The Globalisation of UK manufacturing and services, 2004–24: toward the Agile Economy

Executive Summary: This report is based on interviews with influential companies, both British and foreign, as well as the author’s own research. It discusses how the UK can make the most of globalisation over the next 20 years.

1 The UK gains four benefits from globalisation

The benefits are:

• Exports make companies larger and more professional.
• Overseas operations make UK firms more competitive.
• Inward investors bring in innovations in process, product and organisation, adding to UK capacity – in output, R&D and exports.
• Inward investors buy and invest in the world-class ingenuity offered by the UK.

A unified conceptual approach to the outbound and inbound components of British business is both necessary and possible. Indeed, improving all the UK’s international commercial relations was the logic behind the formation, in 2003, of UK Trade & Investment.

2 The Agile Economy can be defined

The UK exports a lot of services and capital, and leads Europe in outsourcing service jobs abroad. It is also good at bringing in not just imported goods, but also inward investments, as well as many of the jobs Europe outsources.

Nevertheless, over the next 20 years:

• British industry and services must be able more quickly and effectively to anticipate, sense and respond to new commercial, technological and political developments around the world.
• British industry and services must make their outbound global reach speedier, longer, firmer and more sinuous than it is today.
• The UK’s inbound regulatory framework must become supple enough to allow the country to go on absorbing the best of the world’s international investments.
• UK industry, services and government must be world class in the mental side of agility – in their alertness, talent to learn, and talent to innovate.

If achieved by 2024, these characteristics would mean that the UK had become the Agile Economy.

Already, among UK SMEs, the key move to commercial operations abroad happens faster and runs deeper than it did before. Aided by low-cost airlines and broadband telecommunications, UK SMEs themselves have shown how possible it is to be agile.

3 A new phase of globalisation makes agility vital

The opening up of China, India, Russia and Eastern Europe to global business represents a big opportunity for the UK. However, what seems already to have had a bigger impact on the conduct of business in 2004 is not so much the globalisation of opportunities, but that of threats. Moreover, it is not only real threats that today are globalised, but also, significantly, perceived ones. The list of possible disasters now includes shutdowns in basic services, global warming, breakdown in the financial system, spats over protectionism and acts of international terrorism.

Yet by being truly agile at a moment when going abroad has never been easier, British businesses now have the chance to reduce exposure to the UK’s domestic economy, should its rock-steady stability waver. By reaching all parts of the world and juggling its resources with foresight, the Agile Economy can show resilience in the face of shocks – whether these turn out to be real, or just imagined.

4 Outbound investment and ‘offshoring’ are rarely pure negatives for the UK

Agile FDI by UK companies abroad can make them more profitable, more able to sustain operations in the UK, and more able to supply the Treasury with tax revenues. The same holds true for agile outsourcing abroad.

Even over 20 years, the UK is not about to see an inexorable departure of manufacturing and services. New factories and call centres are still being opened in the UK in 2004.

For the UK’s regions, the real question for 2024 is whether the country can generate enough new high value-added jobs to compensate for the loss of the old, low value-added ones. And in the quest for that kind of agility, government has a legitimate interest.

5 The UK can remain attractive to overseas investors

The UK’s efficient cost structures do much to attract overseas investors, yet it could be more agile in publicising its own centres of innovation. Government should use Geographical Information Systems to make a continuously updated, web-browsable Domesday Book on the changing shape of innovation and R&D in the UK. It should know which cities and regions are good not just for broad
sectors, but also for the globally-integrated yet highly discrete functions incoming multinationals are looking for.

The need to think and act global

For the international posture that is required over the next 20 years, four preconditions must be fulfilled. The UK needs:

1. The development and application of new knowledge, not just the wider diffusion of the existing sort
2. Businesses so agile, they can take risks – worldwide
3. An agile national infrastructure to encourage inward investment and labour mobility
4. The removal of regulatory barriers to agility.

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