THE region can no longer market itself as a low-cost manufacturing base, the head of regional development agency One NorthEast has admitted.

Chief executive Alan Clarke denied suggestions that manufacturing was virtually ignored in the agency's economic blueprint for the region - but he admitted the focus was moving away from traditional manufacturing.

A draft of the region's economic strategy for the next three years was recently criticised by union officials and the Engineering Employers' Federation for focusing too heavily on the service sector - including call centres and the leisure industry - rather than traditional industries such as engineering and construction.

Mr Clarke said while the region could no longer compete in low-cost manufacturing, it could compete in terms of higher quality manufacturing, using knowledge and research to create smarter designs.

He said of the strategy: "I think people look at the headings and basic contents and don't realise the relevance to manufacturing.

"For example, one area draws on the fact we are about 30,000 small businesses short in terms of per head of population.

"Obviously a proportion of those we are looking to create will be in manufacturing," he said.

The strategy - known as the Regional Economic Strategy - is a long-term economic blueprint for the region, which sets out how and where tax-payers' money will be spent to support businesses, create businesses, encourage a "culture" of entrepreneurship, and invest in training the region's workforce.

One NorthEast will invest £858m in developing the economy over the next three years.

Manufacturing contributes 25 per cent of the region's economic output each year - above the UK average - and Mr Clarke said he appreciated its importance in terms of job and wealth creation.

"Manufacturing as a proportion of the economy is higher than any other region and we know how important it is," he said.

"However, there is a lot of global competition, especially from areas where there is cheaper labour, and we can no longer present ourselves as a low-cost manufacturing country.

"We have to focus on something else, such as manufacturing high quality products using smarter designs."

One NorthEast's head of business investment and finance Ian Williams said: "There has been a change in the type of manufacturing we are supporting in the region.

"The companies that are having to compete on price are having a very difficult time.

"We are seeing more projects that require skilled people and develop high-quality and high-value produce."