Monday, November 23, 2020

Manufacturers looking to ‘reshore’ activity to UK against a backdrop of COVID-19 caution

A significant proportion of manufacturers are looking to ‘reshore’ activity to the UK against a backdrop of COVID-19 uncertainty and a shift in investor priorities, according to EY’s latest UK Attractiveness Survey, which tracks the UK’s appeal as a destination for foreign direct investment (FDI).

Nearly a third (32%) of the manufacturing businesses surveyed said they would be looking to ‘reshore’ activity to the UK.

The figures are the latest evidence of the economic impact of the COVID-19 pandemic, which has created uncertainty around business investment and prompted a re-think of investor priorities.

The survey of 220 non-UK investment decision makers also found that 43% of respondents are continuing with the UK investments they planned before the pandemic, down from 72% in April.

According to EY’s analysis, these figures would mean 30-45% fewer FDI projects in the UK in 2020 than the 1,109 projects recorded in 2019 – equivalent to a fall of between 333 and 499 projects.

As well as businesses sharing their intention to reshore, a further 32% of respondents from the manufacturing sector said they intended to invest in the UK over the next 12 months. This is good news for the Midlands economy, where manufacturing is a key driver for the local economy.

The research shows the shifts are being driven by major changes in supply chain strategies, which have become more pressing as a result of the pandemic. Sixty-six percent of all respondents – and 98% of manufacturing respondents – say they plan to remodel their supply chains in the future.

A move to ‘regional’ supply chains is on the agenda for 32% of all respondents and 40% of manufacturing respondents. Thirty percent of respondents intend to reduce their reliance on a single source country, a figure which rises to 42% among manufacturers.

Simon O’Neill, Office Managing Partner at EY in the Midlands, says: “An updated industrial strategy should identify the UK’s support for manufacturing and supply chain onshoring, which has the potential to have a positive impact on Midlands-based manufacturers. COVID-19 may actually have stimulated investment activity in the manufacturing sector by accelerating technology adoption and supply chain redesign.

“Pre-pandemic, and as part of their preparedness for Brexit, many businesses were already reviewing supply chains. The challenges the pandemic has posed to extended global supply chains have made a rethink all the more important. Regionalisation, reducing dependence on one source of supply and reshoring are all driving this shift.

“UK manufacturing is already established as a global leader and the Midlands will have opportunities as companies look to secure resilience and pre-pandemic productivity levels with a multi-location, regionalised approach to their global supply chain.”

The wider UK picture

The report also found that the proportion of overseas companies planning to invest in the UK in the next 12 months has fallen to 25% from a ten-year high of 31% in April.

Over one-third of respondents (35%) said they had scaled back their UK FDI plans and 17% have paused them. However, just 5% have cancelled UK plans entirely and 21% said they had increased UK investment in light of COVID-19 (up from 5% in April).

The UK’s longer-term outlook has improved, with 53% of respondents saying UK attractiveness will increase over the next three years compared to 34% in April and 26% in 2019.

In the latest survey, respondents felt the digital sector would be the biggest driver of future UK growth (50% of respondents, up from 26% of respondents surveyed in 2019), followed by health and wellbeing (36%, up from 15%), real estate and construction (31%, up from 10%), the consumer sector (19%, up from 12%), and the automotive sector (18%, up from 12%).

And, while down from April’s decade-high, the proportion of respondents planning UK investments in the next year (25%) is still at the second highest level since 2016.

Alison Kay, EY UK&I Managing Partner for Client Service, says: “The UK’s attractiveness as a destination for FDI remains comparatively strong despite COVID-19. Overall, the outlook for the UK looks stronger than that for Europe. With strengths in key areas like digital technology, Research & Development, and manufacturing, there is more than a solid base for the UK to build a future strategy on. These factors, combined with a growing interest in ‘reshoring’, present post-pandemic opportunities for the UK to meet investor needs and accelerate its levelling-up agenda.

“However, the UK will need to keep pace with the changing drivers of investment. Since the start of the year, COVID-19 has seen investors put an increasing premium on a country having measures in place to prevent a future crisis and its level of success in dealing with the pandemic.”

Investor appetites changing

EY’s report reveals the pandemic has prompted shifts in what matters to investors and in the types of project attracting investment, with 61% of survey respondents saying the changing economic model in major city centres will become an important part of their future investment strategy.

COVID-19 has also required investors to re-prioritise their investment criteria. Thirty-six per cent of respondents say their most important investment criteria is a country having measures in place to prevent a future crisis (up from 20% in the summer), followed by 27% prioritising a country’s success in tackling COVID-19 (up from 23%). Factors such as the quality of labour (down from 25% to 19%) and the labour supply (down from 21% to 17%) have become less important.

Simon concluded: “The pandemic has been a significant driver in boosting the importance of technology adoption and appetite for investment in health and wellbeing. The Government’s ambitious infrastructure plans also seem to have prompted interest in real estate and construction FDI. The decline in appeal of business services reflects the fact that this is a mature market with fewer new investment opportunities.

“It’s clear that investors will need to be convinced that a country can cope with future shocks before investing.”

A message from the Editor:

Thank you for reading this story on our news site - please take a moment to read this important message:

As you know, our aim is to bring you, the reader, an editorially led news site and magazine but journalism costs money and we rely on advertising, print and digital revenues to help to support them.

With the Covid-19 pandemic having a major impact on our industry as a whole, the advertising revenues we normally receive, which helps us cover the cost of our journalists and this website, have been drastically affected.

As such we need your help. If you can support our news sites/magazines with either a small donation of even £1, or a subscription to our magazine, which costs just £33.60 per year, (inc p&P and mailed direct to your door) your generosity will help us weather the storm and continue in our quest to deliver quality journalism.

As a subscriber, you will have unlimited access to our web site and magazine. You'll also be offered VIP invitations to our events, preferential rates to all our awards and get access to exclusive newsletters and content.

Just click here to subscribe and in the meantime may I wish you the very best.






Latest news

Adzooma and Revolut Business launch industry first

Revolut, the growing UK technology company, and international online advertising platform, Adzooma, have announced they will be providing Revolut Business customers with an advertising...

Recruitment specialist expands in Leicester

Recruitment specialist, Thorn Baker Industrial Recruitment, has taken larger office space at Charles Street in Leicester city centre to facilitate the further expansion of...

Work starts on 80-home development in Rushden

Davidsons Homes has started work on a development of 80 new homes after purchasing seven acres of land in Rushden. The company has full planning...

Double deal at Leicestershire business park

Specialist Property Consultant and Chartered Surveyor, Wells McFarlane has completed two transactions at Arkwright Hill Farm Business Park, Leicestershire, representing more than 12,000 sq...

Check your company’s bandwidth ahead of Black Friday

To ensure companies make a success of Black Friday, Nottingham web agency, Strafe Creative, is stressing the importance of preparation and encouraging firm’s to...

Related news

8-storey student accommodation development completes in Lincoln

Caddick Construction has completed a new development comprising two student accommodation buildings on 179 High Street Lincoln on behalf of EBW Developments. The Yorkshire-based construction...

Adzooma and Revolut Business launch industry first

Revolut, the growing UK technology company, and international online advertising platform, Adzooma, have announced they will be providing Revolut Business customers with an advertising...

Recruitment specialist expands in Leicester

Recruitment specialist, Thorn Baker Industrial Recruitment, has taken larger office space at Charles Street in Leicester city centre to facilitate the further expansion of...

Work starts on 80-home development in Rushden

Davidsons Homes has started work on a development of 80 new homes after purchasing seven acres of land in Rushden. The company has full planning...

By continuing to use the site, you agree to the use of cookies. more information

The cookie settings on this website are set to "allow cookies" to give you the best browsing experience possible. If you continue to use this website without changing your cookie settings or you click "Accept" below then you are consenting to this.

Close