More than two thirds of companies plan increasingly ambitious innovation of new products, technology and research to aid exports to new countries during the next three years, according to a survey conducted by the manufacturers’ organisation EEF.

The move follows a difficult recovery where most businesses focused on improving processes to cut costs and meet the needs of existing customers. More than 70% of the 147 companies questioned for the survey plan to move into new markets on the strength of innovation in products and services, a rise from 54% during the past three years.

Resources and expertise

However, innovation is a difficult process, which requires significant resources and expertise, and selling into new markets has heightened some of the challenges faced by manufacturers, including low cost competitors and ever shorter product life cycles. .

Steve Radley, EEF Director of Policy, said: “After a long and slow recovery manufacturers are looking to drive growth through innovation, developing new products and services for new markets. However, the demands of selling into new markets have increased the ‘need for speed’ when it comes to innovation, something that remains a key challenge for manufacturers.

To help overcome these barriers companies are increasingly collaborating with customers, suppliers and research institutions on innovation activity. The percentage of companies working with research institutions has risen significantly, up from 44% in 2010 to 62% in 2013.

Such collaboration is not limited to within the UK as 51% of companies, including smaller businesses, were working with organisations overseas.

Companies also use government support to help with their innovation. This is well targeted, with schemes such as the Knowledge Transfer Partnership and the new network of Catapult centres helping companies to access expertise and facilities. European funding has also proved an important source of support.

The EEF has urged the government to build on existing work by raising awareness, ensuring stability and keeping access simple. In particular, government should:

  • Ensure stability by announcing a long term commitment to the Technology Strategy Board; maintain the breadth of support mechanisms such as the R&D tax credit
  • Simplify and streamline application processes and consider an ‘innovation active’ qualification to fast-track access to support.
  • Improve access to the new network of Catapult centres by streamlining membership models and, longer term, develop metrics to ensure SME engagement.

Growing confidence

Mark Eastwood, Head of Manufacturing for Business and Commercial Banking at NatWest, said: "Manufacturing plays a vital role in the UK economy and is the backbone of real growth, so it is fantastic to see that confidence is growing across the sector. Investment in innovation and research is key to keeping on top of this global market and manufacturers need stability and certainty as they look to invest in new products and markets.”

Despite the increasing attention being given towards innovation however, the survey also highlights that at 1.1% of GDP Business Expenditure on R&D (BERD) in the UK remains low by international standards. Even after adjustments for structural differences between countries, the UK is 0.4% below the OECD average and further behind the leading countries such as the US, Sweden and Korea.