MY mantra during 2004 was that Wales possesses a vib-rant manufacturing base well able to meet the challenges of the modern world.

Indeed, the most recent national statistics bulletin showed that manufacturing output in Wales for the last quarter of 2004 rose by 1.8% compared with 1.2% for the UK in the same period.

However, EEF's latest business trends survey for the same period presented a mixed picture.

While orders and output in all areas of UK manufacturing continued to grow, albeit at a slower rate, profit margins came under increasing pressure through the effects of higher raw material, energy and insurance costs.

These factors, together with the effect on exports of a weak dollar and poorer conditions in European markets, are having an effect on confidence for 2005.

The EEF has reduced its forecast for growth in manufacturing this year from 2.6% to 1.9%.

It's fair to say that Welsh manufacturing has faced severe challenges over many years but, thanks to the resilience, skills, and adaptability of its people, these have been overcome.

Future challenges will certainly be global and will include the following:

l Social awareness. This is based on the need for business to recognise a changing public attitude that says it cannot just be about profits but must also address social issues such as the environment, and respect for the individual, and the community.

l Changing global markets. The emergence of major economies such as China and India has created super-consumers as well as super-competitors. Just two years ago a quarter of companies that EEF surveyed across China would pose a threat to the sector within five years - today that figure has leapt to almost 60%.

l Technology. The impact of technology on productivity and products will continue to have a significant effect on the way companies operate and communicate.

Manufacturers in Wales can help themselves. They must, of course, continue to make profits, and do so within acceptable social values. This will protect their brand and help to ensure the long- term survival of their business.

It will also allow them to invest for the future of the company, the workforce and the economy of Wales.

Managements, whether local or parent-company, must commit to maintaining a core business in Wales while exploiting global benefits and other people's weaknesses.

And the control of core technology and manufacturing must not be eroded. If companies allow too much of the manufacturing of the products they sell to others to be lost, there is a great danger that it could lead to a terminal decline of the business.

Success comes from knowing more about your product, as well as your market, than anyone else.

Manufacturers must also embrace constant innovation, not just in products and processes but also in what they offer to their customers.

EEF is playing a key role in raising companies' awareness of the importance of innovation as they focus on word class performance and lean manufacturing.

Companies should also engage with educational establishments.

This will help the drive for innovation and the overcoming of shortages in skilled labour.

We need to raise skill levels across the board and address the shortfall in modern apprenticeships which are as critical to success as the number of research doctorates.

Companies should adopt policies that support the employment of more women and ethnic minorities: such thinking is essential, especially in times of full employment.

The role of government, whether in Cardiff or London, and the economic and regulatory environment, is vital to manufacturing's future in Wales. A light touch is required.

We need government to ensure that we have the most helpful business environment and support for some things which businesses are reluctant to do individually.

This is where the Assembly's manufacturing strategy must be developed, and the work of the Manufacturing in Wales Group must be followed-up.

The Assembly must continue to focus on innovation and support schemes that help businesses.

Its aim must be to ensure economic stability, a world class infrastructure, and sensible, well-designed regulations that do not distract from the business of improving business.

Six out of ten companies polled in a recent EEF survey said that the level of taxation and regulation was negative for the UK's competitive position.

Despite the challenges that need to be faced I remain optimistic.

Our competitors also provide opportunities for market growth on a massive scale. If we take into account location and logistics, not everything can be made in China.

As the 67% of the world that earns less than $2,000 per year develops it will want more tangible, practical manufactured goods, and someone will need to make them somewhere.

Together, let's make sure that as many as possible are'Made in Wales'.