Realising the potential of our sovereign manufacturing capability


IMCRC delves into why sovereign manufacturing capability has become such a hot topic and how Australia can accelerate its capacity to achieve this.

The concept of sovereign manufacturing capability has become a hot topic in Australia, and rightfully so, as the double hit of the pandemic and geopolitical issues has exposed significant gaps in Australian manufacturing capability and capacity.

‘Sovereign capability’ was a phrase more typically associated with specific industries, notably the defence sector. Now, in the face of international volatility, it is more commonly used to describe the building of Australia’s national scale, depth and resilience.

To succeed in this endeavour, we need to focus on developing industrial capability in specific, targeted sectors where we have a comparative advantage (including through access to local inputs and resources) and where manufacturing acts as an enabling capability.

We need to understand where we are different from other developed and industrialised nations and accommodate this in our policies, strategies, and investments.

David Chuter, CEO and managing director, IMCRC.

This requires accepting that we can’t make everything domestically. As a nation of less than 30 million people, this would be neither economical nor feasible, and may also distract and dilute investment into areas where we can become global leaders, such as clean and new energy solutions, health and medical manufacturing, food, critical minerals value adding and specialised areas such as space and defence.

While we have pockets of manufacturing excellence and exemplars across the nation, most of our manufacturers are micro-businesses focusing primarily on production.

The end of passenger vehicle production in Australia was one of the drivers of this need to transform. With it we saw the loss of significant industrial infrastructure where global multinationals drove best practice through tiered supply chains, creating opportunities for local manufacturers to export and expand internationally as part of a global network. In its prime, many suppliers to Australia’s automotive industry demonstrated our capability for production, but perhaps more importantly for design, engineering, innovation, logistics, operational and financial management, etc. – and did this at very aggressive price points to match global competition.

So with these differences and challenges, how can Australia accelerate building sovereign manufacturing capability and capacity?

Build design and engineering capability

The drive for Australian Made must ideally also be a drive for Australian designed, engineered and owned. This is critical – we must invest in our ability to create uniqueness by designing and engineering complex products, processes, services and solutions that are significantly value add, digitally enabled and exportable. This will drive much-needed business investment in research, development and innovation. This is not only applicable for industry. Research organisations also need to invest in design and engineering capability, ideally through partnerships with industry.

When we look at our well-known success stories, from Cochlear and ResMed to Carbon Revolution, RØDE and Blackmagic Design, we see that robust design and engineering capabilities, often honed through research and development (R&D), lie at the heart of their achievements. This is something we have seen echoed through the pandemic, with companies like Grey Innovation pulling together consortiums to design, engineer and locally manufacture critical items like ventilators, and Whiteley Corporation creating first-to-market COVID cleaning solutions. And, as Australia moves to increase sovereign manufacturing capability, there needs to be a renewed focus on investing in design, engineering and innovative R&D to really harness the opportunities within nascent sectors like critical minerals, clean energy and health.

Industry 4.0 investment

With the world rapidly digitalising, we can’t ignore the opportunity across industry to embrace Industry 4.0 to drive productivity and capture and create value. Much more can be done to educate and incentivise around this, including businesses being willing to collaborate to develop and implement Industry 4.0 solutions and business models.

Government both as catalyst and purchaser

We need a long-term vision, strategy and industrial policy with appropriate incentives and catalysts to lead Australia’s manufacturing industry towards it. The government is already driving discussions around local content requirements, including for small and medium enterprises (SMEs). At this stage it is still primarily about production, but its now timely to embrace the real opportunity for Australia to build capacity and capability, which is in design and engineering. Local content requirements for design would likely lead to local production and opportunities for Australian supply chains and may also incentivise startups.

SME Leadership and skills development

Often, we look at skills development on a technical level, particularly for SMEs. Rarely do we consider investing in skills, development and education at the business owner or leader level to help them drive personal development, training, investment and innovation. Specific programs are needed to lift the capability and capacity of manufacturing SMEs to develop innovation, digital and green skills, as well as to embrace design thinking and collaborative partnerships.

Growing the proportion of medium-sized manufacturers

There is plenty of evidence that medium-sized companies provide the critical mass, capability, and ambition to drive innovation, productivity and growth. IMCRC’s futuremap® data shows the appetite for investment, Industry 4.0, and innovation is more active in a medium-sized company than in a large or small company. At this size, the business is more likely to have the management structure, credibility and finances in place to develop supply chains and export opportunities, support growth and collaborate. Thus, programs need to be developed specifically to increase the proportion of medium-sized companies that have the maturity to invest in and play leading roles in their sectors.

Retaining local talent and creating opportunities

We need to encourage and find ways to retain our talent, intellectual property, and investment opportunities within Australia and not lose them overseas. We have to create a more positive perception, or ‘brand’, of Australian manufacturing, positioning it as attractable and investable. This is needed at many levels, to interest primary school children in design and manufacturing, through to attracting equity and foreign investors.

Encourage more foreign investment into Australia

At first, encouraging foreign investment might seem at odds with building sovereign capability. Sovereign capability can be built as ‘all Australian’ but it will take a very long time and, by being insular, we also risk losing connections with, and relevance to, global supply chains and activities.

To grow our sovereign capability, we need to rethink the role and opportunity of foreign direct investment in Australia, and we need to do this quickly. Many nations are thinking this way and are actively attracting big investors into their countries. The potential benefits are enormous. You need only look as far as our defence sector to see that sovereign capability can and should be built in strategic, targeted areas, and in partnerships with nations and key industrial players within those nations.

Multinational defence primes have played a significant role in strengthening the capacity and capability of Australian SMEs throughout the entire supply chain. As an example, IMCRC’s collaborative R&D investment with BAE Systems Australia is driving Industry 4.0 into shipyard manufacturing and supply chains. The project with Flinders University has led to the establishment of the Line Zero and Factory of the Future facilities at Tonsley in South Australia – which is building local talent and creating long-term opportunities for local SMEs.

And while programs of national significance (such as the Hunter Class Frigate Program) have a large role to play in attracting foreign investment, there are many other reasons as to ‘why Australia’. We have a long and proud history of manufacturing. We have a rich abundance of academic and research capability. We typically share common rules of law and standards of governance, respect for intellectual property, as well as common languages with other industrialised nations and strategic partners. Foreign businesses who invest into Australia often only strengthen that investment over time.

By aligning with key investment sectors as outlined by the new Labor Government, we have a unique advantage. Take, for instance, medical manufacturing. Since 2016, global medical technology and Fortune 500 company, Stryker, and IMCRC have been co-investing in a five-year, $18 million R&D collaboration with RMIT University, University of Technology Sydney, St Vincent’s Hospital and others. By enabling Stryker to invest in and develop these partnerships and undertake innovative R&D, IMCRC’s project has led to Stryker establishing its first Australian R&D facility in Queensland. The medical research lab is designed to strategically complement Stryker’s global business while growing critical medtech design and manufacturing capability here in Australia. Opening this September, Stryker’s facility will create many high-skilled, local jobs in engineering, science, clinical research and data analytics.

In addition to job creation, foreign investments also generate opportunities for SMEs to develop the capability, know-how and pathways to compete on the global stage.

There’s no doubt that Australia’s focus on sovereign manufacturing is poised to create significant opportunities for our manufacturing sector, including for SMEs, but we must continue to think global while investing local.

As IMCRC has found, with the right business model, incentives and partnerships, Australian manufacturing can be both attractive and investable for local SMEs and foreign businesses. This is also how Australian manufacturing can be thriving, relevant and globally integrated.

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