Britain's economy can be classified into three sectors, the Primary sector, secondary sector and the tertiary sector. The primary sector uses raw materials from the earth to extract their products; typical example is mining and agriculture producing food and raw materials. The secondary sector of UK economy includes the manufacturing, construction and the processing industry. This sector turns raw materials into tangible products for consumption classic examples of organisation in this sector are the textile, automobile manufacturing, construction or engineering organisation.
The third sector of the economy is the tertiary sector which is the service industry. This sector provides service to general public and businesses through, capital, consumer, industrial and service markets. The reports will focus on the trends between the secondary (manufacturing) and the tertiary (service) sectors of the economy, addressing the de-industrialisation of Britain and the rise of service industries. The Office of National Statistics (ONS) demonstrates with the aid of figure 1 graph displayed below that in 2007 the comparison between the United Kingdom services and manufacturing industries is:
It is therefore true to say that over the years, service industry has taking the lead from the manufacturing sector as the major contributor to the UK economy. 2. 0 The Decline of Manufacturing in the UK over the Last 10 Years According to ONS, manufacturing are businesses whose main activity is the manufacture of finished or semi-finished products. It also includes the assembly of component parts and the specialised maintenance and repair of industrial, commercial and similar machinery and equipment.
There are vast majority of business activities that could be associated with manufacturing such as: food and drink production, metal and mining industry, tobacco, coin and jewellery production, printing, textile, machinery and equipment production which includes motor vehicle and so on. The UK manufacturing industry has enjoyed a lengthy major contribution to the British economy. Lea (2009) established that manufacturing accounted for over 30 per cent of the Gross Value Added (GVA) i. e. the UK total value of manufacturing output in the 1970.
But it has suffered over the years as a result of its continuous decline in its output and a drastic reduction in its labour market. This result in it recording a slump in GDP value of 13 percent in the year 2007 As mentioned above, figure 2 below; illustrates the UK manufacturing output decline trends. Figure 2 Source: Thomson DataStream Similarly, figure 3 below shows that total UK manufacturing labour force plummeted to a decline from 25 per cent in the year 1980 to around 10 per cent in the year 2007.
Despite this noticeable slump in the manufacturing industry, it still currently contributes a great deal to the UK economy. As Lea (2009) highlighted that even though the manufacturing sector currently represents 13 percent of UK Gross Domestic Product (GDP), it still supply 50 percent of UK exports as well as 10 percent of national labour force. The fact that there have been reports and statistics of job losses and closure of companies in manufacturing industry, the overall output of the sector has been on increase. Similarly, in the face of UK products importation from the Asia e. g. China, the total UK export in the year 2007 is still far much greater than in the 1950s. In order for a nation's economy to have a good balance of payment, the export growth should exceed the import.
Lea (2009) showed that Britain recorded a deficit of 12. 3 billion pounds in visible trade in the year 2007 which was offset by the surpluses of the service sector, but the following year (2008), the deficit was further increased to 93 billion pounds. Further deficit will be expected this year due to the recent credit crunch which has now led to the country being in recession.
Reasons for the decline in the manufacturing sectors are: The British manufacturing sector seems to be in decline and was associated to a shrinking industrial base instead of a buoyant productivity growth. Its weakness is reflected in the decline of its workforce over the years and sluggish output growth. The factors contributing to the decline of the manufacturing sector can be attributed to some fundamental reasons. The strong exchange rate of pounds sterling also adds to the manufacturing sectors decline.
Internationally trading growth will dip even deeper with customer unable to trade in the high rate of the exchange of the British pound. The low wage competition from emerging economies lead to the UK firms to relocate offshore the production and assembly of their consumer goods resulting in local closure of factories in UK and job losses. The government has to have its own share of the blame too because it failed to set up essential tax incentive policies that will encourage companies on the long run. 3. 0 The rise in the service industry in the last 10 years
Services industry include retailing and distribution; financial services, including banking and insurance; hotels and tourism; leisure, recreation and entertainment; professional and business services, including accountancy, marketing and law. Manufacturing sector historically employs ancillary workers such as cleaners, receptionists, security guards, maintenance workers, catering staff etc. The corporate idea of lean industry of the 1990 such as outsourcing, whereby firms contracted out activities such as accounting and delivery services.
which were previously done in the house by departments within manufacturing. This process further streamlines the shape and value of the manufacturing sector, while the service expands. The decline trends in the manufacturing sector coupled with the constant negative headlines are not encouraging factor fresh graduates or school leavers to embark on industrial related career. Instead they are looking for a career change and the existing manufacturing employees retraining for new transferable skills towards the service sector.
The UK service sector has been increasingly tradable in the last ten years because the country has been able to take the advantage of technological developments This has make Britain to become one of the world leaders in financial and business service market. 4. 0 Contention 1. Is Britain so de-industrialised that service industries have taken over from the manufacturing? It is quite evident that British manufacturing sector has been on a decline over the years compared to the service but a closer look at the factors leading to this and the current trend
in the manufacturing industry would contradict this notion. The changing in global economy has attracted more open economic policies. This has led to increase in international trade as well as flow of labour and capital. Organisation seeks to maximise their revenue by utilising global supply chain strategies. It is now uncommon for firms to transfer part of their business processes to a low wage economy country. Thus contributing to decline on output of UK manufacturing sector. Meanwhile the UK manufacturing industry is not disintegrating as it seem even though there's been a fall in the manufacturing output.
UK manufacturing firms are moving on into more high value added area of production. Some of the market leaders are Rolls Royce and the BAE Systems. They are transforming into a technology driven, innovative sector, servicing a global supply chain. Gone are the days of the economy reliance on traditional production industry whose bubble has been busted by the emerging developing economy from India and China. It is quite evident the service sector is on the increase this is partly due to firms changing their business orientation from being a manufacturer to service provision organisation.
Nowadays, firm have move away from the traditional manufacturing process alone. There are quite a number of organisations that provides solutions for customer that involves combination of services and tangible products. This leave ground for uncertainty around the ONS data of manufacturing and service sector classification There has been a shift in the last ten years from the manufacturing sector to the service in terms of the shares of output and employment. But it is more of a moderate output shift than in employment. 5. 0 Current Market changes and situation
The current economic downturn has pulled the plug on the success achieved by the service sector over the years especially in the financial industry. Large financial institution such as Northern Rock was affected. This lead to the government to raise a fresh campaign in promoting Industrialisation after so much reliance on the success of the service industry to promote the country's economy growth. The manufacturing sector is not excluded with news of manufacturing industries closing up after being affected by the credit crunch which has now resulted in recession.
But thanks to the UK leading manufacturing companies such as BAE and GlaxoSmithKline world leaders in aerospace and pharmaceutical industries respectively as they held their position and continuing adding value to UK economy. UK businesses are faced with global trade and market changes. Their closer integration into global market exposes them to intense competition which they have to respond to as well as new upcoming opportunities in the market. The structure and way businesses operates has to be changed in order to adapt to the new environment they are faced.
UK firms are faced with intense competition from the emerging low-cost economies. This leads them to making strategic policies on their business processes such as whether to "make or buy" and even policies on the location of production and services centres. Offshoring becoming popular as a result of this, it gives them competitive advantage by way of relocating some of their business operations to a cheaper location while increasing their revenue. UK businesses are also investing more in research and development to innovate high value added products with higher returns 7.
0 Conclusion Even though the UK service sector has been on increase in the last ten years in terms of output and number of employees, the manufacturing sector has not been left behind contrary to some report. There has been decrease in the UK traditional manufacturing industry but more innovative and high technological based industries with high value added manufacturing such as British Aerospace has emerged and filled the gap left by the declined industrial production plant. The global economy is directly affecting the structure of UK economy and the way we do business.
Organisation has to respond to the trend of globalisation, The UK government has a part to play in creating an environment where business can respond quickly to new opportunities and dynamic markets. They should create policies that will nurture and attract skills, policies that will promote investments and innovations not only in the manufacturing sector alone but service too. This will facilitate a healthy UK economy.
1. De-industrialisation and foreign trade. Cambridge University Press 1987 By Bob Rowthorn, John R. Wells 2. Nations Choose Prosperity: Why Britain Needs an Industrial Policy - Ruth Lea (ed. ), 20 July 2009