Bombardier’s supply chain – the wider lessons

6th September, 2011 5:25 pm

Javelin TrainThe Duncan Weldon Economics Matters column

Two month’s ago Canadian owned Bombardier announced 1,400 job losses at it’s Derby plant, following the award of the Thameslink rolling stock contract to German owned Siemens.

At the time there was widespread concern about how this would impact the wider supply chain. Thanks to a survey of 125 UK companies carried out Survation for Unite we now have a better idea. The results make for grim reading.

40.6% of the firms surveyed are now planning to cut jobs, 32% say that awarding the contract to Siemens over Bombardier will substantially impact their sales and 19.2% believe it will substantially hurt their overall growth.

Small and medium sized businesses are being disproportionately affected with 65.6% of surveyed SMEs reporting they don’t supply Siemens against a survey average of 53.6%.

Although the job losses are concentrated in the West Midlands they are widespread and expected in locations as diverse as the North East of England and the South of Wales. This useful map summarises the results.

Against a backdrop of falling manufacturing production generally this is terrible news.

Professor Karel Williams, of Manchester Business School, raises an important point as to why this was allowed to happen in today’s Independent:

“The Thameslink contract was a public procurement contract in the Private Finance Initiative (PFI) style which covered the building of carriages, their maintenance, plus the lease finance. Because the contract “bundled” train building and rolling stock finance together, judgements about which company could build better and cheaper trains were contaminated by the question of who could raise lease financing more cheaply. There never was a level playing field because Siemens had an A+ credit rating against Bombardier’s BB+, giving Siemens a finance cost advantage of maybe £700 million.”

In other words this was never a fair competion.

The full report from Manchester University’s CRESC research centre, released in July, is well worth a read.

The report reminds us of how withered the UK rail supply chain has become by comparison with Germany. In the UK only around 25% of intermediate inputs are sourced domestically against 55% in Germany.

One result of this is that regardless of whether the contract had gone to Siemens or Bombardier much of the actual value (in terms of compenents needed for the rolling stock) would have flowed to Germany – the UK simply lacks the wider supply chain to retain value domestically.

Of course awarding the contract to Siemens, as the Unite research demonstrates, will simply lead to an even greater contraction in the UK supply chain – meaning that in future even more of the value of UK rail contracts ends up in German (or French) GDP rather than our own.

As CRESC ask:

“In the UK who is it that actually believes that the decision to award the contract to Siemens was a good idea? When even the Coalition ministers responsible distance themselves from the decision, the answer is very, very few. Actor Hugh Grant admirably caught the state of national confusion on BBC’s Question time: “I’m sure it makes sense economically” he said, “but it’s just so depressing” (Financial Times, Andrew Hill, 8th July 20113). Large numbers of our politicians and civil servants share Grant’s confusion. They’re depressed too, but like Grant (and with a great deal less excuse) they have also persuaded themselves that “it makes sense economically”.

In this paper we’ve shown that it doesn’t “make sense economically”.”

This wider malaise in UK supply chains can be clearly demonstrated by looking at JCB. 36% of the parts used in a JCB are made in Britain. In 1979 96% of the parts were British made. There too a supply chain has simply died.

It is hardly surprising therefore that JCB’s owner is now calling on the UK government to look once again to the lessons that can be learned in Germany – in terms of banking reform, skills policy and structures.

A fresh look at the ‘German approach’ coupled with a review of PFI and procurement regulations would be a good start to a new industrial agenda.

Latest

  • Comment Featured Naushabah Khan: We feel pride in our country so let’s use this to tackle Labour’s “Englishness problem”

    Naushabah Khan: We feel pride in our country so let’s use this to tackle Labour’s “Englishness problem”

    The reality of last year’s general election is that Labour’s failure to secure a victory in an England, suffering at the hands of UKIP, ultimately resulted in our defeat. As a parliamentary candidate in Rochester and Strood, for both the general election and by-election, caused by the defection of Mark Reckless to UKIP, I am all too aware of the public mood, that considered us out of touch with their lives and values. Both elections also revealed fascinating notions of nationalism, belonging and identity politics that as a […]

    Read more →
  • Comment Rachel Reeves: Queen’s Speech showed the typical Tory failure on pensions and infrastructure

    Rachel Reeves: Queen’s Speech showed the typical Tory failure on pensions and infrastructure

    Yesterday in Parliament we voted on the Government’s programme of legislation for the year ahead, as set out in the Queen’s Speech. The background to yesterday’s debate about its economic measures is the critical decision our country faces about its relationship with Europe. The evidence I have heard as a member of the Treasury Select Committee has left me more convinced than ever that a vote to leave would scupper any hopes and well-laid plans we might make for our […]

    Read more →
  • Featured News Corbyn puts campaigns at heart of Labour staff reshuffle

    Corbyn puts campaigns at heart of Labour staff reshuffle

    Jeremy Corbyn has carried out a shake-up of the way the Labour Party operates with a review of the party’s internal structure and a reshuffle of his backroom staff. As the leader approaches nine months in the job, Simon Fletcher, chief of staff, will move to a new role of Director of Campaigns and Planning. While some have seen this as readying the party for a possible post-referendum snap election, it is seen internally as filling a more long-term brief – covering areas such […]

    Read more →
  • Europe Featured News Corbyn and Miliband team up to warn of dangers of Brexit on climate change

    Corbyn and Miliband team up to warn of dangers of Brexit on climate change

    Jeremy Corbyn and Ed Miliband will hit the campaign trail together today as they champion the leadership the EU has shown on tackling climate change – and warn that a vote to leave would put recent progress “at risk”. It is the first public appearance that former leader Miliband has made with his successor, and comes in a week in which rumours circulated that Corbyn was trying to coax him back into the Shadow Cabinet. During last year’s leadership contest, Corbyn praised Miliband’s […]

    Read more →
  • Comment Europe Featured Chuka Umunna: Don’t take the polls for granted – we must defeat every argument from the desperate Leave campaign

    Chuka Umunna: Don’t take the polls for granted – we must defeat every argument from the desperate Leave campaign

    “Take Control” – that is the slogan of the faltering Vote Leave campaign.  I say “faltering” because they are by no means beaten. Any Labour supporter lulled by the current polls into thinking the Remain camp is on course to win need only cast their minds back to 10pm on Thursday 7 May 2015 – then, after a string of polls suggesting we were on the cusp of winning the last general election, we suffered a body blow and found […]

    Read more →
Share with your friends










Submit