“Traditional” and “advanced” manufacturing: a false dichotomy

Image: www.7ad.com.au

Image: www.7ad.com.au

While the dollar has returned from its stratospheric journey, improving competitiveness with it, some of the damage done is not going to be reversed and this is particularly the case for manufacturing.

But while it is clear manufacturing is not going to return to its former shape, the shifting focus towards ‘advanced manufacturing’ should be seen as an opportunity for all manufacturers to become advanced manufacturers.

Technology, particularly, digital technology is, if anything, becoming even more transformational. Business models are changing and so are work arrangements.

This is why ‘advanced manufacturing’ is so important. It’s important for the competitiveness of individual businesses and it’s important for the competitiveness of the sector as a whole. And that is a good part of the reason Ai Group set up and remains closely associated with the Australian Advanced Manufacturing Council.

It is also important for the image of the sector. I don’t think many would question that manufacturing has an image problem. At worst the sector has an image as being dirty, unsafe, low-skilled and going down the gurgler.

It is of course vital that we counter these perceptions, and talking about “advanced manufacturing” is a way to counter this image. This is important in order to: attract skilled people to work in the sector; build the confidence of manufacturers to invest; and ensure that manufacturing does not become a no-go area for our lending institutions.

But I think there is also a danger associated with the use of “advanced” manufacturing. And that danger particularly arises when it is juxtaposed with something called “traditional” manufacturing – and when “traditional” is associated with particular sectors.

In the attempt to paint a positive picture of manufacturing by emphasising its “advanced” characteristics, we open up the potential for an impression of an ‘advanced’ portion of the industry and another portion of the industry that is not advanced. You could call it ‘traditional’ or perhaps even ‘backward’.

The danger arises when this convenient characterisation shapes public perceptions and government policies:

  • Why encourage your kid’s ambition to apply for an apprenticeship with a business in a ‘traditional’ manufacturing sector?
  • Why should governments maintain a Research and Development Incentive that sprays funding around to businesses in sectors that, nod and wink, everyone knows are ‘transitional’ – to borrow a phrase used in a prominent report of a bit less than two years ago? And
  • Why should banks lend to businesses in these industries?

These are present and real dangers.

The R&D Tax Incentive has long been in the sights of the snipers at the Commonwealth Treasury and the funding provided through the Tax incentive has been viewed with some avarice by a range of groups with alternative proposals for the use of the funds.

And the latest attack on the tax incentive is using as ammunition the dichotomy between ‘advanced’ and ‘traditional’ manufacturing; the idea is that we should target the tax incentive towards the ‘sunrise’ sectors of advanced manufacturing and avoid the ‘sunset’ sectors of traditional manufacturing.

One variation on this theme is that the resources should move from a demand-led tax incentive to an allocation of direct grants that can be targeted where it will have the most impact. But targeted by whom and using what criteria?

It is, of course, a false dichotomy to talk about advanced manufacturing versus traditional manufacturing. To think that a manufacturer is either one or the other is either a trick of definitions or it is just plain wrong.

And the falsity of the dichotomy is most clearly exposed when, on the one hand, ‘advanced manufacturing’ is defined by pointing to the use of new technologies, innovation, high performance workplaces, supply chain involvement and the like; whereas ‘traditional manufacturing’ is defined by sector. Sectors such as steel; metals; automotive; textiles; packaging; and building products?

It is a dichotomy that just doesn’t stack up. But that does not make it any less dangerous.

It’s dangerous in a policy sense for the same reason that “picking winners” is riddled with dangers. Picking losers and abandoning them carries the same risks – risks of wasted opportunities and wasted resources.

Clearly there are manufacturers from sectors that are unambiguously ‘traditional’ that have folded and there are more to come.  But it would be wrong to induce from this that it is time to hang out to dry all manufacturers in traditional sectors.

In reality it is not only businesses in sectors like med-tech and pharma, scientific equipment and electronics on which the future of manufacturing rests.  It is with a whole range of manufacturers from a very broad spectrum of traditional and non-traditional sectors.

Sector is not the key differentiator. A much better starting point is those characteristics that are included in the definitions of advanced manufacturing: investment in leading technologies; customer-led design; smart integration with global supply chains; high performance workplaces; and innovation.

Despite these risks associated with some of the narrative around advanced manufacturing, I remain thoroughly supportive of the importance of these characteristics.

But manufacturing should not be falsely classified into separate advanced and traditional camps. Rather, we should adopt the perspective that all manufacturers can, and indeed should, strive to become advanced manufacturers.

Australian Industry Group

1300 55 66 77

www.aigroup.com.au