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UK export heartland bleeding, again
STERLING STRENGTH
AS GLOBAL leaders met in the US capital earlier this month to anguish over the maelstrom in the markets, the effects were felt across the Atlantic in Washington, Tyne and Wear - Britain's exporting heartland. Battered by problems ranging from a glut in the semiconductor chip industry to collapsing export markets and faltering demand at home, the issue of competitiveness has been pushed to the top of the region's boardroom agenda. Washington is a new town on the outskirts of Newcastle - a region which rose from the dying ashes of coal and shipbuilding to become a high-tech jobs Mecca, built on billions of pounds of inward investment.
As market storms continue, industry leaders cite Washington as a barometer of the challenges facing UK manufacturing exporters. Doom-laden newspaper headlines have returned and once more the government is blaming poor productivity, as Margaret Thatcher's administration did in the 1980s. The last time, business swallowed the criticism and underwent a transformation which spawned an era of growth. This time the bosses have hit back. They say British business is fighting to stay competitive with one arm tied behind its back because of the handicap of a strong pound which has cut sales, pushing manufacturing into recession. "The government has fallen into the trap of generalisation," said Bill Midgley, president of the Northeast Chamber of Commerce. "Some excellent companies continue to be affected by sterling, high interest rates and world markets. It's not just the laggards."
Productivity remains part of the equation, but UK companies have been hit by the double whammy of high sterling and cheaper products from rivals in Asia, where currencies have devalued sharply. Under these conditions, even the paragons of efficiency are not immune in a region which exports 40% of output. Nissan's Sunderland plant, named Europe's most productive car plant by The Economist, is one example. One senior Japanese trade source said despite Nissan's record for competitiveness, the company's UK operation was feeling the cold. "More than anything, business needs stability for planning," he said, warning that volatility was dangerous to even the strongest. Competition, coupled with sterling's strength, is also being felt at the other end of the scale. The small textile company Claremont has seen lifelong supply contracts with Marks & Spencer lost to foreign rivals. The Engineering Employers Federation's northern association said companies which failed to improve competitiveness would be cleared out. But it said for many, the fightback was under way. "The UK economy is like a tree and in these economic storms, the weak branches will break off," said John Wilken, director of the EEF's northern arm. One high profile example is the semiconductor industry, which has been hit by a glut in global supply and a collapse in prices, leading to the closure of two plants in Tyneside by Siemens and Fujitsu. Market turmoil was the catalyst. Wilken said industry was being forced to take a longer view, with survival rather than expansion the key. Manufacturers are retrenching by reducing recruitment, jobs and capital expenditure. Company bosses say a clearer signal is needed that UK interest rates will continue to fall. Last week's quarter-point cut to 7.25% - the first cut in more than two years - could encourage them to maintain existing investment in new machinery and staff.
The one silver lining is that the service sector continues to grow in the region. So far in 1998, 4 000 service sector jobs have been created in the northeast while 4 500 manufacturing jobs have been lost. The picture in the northeast is a microcosm of the rest of the country, with 25% of business in manufacturing and the rest in services. That compares with a British economy which is four-fifths service sector. "The economy is more diversified than in the early 80s - back then we had dying industries: shipbuilding, steel and coal. Now we have more types of jobs," said Midgley. "But they depend on people spending money. If the national economy collapses, these jobs won't survive at a time when there are fewer skilled jobs around." - Reuters.
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But 15 years after reinventing itself, the northeast faces falling manufacturing sales, job cuts and closures yet again.