When the going gets tough, this resilient sector gets going. Here’s how the business of making stuff is rising to all manner of modern challenges.
The food and beverage industry is a good example of growth, thanks to manufacturers adding value
Reports about the demise of Australian manufacturing have been grossly exaggerated. Spurred by high-profile closures of local car makers, clothing companies and whitegoods producers, the stories of job losses are all too familiar.
But, according to manufacturing group leader and partner at Deloitte Australia, Damon Cantwell, “manufacturing isn’t dead, it’s just changing”.
Cantwell says Australia – in step with the rest of the developed world – is seeing a shift towards advanced manufacturing and the fourth industrial revolution, thanks to automation and other technology advancements.
In some areas, Australian manufacturing is even growing.
Australian Industry Group’s national director of manufacturing, Mark Goodsell says the sector has added between 20,000 and 40,000 jobs over the past year, depending on which measure you use.
Segments doing well
According to Goodsell, the food and beverage industry is a good example of growth, thanks to manufacturers adding value to Australia’s high-quality agricultural produce. The sector is also benefiting from buoyant export demand, from Asia. This demand is also strong for health products, baby formula and cosmetics, Goodsell says. And as these exports take off, manufacturers in sub-sectors such as packaging are also thriving.
Goodsell says the building products segment is also doing well, thanks to the housing and infrastructure booms in NSW and Victoria. And, while the resources construction boom may be over, miners still need to replace their equipment and order consumables, helping manufacturers in this sector to grow.
Cantwell adds that defence, rail products and medical technology suppliers are also prospering, largely because there’s plenty of government procurement of their products.
As new technology reduces production costs, even a high-end global manufacturer such as Cochlear, which makes hearing devices, is bringing its manufacturing back to Australia from Europe.
That’s a big change from the doom and gloom surrounding Australian manufacturing a few years ago in the wake of several auto plant closures, along with a 13 per cent slump in real manufacturing output following the global financial crisis and worldwide recession.
“A few years back, when the Australian dollar was uncomfortably high, certain types of manufacturing were under pressure and there was a sense that we couldn’t be competitive doing any kind of manufacturing,” says Goodsell. “I think there’s a recognition now that’s not true.”
Getting the recipe right
Cantwell says manufacturing is still crucial to Australia’s future – it makes up 10% of the total economy and employs 1.3 million people – and there’s plenty of work to be done on all fronts.
He says the Federal Government’s model for helping manufacturers has shifted from one of taxpayer-funded subsidies to one of capability development. As part of this, it has set up centres such as the Innovative Manufacturing Cooperative Research Centre and the Advanced Manufacturing Growth Centre. Manufacturers also have access to the CSIRO and research centres at many universities.
But a mere 5% of Australian manufacturers are responsible for 54% of total expenditure on research and development.
“Obviously you’d like to see that spread much more evenly,” Cadwell says. “The government has built up the R&D infrastructure but has left it to companies to access it; what’s missing is a one-stop shop.
“Companies need to persevere when trying to find their way around the innovation system.”
Cantwell believes that as operations become more automated, labour costs will become less of a cost differentiator, making it ever more viable to manufacture in Australia again.
Goodsell says the single biggest challenge on our horizon is our rising energy costs. “Even in advanced manufacturing, energy is still important. Australia’s manufacturing future will be greatly determined by how well we are able to transform our energy system to new sources of energy without blowing costs out and keeping reliability.
“If we don’t manage that well, then we will accidently reshape our manufacturing base in quite adverse ways.”
Goodsell says till now manufacturing has been all about producing commodity-type products. In the future it will be much more about moving up the technology scale, adopting a global outlook and understanding customers deeply.
Goodsell suggests Australian manufacturers will have to adapt to a new way of thinking that extends far beyond making things to a much better understanding of the customer, employees, data and global supply chains.
“Having raw materials coming in at one end of a factory and finished consumer goods leaving out the other end is a thing of the past,” he says. “The factory is now a series of factories around the world and everyone is trying to work out where they best fit in and have the greatest advantage.
“Australian manufacturing has a future, but it’s not as we know it.”