Blackfriar: Decision that highlights UK manufacturing’s dilemma

The Heckmondwike-based firm last year decided to buy a machine tool manufacturing facility in Tarnow, Poland, for 1m euros, and this week raised £1.8m to invest in it.

The company could have spent the money on its UK operations but clearly sees greater growth and margin prospects, plus lower costs, in Poland.

It’s a story Blackfriar has seen time and time again. And it represents another step towards the erosion of the region’s – and the UK’s – manufacturing base.

600 Group was hit hard during the recession, forcing it to shut numerous sites and axe hundreds of jobs to stay afloat.

In 2009, as part of its turnaround strategy, the group closed its Halifax factory and moved operations to its larger Heckmondwike base.

The company also shrunk its US operations into one facility in Michigan, closed its South African machine tool plant and shut a factory in Germany.

“To keep things going as they were was not an alternative,” said chief executive David Norman at the time. But with recovery on the cards, Blackfriar believes its decision to focus its manufacturing expansion on Eastern Europe reflects the tough outlook for UK manufacturing.

600 Group argues its expansion abroad strengthens its supply chain, allowing it “to increase capacity and reduce lead times”.

Mr Norman said Poland will allow it to manufacture about 90 per cent of its own products, compared with the 40 per cent level it had fallen to.

“The first thing was to fix the organisation and we’re well on track to do that, ” said Mr Norman last year. “Poland allows us to fix the issues (around machine tools).”

It’s hard to blame a plc for taking an unsentimental business decision, which obviously lowers manufacturing costs.

But there are viable UK-based manufacturing solutions for companies that wish to take them.

Leeds-based recycling products maker Straight last year started its own manufacturing after buying an injection moulding firm. Straight bought Dyro Holdings, owner of Hull-based Powell Plastics, for a total £2.9m, opting against setting up abroad.

Manufacturers cannot do this alone, however. Taxation, subsidies and regulation all need to be geared towards rebuilding the UK’s once-proud manufacturing base. It is easily lost, but not so easily gained.

n It’s a sign of how bad things are on the high street that a miserly 0.1 per cent rise in quarterly sales can cause Marks & Spencer’s shares to leap six per cent. The market had expected a two to four per cent decline, so this was relatively good news.

It appears that shoppers are willing to spend small amounts of money treating themselves. So a £15 posh romantic dinner for two to celebrate Valentine’s Day or a £15 Mothers’ Day meal for four become affordable luxuries to cheer us up when we can’t afford to buy a new fridge, sofa or car.

Hats off to M&S boss Marc Bolland who spotted the fact that we’d all want something to make us feel better about life. While other retailers did their usual Mothers/Valentines push, M&S made a big deal of both events promoting sparkling wine, chocolates, gifts, cards and flowers.

Upmarket stores such as M&S, John Lewis and Sainsbury’s are bucking the trend, benefiting from the fact they attract older more affluent shoppers who have seen few changes to their lifestyle apart from petrol costing more.

At the cheaper end of the market Tesco, Asda and Morrisons are holding their own as consumers have to eat and they want to do it cheaply.

Mr Bolland said M&S is benefiting from the pain elsewhere on the high street. A number of retailers including Argos, Dixons, Mothercare and HMV have issued profit warnings in recent weeks.

“Despite some of the things that we’ve heard we have not seen any dip or blip or wall. Customer confidence is low but held stable,” said Mr Bolland.

But he warned that trading will get tougher as shoppers are hit by Government cutbacks, rising prices, muted wage growth and a possible interest rate rise. “We see an environment out there that for the coming year will be absolutely challenging because commodity pricing is up and we know that discretionary spend will be down,” he said.

However one voice is bucking the trend. Terry Leahy, the former boss of British supermarket giant Tesco, has dismissed predictions of a major consumer downturn, saying a slow and steady recovery will come through once oil prices stabilise.

“I think we are in recovery. The economy will grow this year. It will be slow and steady,” he said.

Mr Leahy was chief executive of Tesco, Britain’s biggest retailer, for 14 years and has a formidable reputation.

Retailers will be hoping his prediction is the one that comes true.