Gearing up for change: The “second act” of small businesses

Project partners, Dresden Optics and Astor Industries, are working on mass customisation of spectacles manufactured from recycled material.

Ganesh Chandrasekkar, general manager, Westpac Small Business Banking, spoke to Manufacturers’ Monthly on how small and medium businesses can re-invent themselves to remain competitive in the digital age.

With the technological developments increasingly disrupting the traditional business models, many of the established small and medium businesses are finding it crucial to re-invent themselves to take full advantage of the digital age, according to recent Westpac RFi research.

The survey, which was completed by over 500 SME operators, including business owners, directors and CEOs, looked at the business growth sentiment, the overseas activities and mind-sets towards technology disruptions among the established businesses (operating over 20 years) and young businesses (operating less than five years).

Around 40 per cent of small businesses in the survey said they had experienced disruption caused by new technologies, while 31 per cent were disrupted by changing channel preferences and 30 per cent by new entrants.

Ganesh Chandrasekkar, general manager, Westpac Small Business Banking.

SMEs in the manufacturing industry are among the most likely to believe their industry will experience significant disruption, with 35 per cent of the respondents saying they expect significant changes in the next five years.

Ganesh Chandrasekkar, general manager, Westpac Small Business Banking, believes that while the owners of young start-up companies are better prepared to use technology to their advantage, it’s the more established businesses that are at the risk of falling behind.

“When I speak to small business owners, it is evident that the younger businesses are better at thinking globally and focusing on new-age manufacturing – which means less reliance on the typical hurdles in the industry such as labour shortages, energy costs and competition from cheaper production countries. Instead, these businesses are increasingly relying on adding value with intellectual property (IP), research and development, and working on the distribution and marketing aspect of the business.

“The survey was an attempt by Wespac RFi to look at how established businesses – that make up over two thirds of the 2.2 million small businesses in Australia – can be more innovative and embrace the new technologies. I call it the ‘second act’ of the small businesses,” Chandrasekkar, told Manufactures’ Monthly.

Businesses catching up

The positive news, Chandrasekkar said, is that the established businesses in Australia are up for the challenge to adapting to the change.

“Most of the manufacturers that we spoke to see these disruptions as opportunities rather than challenges. While they do face some hurdles in their businesses, these are mostly the traditional hurdles such as energy costs and compliant costs – particularly when it comes to employment. But, many established small businesses are turning these challenges on their head through innovative ideas,” he said.

One example, Chandrasekkar said, is a business called Steady Racks.

“One of our customers, Dave Steadman, identified a growing global trend for cycling. He also spotted the need for better bicycle storage solutions. Today, his business exports Steady Racks globally and is growing. Though the product itself is manufactured overseas, the company owns the IP for the product,” he said.

For the established businesses to keep up with the pace that the new start-up companies are growing, Chandrasekkar said there are a number of ways to consider.

“Firstly, each of these companies needs to identify the technologies that best fit into
their business. As the Advanced Manufacturing Growth Centre (AMGC) recommends, they should improve their competitiveness by diversifying their business and adding more value through services and other areas that come before and after the actual production.

“So, identifying niche areas where you can direct your manufacturing capability to – if you still want to manufacture a product – or using research and development capabilities to outsource the manufacturing but owning the IP is something that these business can focus on,” Chandrasekkar said.

Another way that established small businesses could improve their resilience, Chandrasekkar said, is through partnership with new, innovative companies.

A good example, he said, is the partnership between Dresden Optics and Astor Industries.

“Astor Industries was a supplier of plastic parts to the automotive industry. As that business slowed down, due to the migration of auto manufacturing from Australia, Astor re-invented itself to manufacture customised glass frames for Dresden Optics,” he said.

The collaborative partnership between Dresden and Astor Industries seeks to improve production processes and enable mass customisation of spectacles manufactured from recycled material.

Taking on tomorrow

While SMEs in the manufacturing industry are among the most likely to believe their industry will experience significant disruption in the next five years, yet they were also among the most likely to believe they do not receive adequate government support, according to Westpac’s survey.

Businesses operating more than 20 years were the least likely to believe their businesses receives adequate government support, while the young businesses established aging 2-3 years were most positive about the adequacy of the support they receive.

Chandrasekkar said Westpac is assisting manufacturing businesses, through both the traditional banking services and equipment financing, as well as by offering mentorship and knowledge-sharing programs.

“The Westpac Businesses of Tomorrow program helps 200 businesses, both big and small, transition and grow by providing them access to knowledge-sharing and peer-to-peer learning. This is the second year of the program following the launch in 2016.

The program rewards 180 businesses to go through a three-day program with Melbourne Business School designed to help businesses respond to disruption and map out their future. The top 20 businesses embark on a global study tour,” he said.