Overcoming manufacturing’s biggest challenges

Held late last month, the Productivity, Process and Innovation conference assembled a host of experts to address the key challenges facing the industry. Brent Balinski took notes regarding some of the big themes from a panel discussion, titled “Challenges in Australian Productivity”.

“Australian manufacturing is unique,” explained Innes Willox, CEO of the Ai Group, at the recent German-Australian Chamber of Industry and Commerce event in Melbourne.

“40 per cent of our manufacturers within Australia employ less than 10 people. They’re micro-businesses, and usually family-owned businesses.”

At a panel of the industry leaders, the unique set of conditions the country’s manufacturers exist in was considered, with difficulties as well as opportunities considered.

Early on, and perhaps fittingly, Australia’s preponderance of micro-businesses came up, along with their lack of strong links with research institutions.

Fittingly due to the contrast with Germany and its envied Mittelstand – which makes up the overwhelming bulk of Germany’s firms and its overall employment.

Australia, in comparison, has what’s been termed a “missing middle”. Where the Mittelstand is heavily R&D-focussed and has successful links with local universities, Australia’s manufacturing micro-businesses have struggled to develop associations with researchers.

“And they don’t have often the time, or the scale, or the interest, or the ability to make those broader connections to deepen their interaction with other companies and research institutions such as universities, the CSIRO, NICTA and the like,” said Willox.

“We did some work last year that found only five per cent of Australian companies had any sort of active collaboration with a publicly-funded research institution. Which is a disastrously low figure.”

Albert Goller, chairman of the Manufacturing Excellent Taskforce Australia and former managing director of Siemens in Australia, agreed that there were challenges of trust and awareness for smaller manufacturers, as well as a lack of focus on producing commercially useful research at universities.

“When you try to find a university in a particular area and you are a small or medium enterprise, it’s very hard for you to find the university that might help you,” he said, adding that this was of particular concern for META and its members.

“It seems to me that our universities have only one measurement and that’s really their achievements in terms of research, and that’s an incentive, that’s how they get their funding, and there is absolutely no incentive, no KPI in terms of interaction with industry, which I think is a challenge we have.

“So for us it’s really a very, very big effort to bring universities closer to business.”

Australia’s tertiary education standards are respected, with five universities in the global top 100 rankings this year. However, studies such as the Global Innovation Index (placing Australia 19th, behind other developed countries such as Canada, New Zealand and South Korea) and the Deloitte Global Manufacturing Competitiveness Index have suggested that there’s room for improvement when it comes to linking researchers with manufacturers’ needs.

So where are Australian companies getting their innovation from?

“It’s usually from other companies, from competitors, the other companies down the street, basically,” said Willox.


“So we have to find ways within Australia to build trust between research institutions and business. And this is a big thing that we’re pushing at the moment through Innovation Australia [whose board] I sit on.

“Research institutions are funded on the basis of research – a lot of emphasis on the R, rather than the D. There’s not a lot of focus on commercialisation, that sort of dirty stuff that people who are profiteers do.”

And with the costs of doing business in Australia (as in Germany) high, the need to be competitive through smarts rather than costs is essential, the panel agreed.

Jackie Taranto, managing director of Hannover Fairs Australia, suggested that open source manufacturing and co-creation among communities could help drive innovation, citing US company Local Motors.

“[Founder Jay Rogers] actually set up an automotive company after he came back from Iraq, specialising in using that open source platform to create a vehicle, which he has demonstrated into military use,” she said.

“This is something you’d think in the US would not be able to be started from scratch in this day and age. And it just shows the opportunities in leveraging that open source and open collaboration globally. And I think what I’ve seen – not just from the German aspect but in that global perspective – I think that’s where it’s going. And it’s driven by young entrepreneurs. Everything’s driven by tech. You’ve got to be fast.”

For one established company operating in Australia, the German industrial lubricants specialist Fuchs, investing heavily in local R&D had to wait.

With a presence in Australia dating back many years (over 100 if you count the Steel Improvement Company, an Australian business which it acquired total ownership of in 1989 and which was established as far back as 1911) it was some time before Fuchs eventually opened its Regional Lubricant Laboratory and Technical Centre in Victoria in 2011.

Wayne Hoiles, the Australian managing director of Fuchs, explained that before the Victorian lab – which serves the Asia-Pacific region – was opened, local R&D consisted largely of adapting technology conceived elsewhere to Australian demands.

“Over a period of time as we developed and got bigger we then started finding gaps within the Fuchs network and its R&D activities and we found there were a couple of gaps locally, particularly in the mining sector, where in the rest of the world they’re not really present but in Australia we have a need for a particular product group,” explained Hoiles.

“So over time we got our business quite stable, quite profitable, and then we were allowed to get R&D money. We built a new laboratory, we added expansions in our plant. And then we started doing our R&D activities here. And we’re still in the process of doing the R&D activities as part of the global R&D.

“So we’ve been able to generate investment here and do that R&D and over a period of time we saw developments here move to South Africa and China and other countries as well.”

Other difficulties: distance, cost, languages

The distance to potential markets, as well as the distance across the country, are often cited as big hurdles for Australian companies.

Jeff Connolly, CEO of Siemens Australia, and Willox agreed that, for exporters, current transport costs were a big impediment.

“It’s double to ship from Sydney to Melbourne than Singapore to Melbourne,” noted the AiG’s head, to a few expressions of surprise from the audience.

Connolly also offered that while shipping costs weren’t cheap, it was also the case that cost was often thought of in terms that were too simplistic.

“We tend to look at that within the walls of the factory, but it’s much much more broad than that,” he said.

“It’s all of the inputs, all of the logistics to get it out, and all of those need to be worked on as enablers to get us to manufacture more. Manufacturing, anyway, is going to look different in 20 year’s time.

“But with all of the things that we can affect – we need to stop whinging about things we can’t influence. The exchange rate isn’t something we can influence, but there are so many opportunities to get cost out.”

Goller noted that Australia’s distance issues needed to be properly addressed.

Goller offered, “In Australia we have some disadvantages; one of our disadvantages is our size. Which country needs broadband? It’s Australia, absolutely. Which country needs the best logistics system? It’s Australia.

He agreed, however, that some disadvantages needed to be accepted and overcome intelligently, rather than just be the subject of unproductive whinging.

“We should build an industry that deals with our weaknesses and our strength,” he said.

“And I see very few examples. We should be the number one in telecommunication, we should be the number one in overcoming long distances, be it physical or be it with data.

“Have we ever created something world-leading because of our disadvantages. Therefore I think we need an infrastructure that is absolutely world-class.”

Another barrier to internationalising successfully was language. The Asian Century white paper may have gone the way of the Rudd/Gillard government, but the need to do a better job engaging with Asia and its growing middle class remained, the panel concurred.

“What is a great concern to us is that within Australia we are on the doorstep of the region and around 300, or just under 300 – 300! – students across Australia of non-Chinese background have learned Mandarin in their final year of school,” said Willox.

“It’s just pathetic. If current projections are maintained there’ll be no students at high school learning Bahasa Indonesian at school within 10 years, if the current trend continues. Korean: we’re about to sign an FTA with Korea – and we have virtually no non-Korean students learning Korean. So that’s a big national challenge we have.”

Another impediment to proper engagement with our region, Willox added, was the lack of international experience among management in Australian companies. Less than a third of the board members among significant Australian companies had lived or worked in Asia.

“And if that’s where our future is, to push out into that region, then we need to develop those skills,” he said.

Manufacturers' Monthly attended Productivity, Process and Innovation as a guest of the German-Australian Chamber of Industry and Commerce.


Pictures (courtesy of German-Australian Chamber of Industry and Commerce)

1) Albert Goller, chairman, META

2) Innes Willox, CEO, Australian Industry Group

3) Wayne Hoiles, managing director, Fuchs Lubricants (Australasia)

4) Jeff Connolly, CEO, Siemens Australia

5) (From left to right) Hoiles; Connolly; Goller; Shane Infanti, panel moderator, CEO of AMTIL; Willox; and Jackie Taranto, managing director, Hannover Fairs Australia


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