The overall aim of this study led by Barry Moore of PACEC and Alan Hughes of CBR study was to investigate the factors underpinning the competitiveness and performance of the UK’s IDE sector. The study focused on two important IDE sectors, those serving the automotive and electronics industries. These two sectors generated revenues of about £1.6 billion in 2004. This study identified the national and global innovation systems within which each sector operates, and attempted to answer the following key research questions:
How has the performance of the UK IDE sector changed through time and how does it compare to other overseas IDE sectors?
What is driving the market for the design engineering sector?
What are the key sources of competitive advantage in the IDE sector? What are the main sources of knowledge for the sector?
How have companies in the UK IDE sector adapted their capabilities to changing market conditions?
What business models have emerged to secure competitive advantage and gain market share in the IDE sector?
To what extent is the UK IDE sector globalising and what are the benefits to firms in the sector? Is a global presence a precondition for success?
What are the prospects for the sector? What are the main constraints on growth?
Selected key findings
The global fabless market has more than doubled in the past five years from £9.2 billion in 2000 to £20.7 billion in 2005. It is highly dynamic with many new opportunities. The nascent UK fabless sub-sector shows the greatest growth potential in terms of the size of the incumbents and overall number of firms. The chipless sector is much smaller and less dynamic, with the global market generating £724 million in 2005. It appears able to sustain only a small number of very successful companies and is already dominated by the UK.
The electronics contract design house shows limited potential for future growth due to intensifying competition from new types of firms.
Automotive IDE is the most mature sector, with a potential global market of approximately £3 billion in 2005. Again it appears able to only sustain the larger firms, with smaller firms obliged to seek improved margins elsewhere.
Productivity has increased most rapidly in the fabless sector and currently compares favourably with that in the US. The UK dominates the global chipless sector and its productivity exceeds both the US and European sectors. The electronics contract design house sub-sector and the automotive IDE sector have shown limited productivity growth over the period.
The long term trend to outsource design is very advanced in the electronics industry, but much less so in automotive. In contrast to electronics Original Equipment Manufacturers (OEMs) who focus on product development and brand management but outsource much of design, automotive OEMs consider design engineering a core capability. Cost-cutting programmes at Ford and GM have reduced the outsourcing of design.
Sources of competitive advantage are similar between the automotive and electronics IDE sectors. Core competitive advantages are the quality and breadth of capabilities and products, speed of service, flexibility, agility and reputation. The ability to collaborate effectively is increasingly important, particularly in the electronics sector, as the complexity of design increases. In the automotive sector the ability to enter new markets domestically and overseas is more important.
The UK design engineering sector benefits from external sources of knowledge primarily through working with customers. Universities play only a minor direct role as an external source of knowledge.