Australia's future in advanced manufacturing

The Committee for Economic Development of Australia (CEDA) last week presented a panel which discussed the future of manufacturing in Australia. The panel also outlined CEDA’s report ‘Advanced Manufacturing: Beyond the production line’, which examines how advanced manufacturing can support our country’s long-term growth.

Lee Kelly, State Director NSW/ACT, CEDA, stated that, contrary to belief, “manufacturing is not a dying industry in Australia”; however, it is important that we focus on the right type of manufacturing. “For this to happen,” she said, “Australia’s mindset about manufacturing must change.

“We know that Australia cannot compete with low-cost, high-volume production countries,” said Kelly. “Therefore our future is not in assembly production lines - it must be advanced manufacturing and its related purposes.”

Advanced manufacturing, explained Kelly, focuses on knowledge-intensive R&D to produce high-tech products and customised solutions. Biotechnology company Cochlear is a prominent presence in the world of advanced manufacturing, and was represented on the panel by Dig Howitt, Senior Vice President, Manufacturing and Logistics. Howitt believes that, with Australia’s high labour costs and strong education system, our future lies not in low-cost commodity management, but rather niche industries requiring high technology and high know-how “where innovation is key”.

Paul Ravlich, CEO Siemens New Zealand and Regional Manager NSW Siemens, claims that advanced manufacturing will be a big part of the fourth industrial revolution (Industry 4.0), of which we are currently on the verge. He said the transition process will probably take 15 to 20 years, but manufacturing policies in Europe, India and the US are already looking towards this future. Australia thus needs to act now, he said, claiming, “Waiting for Industry 4.0 before making investments could be a disastrous error”.

So how can Australia adapt to advanced manufacturing? Professor Göran Roos, Chair of the Advanced Manufacturing Council in Adelaide and a member of the Prime Minister’s Manufacturing Leaders Group, said manufacturing has four waves - export, offshoring, outsourcing and backshoring - and these waves are driven by continually changing forces: technology development (leading to Industry 4.0); forces driving activity concentration; forces driving activity dispersion; and consumer and customer behaviour.

“The key is to understand what the shifts are … but also to be able to then ride the wave of those shifts,” Professor Roos said. In the case of Industry 4.0, the manufacturing industry must adapt to the changing value-adding potential in the production phase and the changing digitalisation levels of operations.

Professor Roos noted that a nation’s economic prosperity is tied to the robustness of its manufacturing sector - if a company wants materials, it will go to whichever country can provide them. He referred to the economic complexity index (ECI), which examines the sophistication of 128 national economies on a scale of 2.5 to -1. Australia is 79th on the list, with an ECI rating of -0.3.

“That tells us that it is substantially less likely that the random event known as entrepreneurship, around an innovation at a university for example, will be able to be commercialised and grown in Australia than it is to be commercialised and grown [elsewhere],” said Professor Roos. “That is a major problem, because that means that a lot of our potential to create value through industrial activities is just not there.”

The role of government, said Professor Roos, is to stop handing out money to individual companies and focus on driving productivity, enabling a transition to advanced manufacturing and building our economic complexity. Angus Armour, Deputy Director General, Industry, Innovation, Hospitality and the Arts, NSW Trade and Investment, agreed fervently with Professor Roos.

“The best thing government can do is to create a positive environment; an environment that allows businesses to establish, to grow, to bring positive and sustainable jobs for our communities, and compete in a tough global market,” Armour said.

Armour proceeded to outline some of NSW Trade and Investment’s plans, with the NSW Economic Development Framework outlining how the government will invest in critical infrastructure, facilitate collaboration to drive innovation and raise the global profile of Sydney and NSW. The department is currently developing knowledge hubs - industry-led research and collaboration networks which will follow the vision of industry, not government. It has also commenced a supply chain accelerator program that aims to encourage collaboration across the supply chain.

Armour said manufacturers have indicated that they would like people to be more aware of the industry’s success stories, and the department has thus developed three video case studies showcasing successful manufacturers from different sub-sectors. Howitt agreed that “too often, discussion is based on industries that are not suited to Australia and those that haven’t been successful”, and believes we should try and make science, engineering and manufacturing more appealing in schools.

Howitt also outlined some of the secrets to Cochlear’s prosperity, saying there were three important ingredients to the company’s initial success:  academic research and development; government funding; and entrepreneurship. From there Cochlear went on to compete in the global market, surviving thanks to its excellent engineers and technologists; a high level of investment in R&D; and long-term decision-making.

“There are examples where we made decisions 20 years ago … and it’s only now that we’re starting to realise the potential of some of those building blocks that we built,” Howitt said.

“Those decisions require foresight, risk taking, and show that R&D cannot always be predictable; it cannot always be measured in the short time frames that we often use today to measure success.

“That’s why funding research and science programs for the government can be so difficult. They may not pay off for years or they may not pay off at all; this does not mean they are failures and we haven’t learnt and advanced on them.”

Having acknowledged the importance of funding to Cochlear, Howitt stated that new companies deserve access to capital, requiring an environment “where it is recognised that some investments will fail, where it is rewarded when high investments pay off”.  Armour agreed to an extent, noting that when governments provide support for new companies, things will inevitably go wrong at some point and they must be prepared for that. “You almost have to take on that mindset when you’re behind this,” he said.

Ultimately, though, Howitt believes that while “governments and policymakers may make decisions about the long-term settings for Australia … it is up to individual companies to make a go of it”. Having the right management, strategies and people in place are all crucial, he said, as is a willingness to adapt to the changing market.

“Successful manufacturing is hard work, and it will always be hard work,” he said.

“[But] there are many successful companies besides Cochlear, and we should make the public aware of these many successes so that we create a positive image for manufacturing which will help attract some of the best and brightest of the next generation to want to pursue careers in advanced manufacturing.”

Advanced Manufacturing: Beyond the production line can be read here: http://www.ceda.com.au/media/374060/ceda%20advanced%20manufacting%202014%20final.pdf