A new survey published by the manufacturers' organisation, the EEF, and accountants and business advisers BDO Stoy Hayward, shows that, while the competitive challenges posed by low-cost regions have not diminished, fewer UK manufacturers are reporting a significant impact from price competition in key markets.

And, whilst many low-cost competitors, such as China, have been striving to become more innovative, only two out of five companies said higher value added goods from these competitors as posing a threat and only three out of a hundred saw them as a significant threat.

The EEF says the challenge from low-cost economies is firmly on companies' radar and they are adopting a range of strategies, including entering niche markets, increasing innovation and improving service delivery to combat it.

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This means that manufacturers are competing less on price and more on quality and customer service as a result.

Alan Hall, newly-appointed regional director for the EEF's operations in Sheffield, Leeds and Newcastle, said: "This survey paints a positive picture of how manufacturing companies in our region have adapted to the challenge of the global environment. Instead of competing on price alone they are adopting a range of strategies to take advantage of emerging markets.

"While there are many other challenges on the horizon, manufacturers look well-placed to rise to them."

The survey shows that manufacturers will continue to look overseas to reduce costs. Seven out of 10 companies with overseas operations expect the proportion of products they make overseas to increase within the next five years and a third of companies with no production facilities outside the UK expect this to change by 2012.

However, the survey shows this will not lead to a manufacturing exodus and the UK will continue to be a centre for high value innovative activity.

Three out of four companies expect the UK to be the primary location for research and development in five years' time.

Meanwhile, only three per cent of companies are locating production outside the UK to access new technologies, compared with two thirds of companies using overseas production to reduce labour costs.

Neill Rayland, head of manufacturing at BDO Stoy Hayward, in Leeds, said: "The UK is still the home of innovation for manufacturers, with three fifths locating R and D activity here.

"Moreover, there is still a strong demand for the low- volume local niche products that are required on a just in time basis by UK customers. This has helped maintain a number of smaller UK manufacturing companies despite the turmoil of the global challenge."

The survey shows the changing nature of competitive threats, but also the significant increase in companies identifying emerging markets as opportunities.

Whilst China and Eastern Europe remain perceived as major threats, there has been a marked increase in the number of companies looking to take advantage of the rapid growth in Eastern Europe, China and the Middle East.

India and Russia are also viewed more as an opportunity than a threat with over a fifth of companies seeing potential in both regions and a further third seeking opportunities within five years.

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