From the TUC

Mapping our industrial future

19 Jun 2012, by in Economics

Apologies for posting this blog so late, but if you are interested in the growing debate around industrial strategy, you really must read this article, ‘Word on a wing’, in last week’s Economist magazine. I think it has so many lessons, it’s hard to know where to start.

Let me start with an aside: if anyone was in any doubt about how truly incredible advanced manufacturing can be, surely the fact that GKN, the global engineering company, builds wing spars for passenger jets that are 27m long, but must be accurate to within 0.3mm, brings an end to those doubts. Getting to grips with that is like trying to understand eternity. Moreover, whilst aviation emissions must be regulated as part of the fight against climate change, wing spars made solely of carbon-fibre composites, as strong as steel but far lighter (and so easier on fuel consumption) show that a large part of the environmental solution will be technological.

We already knew that German manufacturers have had the knack of finding niche markets and this article shows why that is so important: “Only three or four firms in the world can do what we do”, says Marcus Bryson, Head of GKN’s aerospace division. Hence, the company has quite a captive market.

Indeed, there are lots of overlaps between GKN and some of the world class German manufacturing companies that featured in the TUC’s ‘German Lessons’ report. For example, like Volkswagen and Siemens, GKN has grasped the opportunity, rather than been cowed by the threat, of the growing Chinese economy.

But what really interested me about this story was GKNs ability to survive by reinventing itself. The company has succeeded in finding new businesses and markets to move into before its established ones have run out of steam. As steelmaking and lower technology parts of GKN declined, the company thrived on complex components, outsourced by the motor industry, and on the growing demand for four-wheel drive transmissions. GKN’s aerospace division, a fledgling barely 10 years ago, now accounts for a quarter of revenues and a third of profits.

In ‘German Lessons’, we described Siemens’ work on mega-trends. This means that the company looks at how the world is changing and develops business to anticipate that change. We can’t anticipate all change – Black Swan events happen from time to time – but we know that the population is ageing, that climate change is a threat and that the poorer East is growing much, much faster than the richer West: how do we drill down to what that means in practice and use it to identify new products and business opportunities?

Siemens is particularly interested in the growth of cities. In ‘German Lessons’, we quoted Harald Kern, of the Siemens Works Council in Nuremberg:

“Have a look at London, for example. We try to answer the question, what will London look like in 2020 or 2025? What are the major things that need to change in a city like that? For Siemens, that is a kind of a headline, a possibility to develop business. All those things that are changing, regarding infrastructure, smart grid, locally engineered energy sources, waste water, I can go up the list, this is the business of Siemens… The questions are the same but the answers are different, depending on where you are. It is different if you are in London than if you are in Mexico, for example.”

I think GKN and Siemens are onto something here and mapping future industrial trends should be given far more prominence than it has been so far. Where private sector companies can do that, I’m pleased, but there may be a role for government here too. The TUC is engaged with the Foresight project looking at the future of manufacturing and this is an important initiative. Perhaps, if those companies that are smaller than GKN or Siemens wish to engage in work on future trends, there could be ways that government support them.

Finally, the GKN story isn’t perfect. On the eve of the 1980s, GKN employed 69,000 in its domestic market alone; it now has a worldwide staff of around 44,000, of whom about 5,800 are in the UK, mostly in aerospace. That isn’t GKN’s fault, of course, and it would still be regarded as a large employer, but developing manufacturing industries that can provide skilled, well paid jobs for those young people that don’t go to university must be a key aim – perhaps the key aim – of industrial policy. So we don’t have all the answers, but stories like this can help us to ask the right questions.