UK manufacturing is going through a period of profound and irreversible change. Over the next decade or so, the UK’s manufacturing industry is set to undergo some radical progression. The next few years will bring a series of game-changing shifts for the UK manufacturing industry and it will have to be both adaptive and innovative to survive
Advances in technology are proving to be the fundamental lynchpin shaping this new business model. To remain economically viable, retailers must sell products faster and at more competitive prices which consequently sends a ripple effect down the supply chain with an expectation on manufacturers to accelerate production cycles and become more customer centric.
This fourth industrial revolution, or ’Industry 4.0’ as it is commonly referred to, is explained as a way of increasing competiveness of the manufacturing process through the convergence of the manufacturing process with technological and innovative applications and processes resulting in a merging or ’convergence’ of the virtual and physical worlds. The journey is well underway from the long-outdated oil-and-overalls image and a revitalised, clean and highly innovative sector is emerging.
Ongoing advances in science and engineering will improve this link between virtual and physical elements by means of intelligent mechanisms, dramatically increasing the adaptability, autonomy, efficiency, functionality, reliability, safety, and usability of what has become known as ’cyber-physical systems’ (CPS). Such systems can be anything from a factory robot controlled by software to google glass.
By way of just some examples, CPS will bring advances in personalised health care, emergency response, traffic flow management, and electric power generation and delivery, as well as in many other areas now just being envisioned. Other phrases that you might hear when discussing these and related CPS technologies include Internet of Things (IoT), industrial Internet, smart cities, smart grid, ’smart’ anything (for example, manufacturing, cars, buildings, homes, hospitals, appliances etc).
This increased reliance and convergence of manufacturing process with information technology and innovation is dependent upon a few game-changing trends expected to impact manufacturing over the next number of years and it will be exciting to watch which take off as the industry continues to evolve. Whilst the catalyst and lynchpin to this paradigm shift is undoubtedly technological and innovative advancement, the facilitator to access such opportunities is access to capital funding.
Experts and leading industry figures agree that both innovation and speed to market are crucial for the successful survival of the UK manufacturing industry. According to PwC’s 2013 report Preparing for Growth, manufacturers adopt new strategies for growth and competitive edge: ”survival in today’s global market and investing in the future requires organisations to innovate and be able to commercialise successful innovations quickly.”
The emergence of CPS has introduced a raft of operational and customer benefits and a leaner, more responsive approach to manufacturing. There is undoubtedly more to come as this technology progresses. Moreover, a renewed focus on science and engineering education is cultivating a manufacturing workforce that can manage highly-technical systems and allow for greater automation. This frees up employees to put their talents to work on research and development.
The current economic recovery and the consequent opportunity to exploit these new technologies provides opportunities for expansion and growth. Consequently, there is a demonstrable uptake in capital investment and development funding. As manufacturers become focused on capturing value through innovation, original design and speed to market, they are increasing spend for upgrading plant, equipment and new technologies and innovative processes. By way of one example, Lloyds Development Capital has earmarked £500 million for investment into firms with specialist manufacturing capabilities across a wide range of sectors.
It is not just capital investment in technological processes that requires capital, and entities in the sector may be looking to simply evolve their business to the next level and require to raise funds to invest in additional headcount, to merge with other business or diversify into new areas.
The economic recovery has resulted in increased takeover and merger (M&A) activity within the sector. For example, takeover and merger activity in the manufacturing sector in 2014 was at its highest level for six years. Regionally, the South East is number one for deals done in the manufacturing space and private equity is firmly backing the sector. In 2013, some 30% of manufacturing M&A activity was private-equity backed.
So advancement in technology and innovation within the manufacturing sector is driving fundamental structural change at an increasing rate forcing businesses within the sector to adapt more quickly to survive and strive. It is an exciting, dynamic and sometimes unpredictable time.
Shoosmiths specialises in and has an impressive legacy of advising on deals and transactions which have a particular focus on the manufacturing industry and understands the impact of convergence and new technologies on business patterns and processes. The manufacturing sector is evolving rapidly and dynamically in response to increased competition, shifts in consumer demand and the convergence of information technology with physical processes. This produces exciting and sophisticated legal and business challenges.