An evaluation of the small engineering firms investment schemes - evaluation report 2

URN No: 87/501

EXECUTIVE SUMMARY OF MAIN RESEARCH FINDINGS

1.    What was the Department of Trade and Industry's objective for SEFIS?

The objective of the SEFIS schemes as stated by the Department was to stimulate the investment by small engineering firms in the UK in certain types of advanced capital equipment.  It was also hoped that the demand would provide a stimulus to the UK equipment manufacturers.  These objectives were to be achieved with the minimum amount of bureaucracy where possible.

2.    Did the SEFIS schemes meet their objective?

Yes, the schemes have clearly stimulated many small engineering firms to invest in certain types of advanced capital equipment, over half of them for the first time.

This was achieved efficiently and the Department was rated very highly for its administration of SEFIS.

Abuse of the scheme was low - mainly by firms adding CNC facilities to machines in order to get grants but not using this CNC facility.

3.    Brief description of the SEFIS 1 and 2 schemes

The Small Engineering Firms Investment Scheme (SEFIS) 1 was launched in March 1982, with an allocation of £30m.  The demand for assistance was so great that the scheme was closed to applicants within 8½ weeks.

The Small Engineering Firms Investment Scheme (SEFIS) 2 was launched in March 1983, with an allocation of £100m, in view of the response to the SEFIS 1 scheme.

Firms receiving support under SEFIS 1 had delivery and installation of the equipment between March 1982 and March 1985.  Firms receiving support under SEFIS 2 had delivery and installation of the equipment between March 1983 and June 1985.

Of the £30m offered under SEFIS 1, £21.8m was paid out in grants.  Of the £100m offered under SEFIS, £48.2m was paid out in grants.

4.    What were the main research objectives Research Associates was asked to cover by the Department in order to assess SEFIS?

The objective of the research was to assess the effects of the SEFIS 1 and 2 schemes on companies with projects supported by these grants.  The performance of the scheme users was to be assessed and compared with a group of non-users.  Effects on the machine tool industry and other wider effects were to be assessed, together with an overall review of the schemes.

5.    What research method did Research Associates use in assessing SEFIS?

The research method was based on 134 face-to-face interviews and 126 telephone interviews.  These interviews were carried out by Research Associates during September and October 1986.

Interviews were carried out with SEFIS 1 and 2 users, firms that withdrew or abandoned projects, applicants rejected by the Department, customers of SEFIS users, engineering firms that did not receive SEFIS grants and machine tool manufacturers.

6.    What were the main effects of the SEFIS grants?

The table below shows a summary of the main results over five years due to the total SEFIS grants, beyond which the additional effects are considered to be small.  The results have been adjusted to allow for internal and external factors that affect the results.

A significant further result is a job gain among grant-users' customers, mainly through extra sales gained due to improved competitiveness.  A figure of about 300 jobs seems a reasonable estimate, see page 40.

 7.    What were the main effects of grants on firms with projects supported by SEFIS 1 and 2 grants?

Most firms found the grant aid very beneficial.

• The main positive effects of the grant were helping firms enter new markets, improving product quality and improving business confidence.
• In most cases the SEFIS grant enhanced a decision that had already been made.  Its main effect was accelerating the investment decision, typically by l-2 years.  In 16% of cases it was the critical factor.
• Firms that said grants had no effect on the purchase decision got extra profits 32% above the sample average, and firms that could not go ahead without a grant got extra profits 26% below average.
• External displacement, which is defined as the factor by which additional sales, associated profits and employment are modified to take into account the effect on other UK firms, had a high negative effect on the results of SEFIS.  RA judges that about 75% of the relevant additional results would be displaced in this way.

8.    What happened to small engineering firms without grants?

The introduction of CNC through SEFIS caused some competitors to invest in CNC without the aid of a grant.  The effects of SEFIS on other firms in the industry are mainly negative.  An estimated 75% of the relevant results achieved by SEFIS beneficiaries were at the expense of UK competitors.  CNC users without grants have increased profits at a faster rate than SEFIS users over a similar period of time.

9.    What were the main benefits for the customers of SEFIS users?

SEFIS users have passed down substantial benefits to their customers, mainly through improved competitiveness.  The fully discounted benefits due the grants are estimated at £47m, comprising cost savings passed on from SEFIS users and extra profits from customers' sales due to improved competitiveness.  Some jobs have been created among customers, where extra sales resulted from improved competitiveness.  A figure of about 300 jobs is suggested.  The other main areas of improvement customers noticed are deliveries, ability of suppliers to do more complex work and flexibility.  This is against a background of increasing technology from all suppliers.

10.  What were the main benefits for the UK supply industry?

UK machine tool manufacturers got a net increase in sales of £30m from purchases made under the SEFIS scheme.  They also had the benefit that a large proportion of investment under SEFIS was accelerated, by an average of about a year.  In addition they felt the SEFIS scheme did a valuable job in opening up a new sector for most of them - the smaller engineering firm.

11.  A summary of outgoings and fully discounted financial benefits

The report sets out to find all the quantifiable effects of SEFIS 1 and 2 and to analyse them rigorously.  The summary table below is the result:

The effect of displacement in reducing the users' extra sales and associated profits is high because of the large number of sub-contractor firms supported.  The main benefit of the grant is £25m passed on in holding or reducing prices to customers.

* Net of proportion of grant paid on expenditure leading to additional sales

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