Manufacturing SMEs: A Yorkshire & Humber policy picture

Dr Peter Mukarumbwa, Y-PERN Policy Fellow, University of Bradford

The manufacturing sector represents a significant part of the UK economy employing 2.6 million workers, who collectively generated an estimated £184 billion in Gross Domestic Product (GDP) during 2022.

Manufacturing companies consequently contributed 8% of GDP and 7% of employment in 2022. The sector also is an important source of high wage jobs in the UK, thanks to it being a relatively high productivity sector in the country; the median manufacturing wage is 11% higher than the average UK equivalent.

Manufacturing is equally a crucial sector for the Yorkshire and Humber region. For example, West Yorkshire employs more than 115,000 people in manufacturing, making it the third largest sector and the highest in the north of England, and some districts, such as Kirklees have strong concentrations of manufacturing jobs (16% of total employment compared to the 8% UK average).

Despite this potential, businesses in the Yorkshire and Humber region have faced well documented, long term persistent challenges such as low productivity and business rates, low Gross Value Added (GVA) per capita, and a low proportion of high growth and scale-up businesses. In fact, 87% of stakeholders in the UK’s manufacturing sector agree that there is inadequate government support for the sector.  

Despite longstanding and repeated work seeking to identify challenges and opportunities for Small & Medium Enterprises (SME) manufacturers, this rarely has impacted on policy and there is a perception that the SME manufacturing economy across Yorkshire and the Humber has been neglected by short-term, political priorities.  

With this in mind, we undertook research exploring challenges and opportunities for SME manufacturers in the region with the aim of providing a definitive position on the support needed for SME manufacturers in the Yorkshire and Humber region. The overarching goal was to provide policy makers with a clear roadmap for SME manufacturers. This follows a call from the Calderdale and Kirklees Manufacturing Alliance (CKMA), Federation of Small Businesses (FSB) and other project partners. With a new national government, now is a good time to review evidence and provide a definitive set of research informed recommendations for national, regional, and local policy makers with specific focus on the West Yorkshire Combined Authority (WYCA).

The evidence reported here is based on a content analysis of the existing data and reports available related to SME manufacturers, drawing on both published reports and publicly available databases. The selection criteria included evidence published in the last 4 years (2020-2024), limited to the United Kingdom (UK), England and with an emphasis on the Yorkshire and Humber region. The analysis addressed the nature of the evidence provided, insights gained, the identified challenges and opportunities for the sector and sought to synthesize the recommendations for policy and practice provided in these reports and articles. Ultimately, it is hoped that this work will link into the West Yorkshire system review and economic strategy.

What are the issues?

Whilst several themes emerged across this period, the most consistent SME manufacturer challenges identified are skilled labour shortage, followed by access to finance, the impacts of artificial intelligence (AI), and net zero.

Recruitment and retention of staff with the right skills set is a major issue for businesses across the Yorkshire and Humber region. More worrisome however, is the fact that many organisations do not have a skills plan and do not see the benefits of having one. This negatively impact prospects of addressing workforce challenges effectively in the future.

Credit availability and affordability continue to haunt most SMEs across different sectors and specifically those in manufacturing as the UK economy officially entered a technical recession in Q4 of 2023. This situation is further compounded by the fact that small firms in the Yorkshire and Humber region struggle more than other regions to access affordable finance. Furthermore, a key theme that emerged from these initial insights was that SMEs lack awareness of different financial options available to them.

SMEs in the manufacturing sector are strategically positioned to reap enormous benefits from business opportunities emanating from use of AI. Nonetheless, majority of SMEs are concerned that AI might negatively impact their businesses. For instance, in West and North Yorkshire 25% of firms were concerned about the impact of AI on their business during Q4 2023.

It is interesting to note that across the Yorkshire and Humber region, Environmental, Social & Governance (ESG) and net zero considerations are in their infancy amongst SMEs, with many not understanding the meaning behind them and how such considerations could bring new business opportunities. As a result, SMEs view these as a costly burden both in terms of finances and personal time, rather than as a source of opportunities.

Proposed way forward for policy makers and key stakeholders

The challenges described above require innovative approaches to SME manufacturing engagement and working with a diverse range of governmental, non-governmental, and community partners. The evidence collated indicates that there is a potential need to review the apprenticeship system and the education system at large to ensure that training meets the current and future needs of SME manufacturing businesses. This will help to alleviate the skilled labour shortage.

Awareness raising and education to strengthen the SME financial ecosystem by government and other public sector bodies that represent SMEs is likely to improve their access to finance. Most importantly, financial institutions working closely with other key stakeholders must offer a range of financing offers targeted at different stages of firm growth.

There is a need to develop digital skills diagnostics and technological adoption tools to provide advice, signpost SMEs and make assessment of current and future digital skills, needs and training. Most importantly, SMEs should be educated about the benefits of adopting technological tools and AI. It is expected that this will make SMEs in manufacturing sector more aware of the potential benefits that accrue from AI, data science and analytics.

Finally, the benefits of small firms adopting sustainable business practice models must be clearly spelt out. The WYCA must provide clear policy guidance and regulations on Environmental Social and Governance (ESG) and net zero for SMEs particularly those in manufacturing sectors.

Dr Peter Mukarumbwa is the Y-PERN Policy Fellow at the University of Bradford. Peter joins us with a background in regional economic policy. He has worked for the UN, governments and universities across five countries in Southern Africa.

Photo by David Pickup 🇬🇧