Features

Don’t write off Australian manufacturing just yet

For Australian manufacturing, most of the news in recent
years has been negative. However, according to Mark Goodsell, there are still
reasons to believe that the sector will survive.

Australian manufacturing has long been doing it tough, and
optimism, it would seem, is thin on the ground.

It is difficult to overstate the extent of the challenges
the industry has faced over the past decade, which in many ways have been
bigger even than the shocks experienced with the wind-down of tariffs from the
1980s, or the recession of the early 1990s.

Ai Group’s own Business Prospects Survey, released in
January, reported that the majority of manufacturers said business conditions
deteriorated notably in 2014 – 60% of CEOs reported business conditions in 2014
as being worse than 2013, while only 18% reported an improvement.

Looking ahead, 44% of manufacturers expect business
conditions to worsen in 2015 compared to 2014, versus 24% who expect an
improvement. Fortunes, of course, are mixed: business in food and building materials
is growing well, whereas metals and machinery continue to struggle.

So where do we look in 2015 to find reasons for optimism?
Contrary to the prevailing dark mood, there are a number of positive signs to
indicate that manufacturing sectors have much to look forward to.

Gaining from the pain

In response to the difficulties they have been facing, many
companies have restructured and now feel quite good about their own prospects,
even if industry-level sentiment is poor and the macro-economic environment is
unclear.

These companies are better positioned to weather currency
fluctuations and have used the stress of operating at or above $US parity, with
high domestic labour and energy costs and chronic skills shortages, to really
lean out their operations.

Smaller companies have learnt that you have to sell before
you make, and have invested in the capacity to understand customers’ problems
deeply and look in strange places and new sectors for customers – skills that
were only optional in the old world of manufacturing.

Currency

Major currency realignment, especially against the US and
China, should offer us a major boost in competitiveness. This will take some
time to flow through, but if sustained it should go a long way to boosting
sectors such as manufacturing, as well as other sectors that manufacturing
supports including, education, tourism and business services.

It will also help offset the fall in national income and the
tax base stemming from lower commodity prices.

Fundamental opportunities

Undeniably, the global centre of gravity is still moving
irresistibly towards our region. In the 1970s, the centre point of the world’s
middle class consumption could be located somewhere in the Atlantic, but it is
quickly shifting east and in 15 years’ time it will certainly have shifted to
Asia.

Tremendous opportunities are emerging in our region, and
these will only become more available to Australian business as we grow more
familiar with doing business in Asia and take advantage of a large domestic
population with deep knowledge of Asian cultures and languages.

Consumer confidence

While consumer confidence has been brittle in recent times,
the increase in household wealth in the past few years and the continuation of
low interest rates should begin to underwrite stronger household spending.

State governments

State governments who have been able to recycle capital
locked up in their assets now have increased spending power.

Given these developments, and the historically demonstrated
Australian capacity to solve problems in the national interest and forge new
opportunities, there are plenty of reasons to believe that manufacturers can
start to have more positive stories to tell in the future.

[Mark Goodsell is the NSW Director at the Australian
Industry Group and in 2014 was appointed to the new position of National
Director – Manufacturing.]

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