Making up for lost time

AS HE looks ahead to the new year, Gilad Tiefenbrun could not be more optimistic. While the bosses of most Scottish companies shift about nervously when asked what 2011 will hold, the managing director of Linn Products, the Scottish hi-fi manufacturer, is brimming with enthusiasm.

Despite the difficult economic circumstances, the firm enjoyed a 13 per cent jump in profits this year and Tiefenbrun, son of the company's outspoken founder Ivor, believes it is on the crest of a wave. The 38-year-old is expecting great things for the Glasgow-based manufacturer over the next few years as digital stream (DS), the technology it has pioneered, takes off - allowing music lovers to store their entire music collections in one sleek box.

Tiefenbrun believes Linn - a company founded in the early 1970s with a single product, the LP12 turntable, still in production today - has so far only "scratched the surface" with the DS offering.

But things haven't always been this upbeat. Four years ago Linn, like many other Scottish manufacturers before it, faced a crisis that forced it to cut its skilled workforce in half.

At the time there were concerns that it might join the long line of manufacturers in this country that have either been reduced to a shell or consigned to the history books. Since the 1970s, manufacturing in Scotland - like elsewhere in Britain - has been in steep decline. More than 100,000 jobs have been lost in the last decade alone and the sector is now a third of the size it was 30 years ago.

But over the past few months several glimmers of hope have appeared in an area that many had written off.

A string of manufacturing firms have reported roaring sales while economic forecasters have credited the "booming" industry for Britain's better-than-expected growth this year.

In the last week alone, three studies have trumpeted the sector's success. The CBI's latest industrial trends survey forecast "solid" rises in production over the next three months, the Office for National Statistics reported the highest manufacturing output for seven months in October, and the Engineering Employers Federation revealed that Britain's manufacturers are "powering ahead".

The Ernst & Young (E&Y) Item Club predicts that manufacturing will drive Britain's recovery next year as other parts of the economy continue to flag.

But is Scotland and the rest of Britain really in the midst of a manufacturing resurgence or are firms merely enjoying the short-term benefits of a weak pound?

Dougie Adams, adviser to the E&Y Scottish Item Club, says sterling's deflated value has certainly been a boost to the sector but credit should also go to those firms that stuck it out and found ways to navigate through the hard times.

"What happened with manufacturing is that it survived the (previous] very high levels of sterling and had to be competitive. Those companies that managed to do reasonably well (during that time] are now reaping the benefit of that."

Peter Hughes, of Scottish Engineering, is adamant that the upturn is not a temporary phenomenon. He argues that, faced with competition from low-cost manufacturers abroad, innovative firms in Scotland have risen to the challenge, restructured and found new markets in which they can beat countries such as China, India and more recently the likes of Vietnam.

Scotland is also finally reaping the benefit of knowledge partnerships between its universities and the private sector, with a lot of the investment that was ploughed into research and development and commercialisation projects over the last decade now coming to fruition, he says.

"This (resurgence] hasn't come out of the blue, there has been a gradual increase over the past year or so. A lot of Scottish manufacturing firms have been working hard over the last five to ten years making themselves leaner and fitter than ever before," Hughes says.

Businesses have accepted that they can no longer compete on price, but they do have an edge when it comes to hi-tech manufacturing, Hughes says.

Tiefenbrun agrees. In 2008 he decided to stake the future of Linn Products on DS technology. Instead of following the example of many other firms and moving its manufacturing facilities abroad, Linn maintained its Scottish base in the hope that its investment in high-end audio would pay off a few years down the line.

Tiefenbrun admits he took a risk: "We kept our manufacturing in Scotland and, even though it was higher cost, from a long-term sustainable viewpoint we realised we had to keep those skills in Scotland. Certainly in the past decade we were accused of being a bit weird for thinking like that, but boy are we glad we did it. It has allowed us to keep innovating in the product line.

"My view has always been that the UK and Scotland should be a centre of excellence for high value, sustainable manufacturing. Rather than compete on price with China and India, we should be operating in the quality and performance end."

McLaren Packaging, a family-owned firm based in Port Glasgow, tells a similar tale. Set up in 1979, the firm previously generated a large proportion of its turnover from manufacturing corrugated boxes and packaging for the electronics industry, which went into reverse in Scotland in the early part of the last decade.

Operations director Donald McLaren says the firm thought carefully about what industries would be around in Scotland for the long term.

It struck upon the idea of creating decorative whisky tubes for firms such as William Grant & Sons.

Again, the decision involved a leap of faith and the company ploughed 1.5 million into a new plant to enhance its production of whisky tubes at a time when most other firms were retrenching.

"We have been investing through the downturn – quite brave decisions had to be made," McLaren explains.

But the gamble has so far paid off and the company is on course to hit turnover of 9.5m this year, up 15 per cent.

The Institution of Mechanical Engineers (IMechE) says manufacturing companies have become a lot smarter about how they can survive in an increasingly competitive marketplace. They have realised Britain has an edge in two key areas, lean and advanced manufacturing, and can plough a furrow at the very hi-tech end of the spectrum.

Firms such as Aggreko, the temporary power provider, and Clyde Blowers are often held up as some of manufacturing's greatest success stories of the past few years, but IMechE is particularly hopeful about businesses which have branched out into areas such as renewable energy.

Fife-based Burntisland Fabrications (BiFab) has been particularly successful at targeting the burgeoning green economy. Previously focused solely on the North Sea energy industry, BiFab realised it could use some of that knowledge to attract business from the expanding wind, tidal and wave industries.

This year it has announced a string of deals, including a 4m contract to build Aquamarine Power's Oyster 2 wave device, a 12m contract to build substations for the Gwynt y Mr wind farm off the coast of Wales, and a 4m agreement with Norway's Hammerfest Strom to produce the first of its tidal machines.

Stephen Tetlow, chief executive of IMechE, believes growth areas such as renewables will create demand for a further 500,000 engineers by 2015.

Ironically, however, there are fears that Britain will not have enough skilled workers to fill those manufacturing vacancies. After many firms dramatically reduced their workforces and slashed apprenticeship schemes over the last decade, IMechE warns the industry could soon find itself in a classic "catch 22" – with growth opportunities but not enough skilled employees to take advantage of them.

"The recent global financial crisis has provided a once-in-a-lifetime opportunity for this government to regenerate the UK's manufacturing sector and rebalance our economy," Tetlow says. "What we really need is a 50-year road map highlighting the key areas where the UK can once more re-establish itself as one of the world's leading manufacturing and technology nations. The economy may be experiencing a tough time at the moment but our manufacturing industry has proved extremely resilient."

But while the future may look bright – or at least brighter – for manufacturers, Hughes of Scottish Engineering warns against getting carried away.

The sector may be making a comeback of sorts but there will be no return to the halcyon days of the Sixties and Seventies when it was one of the biggest employers in the country, he says. The new generation of manufacturers will employ fewer but more highly skilled staff.

"We won't ever get back to those days," Hughes says. "The screwdriver jobs, the lo-tech jobs are gone and they are not coming back." The CBI's latest industrial trends survey forecast "solid" rises in production over the next three months, the Office for National Statistics reported the highest manufacturing output for seven months in October, and the Engineering Employers Federation revealed that Britain's manufacturers are "powering ahead".

The Ernst & Young (E&Y) Item Club predicts that manufacturing will drive Britain's recovery next year as other parts of the economy continue to flag.

But is Scotland and the rest of Britain really in the midst of a manufacturing resurgence or are firms merely enjoying the short-term benefits of a weak pound?

Dougie Adams, adviser to the E&Y Scottish Item Club, says sterling's deflated value has certainly been a boost to the sector but credit should also go to those firms that stuck it out and found ways to navigate through the hard times.

"What happened with manufacturing is that it survived the [previous] very high levels of sterling and had to be competitive. Those companies that managed to do reasonably well [during that time] are now reaping the benefit of that."

Peter Hughes, of Scottish Engineering, is adamant that the upturn is not a temporary phenomenon. He argues that, faced with competition from low-cost manufacturers abroad, innovative firms in Scotland have risen to the challenge, restructured and found new markets in which they can beat countries such as China, India and more recently the likes of Vietnam.

Scotland is also finally reaping the benefit of knowledge partnerships between its universities and the private sector, with a lot of the investment that was ploughed into research and development and commercialisation projects over the last decade now coming to fruition, he says.

"This [resurgence] hasn't come out of the blue, there has been a gradual increase over the past year or so. A lot of Scottish manufacturing firms have been working hard over the last five to ten years making themselves leaner and fitter than ever before," Hughes says.