Let’s make it easier for the UK’s tech and engineering sector to succeed

UK engineering and technology companies have repeatedly proved their excellence across a range of industries, so imagine what they could achieve if they had the right kind of backing. Marc Barber reports

Steve Kelly is convinced that printed electronics will be big business. Applications like roll-up TV screens, wafer-thin batteries, and electronic packaging and textiles have already been made. The opportunity lies in devising technology that can lower the manufacturing costs.

‘This sector needs to come up with improved materials and to develop a mass production technique for converting a new generation of semiconductors into an industrial process,’ he says. ‘Effectively, electronics can be printed roll-to-roll, like printing a newspaper.’

In July 2008, Kelly quit his job and set up SmartKem to engineer technology that will help facilitate the mass production of printed electronics. ‘We will never be making the electronic devices,’ he says. ‘But what we’re looking to do is protect the intellectual property and know-how, and then license the process.’

It’s exactly these kinds of high-value engineering and technology companies that are likely to emerge as the success stories of the future. David Bott, head of innovation programmes at the Technology Strategy Board (TSB), a government-backed body that supports innovation in the UK, observes, ‘Most of the new solutions are coming from small companies. The question is how big these small companies will be over the next 20 to 30 years.’ Bott talks about the need for innovation in healthcare to deal with an ageing population, and the pressure to reduce carbon dioxide emissions, which affects a range of sectors, not least construction and automotive. ‘Although the recession will slow down these markets, the changes will come. What’s happened in the economy hasn’t made carbon dioxide targets go away, or stopped people from growing old.’

This signals a shift away from the UK’s reliance on financial services to support the economy. For Bott, the priority is to identify and support SMEs as they develop into global companies. ‘The big corporates generally have a lifespan of 15 to 20 years,’ he comments. ‘So which companies in the UK have the aspiration and ability to be global?’

Advancing creationism

A government report, New Industry, New Jobs, states that if the UK economy is to fully recover from the recession, then it’s vital that ‘British science and technology are at the heart of the revolutions in industrial production that will define the 21st century’. The report identifies the need for a low-carbon economy, new technologies in the areas of life sciences and the issue of demographics. It also notes that as the labour markets of China and India grow in sophistication, these countries will be able to compete more aggressively in advanced engineering and manufacturing.

It’s a pity then that the ecosystem for nurturing young, innovative companies in the UK remains underdeveloped. For all the good work carried out by the TSB, it only receives £150 million a year to assist growing companies (the total annual budget is £260 million). Even if a new company receives enough finance to survive, that’s not the same as getting what’s required to become a leader in its market, especially when international sales are crucial to achieving success.

The hoops Kelly jumped through to get SmartKem up and running demonstrate how tough it can be. Initially based in the North West, Kelly approached that region’s development agency for a grant, then looked for match funding from government-backed seed funds. He explains, ‘What I didn’t realise is that in the North West there has been a restructuring of the seed funds, so the normal providers aren’t open for business.’

SmartKem was offered a research and development grant by the North West Development Agency, but that was contingent upon seed fund support, which wasn’t forthcoming. Instead, Kelly approached the Welsh Assembly about an incubator campus in North Wales, called the Technium OpTIC (Opto-electronics Technology and Incubation Centre). Three and a half months later, the company had moved in and negotiated £100,000 of grant money from the Assembly and £150,000 of equity finance from Finance Wales and two business angels.

Persistence paid off. SmartKem shows that support and advice are available for early-stage UK companies, but obtaining it remains as arduous as ever. Kelly, who has travelled extensively and lived and worked in the US, says, ‘Compared with other areas of the world, we are exceptionally good at scientific invention, but perhaps, when it comes to the applied engineering, we lack a bit in the UK. In design and marketing, we’re nowhere near as good as the US.’

Hard graft

For established companies in the engineering sector, the focus is on innovation and maintaining margins. Phil Kelshaw, sales and engineering director of Flexitallic, a global supplier of steel gaskets, says, ‘We continue to be aggressive in the market and are about to launch a new product for the offshore oil and gas industry. A lot is spent on research and development, as the driver for our customers is often improved safety.’

Flexitallic, which generated sales of £60 million for its most recent year-end, has offices in the UK, the US and China; the client list includes Shell, Chevron and Total. Kelshaw admits that, while 2007 and 2008 were good years for the oil and gas industry, there has been a dip in the demand for oil and oil-related products. He explains, ‘The last nine months have been particularly hard. There are some signs that new business is being generated, but all major capital expenditure projects have been postponed or cancelled.’

Mike Rudd, a partner at civil and structural engineering consultancy Acies, says conditions are harsh: ‘The talk is certainly more positive, but I’m yet to see this convert into ready cash. Everybody has cut back, so consultants and contractors alike are down to their core resources.’

Acies now has 28 employees spread between offices in Chester, Edinburgh and Manchester. The firm has worked on the £22 million food production factory for dairy producer Kerrygold in Staffordshire, and the new stadium for football club Colchester United. Public sector contracts are rarer, although work has come from schools and churches. Ultimately, the company has had to seek new areas of business and diversify to ride the recession. ‘You have to throw more punches and accept that you’re only going to land half as many as you did before,’ comments Rudd.

Like Kelshaw, he says it’s clear that the larger, two- to three-year projects are on hold, which he takes as a sign that confidence about a recovery is lacking. ‘The ability to project forward at the moment is about three months; we’re reacting, not planning. Anybody who says the market’s different is putting a spin on it.’

With manufacturing in the doldrums and purse strings strictly drawn tight, few people are suggesting the situation is anything other than arduous. Steve Jackson, president of the Institution of Civil Engineering Surveyors (ICES), which has 4,000 members, expects the next 12 months to be a struggle. The government will remain committed to projects like the 2012 Olympics and gas, electricity and water upgrades, but the level of public spending on infrastructure is going to be curtailed.

‘They just haven’t got the money. A project that hasn’t gone into the construction phase is a lot easier to stop than one that’s halfway through. When you’re competing with health and education, infrastructure is probably further down the list,’ says Jackson, who adds that ICES members ‘tend to be fairly dynamic’ and will find new clients, especially oversees. ‘With oil prices starting to come back, I see opportunities in the Middle East, notably Abu Dhabi and Qatar,’ he comments.

Talent pool

There is an unmistakable pride among engineers when they talk about the skills their profession has to offer. ‘Without doubt, UK engineers are among the best,’ says Rudd. ‘It can be proven that engineering consultants and contractors from the UK are valued across the world.’ Jackson wholeheartedly agrees, insisting the skill set can’t be questioned. ‘We get things right first time, and that has a massive cost saving.’ 

Flexitallic’s Kelshaw is quick to point out that, notwithstanding the company’s international spread, the innovation comes from a very strong UK base. ‘Our engineers and research and development laboratory are in the UK. We develop products that are shipped to all parts of the world,’ he says.

If there is a criticism, Rudd says it’s that the profession should be better at promoting its excellence and co-operating between the various engineering disciplines.

He comments, ‘Engineers tend not to shout about things; it’s almost as if we’re trained to keep things up our sleeve. In the wider world, you need to suggest other solutions. It’s the lack of communication [among other engineers] that can be the biggest challenge.’ Things are improving, he says, observing that universities are looking to work with employers to get that practical input to complement technical expertise.

Real innovation

The UK’s engineering prowess is evident in a myriad of internationally recognised success stories, from the designs of architects Norman Foster and Richard Rogers to the achievements of motorsport engineer Ross Brawn in winning the Formula One drivers’ and constructors’ titles with his Brawn GP team. Jeff Woolf, Business Link London’s specialist adviser on innovation, says, ‘Britain punches way above its weight. In terms of inventions submitted per capita, we are above most other countries,’ he says.

However, where Britain falls short is in taking products to market. The New Industry, New Jobs report states, ‘New technologies will drive both consumer and business demand. They will also transform existing products, and are likely to force businesses right across the supply chain to develop new business models and adopt innovative ways of delivering services.’ As forward-thinking as this may be, the government report doesn’t explain how ideas and talent can be transformed into pragmatic and profitable innovations. Indeed, it doesn’t go beyond mentioning further consultations and reports.

At the TSB, the approach is to identify real problems and find workable solutions. So, companies operating in the North Sea might be looking for a material that doesn’t erode over many years in seawater. The TSB would canvass a range of suitable companies and ask them to register their interest in providing a solution. ‘We don’t fund stuff that is ten or more years away in getting made, and if you have a product in your back pocket and are looking for production, that’s too late as well,’ says Bott.

In 2008, the TSB made 130 investments. Once a company has been accepted, Bott says the subsequent networking opportunities and connections provided are as important as the funding itself. ‘We have our Knowledge Transfer Networks and Knowledge Transfer Partnerships, which involve putting companies in touch with the right people.’ The suspicion is that with higher levels of funding, the TSB could do a great deal more to help turn the rhetoric of New Industry, New Jobs into a tangible reality.

If government agencies are largely proving to be a dead end, it might be worth considering business angels. Business Link’s Woolf states, ‘High-net-worth individuals are not going to leave their money in the bank earning two or three per cent. Property is a terrible performer, and while that may change it remains a gamble. That means they are more willing to take a punt, recognising that one in ten of their investments will work. If one has staggering growth, it will be worthwhile.’

In the US, president Barack Obama recently pledged $3.4 billion in grants to support the development of “smart grid” technology, which monitors and controls energy usage. China has famously pledged to build at least ten new cities over the next 20 years. The UK doesn’t have anywhere near that sort of financial muscle to fund innovation and infrastructure, which means those entrepreneurs looking to bring new and groundbreaking ideas to market will have to think on their feet (so no change there, then).

Finding a way

Woolf has received an OBE and won countless national and international awards for his MicroMap invention. He speaks from experience when he concedes that for anyone seeking to bring something truly new to market, it’s going to be a test of desire and willpower. The idea for the MicroMap occurred when he was on holiday in 1990. ‘I was in an Alpine restaurant, watching people using piste maps in a blizzard,’ he says. ‘My eureka moment was seeing this scene and realising that maps are mad. They’re beautiful on the dining room table, but on Dartmoor or halfway up a mountain in the snow they’re completely impractical.’

He set about designing a way to print high-resolution mapping onto plastic cards. ‘I had to invent a lens system and learn how to print at six million dots per square inch – that had never been done before,’ he says, adding that there were many months of working 100 hours a week. It took him the best part of five years to get the product to market. ‘It was madness,’ he reflects. ‘Funding was a complete nightmare. I had to find investors and rewrite business plans several times.’

For products that need to be designed, manufactured and marketed, entrepreneurs are never going to have an easy ride. ‘It is a battle and always will be,’ accepts Woolf.

However, that shouldn’t be used as an excuse to ignore how excessively difficult it is for entrepreneurs and inventors in the UK’s engineering sector to succeed.

Marc Barber

Marc Barber

Marc was editor of GrowthBusiness from 2006 to 2010. He specialised in writing about entrepreneurs, private equity and venture capital, mid-market M&A, small caps and high-growth businesses.

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