Competitiveness and Productivity of the UK Design Engineering Sector
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PACEC Public & Corporate Economic Consultants Competitiveness and Productivity of the UK Design Engineering Sector A report for the UK Department of Business, Enterprise and Regulatory Reform 49-53 Regent Street UK Design Engineering Sector Cambridge CB2 1AB Tel: 01223 311 649 Fax: 01223 362 913 504 Linen Hall 162-168 Regent Street London W1R 5TB Competitiveness and Productivity of the Tel: 020 7038 3571 Fax: 020 7038 3570 email: [email protected] www.pacec.co.uk "Design is not just what it looks like and feels like. Design is how it works." – Steve Jobs, CEO and Founder of Apple, Inc. "Leading innovations are the best form of copy protection for our products and a guarantor of the global success of BMW…." – Professor Burkhard Goschel, BMW Board Member Project Team Barry Moore (Project Director) PACEC, University of Cambridge Professor Alan Hughes (Project Advisor) University of Cambridge Centre for Business Research Tomas Coates Ulrichsen (Project Manager) PACEC Professor Ron Botham University of Glasgow Dr. Danilo Igliori University of Sao Paulo, University of Cambridge Dr. Derek Fuller Associate PACEC Dr. James Moultrie University of Cambridge Institute for Manufacturing Contents Contents Executive Summary ........................................................................................................................1 X1 Introduction .......................................................................................................................1 X2 Aims and Objectives .........................................................................................................1 X3 Key results ........................................................................................................................2 1 Introduction .............................................................................................................................8 1.1 Aims and objectives of the study .....................................................................................8 1.2 Defining the sector and its activities .................................................................................9 1.3 The conceptual framework .............................................................................................11 1.4 The research programme ...............................................................................................15 1.5 Report overview ..............................................................................................................15 2 The independent design engineering sector in the electronics innovation system ..............17 2.1 Introduction .....................................................................................................................17 2.2 The electronics sectoral innovation system....................................................................18 2.3 Semiconductor and system design activities..................................................................25 3 Creating a market for design ................................................................................................29 3.1 Introduction .....................................................................................................................29 3.2 The emergence of markets for the independent design sector ......................................31 3.3 The growth of the independent design market ...............................................................38 3.4 The outsourcing of design activities................................................................................43 3.5 Factors underpinning outsourcing and offshoring of design...........................................49 3.6 Implications for the UK design sector .............................................................................55 4 The emergence of the UK independent electronics design engineering sector...................56 4.1 Introduction .....................................................................................................................56 4.2 The response to the growing demand for design capabilities ........................................57 4.3 The contract design house phenomenon .......................................................................61 4.4 Exploiting the commoditisation of design: the fabless business model..........................64 4.5 The demand for reusable design: the chipless business model.....................................68 4.6 The structure of the UK independent design engineering sector ...................................74 4.7 The blurring of boundaries and the evolution of business models .................................79 5 The performance of the UK electronics design engineering sector .....................................81 5.1 Introduction .....................................................................................................................81 5.2 The database of design engineering companies............................................................86 5.3 The productivity performance of the sector ....................................................................89 5.4 The efficiency of design engineering companies..........................................................104 5.5 The profitability of the design engineering sector .........................................................117 5.6 The performance of the sector......................................................................................122 6 Strategies of UK electronics design engineering firms.......................................................124 6.1 Introduction ...................................................................................................................124 6.2 Competitive advantage in the design engineering sector.............................................126 6.3 The challenge of entering the market ...........................................................................128 6.4 The challenge of securing and sustaining competitive advantage ...............................135 7 The independent automotive design engineering sector in the innovation system............161 7.1 The automotive innovation system ...............................................................................161 7.2 The activities of design engineering companies...........................................................165 7.3 Broad auto industry trends affecting the innovation system.........................................169 PACEC Page i Contents 7.4 The impact of industry trends on the innovation system ..............................................175 7.5 Summary of recent changes in UK OEM outsourcing strategies .................................181 8 The emergence of the UK independent design engineering sector ...................................183 8.1 Introduction ...................................................................................................................183 8.2 Overview of the UK design engineering sector ............................................................184 8.3 The structure of the UK independent automotive design engineering sector ..............192 8.4 The Indian design engineering sector...........................................................................196 8.5 The productivity performance of the UK design engineering sector.............................201 8.6 The efficiency of design engineering companies..........................................................206 9 How automotive design engineering companies compete.................................................210 9.1 Introduction ...................................................................................................................210 9.2 Barriers to entering the market .....................................................................................211 9.3 Competitive advantages in the UK sector ....................................................................216 9.4 Strategies in the design engineering sector .................................................................220 Appendix A Bibliography.......................................................................................................236 Appendix B Econometric Modelling......................................................................................244 Appendix C Cost Efficiency Results .....................................................................................250 C1 Electronics Independent Design Engineering Sector: Cost Efficiency Results ............250 C2 Automotive Independent Design Engineering Sector: Cost Efficiency Results............253 Appendix D The ORBIS Database .......................................................................................255 D1 Introduction to the ORBIS Database ............................................................................255 D2 Limitations of the ORBIS Database for the DE Sector Analysis...................................255 PACEC Page ii Acknowledgements Acknowledgements PACEC would like to extend their gratitude to the many people who contributed to this project. First and foremost, we would like to thank all those companies that participated in the case study interviews. These interviews provided the basis for much of the study and allowed for an in-depth study of the design engineering sector. We would also like to thank all those who replied to the survey of firms which allowed for a systematic comparison of firms. In addition to the participating companies,