only once I’d found the GTMA, the trade association for engineering companies, that I managed to get the ball rolling, but that was only after I’d spent weeks and weeks phoning and emailing.”

Rob Law, founder and CEO of Trunki, the ride-on suitcase for children, was similarly disappointed with the lack of government support when he started manufacturing in the UK in 2012. “At the time there was nothing doing at all,” he says. “I couldn’t find a single grant to help me. I know there’s been a lot of talk in the press about how the coalition is backing Britain and promoting reshoring recently, so I hope there’s now something solid behind the rhetor

ic. I’m sure loads more companies would move at least part of their production to the UK with the right level of support.”


There's been a lot of talk in the press about how the coalition is backing Britain and promoting reshoring recently, so I hope there's now something solid behind the rhetoric

Both Law and White returned to the UK before the coalition’s recent initiative, Reshore UK, was launched, specifically to support British and international businesses wishing to relocate to the UK. The scheme hopes to provide at least some of the resources White thinks would have helped her, including a matching and location service and advice on developing new market opportunities.

Other government support has come in the shape of the Patent Box, which levies a preferential rate of corporation tax – just 10% – on profits directly attributable to patented innovations, and the Corporate Tax Roadmap. As well as reducing the rate of corporation tax to 20% by 2015, the Roadmap remodelled the system for taxing controlled foreign companies (CFCs). Although the new rules only came into effect in January 2013, they were actually part of the Labour government’s plans to reform the tax rules so that they better reflected the concerns of businesses operating in a global economy and boosted the UK’s position as a holding location for multinationals.

Ian Young, international tax manager at ICAEW, says the rules’ implementation should help companies returning to or setting up in the UK. “Of course the decision to relocate is based on a multitude of reasons, but yes, a favourable tax regime certainly acts as an incentive. The old residence-based rules penalised companies with foreign subsidiaries. Since January 2013, CFCs only have to pay tax on profits made overseas if they are deliberately diverting profits from the UK to another jurisdiction. If they are operating with integrity then the new rules allow them to run their overseas operations without incurring a CFC charge.”

In fact Britain’s competitive tax system has made it one of the most favourable worldwide places for business. In a report published last year by KPMG, manufacturing executives ranked the UK among the top three countries – just behind the US and China – for sourcing high-end manufacturing and for future profit growth, while a survey of 1,500 entrepreneurs by EY, also from 2013, named the UK as the most attractive country to do business in.

The outlook is certainly optimistic. PwC forecasts that reshoring could create an additional 200,000 jobs and boost GDP by up

to £12bn over the next decade. That’s good news, of course, though in relative terms the number of jobs created will remain low, due to the changing face of industry.

Rob Law’s Trunki is a case in point. Though the company did take on more factory staff when it first came back to the UK, automated systems have enabled it to almost triple its daily output – from 240 suitcases a day to more than 600 – without further recruitment. “That’s the future of manufacturing,” says Law. “Better technology and more widespread use of robots has helped us reshore, precisely because they are helping us keep our labour costs down.

“That’s probably the area in which the UK is going to need more workers – in technology, science and engineering – so we’re ready for new manufacturing systems. The next wave of manufacturing is going to be driven by consumer demand for more bespoke products, which is contrary to the mass production that has driven the last 100 or so years. I’m not talking rapid prototyping, it’s more about ordering a product in the colours and patterns of your choosing. I’m sure we’ll be making personalised Trunki suitcases with the child’s name on, for instance, before long.”

Xenia Taliotis

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