Outlook 2013: Time to target opportunity

The UK finds itself today with a rather fragile ecosystem that relies heavily on the quality and creativity of its engineers. This, in turn, requires a relatively light manufacturing base able to support rapid prototyping with much smaller but highly responsive supply chains. This fragility is partly due to the lack of OEM brands with scale, which is triggering suppliers to relocate elsewhere in order to partner and innovate. Customer proximity gives a clear competitive advantage to suppliers as it allows them to develop marketable and scalable solutions from the beginning and minimise the risks of failure. The UK has historically managed to preserve large aerospace and defence players, such as Rolls-Royce and BAE Systems, although the defence budgetary constraints as part of the austerity climate are exposing overreliance on a vertical market largely driven by government spending. The main opportunity now is to capitalise on megatrends that are driving innovation in emerging markets where electronics plays a vital role, such as mobile technology, electric vehicles, smart infrastructure and medical/assisted living equipment. The path to recovery and growth will be arduous and success can only be achieved through better alignment between government and industry. In the 1980s, government support was crucial in attracting US and Japanese companies to invest in Britain. The government provided financial support, competitive labour and competitive taxation. Other factors included the multicultural approach to R&D activities; synergies between engineers with different backgrounds, the English language and world class universities. The situation is rather different now as the UK has failed to protect its manufacturing base (unlike Germany, where Mittelstands companies excel in complex, high value niches, and their capabilities are not easily mimicked by foreign competitors) and is perceived as too costly when compared to countries offering similar capabilities. In addition, high salaries and rising costs of energy risk making the UK less competitive in the future. Strengths in UK electronics lie more in IP creation and niche manufacturing, rather than process technology or mass market hardware innovations. The UK should therefore focus on its areas of excellence and expertise without trying to reverse decades of unbalanced policies. Countries such as India and Israel systematically match industry's R&D funding and have managed to attract best in class innovators. Government incentives in the UK have not proven adequate and universities risk further widening the divide with the private sector. On the other hand, universities in Israel – a small country with few natural resources – are more dynamic in marketing their skills to industry. Mechanisms should therefore be in place to ensure public purchasers and research communities are in line with industry. Unlike China and the US, the UK has a small domestic market and so must have an export mindset from day one. Scaling a business from start up to a national, then global, success story has traditionally proven difficult for a variety of reasons. Poor access to capital and the right skills (directly or through the supply chain) are often cited as the main causes, but many SMEs fail to scale because their business plan does not include global outreach from the start or because customer engagement is left until it's too late. Large OEM customers often act as 'innovation catalysts' as they encourage a range of SMEs to develop solutions which allow them to export and grow as a result. Giants such as IBM, Microsoft and Apple are surrounded by highly responsive SME suppliers that help them innovate and grow. In the UK, large players such as BT, the BBC and Vodafone have, so far, failed to act as a sizeable innovation pool for local start ups. Getting meaningful financial support has become difficult, partly due to an 'anti technology' culture amongst investors, who see potentially disruptive technologies (especially hardware) as 'too risky'. This culture might have even affected management styles and aspirations among entrepreneurs, prompting early exit strategies and lack of global vision. Many individuals who start a business in the UK with clear plans to get acquired thus end up making short term tactical decisions, rather than those aimed to build the company. In such an environment, the focus ought to be on Britain's strengths and heritage in electronics and technology, rather than trying to emulate and catch up with other countries. There are great opportunities to test and develop a UK systematic approach to innovation and to capitalise on global megatrends. Opportunities emerging from NHS driven innovation in healthcare or smart tech advances as a result of government support, for example, could create the big technology brands of the future. However, policy should be implemented now to achieve change in the next five to ten years. By working closely with government and partners, Intellect is ensuring its members and the wider community are well promoted and getting the right level of visibility. Campaigns such as 'Automate Britain' will help stakeholders and the wider public understand the opportunities offered by technology and advanced manufacturing. Activities around such themes as 'smart cities' and 'automated homes and factories' will allow companies to forge early partnerships and to expand into new markets. Unresolved issues, such as skills shortage and culture change, will take years to be addressed successfully and Intellect will play a central part in driving awareness and exposure. Despite the general mindset, fuelled by the national media, that jobs in engineering and manufacturing are perceived as 'old fashioned' (whereas, in the US, the internet has made it 'cool' to be a geek), the UK has managed to produce only a few visible brands – but Vodafone, Dyson and McLaren could be used as international marketing stories to showcase British talent. Joint campaigns should be designed specifically to raise public awareness of UK electronics with positive messages directed at children at schools and their parents. Intellect: Intellect is the UK trade association for the ICT and electronics industries. Its members account for more than 80% of these markets and include blue chip multinationals as well as early stage technology companies. These industries together generate around 10% of UK GDP and 15% of UK trade. Intellect provides a collective voice for its members and drives connections with government and business to create a commercial environment in which they can thrive. As the hub for this community, Intellect is able to draw upon a wealth of experience and expertise to ensure that our members are best placed to tackle challenges now and in the future. For more information go to.