What does manufacturing look like in 21st century Australia?

03 Apr 2017 |

There aren’t many issues on which more than four in five Australians agree, but Australia’s manufacturing future is one of them.

The recent finding from the Political Person Project was stark. In the survey released in February, more than 82 per cent of respondents said they wanted Australia to manufacture more.

But what does a prospering manufacturing sector in 21st century Australia look like?

Let’s start by recognising that the days of low-value mass production in Australia are nearly at an end. Any form of manufacturing where labour is a significant proportion of the total cost will move to a place with low labour costs, such as the developing countries of Asia – if it hasn’t already.

Instead we need to think about the areas where Australia has competitive edges, and find ways to leverage them.

For starters, Australia is close to the booming economies of Asia, which between them are home to nearly three billion people, including hundreds of millions in the consumption-hungry middle class. Australia has a stable political environment and a strong legal environment that respects intellectual property. And we are home to some of the world’s top 100 universities and have a skilled and educated population.

These advantages mean Australia is well-placed to lead the world in certain types of manufacturing.

Take products that depend on excellence rather than volume. This is achieved through an investment in intangible assets: product design, strategic planning, business models and brand image. When these are applied well, the products that result can command a premium price from customers keen for quality.

An extension of this strategy is niche manufacturing, which involves the production of small batches of specialised products. Take the example of Creswick Woollen Mills, near Ballarat. Where most textile producers have gone offshore, this 70-year-old company is thriving with its natural fibre products designed to suit Australian conditions. One major product is the personal protection blanket used by country fire services in Victoria and New South Wales, which need to meet exacting safety requirements.

We need to make the most of our natural resource allocation. Canada and parts of Scandinavia are rich in energy resources and have developed high-tech manufacturing activities to make the most of this abundance. But Australian manufacturing is still strongly oriented towards lower -technology production, giving us plenty of scope for focus on high-tech industries.

And there is great potential from “manu-services”, which combine advanced manufacturing with a range of services, reflecting the reality that modern manufacturing involves more than just making things.

Manu-services will prompt us to rethink how we define a manufacturing job. No longer will these jobs be associated just with the pure production process, such as fabrication and assembly. A growing share of employees in manufacturing will undertake services-related roles, including engineering, financial management and legal advice.

Australians can be at the forefront of connected manufacturing, which couples manufacturing with digital technology to improve speed, efficiency, accuracy and customisation. Bosch, the German manufacturer, has embraced technologies like connected assembly lines, predictive maintenance, and self-aware machines. This has helped it achieve a 20 per cent annual increase in productivity and A$1.4 billion in additional sales.

If we accept that this is where our manufacturing future lies, what are the policy changes we need to get there?

Rather than treating services and manufacturing as rival sectors of the economy, we should see them as complements. Our education system – both universities and vocational education – needs to reflect this. That means that graduates gain skills from across disciplines: we need production workers with customer service skills, engineers with financial nous and designers who understand marketing.

Australia invests heavily in R&D in lower-tech industries, such as fabricated metal products and food and beverages, but only a small fraction of what other OECD economies are investing in high-tech industries such as pharmaceuticals. Through better-targeted investment in R&D – from business, government and universities alike – we can develop greater capacity for commercially successful innovation.

A stable energy policy can create the right circumstances for technology with an environmental focus. The production of goods or services designed to deliver an environmental benefit is nearly three times as manufacturing-dependent as the overall economy.

Energy demand is likely to increase with population growth and industrialisation, so improved resource efficiency will become even more important. Greater energy efficiency coupled with increased labour productivity can contribute to the competitiveness of manufacturing by attracting investment.

Done right, these policies can create a virtuous cycle. Greater productivity and capital efficiency will make labour costs less important, curbing the incentive to move activities to low-labour-cost regions. This will save Australian jobs and create others. If we encourage high-tech manufacturing in Australia, then the growing manufacturing sector can create a strong incentive for the rest of the economy to develop new technologies and embrace overseas expertise.

For the sake of all of us who want a strong, globally competitive manufacturing sector in Australia, and the jobs that flow from it, we need to take action to make this a reality.

An edited version of this piece was published in The West Australian on April 3, 2017.

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