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Manufacturing on the Move

Contributions from industry leaders for manufacturers on the move.

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“Manufacturing by design” How to add value through design, branding, advertising and marketing.

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Australian Advanced Manufacturing – Where are the Bright Spots?

As we move into 2017, the Australian Government is placing much faith into its Advanced Manufacturing Growth Centre (AMGC) which points to the success of a number of globally focused Australian advanced manufacturers. AMGC claims that “these companies employ a large number of scientists and collaborate heavily with universities and the CSIRO”, citing perhaps the “best-known example of Cochlear, which designs, produces and supplies implants for the hearing-impaired in more than 100 countries.” AMGC refers to “other companies such as Cablex, Marand Precision Engineering and Sutton Tools which may not be household names, yet each of these ‘quiet champions’ has established indelible places in global supply chains by contributing high-value tools and parts that other manufacturers convert into finished goods.”

That said, it needs to be recognised that prior to 2000, manufacturing was largely about the production of goods. Today, the boundary between manufacturing and services is disappearing – manufacturing is now the full cycle of activities from research and development, through design, production, logistics and services to end of life management.

In today’s globally competitive environment, manufacturers need to be committed innovators, global supply chain managers and service providers who are engaged not only in production but in research, design and service provision, even entrepreneurs. In other words, manufacturers are engaged in activities that develop, produce and deliver both goods and services to customers.  When a company claims to be a manufacturer, and in the case of larger firms, an ‘original equipment manufacturer’ (OEM), it is more than likely that the manufacturer is assembling a whole range of products made by other companies.

In the case of aerospace, automotive and defence OEMs, there is a supply chain relationship which extends through first, second and even third tier suppliers. It is this system that allows OEMs to leverage competition between various suppliers at each level in the system.

Some manufacturers (the former Australian owned HPM comes to mind in this regard) prefer to be totally vertically integrated. These firms more often than not and where they have the expertise, are disposed to make the machines that do the manufacturing and assembly of the various componentry.  Although vertical integration is becoming less common as companies now tend to specialise at some point in the overall global system. Moreover, many of the truly advanced manufacturing economies are characterised by firms that specialise in making (increasingly) robotic manufacturing machinery.

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Ode to Australian Manufacturing - the End of an Era

With the announcement today of the closure of the Toyota manufacturing in early October, 2017 will be surely remembered in the history of Australian manufacturing as the year in which the vast bulk of auto manufacturing was laid to rest! Yes, Ford Australia has announced it will retain its design functions, GMH will move into the business of low volume high performance cars principally for the export market and Toyota Australia will close down its advanced manufacturing plant at the end of 2017. The fact remains that in 2017, Australia is getting out of the only area of major advanced manufacturing left in the country.

This realisation was brought home to me whilst catching up on some television viewing over the Christmas-New Year break. National Geographic was screening a documentary in its 'Mega factory' series which celebrated in late 2012 the opening of Toyota Australia's new state of the art engine plant, making it the first Australian car manufacturer to produce both petrol and hybrid engines. With substantial co-investment from the parent company and the Australian Labor Government, the plant was designed to produce approximately 108,000 four cylinder 2.5 litre engines per year for its locally built Camry and Camry Hybrid and sedans with the new, more fuel efficient engines to be exported to Thailand and Malaysia.

A tour around the rest of this quite extensive manufacturing plant quickly revealed the extent of advanced manufacturing processes, particularly in robotics, and the high skilled nature of the work being undertaken by the plant's some 4,000 employees. This realisation brought to mind the fact that the Productivity Commission has warned that up to 40,000 jobs from manufacturers and component suppliers are at risk as a result of the closure of motor vehicle manufacturing plants in Australia.

As we move into 2017, the Government's foundling response to its industry destruction policies, the Advanced Manufacturing Growth Centre (AMGC), has claimed that "there are several globally successful Australian advanced manufacturers. Typically, they employ a large number of scientists and collaborate heavily with universities and the CSIRO. Perhaps the best-known example is Cochlear, which designs, produces and supplies implants for the hearing-impaired in more than 100 countries. Other companies such as Cablex, Marand Precision Engineering and Sutton Tools may not be household names, yet each of these ‘quiet champions’ has established indelible places in global supply chains by contributing high-value tools and parts that other manufacturers convert into finished goods."

Apart from omitting to mention Australia's other advanced manufacturing heroes such as ANCA and Resmed in this overview, the Growth Centre's response by way of realisable outcomes to date over the past two years has been truly underwhelming. In fairness, the Growth Centre concedes that " much more work is needed to ensure that a new generation of Australian companies follow their success. Major items on the nation’s to-do list include skilling Australia’s workforce, fostering stronger research collaboration and offering greater capital funding for start-ups."

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Understanding Fair and Free Trade

By any account, the Australian Government’s trade agenda (both bi-lateral and through the TPP process) has been aggressive and fast moving.

The challenges for both government agencies (principally the Department of Foreign Affairs and Trade - DFAT) and industry and commerce (represented by a whole raft of industry groups) in servicing this agenda are considerable.

In essence, as a low tariff economy, the negotiations and consultations with most industry sectors have not been concentrating on the quantum of foregone tariffs, but rather on negotiating the best deal that can be achieved in addressing non-tariff barriers.

The scope of non-tariff barriers are extensive and in some cases the issues are complex.

These barriers include the following

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Election Blues for Manufacturing!

As we head into the 'real' election campaign this week, some commentary may be instructive after listening to the Leaders 'non-event' debate on Sunday night, some other political sparring on Q&A last night, and the comments by the Government Industry Minister on AM this morning about the current state of Australia's manufacturing industry.

First up, neither the PM nor the Opposition Leader have offered any clear idea of how advanced manufacturing or new industry creation (i.e. 'industrialisation') will in fact be advanced in Australia whoever is in government. Whilst the PM waffles on about his 'growth and jobs' plan and his innovation strategy, none of this relates at all to any enunication of substantive industry policy - in short manufacturing currently sits firmly and squarely within a 'policy free' zone. Not that the Opposition is any better based on what has not been revealed so far, and the major industry groups (BCA, Ai Group, ACCI, Advanced Manufacturing Council etc) have added nothing meaningful to initiate any real debate about where this country is heading. In fact, the lack of industry leadership is appalling, and begs the question of what is the role of industry associations if they are not contributing to public debate about the future of the industries and their members which they are supposed to represent.

But I am sure that the PM in response to this critique would point to the establishment of the Advanced Manufacturing Growth Centre, which after some 18 months of 'navel gazing', is now represented by a pretty basic web site, a facility which essentially pitches why companies should join up as members!  I also suspect that the PM would not be saying too much about the Innovative Manufacturing CRC, a government program which very sadly has evolved into a 'non event', a situation which has caused considerable industry disappointment amongst its original industry backers.

As for Q&A last night, judged on their contributions to the debate, both the fiery Tasmanian Senator and the Government's Trade Minister sadly demonstrated their ignorance of what is really happening with the onslaught of the new energy revolution, and it was left to the leader of the Greens to clearly spell out the extent of growth and jobs that could be offered in regional areas of Australia by embracing renewables powered generation. Fancy that, a 'left wing' politician espousing the virtues of exploiting emerging market opportunities at a time the so called 'market focused' liberals cannot see it within their powers to establish a "Renewables Growth Centre' as part of their industry programs.

Tuning into AM this morning to listen to  Minister Pyne (an avowed South Australian) waxing away about the prosperous state of the Australian manufacturing industry and the huge benefits being offered by a plethora of FTAs and the like, punters might have been relieved to hear all the 'fantastic' good news, also to be assured that the overseas auto MNCs really had no intention of continuing manufacturing in Australia, no matter how much support could have been offered by government  - alas history is being rewritten in the process! Sadly all the political rhetoric is not backed up by the facts, especially the realisation that FTAs have done and will no nothing to support Australian manufacturing which has been the 'sacrificial lamb' in a political continuum designed to win concessions essentially for primary and tertiary industries. 

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Australia - An Economy Under Transition

In recent months, and particularly in the lead-up to the Federal Election, politicians have been spruiking the line that as the economy moves away from the resources boom, the slack is being taken up by 'tourism and education'. As reported in a recent AFR report of 14th April, commentator Philip Baker has 'belled this cat'. Citing an independent analysis prepared by Capital Economics, he states that the economists have concluded that "it would take a phenomenal set of circumstances for tourism and education exports to provide a major boost to the economy over the next decade". They also conclude that the level of impact to the economy would be of the order of 0.1% to GDP. The article critically examines the rationale for these conclusions based on a study of the two market segments in China and India.

However, the report did not attempt to look at the size of the emerging gap in revenues to Australia's external account caused by the slump in commodity prices - it is truly awesome, and tourism and education frevenue streams alone are quite insufficent to replace what has been recently lost, reported to be of the order of around A$40 billion. The only area capable of filling this gap is the manufacturing sector, particularly in high value-add manufactures. From my reckoning, this sector in its totality currently contributes around A$13 billion annually, compared to a similar sized economy such as Taiwan where a similar grouping of exports total around US$160 billion annually, a result that has taken over 40 years of manufacturing and trade development to achieve.

In short, Australia needs to triple its current level of high value manufacturing exports to fill this gap, and as we all know, this kind of growth won't be achieved in the short term, more likley to take 15-20 years, and certainly not within the short term period of four years- the life of the current 'manufacturing growth centre' strategy as being espoused by the Australian Government.

It's about time politicans and economic commentators woke up to the reality of the economic crisis facing Australia and stop deluding themselves and the Australian public with false hopes about the growth of other 'service industry' sectors which lack the capacity and potential to restore our revenue shortfalls which service our external account.

All very well to have an 'ideas boom' and a focus on innovation, but better for governments and Australian industry to work out a long term and robust, co-investment-focused strategy for re-industrialisation, a process underpinned by a substantive commitment to 'high value add' manufacturing (embracing both manufactures and bundled product related services) to respond to emerging global market opportunities.

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Whereto Industry Policy?

The announcement today by Prime Minister Malcolm Turnbull to establish a new Centre for Defence Industry Capability (CDIC) headquartered in Adelaide adds a new dimension to Australian Government industry policy, crafted in the lead-up to a Federal Election.


This new ‘industry growth centre’ by another name ‘aims to foster and drive innovation in the defence industry in Australia and open up export opportunities.'


According to the Prime Minister, a key initiative of the 2016 Defence White Paper, the CDIC is being structured to bring together the private sector, Defence and AusIndustry to transform the relationship between Defence and industry to help deliver cutting-edge capability for Australia’s armed forces.’

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