The recent ‘bra wars’ debacle – tons of Chinese textiles exports stuck in European warehouses while Brussels and Beijing sorted out confusion over a trade quotas deal -highlights the inevitable trouble with protectionism. Many UK commentators, politicians and business people have used the incident as an excuse to point the finger at protectionist European manufacturers, accused of failing to move upmarket to compete with the Chinese on quality rather than price. But is it fair to castigate Europe in this way? Not entirely.
In a fiercely competitive global economy, all of Europe should eschew protectionism, embrace free trade and raise its game, in particular by improving overall standards of people management. However, the UK is in no better competitive shape than the rest of Europe and would be wise to avoid simplistic preaching on performance.
This is evident from the most recent official international productivity comparison (for 2004) which shows the UK still lagging well behind France, Germany and the US in terms of what workers, on average, produce every hour. Moreover, a new comparative study of management practice in 730 manufacturing companies – conducted jointly by researchers at consultancy McKinsey & Co and the London School of Economics – covering these four countries finds that the UK is in no position to gloat.
On average, UK companies are the worst managed, with their US, German and French counterparts in first, second and third place respectively. The Germans and French outscore both the US and the UK on the use of lean production methods (just-in-time, stock and quality control and so forth) with US businesses way ahead when it comes to managing people. Overall, difference in management practice explains 10% to 15% of the efficiency gap between UK and US manufacturers.
Potential good news lies in the fact that the quality of management varies much more within than between countries.
This finding is significant for the UK for two reasons. First, this country has a relatively wide spread of business performance – the best companies match the top dogs in the US, the worst lag far behind – suggesting considerable scope for us to catch up. Second, as the McKinsey/LSE researchers observe, there is nothing intrinsic to the local environment in each country to prevent companies reaching the top – it is ultimately what managers themselves do that makes the difference. In other words UK managers, just like those elsewhere in Europe, have it in their own hands to raise their game in response to Chinese competition.
And with the UK needing to make more progress than most, getting on with the job, rather than national point scoring, should take priority.
John Philpott is chief economist, Chartered Institute of Personnel and Development