As we’ve all reeled from the news over the last few weeks about the Russian invasion of Ukraine, we’ve experienced shock and dismay. Beyond the immediate humanitarian crisis, we also need to consider how unfolding events in Eastern Europe are affecting the UK and how they could further affect the UK as time goes on. My particular area of concern is how it will affect the Engineering and Manufacturing industries, and specifically, how this will require businesses to adapt their leadership strategies.
The effects of the war in Ukraine on UK Manufacturing and Engineering
It is early days for uncovering the true and lasting effects of the current crisis in Ukraine on British Manufacturing and Engineering. However, we would be extremely short-sighted if we didn’t realise that there are sizeable problems that we need to address.
There are multiple different factors at play here.
Ukrainians made up a staggering 67% of the UK’s seasonal workforce in 2021. Overall Ukrainians were the second most common nationality granted work visas in the UK last year. While the vast majority of these workers will have worked in agriculture, we can’t ignore their importance to UK recruitment. This isn’t just a problem of not enough workers in the fields come harvest time, but it’s going to have notable knock-on effects throughout the labour market, and indeed the economy.
Beyond this labour supply issue, we need to consider the logistical problems that British Engineering and Manufacturing firms are having (and will have) getting materials and goods to and from Russia. With freight shipping stopped to Russia for anything except essential goods, it’s easy to see that any British businesses with Russia in their supply chains have a problem. Components are already proving tricky to get hold of, for example microchips. That’s before you consider the financial concerns with Russian banks locked out of the SWIFT money messaging system.
Various reasons are combining which mean that the Russian invasion is causing costs to rise for UK Manufacturing and Engineering. Bearing in mind global supply chains have had a tricky time over the last few years, this isn’t going to be an easy situation to navigate. This is particularly galling as data from IHS Markit and the Chartered Institute of Procurement and Supply revealed that we may have peaked in terms of pandemic issues, with early indicators pointing to some positive change, such as fewer delivery delays.
Furthermore, each day we are hearing news of more businesses taking the stand that they can, and withdrawing from Russia. These steps, important to protect reputational damage, will in turn impact British Engineering and Manufacturing needing to replace lost market share.
And of course, we cannot overlook the monumental impact that the surge in oil and gas prices, as well as potential disruption to their supply, is having on our industry. This could really significantly affect industrial production in the coming months.
Mike Thornton, the head of Manufacturing at the accountancy firm RSM, said:
“As the Russia-Ukraine conflict unfolds, UK manufacturers should brace for some additional headwinds. The surge in energy prices is the most obvious for heavy industry.”
The good news is that overall, our direct trade links with Russia have been relatively small, but that is unlikely to be much consolation for those it affects. Around 3,800 UK firms export goods to Russia and around 1,200 buy in materials from them. It also doesn’t change the fact that the whole situation causes volatility and uncertainty, which always makes things difficult for industry. We need to be prepared for even higher inflation than predicted, as well as definite disruptions to supply chains and labour supply.
We need to be aware of the very real ways in which this will impact us. For example, a food and drinks manufacturer that uses CO2 will face sharply rising costs because that CO2 is made from natural gas which is subjected to higher costs. Then there’s the aluminium in drinks cans which will go up too. There are a lot of knock-on effects.
What does all this mean for your leadership?
Right now, you need leaders who are resilient, flexible and intuitive. You need leaders who can manage changing and complex supply chains, and who have the skills and wherewithal to diversify different channels.
Leaders at the moment need to be capable of keeping their eye on the ball in a number of ways.
Already leaders in Engineering and Manufacturing are dealing with complex talent landscapes. With skills shortages throughout our industries and the rising complexity of a post-Brexit world, the Ukraine crisis is only going to make it more difficult to source desired staff. This may be exacerbated because individuals who were starting to think it was finally safe to come out from under their pandemic rock and change roles may now deal with their feelings of uncertainty by staying put.
Leaders also need to manage the concerns and uncertainty of their workforce in a way they haven’t for many years. While the pandemic brought anxiety, the sense among employees of looming socio-political danger akin to the Cold War era is a new thing for many. Those with Eastern European workers need to be particularly supportive to the pressures on the individuals who drive their business. Don’t forget that all workers are likely to be significantly impacted by cost of living increases over the next few months.
However, while human capital needs the leader’s attention, weathering the economic challenge of an environment with marked rises in inflation and supply chain difficulty really needs leadership attention too. This needs to be within the context of rising concerns for things like cybersecurity if Russia feels antagonised by the West.
In amongst this, as news headlines this week have shown, leaders need to also navigate the reputational complexities arising from the conflict for UK businesses.
Exceptional leaders are in the spotlight once again
It is imperative that you have or create exceptional leaders who are capable of enabling your business to thrive despite all of the above issues. They need to have their finger on the pulse of industry so that they can help foster resilience through this crisis, and the next one.
Keep your eyes peeled for the next article:
My next article will be published in April. In the meantime, keep abreast of industry news and discussion on LinkedIn with our short burst videos/posts. You can sign up to the First Executive Newsletter on our website to keep on top of the latest news, trends and talent planning within UK based Engineering & Manufacturing.
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