Manufacturers hit hard by rising costs in 2010

Australia’s manufacturers felt the pinch of rising costs significantly during 2010 according to the Sage SME Business Sentiment Index 2011, a comprehensive analysis of Australian business attitudes, priorities and issues.  

More than six in ten manufacturers (61%) nominated rising costs as their biggest challenge of the past twelve months compared to 47% of the total business population.  More than seven in ten manufacturers (72%) agree strongly that costs have gone up but revenues haven’t risen by the same margin, and almost half (49%) believe rising costs will continue to be an issue in 2011. This compares to 39% of all businesses across all sectors in 2011. 

The manufacturing sector also appears to have been hard hit by the challenge of cash flow management issues in 2010 (nominated by 45% of manufacturers versus 31% of total businesses), and by the challenge of gaining new customers (41% versus 35%). Possibly, as a result, the survey found manufacturers were more likely to say that investing in innovative products and services had been a challenge in 2010 (19% versus 6% of total businesses).  

Curiously, while one quarter (25%) of businesses across all sectors reported experiencing funding challenges in 2010 only three per cent of manufacturers felt it had been an issue. 

2011 outlook

In addition to dealing with rising costs, manufacturers believe the other key challenges of 2011 will include maintaining or growing revenue (nominated by 46%) and gaining new customers (45%). Cash flow, last year’s second biggest business challenge, has dropped to fourth place, coming in on an equal footing with concern regarding recruitment of new employees (33%).  One in five manufacturers (21%) compared to 9% of all businesses also believe that investment in innovative products and services will continue to be a challenge in 2011.  

When it comes to business performance, almost four in ten manufacturers (38%) feel that business is performing better now than in 2010 while only 13% believe it is worse. However, almost half of all manufacturers (49%) report no difference in terms of confidence for the prospects of their business in the year ahead compared to last year, perhaps as a result of the anticipated continuing high dollar impacting on their competitiveness going forward.  

However, manufacturers are also more optimistic regarding the country’s economy.  Four in ten manufacturers (40%) as opposed to three in ten of all businesses (31%) see the economy improving in 2011 compared to 2010.

Investment priorities

Manufacturers are far more focused on investment in sales than their peers in other industry sectors.  When asked where they would like to invest more money for business development, if they had the budget, almost half of all manufacturers (48%) and just one quarter (26%) of all businesses nominated sales.  Manufacturers were also more likely to be interested in investing in export markets (26% versus 9% of total businesses).

Other leading investment priorities cited by manufacturers include:

  • technology (37% vs. 36% total)
  • marketing (36% vs. 35% total).
  • premises or infrastructure (37% vs 26% total)

Alan Osrin, Managing Director, Sage Software Australia, says, “The Sage SME Business Sentiment Index highlights the often distinct challenges faced by the manufacturing sector.  While many manufacturers show optimism and resilience, the need to deal with rising costs and the desire to develop export markets are being undermined by the strength of our dollar. Perhaps the best traits for a manufacturing business right now are a high degree of planning along with agility to cope with changing business circumstances.”

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