Orgalime Blog

By Richard Dick – President of Orgalime, the European engineering industries association

Can we please stop considering industry as a ‘dirty’ word? For too long now, industry (and in particular the European engineering industry) has not been given credit where credit’s due. Orgalime, the European engineering industries association indirectly represents (through our national associations) some 130 000 companies – 95% of which are small and medium sized enterprises (SMEs) that employ over 10 million European citizens; those citizens are people like you and me – working to provide a stable home for our families, working to create a better environment for our planet. And the jobs they are in are providing the technological solutions to the societal demands that our larger and aging population are crying out for. The European Commission’s policy ‘labelling’ reads like something from a school report – ‘good’, ‘better’ and now ‘smart’. Now Europe is into forging smart cities, smart grids, smart meters – the list is endless. And the greater emphasis on efficiency of resources and energy consumption should not come as a surprise to a world where ‘consumerism’ has almost become to be considered an illness.

Engineers have arguably been smart for centuries, so why is it taking politicians so long to catch up? Will Europe’s lead in greening its economy mean that the technologies to do so will be developed and produced here or will we just import them? Let us first remind ourselves of our roots – after all, the industrial revolution did have its beginnings on European soil. This birthplace, once described as “the most extraordinary district in the world”, is still a remarkable, and beautiful, place to visit today. At the Ironbridge Gorge, near Telford in the United Kingdom, a huge amount of early industry still survives as furnaces, factories, workshops, canals and the settlements of Coalbrookdale, Ironbridge, Jackfield and Coalport live on.

But this was at a time when coal supplies appeared to be endless and certainly the impact of ‘industry’ on the world we live in hadn’t even been thought of, let alone understood. It can be argued that the industrial revolution has never ceased – over the 3 centuries that have passed since Abraham Darby founded the Coalbrookdale iron foundry in 1709, is it not that the evolution of industry has become the cornerstone of economic wealth and growth. Nevertheless, it seems that history seems to have taken all of this for granted. Those early engineers didn’t have government grants and subsidies to achieve their pioneering work – it was pure curiosity and persistence that prevailed, with the realisation that somehow their efforts would ‘make a difference’.

European industry can and should aspire to maintaining a leading role in the world economy. However, in order to do so, it must be able to compete on an equal footing with other regions of the world. This is becoming all the more important at a time when we see a surge of growth shifting rapidly to other regions, such as Asia, while Europe still struggles as it tries to emerge from the economic crisis. Our industry is doing well in export markets. This is heartening because it means we are successfully competing on the international scene, and we need this to continue. However, for our producers of capital goods, it is equally important for the long term that our customers invest here in Europe. This will be a sign that the industrial policy agenda launched by the European Commission really is bearing fruit and helping to lay the foundations for better longer term structural growth. Hence our motto: ‘Manufacturing Matters’. Turning Europe once again into one of the more dynamic economic zones is a goal worth fighting for and it is a goal which we must achieve.

In a global marketplace when the ‘sun never sets’, Europe has to turn its fortunes around. Why have we ended up in such a situation? Complacency springs to mind – when things are going well, politicians have the habit of turning on the benefits tap while swishing the knife in areas identified where short term vote winning decisions can be made. These inevitably have disastrous long-term consequences and are difficult to fix. Europe has dangerously tussled with the fact that we are the best in everything, when in reality, the rest of the world has caught us up (and in some cases, overtaken us), creating ‘unwelcome’ competition in the manufacturing sector. But there is still a glimmer of hope – Europe is good at innovating. But that costs money and when the financial climate is as delicate as it has been, investing in research & development to produce the innovation that Europe so desperately needs is sometimes less attractive because Europe itself, as the mountains of regulation many of which are unfriendly towards industry, is for many becoming an increasingly unattractive place to invest in. Why is this so?

First manufacturing naturally sites itself where there is a market: opportunities in Europe must outweigh the constraints created by Europe for our industries. We believe that political decision makers have a crucial role to play in designing measures that help to stimulate market uptake, for example of energy efficient and greener technologies, thereby effectively creating success stories here in Europe which will underpin our export markets. This is why we are convinced that the institutions’ drive to get national governments to support investment in energy efficiency is a step in the right direction. The message is simple: innovate, use and produce in Europe. But are governments listening? No on the contrary they are resisting moves in this direction.

And what about the other rules? With the development of the internal market – a major EU success story – came a considerable body of European technical legislation on products. A few core directives, such as the Low Voltage, Machinery and Electromagnetic Compatibility Directives, and occupational safety directives have both regulated the health and safety aspects of engineering products and their free circulation in an ever larger internal home market. In recent years, however, the EU has enacted a substantial body of legislation in areas such as the environment, employment and social affairs, consumer legislation, etc… while at the same time continuing to develop or review internal market legislation. This has led to a highly complex and continuously changing regulatory framework. If such regulatory measures, taken individually, may often seem justified, the resulting body of regulation has become too unwieldy for manufacturers and in particular the smaller companies to manage. To make matters worse, national, regional and even local authorities add further requirements. This is affecting the competitiveness of Europe as a manufacturing base. What needs to be done to recreate the dynamism which is so essential?

In particular, the European electrical engineering industry that mercifully has its home base in Europe, makes the technologies that are needed to create a living environment more conducive to the quality of life of a maturing society faced with many challenges. It is these industries that provide the technologies needed to achieve the political goals of becoming more energy and resource-efficient and set up the best energy infrastructure possible. It is these industries that bring together all the energy efficiency technologies around a ‘smart home’ or a ‘smart building (e.g. by combining intelligent household and consumer electronics with the building infrastructure and energy system). It is these industries that create the road and transportation technologies to generate an intelligent traffic and mobility (e.g. by combining the best features of the different transportation modes such as road, air and train traffic with local urban public transportation and electro mobility concepts). Thinking in terms of, and believing in, systems and network technologies with the aim of finding the best technical solution to a particular demand or societal challenge is what Orgalime and its members want.

In 2008, after two years of collaboration between the European Commission led by Commission Vice President Günther Verheugen and Europe’s electrical engineering industry led by Edward Krubasik, the then Orgalime President, the Electra report “Twenty solutions for growth and investment to 2020 and beyond” was issued.

Now, in 2012 a stocktaking exercise has been conducted in the form of the Electra 2, which will be launched at the Hanover Trade Fair in April 2012. The industry represented through Electra aims to:

  • Briefly analyse the results of the first Electra report
  • Outline the changes that have arisen following the 2008-2009 economic crash as well as the impact of this on Europe’s electrical and electronics industry
  • Re-examine the challenges that Europe faces today and present proposals to support European policies in its energy- and resource-efficient growth-and jobs-agenda and outline the steps that need to be taken to make Europe a ‘smart world’.

While innovation will be at the core of the success of our companies, one of the essential elements to ensure that this translates into jobs and growth in the EU will still remain the total cost of production. For this a number of issues remain of the utmost importance:

Think manufacturing technologies…

First and foremost Europe must continue to focus on manufacturing technologies – an area where we lead the world and where we must continue to excel if we are to maintain long term manufacturing competitiveness. This requires that our industry operates in a global framework which is supportive.

Think supply chain…

As a result of the development of regulation, we are increasingly faced with what the institutions euphemistically term as “production leakage”, that is part of our industrial infrastructure is either moving out of the EU or developing new capacity in less regulated areas of the globe or areas with better market prospects: where part of our industry’s own supply chain or customer base migrates to other areas of the world, we are increasingly finding that our own competitiveness is being undermined if our companies do not develop capacity in those areas. Therefore, when carrying out impact assessments on new policy and regulatory initiatives, a much closer analysis of the supply chain effects should be undertaken. For example in Europe we are world leaders in the area of production and automobile automation systems. Our manufacturing base for these productions is largely in the EU: however, if our client base migrates to other areas of the world, we will inevitably have to relocate our R&D and our production close to the sites of our clients.

On the supply side before the downturn in the economy, our industry was becoming increasingly concerned about raw materials availability at competitive conditions: while non-ferrous metals tend to be quoted on exchanges, this is less the case in the area of steel where we have seen a number of tendencies:

  • The steel mills which are increasingly large global companies are moving further and further downstream into the territory until now occupied by metalworking SMEs.
  • Steel companies are also tending to put pressure on the institutions to limit competition from imported steel, essentially through the use of the anti-dumping instrument. Two recent cases which were strongly resisted by our industry due to the gap between EU and foreign steel prices (hot-dip galvanised and stainless steel sheet) were withdrawn, but the steel giants are still promoting protectionist policies which will inevitably undermine the capacity of engineering SMEs to produce in the EU many products in the face of competition from imports produced in countries where steel prices are lower.

Think energy costs…

Just as important for our industry is the availability of energy at conditions which are competitive compared to those found in other major manufacturing countries. Electrical energy in particular, even with increased energy efficiency, is likely to play a growing role in our energy mix and will serve as the basis for the development of areas of technology, such as the electric car. For these technologies to develop in optimal conditions, it is important to maintain competitive energy prices at a time when the electrical utilities will also be required to invest to improve their efficiency and carbon footprint. Therefore a number of issues are essential in this context, such as:

  • Providing a stable, predictable and appropriate legislative framework that mobilises market forces and competition to drive innovation.
  • Setting overall energy efficiency targets for each member state, independent of the given energy mix and enforcing the development of a binding roadmap in term of power plants, power transmission and distribution (new and retrofits) based on an exhaustive inventory of the current environment and a clear target for each country.
  • Proposing proper incentives for utilities to invest in efficient technologies.
  • Encourage the adaptation of the architecture of the Transport & Distribution grids, removing barriers from regional planning and simplify permitting processes.

Think staff…

The engineering industry is a vast industry employing over ten million workers in Europe. In an industry which by its nature is already cyclical and which sees its production cycles changing very fast, it is essential that regulators recognise that, in addition to full-time and permanent work, there is an increasing demand for a diversity of working arrangements, including part-time, fixed-term and temporary agency work, from both employers and employees.

Flexible labour markets allowing the speedy and efficient deployment of labour are therefore vital if European companies are to respond efficiently to the increasing pressures of global competition. Linked to the need for flexible labour markets are the demographic problems that Europe – particularly the 15 “old” member states – will face in the years ahead. Many European countries already suffer from skills and labour shortfalls which will be exacerbated, as Europe’s population grows older. We therefore support the free movement of workers in the enlarged European Union without any restrictions and also welcome the “blue card” as a temporary measure to alleviate pressure in the demand for skilled personnel.

Companies and their employees will also need to become more open to the idea of working later in life. Governments should re-consider existing provisions which encourage early exits from the labour market and replace them by ones that promote active ageing policies including, for example, flexible retirement arrangements.

Social policies are therefore a vital part of the framework in which companies operate. Our industry is therefore convinced that, in the field of social policy, more adaptability will contribute to improved competitiveness. In our view, all existing and forthcoming social policy regulations at European and national level should always be checked against the principle of subsidiarity.

So to conclude, I am a strong believer in the future of manufacturing in Europe: we have the capacity to innovate and when the conditions are right, our companies will invest here; I know this from my personal experience where my own company has won back work which our customers had placed in India. So there is no inevitability that Europe should become a manufacturing desert. On the contrary, so long as our politicians and regulators understand that we are the key to getting Europe out of its austerity mood; we are the key to providing our young with a bright future here in our countries.

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