The West Midlands' traditional manufacturing roots makes our local economy particularly vulnerable to economic siege. But the fortunes ebb and flow sector by sector and, rather than falling victim, Mark Hopton, senior partner at KPMG (UK) in Birmingham, believes that the resilient mood, together with many innovative and talented people mean there are just grounds for the region to feel optimistic... West Midlands' businesses are weathering the decline in manufacturing well. Statistics indicate that the region has remained the closest it has ever been to full employment in recent years. The economy, meanwhile, is probably at its most benign with low inflation and low interest rates and with healthy indicators coming through in many companies' order books and reported earnings. But threats loom large and, for our local economy to prosper, the region needs to forge ahead and respond to global competitive pressures. Competitive challenge The world is a dynamic and fast-moving place and maintaining competitiveness is a significant challenge for any business. For sure, the emerging BRIC (Brazil, Russia, India and China) markets present a threat to West Midlands' businesses. But they also present opportunities to invest in new territories, to exploit cheaper production and to source lower cost products. They also offer potentially lucrative new markets. This competition is a fact of business life and companies need to plan for it, embrace it... or shrink and fail. For now, though, while mature Western markets can look comparatively expensive and hidebound by red tape, what we still possess are the skills, know-how and intellectual property to deliver solutions and to support development at the higher end of the value chain. It is here that innovative companies can best make a sustainable assault. Alternative business models This, to some extent, is what we are already seeing in our region. Companies are beginning to refocus on precision components and on added value solutions. Sectors such as aerospace are a great example. Here, businesses are also investing in the US, Europe or the Far East and operating as more broadly based, UK-headquartered businesses. The league table of the top 200 companies in the West Midlands also evidences a migration from traditional manufacturing into service industries. Firms are capitalising on our central location as a base for logistics. Industries of the future such as bio-sciences are putting down roots. Leisure and support service businesses are also emerging in more dominant positions. And we have a truly vibrant professional services sector, sustained by both private and public sector needs. What is more, there's still ample evidence of life left in the manufacturing backbone of our economy. At the top end, there remains a very strong and proud manufacturing heritage in corporates such as Aga Foodservice, Hampson Industries, Hill & Smith, IMI and Umeco. Shaping the future Throughout this guide, we see how the region's businesses are growing both organically and by acquisition, becoming more efficient by streamlining processes, becoming more innovative in the development and reward of their people and all this within a better risk management framework to counter the global challenge. It is mastering these four cornerstones that can make the difference to a company's survival. Growth: Knowing how to take private businesses to the next stage of their development can be daunting. Do you go for private equity investment, merge or acquire a business or raise funds through a public offering? The West Midlands league tables show that companies are making selective acquisitions to both accelerate their rate of growth and to diversify their businesses. But, increasingly, they are seeking to make the most of what they have already got - both by harnessing opportunities in the wider emerging markets and through better penetration of their product range via new or existing channels in present markets. The best companies take the time to stand back and plan how to maximise their position in their chosen market and then concentrate on focused delivery. Worryingly, a recent KPMG survey of UK middle market companies found that 58 per cent of senior management simply do not have the time to stand back from the day-to-day challenges and think about the bigger issues which affect their strategic direction. Efficiency: Can companies become more efficient and operate from a lower cost base that will give them more freedom to pursue their chosen strategies? Some firms are asking "are we as competitive as we could be?" It is by taking an innovative approach to how we do things, how and where we source materials and how we manage and pay our people that can give companies a competitive edge. People: Recruitment and retention of key skills and talent are big issues for West Midlands' companies. It is prompting an important debate around diversity. The challenge is to access long-term skills by tapping into a wider potential labour pool and incorporating it successfully into their business models with relevant development, pay and reward strategies. Risk: Despite Government recognition of the case for de-cluttering the endless examples of red tape for businesses, we are still beset by these barriers to our competitiveness. Nevertheless, effective risk management should be a key component of every day business life. For example, there are threats such as undue reliance on a handful of key suppliers or neglect of the impact of business decisions on corporate brand and reputation. Management needs to be alert to factors that could undermine the sustainability of their businesses. And while corporate governance primarily affects the larger listed businesses, many smaller companies voluntarily engage in the sustainability and environmental agenda. They are mindful of their responsibilities to the communities in which they operate and that, in my opinion, is the hallmark of well-run companies. The outlook? The West Midlands region has undoubtedly taken some pretty bad knocks - notably in the automotive sector - over the past ten years. But there is, in this part of the world, a resilient business mood and a healthy expediency to rise above it all and tough it out. The interest rate and inflation climate remain stable and order books are healthy, leaving many people feeling good about their businesses. Over the past eight years, KPMG has sponsored this company guide primarily because West Midlands' businesses are our business. I am passionate about this place where I am proud to have worked for 30 years. We are not short of challenges but good things are happening here; we have many talented people, capable of driving innovation throughout our region and beyond. Where we let ourselves down, however, is in our reluctance to beat our own drum in a clear and consistent tone and to talk our region up. | 
