A review of the Black Country economy and labour market from the PricewaterhouseCoopers West Midlands Business Surveys: 1994- 1998

Wolverhampton Business School



Management Research Centre
__________________________________________________________________________________
A review of the Black Country
economy and labour market from
the PricewaterhouseCoopers West
Midlands Business Surveys: 1994-
1998
by Professor Les Worrall
Working paper series September 1998

Number WP 024/98
ISSN Number
ISSN 1363-6839

Professor Les Worrall
Associate Dean (Research & Consultancy)
University of Wolverhampton, UK
Tel: +44 (0) 1902 323830
Fax: +44 (0) 1902 321777
Email: l.worrall@wlv.ac.uk

© University of Wolverhampton 1998. All rights reserved

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A review of the Black Country economy and labour market from the PricewaterhouseCoopers
West Midlands Business Survey: 1994-1998
_______________________________________________________________________________



Copyright

©
University of Wolverhampton 1998

All rights reserved. No part of this work may be reproduced, photocopied, recorded, stored in
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Management Research Centre 1998

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A review of the Black Country economy and labour market from the PricewaterhouseCoopers
West Midlands Business Survey: 1994-1998
_______________________________________________________________________________


Abstract
This paper updates previous research papers and looks specifically at the economy and labour
market of the Black Country focusing on a set of business performance, recruitment, training
and skills issues. The report also “locates” the Black Country in the context of the West
Midlands Region and in the context of recent macro-economic changes which are affecting
different parts of the UK economy differentially. Reference is also made to the level of
innovation in the Black Country and the region and to other “structural” issues as it is
contended that levels of innovation, capital expenditure and training will largely determine
the future health of the sub-regional economy. Uniquely, the questionnaire is targeted towards
the most senior managers in West Midlands businesses: around 60% of respondents are
Chairmen, Chief Executives or Managing Directors.

Analysis of the data yields some insights into recent changes in the Black Country economy
labour market viewed from the apex of a representative cross-section of around 1,000 regional
businesses almost 300 of which are located in the four Black Country boroughs of
Wolverhampton, Dudley, Walsall and Sandwell. This analysis can be used to augment
economic and labour market intelligence derived from more traditional, nationally published
sources.

This report has been based on the West Midlands Business Survey which is funded by
PricewaterhouseCoopers in the Midlands. Their support is gratefully acknowledged.





Acknowledgements
This report has been based on the West Midlands Business Survey which is funded by
PricewaterhouseCoopers in the Midlands. Their support is gratefully acknowledged.


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Management Research Centre 1998

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A review of the Black Country economy and labour market from the PricewaterhouseCoopers
West Midlands Business Survey: 1994-1998
_______________________________________________________________________________


The author
Professor Les Worrall

Prof. Les Worrall is Professor of Strategic Analysis and Associate Dean (Research &
Consultancy) at Wolverhampton Business School.

Les Worrall is a member of the editorial board of the PricewaterhouseCoopers West Midlands
Business Survey. He was formerly Chair of the Local Authorities Research and Intelligence
Association and an adviser to the Local Government Management Board on geographic
information. He has published extensively on strategic analysis, information systems
development, labour market analysis, regional economic analysis and public policy.



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Management Research Centre 1998

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A review of the Black Country economy and labour market from the PricewaterhouseCoopers
West Midlands Business Survey: 1994-1998
_______________________________________________________________________________


A review of the Black Country economy and
labour market from the
PricewaterhouseCoopers West Midlands
Business Surveys: 1994-1998

1. Introduction

The PricewaterhouseCoopers West Midlands Business Survey takes a six monthly
view of a wide range of business and labour market measures based on data collected
from senior managers in regional businesses. The survey provides a unique insight
into business performance, labour market dynamics and the impact of current and
expected changes in the macro-economic climate on regional businesses.

Each survey attracts around 1,000 responses from across the region and is focused
specifically on identifying the views of senior managers: it provides a view of
business performance from the top of the organisational hierarchy. The majority of
respondents (over 60%) are chief executives, managing directors or chairmen. Not
surprisingly, given the structure of the region, the survey has a manufacturing bias
with around 50% of respondents being from the manufacturing sector.

The analysis contained in this report relates specifically to the Black Country (here
defined as the Wolverhampton, Sandwell, Dudley and Walsall local authority areas)
and analyses the sub-region in its regional context. Analysis at the sub-regional level
- rather than at the local authority level - provides robust information statistically
The analysis for the sub-region is based on over 250 responses in each of the nine
surveys used (the Autumn 1994 survey and the Spring and Autumn surveys for 1995,
1996; 1997 and 1998). The surveys ask businesses for their responses to changes
which have already occurred over the last six months and their expectations on
various measures for the coming six months. The analysis presented here relates
specifically the six month retrospective ‘actual’ outcomes from each survey as these
are considered to give a more reliable impression of current trends in business and
labour market performance.

This report will explore a wide range of topics ranging from broad measures of
business performance (profitability, order book levels etc.) through to analysis of
current skills shortages, training and labour market issues.

Before looking at the analysis in detail, it should be remembered that the profile of
Black Country respondents differs from that of the region. In particular, while 54% of
respondents in the rest of the region are in the manufacturing sector, the figure for the
Black Country is rather higher at 65%. Consequently, the relative performance of the
manufacturing sector - and the macro-economic conditions which affect it - will have
a greater effect on the economic health of the Black Country than on the rest of the
region.

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Management Research Centre 1998

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A review of the Black Country economy and labour market from the PricewaterhouseCoopers
West Midlands Business Survey: 1994-1998
_______________________________________________________________________________


2. The Black Country sub-region - measures of current business performance
and business outlook

2.1 Business confidence

One of the most insightful - but often difficult to explain - items which emerges from
the survey is a regional view of business confidence in which respondents are asked
how they think business conditions will change over the next six months.

Table 1: Business confidence
Business conditions
A94 S95 A95 S96 A96 S97 A97 S98 A98
will…..
WM
improve
%

65 60 35 41 54 50 43 27 8
BC
improve
%
70 56 33 35 52 47 38 21 8
WM
deteriorate
%
11 10 23 19 11 16 18 37 74
BC
deteriorate
%
8 10 25 22 11 21 22 43 80

In autumn 1994, when exporting conditions were relatively easy, business confidence
in the Black Country area - even compared to an optimistic region as a whole - was
buoyant with around 70% of businesses thinking that conditions would improve over
the next six months. Since then, conditions seem to have changed appreciably with a
decline occurring in the autumn 1995 and spring 1996 surveys followed by a slight
recovery. Since the autumn 1996 survey, there has been a consistent decline in the
percentage of firms regionally and in the Black Country thinking that business
conditions will improve in the coming 6 months.

Graph 1: Net business confidence: Black Country and West Midlands
80
60
40
20
0
A94
S95
A95
S96
A96
S97
A97
S98
A98
-20
-40
-60
-80
WM - net confidence
BC - net confidence


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A review of the Black Country economy and labour market from the PricewaterhouseCoopers
West Midlands Business Survey: 1994-1998
_______________________________________________________________________________


From the autumn 1996 survey onwards, it is noticeable that the percentage of
businesses expecting conditions to deteriorate has increased markedly to stand at 74%
of regional businesses and 80% of Black Country businesses expecting conditions to
get worse. This regional level of “negative” business confidence is the highest ever
recorded in the history of the survey. It is also particularly noteworthy that Black
Country businesses are the least optimistic of any of the 6 sub-regions which together
comprise the West Midlands.

Table 2: “Negative” business confidence: a sub-regional comparison
Sub-region
% reporting worsening confidence
Black Country
80
Birmingham/Solihull 71
Coventry/Warwickshire 72
Staffordshire 73
Shropshire 70
Hereford and Worcestershire
74
West Midlands
74

Confidence in the Black Country tends to mirror that in the region but for the last four
surveys confidence in the Black Country has been between 4 and 6% points below the
regional level. It is clear that macro-economic trends are having a stronger effect on a
sub-region that is strongly characterised by its reliance on manufacturing. This
reliance on manufacturing and direct and indirect exporting is reflected in the reasons
that businesses give to explain their low level of confidence.

Table 3: Which factors would improve your level of business confidence
Sub-region
Black Country
West Midlands
Devalue the £
41
34
Keep inflation low
15
19
Lower interest rates
23
25

Black Country firms see themselves as being more at risk of a strong pound than do
firms in the rest of the region and the strength of feeling about devaluing the pound is
somewhat higher among Black Country businesses than elsewhere. In the region -
and particularly in the Black Country - the desire for lower interest rates and a
weaker pound is now much stronger than the desire to keep a low rate of
inflation.

It is interesting to note how much opinion has changed on these factors: in the august
1994 survey, when confidence was high, 44% of businesses in the region and the
Black Country thought that maintaining business confidence depended on a
continuing low rate of inflation. At that time, only 14% cited lower interest rates and
only 2% cited a lower valued pound as the key to inflation.

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Management Research Centre 1998

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A review of the Black Country economy and labour market from the PricewaterhouseCoopers
West Midlands Business Survey: 1994-1998
_______________________________________________________________________________


2.2 Sales over the last six months

The table below shows the percentage of firms reporting that sales have grown or
declined by 5% or more over the previous six months.
Table 4: Percentage of firms reporting sales growth/decline over 5%
Sales
have…..
A94 S95 A95 S96 A96 S97 A97 S98 A98
WM gone up by over 5%
60
63
42
49
45
47
37
43
35
BC gone up by over 5%
63
57
51
32
40
39
38
43
29
WM gone down by over 5%
11
8
12
14
12
13
6
14
25
BC gone down by over 5%
9
7
16
19
17
16
7
15
32

In the last two surveys, the percentages of Black Country and West Midlands firms
reporting that sales had decreased by over 5% has consistently increased and now
stand at the highest level in the period covered by this report. It is clear that sales
performance is lower in the Black Country with 32% of firms reporting declining
sales compared to 25% in the region.

Graph 2: Percentage of businesses reporting sales decline of more than 5%
35
30
25
20
15
10
5
0
A94
S95
A95
S96
A96
S97
A97
S98
A98
WM gone dow n by over 5%
BC gone dow n by over 5%


The current macro-economic climate would appear to be having a more pronounced
effect in the Black Country with the percentage of firms reporting sales declining by
5% or more having increased by 17% points since spring 1998 compared to an
increase of 11% points in the region. The change in the percentage of firms reporting
growing sales has been less pronounced in the Black Country than in the region as a
whole.

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Management Research Centre 1998

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A review of the Black Country economy and labour market from the PricewaterhouseCoopers
West Midlands Business Survey: 1994-1998
_______________________________________________________________________________


This analysis of sales goes a considerable way towards explaining why business
confidence is lower in the Black Country than in the region as a whole and raises
issues about:

• the sub-regional industrial structure and its high level of sensitivity to the value of
the pound and other macro-level effects;
• the high dependence of the Black Country on directly exported goods and other
indirect exports through the supply chain;
• the need to reconsider the industrial development and competitiveness strategies of
Black Country by seeking to move Black Country businesses forward in the value
chain;
• the need to encourage Black Country firms to be more creative in how they set
about “recession-proofing” or “downturn proofing” their businesses by, for
example, turning fixed costs to variable costs; and,
• the need to encourage Black Country businesses to review the product markets that
they are currently operating within to identify new product and market
opportunities in the different niches of the same product markets or different
product markets.

2.3 Export performance

In the region and the Black Country, around 10% of the firms interviewed did not
export. The table below shows how the percentage of firms reporting increases or
decreases of over 5% in the last six months has changed over the period.
From the autumn 1994 to the autumn 1996 surveys, under 10% of firms in the region
and the Black Country reported that exports had declined by more than 5%. Since
then, there has been an erosion of export growth and an increasing percentage of firms
reporting that their export performance is declining. The autumn 1998 survey reveals
that over 30% of Black Country firms reported that exports had declined over the
previous six months. This is slightly higher than in the region as a whole and the
highest level recorded in the period covered by this report.

Table 5: Percentage of firms reporting export growth/decline more than 5%
Exports have…..
A94
S95
A95
S96 A96 S97 A97 S98 A98
WM gone up by over 5%
20
23
22
18
24
20
16
16
13
BC gone up by over 5%
23
28
25
17
21
21
11
12
11
WM gone down by over 5%
3
2
3
3
6
15
20
23
30
BC gone down by over 5%
2
1
3
4
9
21
26
29
31

The analysis of declining export performance helps to explain why business
confidence has declined so much over the last six months regionally and in the Black
Country.

The sensitivity of sub-regional export performance to the value of the pound is
understandable but the real issue here is whether lost markets will be recovered if, or
when, the pound returns to a level more amenable to the expansion of the sub-region’s
export markets.

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Management Research Centre 1998

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A review of the Black Country economy and labour market from the PricewaterhouseCoopers
West Midlands Business Survey: 1994-1998
_______________________________________________________________________________


Graph 3: Percentage of businesses reporting export declines of 5% or more
35
30
25
20
15
10
5
0
A94
S95
A95
S96
A96
S97
A97
S98
A98
WM gone dow n by over 5%
BC gone dow n by over 5%


In an increasingly globally competitive environment there are real concerns about two
sets of issues:

• first, that previous exports markets may be irrecoverable; and,
• second, that West Midlands and Black Country businesses may, though innovation
and product development, need to move into different markets or to reinvent their
products in a higher value added form or to reduce costs through further business
efficiency or to further erode their margins in order to maintain volumes.

2.4 Order books

An important determinant of a firm’s level of business confidence is the current state
of its order books and trends in order book growth or decline. Until spring 1996,
order book growth in the region - and particularly in the Black Country - was strong.
The analysis reveals that the plateau in order book growth achieved in the region and
the Black Country between spring 1996 and spring 1998 has come to an end with a
sharp down turn in the percentage of firms reporting that order books have increased
by 5% or more.

Table 6: Firms reporting that order books have grown/declined by 5% or more
Order
books…..
A94 S95 A95 S96 A96 S97 A97 S98 A98
WM gone up by over 5%
50
53
43
38
36
39
38
37
26
BC gone up by over 5%
54
56
46
36
36
36
35
35
21
WM gone down by over 5%
7
6
13
16
12
14
14
14
26
BC gone down by over 5%
5
6
16
13
14
16
16
15
33

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