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land rover production

The West Midlands region has a strong reputation for manufacturing, with the likes of Jaguar Land Rover and Rolls-Royce among its satisfied customers. However, this cluster now faces new challenges, such as catering to advanced manufacturing demands and adjusting to a post-Brexit landscape. Jacopo Dettoni surveys the scene.

At the heart of the Industrial Revolution 200 years ago, the West Midlands is now at the forefront of the development of high-value manufacturing. Local authorities are strengthening production clusters around global players from the automotive and aerospace sectors, such as Jaguar Land Rover (JLR) and Rolls-Royce, whose success extends along the whole supply chain to boost production, exports and investment.

With the development of the HS2 high-speed rail line expected to lead to greater connectivity infrastructure in years to come, and Brexit forcing a rebooting of the regional supply chain, the region is staking its future on these high-value manufacturing sectors.

Jaguar's territory

JLR has historically had a strong presence across the West Midlands. Headquartered in Whitley, Coventry, the group operates assembling facilities in Castle Bromwich and Solihull, a brand new engine production plant in Wolverhampton and research centres in Whitley and Warwick. The takeover by Mumbai-based Tata Group in 2008 turned around JLR’s fading fortunes by leveraging the global brands of Jaguar and Land Rover and turning them into champions of advanced manufacturing.

In 2016, JLR's global sales hit a record of more than 538,000 vehicles, an increase of 20% on the previous year and almost three times the 200,000 vehicles at the time of Tata’s takeover. The group’s renewed fortunes have prompted an overall upgrade of its local operations and forced a rethink along the whole supply chain, as suppliers scramble to keep up the pace of production and meet JLR’s demand.

“We certainly see growing demand for industrial space coming from JLR’s suppliers,” says Tom Westley, a representative for the Black Country’s local enterprise partnership. “JLR has doubled its production, and that feeds immediately into all the companies doing supplying elements of the car, from metal casting to electronic parts, and so on.”

A global draw

The development of local automotive and aerospace clusters is raising the region’s international profile, and exports increased by 55.9% between 2010 and 2015, more than in anywhere else in the UK, according to figures from the West Midlands Economic Forum. Foreign investors are also increasingly buying into local suppliers.

“There are 641 firms owned by US-based parent companies in the West Midlands,” says professor Julian Beer, deputy vice-chancellor of the University of Birmingham. “There is a lot of supply chain integration in the automotive and aerospace sectors. Many US firms like to invest here and buy up parts of the supply chain for things that may be marketable back in the US.”

Manufacturing, which today makes up about one-quarter of regional GDP, attracted more than $8.1bn in greenfield FDI between 2010 and 2016, out of a total FDI of $36.6bn in the period, according to figures from greenfield investment monitor fDi Markets. Thanks to Tata, Indian investors were the largest source of FDI into local manufacturing, followed by investors from the US, fDi Markets figures show.

An emerging ecosystem

The development of advanced manufacturing is driving the growth of a range of professional services in the West Midlands region, tailored to the needs of cutting-edge production facilities.

“A substantial proportion of service industries, particularly but not exclusively in the burgeoning professional services sector, are wholly or partially dependent on manufacturing,” says a 2017 report by the University of Birmingham. The report estimates that 42% of all professional, scientific and technical activities in the West Midlands serve the manufacturing sector, and the university is adjusting its curriculum accordingly.

“We work closely with the manufacturing sector all the time in areas such as virtual reality, augmented reality and robotics, which are increasingly becoming means of production,” says Mr Beer, who points out that 76% of the university’s curricula are practitioner-based. “The majority is making and doing, [which is] very useful for the economy,” he adds.

Local councils are also adjusting to make the most of the growing momentum of the local manufacturing sector, thanks to the long-awaited approval of HS2.

“Our growth profile will accelerate with the arrival of HS2,” says Huw Lewis, managing director of the Urban Growth Company (UGC). The UGC is the entity established by Solihull Borough Council to leverage the presence in the region of the automotive and aerospace cluster, the National Exhibition Centre, Birmingham International Airport and the planned HS2 station, by improving the quality of local infrastructure and unlocking additional growth. The UGC is now in the process of securing political and financial backing, and aims to invest about £6bn ($7.5bn) in the next decade.

The Brexit challenge

If local councils are gearing up to the make the most of the region’s renewed manufacturing prowess, and even joined forces on an institutional level with the establishment of the West Midlands Combined Authority in 2016 which represents the Greater Birmingham area, they also face challenges from the UK’s decision to leave the EU. Although Brexit risks disrupting the regional supply chain, particularly for industries such as automotive and aerospace, which are among the most interconnected not only regionally but globally, locals prefer to take a more optimistic view. 

“Brexit has boosted the region’s export potential,” says professor Paul Forrest, a director of the West Midlands Economic Forum. “An overvalued exchange rate has often been one of the problems here. A 15% fall in sterling has boosted the competitiveness of our exports.”

However, the final impact of a sterling devaluation has yet to become fully apparent: producers heavily rely on imports, the proportion of which can be as high as 50% depending on the industry. Beyond the effects of the foreign exchange markets, Brexit may yet be the trigger for an increased depth in local supply chains.

“The global economy became pretty much like the Soviet economy, with a few factories supplying the whole supply chain with their products, and events like the tsunami in Japan in 2011 exposed the fragility of this model,” says Mr Forrest. “What manufacturers are looking for today is proximity manufacturing. That’s starting to take off quite substantially here.”

Time will tell whether the development of local, deeper production clusters will prove as efficient as the global supply chain. Experts in the West Midlands are confident, but the market will have the final say. 

This article is sourced from fDi Magazine
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