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When Kevin Steers took the top job at Betafence last February, the first thing he did was stop imports from the fence maker’s sister plant in China.

A year earlier his predecessor had shipped machines used for making barbed wire from its Sheffield factory to a facility in Tianjin. As with so many other manufacturers, Betafence’s goal was simple: produce the same product for a fraction of the usual cost, ship it back to Europe and make a big profit.

It didn’t work out that way. “The quality was poor and the service was terrible. The pallets were weak, so when we stacked them they would collapse,” said Steers. “We would put in orders in January and February and they would come in one big shipment in May. When we make it ourselves here the turnaround is a few days.”

The weakening of the pound, meanwhile, sliced the price advantage and the company was wary of developing new products because of the notorious disregard for intellectual property in China.

“It wasn’t all it was cracked up to be,” said Steers. “We are making barbed wire here now. The Tianjin plant works only intermittently.”

Steers’s experience is not unique. Last week, a survey by EEF, the industry trade body, and BDO Stoy Hayward, the accountant, revealed that one in seven British companies had repatriated manufacturing operations to the UK in the past two years. They had gone overseas to cash in on the eastern promise of cheap labour and cheap freight, but the moves had failed to pay off.

The trend is encouraging, but British manufacturing remains a shadow of what it used to be. In the past decade alone, its share of UK GDP has halved from 22% to only 11% today.

Industrialists argue that the implosion of the financial-services sector represents a historic opportunity to fill that void with an industrial renaissance, helped along by tax breaks and government infrastructure spending.

Some have already made the move. B&W Group, the upmarket loudspeaker firm that supplies the stereos for Jaguar cars and makes the top-selling Zeppelin iPod speaker system, is believed to have been quietly moving parts of its production from Poland back to its headquarters in Worthing, West Sussex. Caterpillar, the American construction equipment giant, recently brought back some operations to England that it had moved over to the US.

Will that trickle become a flood? Victor Ballanti isn’t convinced. The firm he runs, Norman Hay, a maker of coatings for the oil and motor industries, has watched his customer base shift steadily east.

“Ten years ago, a third of our auto sealants business was in the UK. Now it’s tiny, a few percentage points. We follow our customers, which is why we have a facility in Dalian, China. We recently set up a new site in Malaysia,” he said.

The exodus, however, shows signs of slowing. “We don’t see any auto component-makers coming back to Britain, but fewer companies are going away,” he said.

THE rules of business are changing. Assumptions that looked safe only two years ago now look outdated, forcing business plans all over the world to be ripped up. Many of the economic factors that encouraged British manufacturers to move their production lines overseas have changed substantially.

“For some companies,” BDO said in its report, “offshoring production to low labour cost economies has undermined, rather than supported, [their] efforts, and some activities have trickled back in recent years.

Higher than expected costs and quality problems have been the main reasons behind some companies moving production back in-house.”

Brian Shaw, a managing director at UK Trade & Investment (UKTI), the government agency responsible for bringing business to Britain, is talking to a number of companies reconsidering where they make their products.

“What we have seen over the past couple of years — given some of the dramatic changes in the global economy and the rapid change in business models — is that some of the decisions that were made, even fairly recently, now no longer look quite so attractive,” said Shaw.

Take the oil price, for example. The price of Brent crude has doubled in the past five years and is now almost $80 a barrel. That has filtered through to fuel prices, making it much more expensive to ship goods around the world. The increased costs mean it now makes more sense to produce things closer to where they will be consumed.

“Even when you look at China, there has been a huge rise in the cost of operating for some companies,” said Shaw. “You’ve seen wage inflation, for example, and that starts to erode some of the drivers for the original decisions that were made.”

He insists that Britain is becoming an increasingly attractive place to do business, in spite of the enormous problems in the public finances and the increasingly anti-business tax regime.

Last year was a record for investment into Britain, according to UKTI’s statistics. There was a total of 1,744 foreign direct investment projects, involving companies from 53 different countries. Those projects created or safeguarded more than 78,000 jobs, the agency claims.

About 28,000 of those positions were in the manufacturing sector, helped by the announcement of a number of big projects. Bombardier, the Canadian aerospace firm, started work on a £500m plant in Belfast to build wings for its new aircraft. Nissan, the Japanese car giant, has unveiled a £200m plan to develop batteries for electric cars at its Sunderland plant.

The weakness of sterling has also helped British exporters. “The competitive pound is definitely a significant factor for a number of companies,” said Shaw. “I don’t think there’s any doubt about that.”

It’s not all good news, however. Weir Group, the £1.5 billion Glasgow engineering giant, has moved 90% of its manufacturing operations abroad to be nearer its customers. “We operate mostly in industries like mining and oil and gas,” said a source close to the company. “Most of our customers are in places like South America, Australia and South Africa, so that’s where we make most of our equipment.”

Ultimately, Britain can’t help but be overpowered in the great game of globalisation. Last year, Chinese steel demand was 500m tonnes — about half of world demand. Britain consumed less than 10m tonnes.

Kirby Adams, chief executive of Corus, the steel giant, Britain’s single biggest manufacturer, said: “In the next four days, China will produce more steel than Corus makes in a year. The centre of gravity in manufacturing has shifted.”

Last month, he mothballed the group’s Teesside blast furnace with the loss of 1,700 jobs because it can no longer compete with cheaper producers abroad. The only alternative is to feed the British market, which is shrinking.

“The biggest economic lever governments have is to spend public money on infrastructure and construction projects,” he said. “The multiplier effect is huge. It puts local people to work.”

The government’s ability to do so is limited. After the Teesside closure, Lord Mandelson, the business secretary, announced a £60m aid package for the stricken northeast industrial cluster — this amounted to 0.1% of the £63 billion invested to save Lloyds Bank and Royal Bank of Scotland.

IF Britain is to have an industrial renaissance, experts argue, it will not be based on low-tech widgets where cheap eastern labour has a clear advantage. Rather, it will be based on high-tech, specialised manufacturing that draws on the country’s highly-educated workforce and its international business connections (see panel below).

James Dyson, the inventor behind such innovations as the bagless vacuum cleaner, is working on a paper for the Conservatives on the future of manufacturing in Britain. It will be published within the next few months.

This is a subject Dyson knows well. In 2002, he moved his manufacturing operations to Malaysia. He has no plans to bring back any of them to Britain.

“We make consumer electronics and the Far East is where all the suppliers for those components are based,” he said. “These suppliers do not exist in Britain. However, Dyson develops its products in Britain and exports all its products from Britain to 48 countries.”

In his report, he is expected to advocate that more companies adopt his model, leaving their high-tech research and development jobs in Britain but moving large-scale production to cheaper locations abroad.

Measures announced in December’s pre-budget report support his thesis. The government announced that profits generated from products developed and patented in the UK would be taxed at 10% rather than the standard 28% rate of corporation tax.

“The manufacturing sector in the UK has been allowed to atrophy for a variety of reasons for the past two decades,” said Adams.

“It is encouraging that the government is now talking about this, but the words need to be followed with actions, especially so that the younger generations can begin to recognise that there is something other than banking in the world and maybe go study engineering instead.”