Now here’s a shock - manufacturing exporters do have a future

According to Reserve Bank research, the components of manufacturing that are export-orientated also exhibit strong degrees of import penetration as well. This is not surprising, as according to research conducted by Austrade and the Australian Bureau of Statistics (ABS), 45 per cent of Australia’s exporters are also importers.

Take the example of Longwall Associates, based in Mackay, which produces face conveyors for long wall mines in Central Queensland. The company imports US design technology but manufactures the conveying equipment in Australia. According to the managing director, Peter Van Iersel: “We have no choice but to export as in Australia there are just 28 long wall mines, compared to 52 in the USA and 1,300 in China. After we establish a foothold in the Chinese market, we will consider branching out into Russia and India”. So from this example, an import from the US now, will lead to an export to the US and China and maybe Russia and India later.

In short we need to import to export.

Second, the focus has only been on direct exporting between Australia and usually just one other market. Many Australian businesses export components that are then re-assembled elsewhere, and re-exported. According to DFAT, “re-exports” were valued at $7.1 billion in 2004-05.

Many components are assembled in China and re-exported to other markets in East Asia, North America and Europe but it is not confined to China alone. For example, a small Hornsby company, Autobake designs and manufactures baking equipment in Australia that is exported in component form to the US, UK and the Middle East and then assembled and re-exported. According to Amanda Hicks, Autobake’s Director and a leading figure in the “Women in Export” network, “We’ve built ourselves up from a small suburban domestic company in 1960 to a medium sized business that now concentrates on industrial systems overseas. Exports now account for 90 per cent of our revenue”.

Third, many Australian companies who contribute to our export effort don’t seem to get noticed or be officially “counted” as exporters. For example, an increasing number of Australian companies are part of global supply chains that provide components to larger global companies who then export, That is, there are “hidden exporters”, who are not counted as official exporters themselves but provide components to larger multinational companies that do.

According to Austrade research, there are about 200 companies in the automotive supply chain, servicing four Australian vehicle producers. While, only the car companies are counted as exporters the component manufacturers (based largely in Adelaide and Melbourne) employ over 30,000 workers. According to Hian Yap, an automotive specialist with the ASEAN Secretariat, “Australia may only have a few major players in the global automotive industry, but its smaller auto component makers have a well deserved international reputation for quality, reliability, service and competitiveness”.

Fourth, many Australian manufacturing firms are niche players who specialise in design, innovation and “knowledge-based” activities. They are not big hitters in terms of export revenue but they are important in adding value and helping to keep Australia competitive and innovative.

For example, a company like Port Macquarie-based Magswitch has developed field lock technology which is “doing to locks what zips did to buttons”. According to Magswitch’s R & D director, Franz Kocijan, an international patent has enabled them to “expand their operations in the UK, USA and New Zealand”. A company like Magswitch in regional Australia is no BHP Billiton but it is a high skilled employer in regional Australia.

Finally, all this talk of “rocks and crops” (i.e. mining and farming) versus manufacturing and services is ill-conceived. It reminds me of the ill fated (and now forgotten) “old-economy” versus “new economy” debate we had five years ago in this country. Basically, all the industry sectors in the Australian exporter community complement each other and it is not in our interests to promote one sector over another.

For example, take the example of Longwall mentioned earlier, this is a manufacturing company that produces face-conveyers for the mining industry. It manufactures its product in its own right but contributes to the export potential of mining as well. There are numerous examples of successful Australian manufacturing and service exporters who have developed their niche in serving so-called “old economy” industries. The number of WA-based mining software producers that are beating the path to Moscow to pick up contracts in Russia’s burgeoning oil and gas sector is further evidence of this phenomenon. Australia’s capability in agricultural research and technology is another demonstration of manufacturing and service export potential in “rocks and crops”.

Of course, there are many challenges ahead for manufacturing too. This not only concerns the dollar (the “nominal” exchange rate), but also the “real” exchange rate which goes to issues of productivity and competitiveness. It is important that we continue to invest in human capital (i.e. through education and training), help foster innovation and help with issues of market access and export promotion.

However, it must be remembered that manufacturing has come a long way in Australia in the past two decades after having to escape the shackles of its protectionist past. After all, according to Mark Thirlwell of the Lowy Institute, “in the 1950s manufacturing only contributed 6 per cent of Australia’s total exports whilst now it is almost 28 per cent”. As a result, there are over 9,000 manufacturing exporters in Australia making a significant difference to Australia not only in terms of export revenue but also in providing well-paid, secure, highly skilled jobs to Australian workers.

Let’s hope we can build on this number so we have many more Cochlears, Resmeds, Longwalls, Autobakes, and Magswitches to celebrate into the future.