Firms focus on innovation but fear competition

23-Aug-2015 - Last updated on 24-Aug-2015 at 13:29 GMT

Many manufacturers are prioritising innovation but lack the resources to deliver it effectively

UK manufacturing businesses – including food and drink manufacturers – are targeting innovation to boost productivity and exports but fear losing out to competitors, reveals a new survey by the manufacturers’ organisation EEF.

Innovation strategies varied according to the shape, size, and sector of companies and the challenges they were facing, reported the survey conducted by EEF and Vodafone UK.

Large companies remained the broadest innovators, while sectors facing economic challenges were said to be innovating to diversify their way out of the investment downturn. One sector cited as an example of this was the oil and gas supply chain.

EEF said boosting productivity growth depended on the government matching its “strong ambition” on exports and workforce skills with long-term ambition on innovation.

Ambitious about innovation

While manufacturers were ambitious about innovation and were investing heavily in it using specialist resources, they were being forced to pull in employees, equipment and finance in from elsewhere in the business.

The survey revealed 94% of firms were engaged in some form of innovation, although the number reporting engagement in three or more activities had fallen from 43% in 2013 to 34% last year.

Also, while breadth of innovation activity had fallen, it was more focused on driving exports and developing new products – up from 59% to 64% of companies.

More than half (52%) of companies were using innovation to develop new markets while a third of companies said that growing exports was a long-term business objective. Of those, over half (54%) thought innovation would have a significant impact on their exports, while 40% thought innovation would have some impact.

But lack of resources to fund innovation and fears about falling behind competitors on innovation were also key results of the survey. The result reflected the broad economic situation, with the UK’s expenditure on research and innovation lagging well behind that of key competitors, said EEF.

What's holding manufacturers back?

“Innovation is a resource-hungry process, and manufacturers are finding that the results they achieve do not always match their ambition. Shortages of expertise, equipment and finance are holding manufacturers back.”

Lee Hopley, EEF

The latest data on UK business expenditure on research and development revealed that it accounted for only 1.1% of gross domestic product in the UK. That compared with 2.02% in Germany and 1.6% estimated in the Organisation for Economic Co-operation and Development (OECD).

‘Forge ahead into new markets’

EEF chief economist Lee Hopley explained the challenges encountered by manufacturing firms. “Manufacturers continue to forge ahead into new markets at home and abroad, with investments in innovation playing a starring role in achieving this,” said Hopley.

“However, innovation is a resource-hungry process, and manufacturers are finding that the results they achieve do not always match their ambition. Shortages of expertise, equipment and finance are holding manufacturers back.”

Government should match manufacturers’ investment in research and development, in order to help UK firms compete in world markets, she added.

Manufacturers were also using innovation to develop new domestic markets, with 38% adopting this tactic compared with 27% last year.

More than two thirds (69%) of companies said satisfying existing clients was a driver of innovation in the past three years, representing the main reason developing innovative products. Half of firms said that boosting margins was the main motivator.

Meanwhile, don’t miss the key results of the Food Manufacture Group’s recent survey of food and drink manufacturers’ business plans.