Baker Tilly network member MHA's latest UK manufacturing report reveals a sector investing heavily in technology, artificial intelligence (AI) and digital infrastructure to drive productivity while building resilience against an increasingly diverse set of risks.
Rather than facing one defining challenge, UK manufacturers are managing a complex mix of pressures, underscoring the importance of adaptability.
Leading concerns of UK manufacturers
Supply chain – 35%
Cyber security – 34%
Energy costs – 33%
Skills shortages – 32%
Technology evolution – 31%
Regulation – 29%
Tax increases (including payroll) – 26%
Tariffs – 24%
We asked manufacturing experts from across our global network how these findings compare with the trends and challenges shaping manufacturing in their respective markets.
The themes are strikingly consistent.
While the pressures differ in intensity and form, manufacturing priorities are converging globally.
Across regions, executives are increasingly aligned around productivity, resilience and competitiveness, with technology and AI investment, supply chain security, energy costs, skills shortages and geopolitical uncertainty consistently shaping decision-making. What varies is the severity and speed at which these pressures are being felt.
China: Growing structural pressure
China's manufacturing sector is facing mounting pressure from geopolitics, overcapacity and rising costs.
Geopolitical tensions and the restructuring of global industrial supply chains are intensifying, with tighter restrictions in critical areas such as advanced semiconductors, industrial software, precision equipment and key materials, alongside greater scrutiny of talent and capital flows.
At the same time, domestic industries are facing significant overcapacity and intense price competition, particularly in steel, cement and traditional machinery. Excess low-end supply and limited high-end capability are driving margin erosion through sustained price pressure. This is being compounded by rising labour, energy, environmental and logistics costs, which are particularly challenging for small and medium-sized enterprises, and are limiting investment in digital transformation.
Against this backdrop, manufacturers are being pushed to focus on upgrading capability, improving productivity and moving up the value chain, while managing structural cost pressures and navigating an increasingly fragmented global industrial environment.
Germany: A reset, not a recovery
For German manufacturers, 2026 is shaping up to be a reset rather than a recovery.
While growth expectations are gradually improving, management teams remain cautious, with the focus shifting decisively from volume recovery to profitable, productivity-led and resilient growth.
Against a backdrop of high energy costs, labour pressures and export market uncertainty, businesses are taking a harder look at their operating models, investment priorities and Germany’s role within their wider manufacturing footprint.
Strategic decisions around automation, technology investment, sourcing and cost structure are moving to the top of the agenda. Funding is increasingly directed only towards initiatives that deliver clear productivity gains, improved planning accuracy, higher overall equipment effectiveness, faster closing cycles and reduced complexity.
The manufacturers that outperform will be those that successfully translate digital investment into measurable productivity gains while building more flexible, resilient and cost-competitive operations.
India: A sector grounded in realism
The mood in India is broadly positive, but not without caution.
Manufacturers see a real opportunity to scale, driven by strong domestic demand, infrastructure spending, production-linked incentives, the National Manufacturing Mission, micro, small and medium enterprise-focused measures, and policy support for electronics, semiconductors, clean technology and localisation.
While policy direction from the centre is encouraging, manufacturers are realistically focused on execution. Boosting ultimate competitiveness will depend on state-level delivery, streamlined logistics, land availability, reliable power, skilled talent, simpler compliance and affordable capital.
Simultaneously, navigating geopolitical uncertainty and commodity fluctuations has become a standard part of strategic planning. To manage shifting freight routes and lead times, Indian manufacturers are proactively strengthening their operations through supplier diversification, local sourcing, strategic inventory and disciplined working capital management.
Over the next 18 months, the sector is well-positioned to remain growth oriented. Even as companies manage global margin pressures and adopt a more disciplined, results-driven approach to AI and digital investments, the outlook remains bright. Overall, Indian manufacturers are highly optimistic but execution-focused – ready to turn a significant macro-opportunity into long-term productivity gains.
Mexico: Growth becoming more complex
For Mexican manufacturing, the outlook for 2026 remains positive, underpinned by sustained foreign direct investment and the continued momentum of nearshoring.
Manufacturing is expected to remain the largest recipient of investment, accounting for more than one third of inflows, with total foreign direct investment likely to stay in the US$40–48 billion range. However, the nature of investment is shifting, with a clear move away from labour-intensive assembly towards higher value-added, capital and technology-intensive manufacturing.
Key sectors such as automotive (particularly electromobility), electronics and semiconductors, aerospace and industrial machinery are attracting the most advanced projects, increasingly built around automation, robotics and Industry 4.0 capabilities. Mexico’s structural advantages, including proximity to the US, preferential access under the United States–Mexico–Canada Agreement (USMCA), lower labour costs and established industrial clusters, continue to reinforce its position as a leading global manufacturing hub.
At the same time, growth is becoming more complex. Investment is increasingly capital-intensive and automated, meaning output is rising faster than employment in some areas. This is compounded by risks around regulatory uncertainty, the 2026 USMCA review, and infrastructure constraints in energy, water and logistics.
Against this backdrop, Mexico’s manufacturing sector is set for resilient but more selective growth, with success increasingly defined by sophistication, efficiency and supply chain integration with the US.
The Netherlands: Nearshoring gains importance
Dutch manufacturers are grappling with many of the same issues as their UK counterparts. Cyber security, supply chain resilience and energy costs all rank highly among leadership priorities.
A key strategic theme is the increasing importance of nearshoring within Europe, driven by the need to secure critical supply chains, especially in strategically sensitive sectors such as semiconductors. The Netherlands’ position as a hub for the semiconductor ecosystem, anchored by companies such as ASML and NXP, means it is particularly exposed to geopolitical tensions between the US and China, as well as wider restrictions on technology flows.
As a result, manufacturers and their suppliers are placing greater emphasis on regionalisation, supply chain control and resilience, with many industrial players reassessing dependencies and footprint strategies.
Given the Netherlands’ deep integration into global semiconductor value chains, the sector is increasingly focused on balancing openness with strategic autonomy, while ensuring continuity of supply in an increasingly fragmented geopolitical environment.
The US: Prioritising flexibility and control
Across US manufacturing, confidence remains measured as businesses balance growth with resilience and operational flexibility.
While sentiment is broadly aligned with global manufacturing trends, the US stands out for the heightened importance of tariffs and trade uncertainty, which are directly influencing input costs, pricing strategies, supplier decisions and margin planning, particularly for firms exposed to China, Mexico and other key trading partners.
Supply chain resilience remains a central priority, but the conversation has evolved beyond diversification towards deeper questions of supplier concentration, geographic risk, inventory strategy and nearshoring or reshoring opportunities. Increasingly, manufacturers are also focused on improving data visibility and predictability across complex, globally integrated networks.
Technology and AI investment is gaining momentum, but with a strong emphasis on practical, productivity-linked use cases such as predictive maintenance, production planning, quality control and automation. Cybersecurity is also becoming a core component of operational resilience as connectivity across plants, systems and suppliers expands risk exposure.
At the same time, labour shortages in skilled production and technical roles remain a persistent constraint, while energy costs continue to matter unevenly across regions and subsectors. Overall, US manufacturers are prioritising flexibility and control in an increasingly uncertain operating environment.
Looking to the next decade
The pressures shaping the manufacturing sector today are also defining its tomorrow.
In our global study, The mid-market maze, just 13% of manufacturing businesses – the lowest proportion of any sector surveyed – said they expect the global economy to deliver significant growth over the next decade. Half expect regulation to become more onerous and prescriptive, compared with fewer than a quarter (23%) who believe it will ease.
More than half (54%) identified geopolitical instability and policy uncertainty as major barriers to reaching their full potential over the next 10 years, alongside persistent energy cost pressures and supply chain constraints. Meanwhile, 42% are considering relocating operations to markets with more predictable tax and regulatory environments.
Against this backdrop, manufacturers are increasingly looking to reshape their businesses rather than simply grow organically. More than half (51%) believe mergers and acquisitions will be the primary growth strategy for mid-market manufacturers over the next decade – the highest proportion of any industry surveyed.
Yet the long-term outlook is not defined by constraint alone.
Manufacturers were the most optimistic of any sector about the power of innovation, with nearly two-thirds (64%) saying mid-market businesses will outperform large corporates on innovation by 2035.
And 62% – again the highest score across all sectors – believe manufacturing will be transformed beyond all recognition within the next decade.
The result is a sector that is simultaneously cautious about the environment it faces and confident in its ability to reinvent itself.
Long-term success will depend not only on growth ambition, but on the ability to adapt, evolve and remain competitive in a more fragmented and volatile operating environment.
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