Should you look to small manufacturers for your next contracting job?

Wednesday 6 August 2014

Opportunities for contractors in the manufacturing sector may lie away from big business, if new figures are anything to go by.

Following the news that hiring growth in the industry at large has begun to slow, the Confederation of British Industry's (CBI) SME Trends Survey has revealed that among small manufacturers employment has increased at the strongest pace since records began in October 1988.

Indeed, 34 per cent of firms have said employment has increased, compared to just nine per cent which noted a decrease. This gave a balance of +24 per cent, which is the strongest recorded in almost 26 years.

Behind growing headcounts is an industry experiencing a robust period of growth. Last quarter (the three months to July) was another strong one for orders and outputs.

Among small and medium-sized (SME) manufacturers, a rise in new orders was noted by 36 per cent. Twenty-two per cent claim new orders dropped off, giving a balance of +14 per cent. However, orders are expected to grow even further during the coming quarter.

Thirty-one per cent of companies told the CBI that output increased, while 16 per cent reported a decrease. This led to a balance of +15 per cent.

Meanwhile, 36 per cent of firms saw a rise in domestic orders and 18 per cent of firms noted an increase in export orders. However, this is broadly flat following recent growth and flouted expectations for strong rises.

Katja Hall, CBI deputy director-general, said: "Smaller manufacturers are settling into a regular growth pattern, with their order books and output growing for the fourth consecutive quarter. Firms remain upbeat about their business situation and they are hiring at their fastest rate since 1988.

"But export orders have underperformed this quarter, which may in part be because of the strength of Sterling. We need the government to get behind our small and medium-sized manufacturers to help them to sell their products and services to new markets around the world, giving a sustainable boost to long-term growth."

Skills shortages are also holding back SME manufacturers. Twelve per cent of firms said a lack of labour could limit capital expenditure, which is the highest proportion since January.

Nonetheless, optimism is high and more and more companies are intending to increase their investment on plant and machinery.

This all bodes well for contractors, who are likely to see more demand coming from the SME sector over the coming months.

With the manufacturing sector at large reporting a slowdown in growth, looking to SMEs may be a more sustainable strategy.

According to David Noble, group chief executive officer at the Chartered Institute of Purchasing and Supply (CIPS), some of the "fizz" is starting to go out of the manufacturing sector. He claimed that if further obstructions to supply chains occur, growth could be constrained further in Q4.

The Markit/CIPS Purchasing Managers' Index for July recently showed that the pace of expansion has cooled. The index stood at 55.4, down from 57.2. This is the lowest of the year.

By Victoria McDonnell

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