2012: year of the underdog

Trust manufacturers to be the odd ones out. The self-styled black sheep of UK plc are talking up business prospects at a time when confidence appears to have deserted just about every other corner of the economy. The eurozone meltdown, record unemployment and a high street slump that has retailers reaching for Valium hasn't deflated the mood within the factory gates, according to WM's Manufacturing Outlook research. Almost 60% of manufacturers voice optimism over the outlook for 2012. Three quarters think the next year will be as good as 2011 or even better. The picture takes on an even rosier hue when you consider respondents ranked 2011 as the best year for business since the mid 90s. The feel-good factor goes beyond just the boardroom, with six in 10 firms rating employee morale as good or high. And employee numbers are set to grow as a third of businesses look to bolster workforces by 1-20% in 2012. A cocktail of self belief and resilience may be behind the bullishness. A prolonged depression in the 80s and early 90s means manufacturers have faced up to their demons, some respondents told WM. Businesses have eradicated profit-draining inefficiencies through the adoption of continuous improvement. Today's surviving crop are seasoned veterans – tough enough to ride out recession jitters. It's a compelling story. But while manufacturers' penchant for kaizen is certainly influential, another character trait could be more telling. Conservatism – not the fawning over David Cameron sort, but the inherent reluctance to borrow heavily from the banks – could just have paid dividends for the sector, according to some quarters. With weaker ties to financiers, manufacturing firms have less to fear from a darkening financial climate. As one survey respondent told WM: "Look at Thomas Cook; they were riding on the edge, borrowing at high levels. The business was doing fine when the going was good. But the wind changes and your business plans fall apart." Investment rife But just because manufacturers aren't looking to the banks that doesn't mean the sector isn't investing. A whopping 80% plan to match or increase this year's investment – a quarter will increase investment by over 10% in the next 12 months. Businesses are going independent to raise the capital, with around 30% using savings and 30% private funding to aid expansion, compared to just 6% opting for a bank loan. The cash will be spent predominantly on new plant and upskilling staff, according to the survey. It's a move that highlights confidence in brimming orders and long-term business growth. It's also a calculated gamble. A global recession is much mooted by economists and feared by factory operators. Thirty six per cent of respondents cite a world crash as the biggest threat to business, dwarfing other concerns including energy price hikes and access to finance. Unfortunately the tea leaves don't make for kind reading as it stands. Latest PMI figures show the EU economy shrinking and even China feeling the strain with its manufacturing growth slumping to a 32-month low. Shopfloor morale soaring; government policies flop But a bad month for Beijing isn't taking the shine off spirits in the UK just yet, according to respondents. The mood is upbeat at UK sites with nearly 70% ranking their morale as good to high. A quarter say they loved the job so much they can't wait to get going again next year and just 1% confess to thoughts of quitting. Over 80% of manufacturing managers say morale is as good as or better than a year ago. It's a paradox that a profession struggling to recruit talented young blood can bask in such glowing levels of job satisfaction. The government may have heralded a raft of pro-manufacturing policies with a fanfare this year, but measures have struck a bum note with frontline managers. Just 4% say that policies including extended R&D tax credits and capital allowances have boosted profits. Nearly 20% claim measures introduced this year had actually made life tougher, while 78% reported no difference. Positions vacant Almost four in 10 manufacturers plan to boost workforce numbers next year, WM's Manufacturing Outlook report reveals. The finding highlights ongoing confidence in retaining or growing orders over the next 12 months. Most firms looking to recruit expect an expansion in total workforce size of 1-10%. When you consider over half of respondents employ more than 100 people, that's a level of job creation worthy of a congratulatory telegram from Downing Street. Olympic expectations And finally no survey on 2012 would be complete without paying homage to the year's standout event, the London 2012 Olympics. Nearly 20% of businesses anticipate a spike in orders as athletes go for gold next summer. The number is too large to account for sports drink or energy bar manufacturers alone, so presumably others are anticipating a global love-in for all things British. Tens of thousands of hungry tourists have to be good news for those in the food and drink sector. Not everyone is enamoured with the Olympics though – a cynical 8% predict a drain in productivity as workers throw a sickie so they don't miss the final of the beach volleyball. So, against the odds, WM's Outlook 2012 research shows a sector that is optimistic and expectant of growth next year. To find out what's behind the feel-good factor, WM is hosting an exclusive roundtable to debate the survey findings: we'll challenge a group of frontline managers to explain the optimism and ask whether morale is at the mercy of a global downturn. Don't miss our January issue for full coverage. What's your verdict on the business outlook for 2012? Email your view to mgosney@findlay.co.uk key findings 69 Percentage of manufacturing managers who say morale is on the up going into 2012 56 Percentage of firms optimistic about the business outlook for 2012 1 Global downturn is the number one threat to business next year 96 Percentage of businesses which say government policies have not helped them this year Top priorities 1 Cost control (2) 2 Increasing productivity (1) 3 Profit growth (3) (Last year's result in brackets) methodology 157 senior managers and decision makers from a spectrum of manufacturing sites completed the survey. The sample included representatives from food and drink, textiles and clothing, automotive electrical, aerospace and defence among others. Respondents also represented sites large and small, from those employing fewer than 50 employees to those with more than 500. Site Verdicts Tough enough to ride out the storm Richard Hudson, kaizen co-ordinator for Triumph Motorcycles of Hinckley, Leicestershire What's driving optimism among manufacturers? "Manufacturing just seems to be very resilient. I'm always hearing how busy people are. I think we generate wealth in a way many other sectors don't. Continuous improvement has definitely played a part: if you eliminate waste it puts you in really good shape for tough economic times." What's your verdict on 2012? "We're quietly confident. It's not as if we're about to hang the bunting out but we've every reason to believe we'll see good growth, as we have done this year. Our sales have been buoyant, particularly in the EU, which is surprising given events of late." What's the biggest threat next year? "Skills shortages are an ongoing issue. We've had a big drive recruiting design engineers but it was really difficult sourcing the right candidates. Global recession is a constant threat. But motorbikes are a law unto themselves. They're not a necessity like cars – they're a dream purchase and people remain committed to buying a bike whether times are good or not." How would you rate morale? "Personally, pretty good. I was promoted last August after many years on the shopfloor and I'm really enjoying myself. The site is also upbeat. In 20 years we've had a lot of changes and the factory almost burned down in 2002. I've just launched a shopfloor suggestion scheme and we've had over 40 successful ideas – that shows how enthusiastic employees are right now." Cautious optimism Nick Bion, MD at perforating firm Robert Bion & Co which has 28 employees What's your verdict on 2012? "I'm a pessimist by nature so I'm tentative about 2012. We've already been through a large dip in 2009 when sheet steel sales fell 22%. That's given me a fatalistic outlook: if we survived that, we can survive anything. Business has recovered since the 2009 slump and we've been recruiting this year. I just don't see any spectacular rise in demand. Overall, I think the view is steady as she goes. I'd love to be in an environment where there's a lack of capacity – presumably that's what life is like in China." What's driving optimism among manufacturers? "I think we benefit as a sector from being a net lender to the banks. We're not exposed to the same level of risk as many retailers. Also because we've had it harder for longer, we've had to run our business well." What's the biggest threat next year? "For the industry as a whole I think it's the fact that not enough good people are going into it. The trouble is all the graduates are heading for the City. We hear a lot about attracting school leavers into careers in manufacturing. That's great, but why aren't we also looking to inspire the brightest graduates to come to manufacturing rather than medicine or the City." Dunkirk spirit Nitin Patel, operations director at kitchen equipment manufacturer Glen Dimplex Appliances, part of a global group employing 10,000 What's your verdict on 2012? "I think domestic business will stay flat and we're not going to grow much. The first quarter will be tough because most people will be cutting back on spending after Christmas. But the funny thing is our top end products like cookers will continue to sell. It seems people are doing up kitchens, whether for a new house or improving what they have. Exports are the big growth area for us and we increased our sales by 15% last year." What's behind manufacturing optimism? "A lot of companies have been forced to improve or die. The survivors feel that having coped with the worst they can take on all comers. It's strange because many are probably making less money than they were five years ago, but the very fact they're still trading makes them feel good." How would you rate morale? "It's almost a Dunkirk spirit. Having faced the difficulties of the last three years and survived makes you feel quite positve. The question is if there is another blip there's not a lot more fat we can trim. Overall though the mood is good and we're investing in long term growth." What's the biggest threat in 2012? "I think it's giving in to all the talk of doom and gloom. The news juts seems saturated with negative stories about both the UK and world economy. Twenty years ago the news came on at 6pm and you only had 15 minutes- now it's 24/7. I think all this extra information is causing people to feel downcast and despondent in a way we wouldn't have done a few decades ago." Another good year to come Richard Cook, production and personnel director at mechanical seals manufacturer AESSEAL, which operates in over 200 countries What's your verdict on 2012? "Very positive. We've got a broad global spread; we're seeing a lot of growth in oil and gas, particularly the Middle East. Growth in the oil sector has been 20-25% this year and we're expecting another good year." What's driving optimism among manufacturers? "For once manufacturing is avoiding the worst. We're seeing something of a resurgence in the UK. Lots of companies we speak to report burgeoning order books – perhaps there's confidence, but I don't know what's driving that. One thing is certain: if you're still in manufacturing in the UK today, then you've already been through the tough times." What's the biggest threat next year? "A global downturn. But at the moment there's no sign. We're buoyant and aiming for 20% growth in 2012." For the full report, download PDF below.