Australian manufacturing is at the cross roads

In February, Pacific Brands announced it would axe more than 1,850 jobs. The company behind such iconic Australian brands as Bonds, King Gee and Holeproof said it saw no future in manufacturing in Australia and would shift its clothing manufacturing operations to China.

In May, a report from PricewaterhouseCoopers and the Australian Industry Group revealed that the manufacturing sector was in record decline. The seasonally adjusted Australian Performance of Manufacturing Index (Australian PMI) fell by 3.1 points to a record low of 30.1. Producers were cutting inventories at the fastest rate in the index’s history as demand vaporised around the country.

If ignored the social and economic costs will damage the nation’s fabric. According to the Australian Bureau of Statistics, manufacturing is still the biggest employer in Victoria providing full time work for more than 300,000 people. This is more than retail, agriculture and mining combined. And while many suggest Australia’s future lies in such areas as biosciences, agriculture, data processing and software engineering, call centres and hospitality, manufacturing remains either Australia’s biggest or second biggest export earner depending which variable one uses.

The Advanced Manufacturing Cooperative Research Centre (AMCRC) based at Swinburne University could well play a critical role here. It seeks to turn Australia’s unique qualities of a highly educated workforce, a stable economy and political system into competitive strengths and help nurture companies that produce innovative, high value and unique products. The AMCRC started operating in June 2008 with a government-funded research budget of $49 million.

The centre’s aim is to identify innovative manufacturers and take them to the next level through co-investment and connecting them with other institutions and technology. It plans to have a $523 million impact on Australia by 2016, targeting such areas as defence, aerospace, biomedical, fine chemical, mining, energy and fabricated metals products sectors. It also plans to co-invest $42 million into selected industry research projects with an additional $7 million focused on “over the horizon” projects.

The AMCRC assesses each company’s management, its technology, the competitiveness of its people, its corporate governance structures, intellectual property protection, market demand and its ability to carve out a niche market. The timing of the company’s product cycle is also critical.

The centre also provides them with access to the expertise and technology at such organisations as the CSIRO, Swinburne University of Technology, Deakin University, RMIT University and University of New South Wales.

And with Treasurer Wayne Swan’s Budget pumping an extra $50 million into the Export Developments Grants Scheme for aspiring and existing exporters and a new $1.4 billion R&D tax credit scheme doubling the amount available under the existing R&D tax concession, new opportunities to revolutionise Australian manufacturing may well emerge.

Examples of innovative and high value products come from such companies as the Bishop Technology Group which makes power steering technologies. It operates out of Villawood in New South Wales and has more than 180 patents and patent applications. Indeed, more than 20 per cent of all cars produced globally carry some Bishop technology components. There is also Bayswater-based ANCA which manufactures and designs precision grinding-machine tools for use in a range of industries from automotive to aerospace, medical to metal-based engineering. About 95 per cent of ANCA's products are exported, including to car and airline companies. ANCA has been honoured with more than 25 business and industry awards.

These companies, both participants in the AMCRC initiative, represent the future of manufacturing in Australia. They produce highly refined and innovative products that create a value well beyond the traditional manufactured goods that Australia produced in the post-war years and which were, despite the quality, commodity products manufactured everywhere else.

Just as significantly, these manufacturers have identified niche markets which seek to give Australia a unique position in the global economy. In that sense, their strategies echo the insights of INSEAD academics W. Chan Kim and Renee Mauborgne who, in 2005, depicted a market universe of two sorts of oceans.

First, there were red oceans, crowded spaces where the competitive rules of the game were defined and accepted, where companies tried to outperform competitors and where products turned into commodities. That is the old model of Australian manufacturing.