Backbone close to breaking point: Survivors in Britain's industrial heartland have been ground down by the sheer length of the recession. David Bowen reports

BILL GOOD is hanging on by his fingertips. His company, Walsall-based Sterling Tubes, is still going - but it no longer has a canteen, a personnel director, or a third of the staff it had 18 months ago.

Thanks to the devaluation of the pound, Mr Good is more optimistic than he was, but he says Sterling's best chance of survival still rests with the collapse of a foreign rival. As it is the only British maker of seamless stainless tubing and exports 70 per cent of its production, the implications of its failure to the balance of payments are obvious.

Sterling Tubes typifies many companies in the West Midlands, still the heartland of British manufacturing. It has doubled its productivity in the last few years and has little fat left to shed. It went into this recession reasonably confident - a pounds 3.5m investment programme was authorised only two years ago - but has since been ground down by the sheer length of the slump.

Mr Good has stopped all further capital projects unless they can pay for themselves in a year and is worried that other companies are likewise taking the knife to their vital parts. 'Because the West Midlands went through a very tough recession in the early 1980s, managers are better prepared,' he says. 'But they are now making cutbacks that will limit their ability to respond to a recovery.'

Sue Battle, deputy chief executive of Birmingham Chamber of Commerce, says many firms will not be able to respond at all. 'We are beginning to see companies that have held on and held on beginning to teeter,' she says. 'There will come a time when they cannot continue.'

As a medium-sized company employing 370 (down from 520) on a turnover of pounds 25m (down from pounds 30m last year), Sterling belongs to the British equivalent of the German industrial backbone, the Mittelstand. In its rambling 17-acre factory, it turns raw steel into finished stainless tubing, mainly for process plant and aero engines. Until 1986 it belonged to TI Group; now it is part of Sandvik of Sweden.

This recession took its time to bite, but when it did it soon found its way to the bone. 'We saw it coming at the back end of 1990 and it has been getting worse ever since,' Mr Good says. The UK market for stainless tubes has fallen by 30 per cent, the world market by 20 per cent. Sandvik decided Sterling should use aggressive pricing to hang on to its market share so, while its volume has fallen by only 10 per cent, it has dipped deeply into the red. It made a pounds 1m loss in 1991; it will lose more this year.

Earlier this year Mr Good was convinced the economy was recovering. 'I put down 26 January as the date the recession bottomed,' he says. 'I didn't change my mind until early May. Independent stockists reported that order intake was worse than in April, when it should have been picking up.

'That was when we had to start looking very closely at survival mode. We announced the closure of the canteen, made the personnel director and 50 others redundant and closed the in-house newspaper.' To counter tumbling morale, he stepped up the number of meetings with the workforce and kept training going. 'That's important: we have to keep the flexibility there.'

Sterling had been targeting the North American market which, at dollars 2 to the pound, 'was very painful'. With a third of the business going there, Mr Good had to face the possibility of withdrawing.

The pound's departure from the ERM, which brought on its collapse against the dollar, lifted that threat. Mr Good is much more relaxed than he was in September, when, he says, 'there was no light at the end of the tunnel'. With a weak pound, the company has a better chance of fighting its way through than some of its rivals abroad, he believes.

'We're seeing signs that some of them may be in significant difficulties. I think there has to be a shake-up in the industry and we are now in a better position to survive than they are.'

For other Midlands companies, recession in Germany has been more important. Heavy goods manufacturers were hit as the mighty machine ground suddenly to a halt in midsummer. 'The capital equipment industry went very, very quiet,' one senior Birmingham industrialist says. 'Nobody had the confidence to proceed with investment.'

But the departure of the pound from the ERM seems to have more than compensated for this. The CBI's October survey showed optimism about export prospects in the West Midlands leaping from a balance of plus 2 per cent to plus 32 per cent. Some of this undoubtedly came from post-devaluation euphoria but John Gunn, the CBI's local director, says manufacturers are cautiously optimistic that they can indeed export their way out of trouble.

Birmingham Chamber of Commerce confirms the upsurge in export optimism. 'We're getting a much higher level of support for trade missions,' Mrs Battle notes.

Companies are even confident that they can swim against the tide of a Continental recession, beating the Germans on their home ground. 'They're in trouble - we'll take work off them,' one executive says. As Mr Gunn notes, the market may be shrinking but 'it is still pretty big'.

Back in Walsall, Mr Good feels that manufacturing still needs much help. He is suspicious that the Government's apparent conversion to its cause will be short- lived.

'It has to appreciate that manufacturing is not the flavour of the month now or tomorrow,' he says. 'It needs to be for the next 10 years.'

(Photograph omitted)