How do we make manufacturing work in Australia?

Acknowledging what Australia’s manufacturers are capable of doing well – as well as what they’re not really cut out for – the Committee for Economic Development of Australia launched its first policy paper of the year last week.

Advanced Manufacturing: Beyond the production line continues a conversation, rather than begins a new one.

“It sometimes does feel like this discussion’s been going on for decades, and if we think back to the 1980s and 1990s tariff debates, there was constant discussion at the time of pushing manufacturing up the value chain, of pushing it into global markets, of developing more advanced patterns of work,” acknowledged Julie Toth, the Australian Industry Group’s chief economist, at the Melbourne launch.

“That said, it probably hasn’t happened fast enough and it hasn’t happened to the extent that we’d probably like it to, and that’s reflected in the malaise that we’ve seen over manufacturing over particularly the last five years.”

High-profile factory closures or announcements of factory closures this year and last – such as at Alcoa, the last three remaining passenger car makers, and building products companies – have seen regular debate around whether or not Australia can still be “a country that makes things”, as it’s often put.

Beyond the Production Line acknowledges that the country very much can make things, but this will only be the case for the right kinds of companies. Compensating multi-nationals to locate here and lose money is advised against, and low-cost, high-volume companies might not have the brightest futures.

So where is manufacturing’s “sweet spot”?

A count by Professor Goran Roos, chair of the South Australian Manufacturing Council and author of countless reviews into the sector, finds that there are about 35,000 manufacturing businesses in Australia with more than a single employee.

Of these, there are perhaps 2,500 who stand out as models of excellence. They are profitable at low volumes, are high value-add, high variability and highly complex.

Another thing that stands out is a kind of rule of fives.

“If I take some average numbers, they invest about five per cent of their turnover in training their staff annually, five per cent of turnover in keeping their capital equipment up to date annually, and five per cent on R&D annually,” explained Roos at the Sydney launch of the CEDA paper.

“And it gives them about an annual average productivity improvement of five per cent. And if you’re not there, you’ve got a problem.”

The forward-thinking firms that are best equipped for the future also recognise that what they do includes a range of activities including concept, research, design, customer service and managing global value chains. They are advanced manufacturers, not mere assemblers: hence the report’s title.

While the report’s contributors do not argue in favour of handouts, conditions need to be changed in order to manage and encourage the shift to advanced manufacturing.

Education (and tax incentives) around key enabling technologies is important. Manufacturing needs to be “rebranded” so its importance and achievements – rather than high-profile failures – can be made more prominent in discussions. As well as this, public procurement should favour Australian-made, first-to-world innovations, while remaining consistent with WTO obligations.

As has been noted in other discussions, Australia’s high-cost environment can’t be changed. And, as has been pointed out many times previously, there is a massive need to foster greater cooperation between industry and researchers.

Roos – who has argued that no less than Australia’s living standard is at stake without industry policy improvements – believes that the way to encourage research institutions create what can be commercialised is “actually very simple”.

Academics are currently rewarded for having their research published in authoritative, peer-reviewed journals. As long as that’s the focus of the research community, then there is little reason for them to try and collaborate with firms: change what academics are rewarded for.

“You get what you ask for,” Roos told Manufacturers’ Monthly. “And as long as that is the reward system, and as long as one dollar from an Australian Research Council grant counts as higher than one dollar from industry in their ability to get promoted.

“And it’s fully understandable. If I was one of them I wouldn’t either.”

He also points to the Leiden Ranking, comparing the collaborative prowess of universities across the world, as something policy makers could take a few lessons from.

“[Leiden University] ranks the performance of universities, and they have a specific ranking for ability to work with industry,” he said of the system, which places universities according to their scientific impact.

“And from that you can get the top universities globally in their ability to work together with industry on research. So you have it there.”

 

(A copy of Beyond the Production Line can be accessed here)

Slider image: seetech-corp.com

Other images: CEDA, News Corp