James Riley
July 26, 2016

In search of micro-multinationals

Policy

In search of micro-multinationals

Dean Roy Green: Dishing some love to the maligned advanced manufacturing sector

Professor Roy Green is one of Australia’s foremost thinkers on innovation ecosystem policy. And like the rest of us, he’s feeling slightly deflated.

The University of Technology Sydney Business School dean says Australia’s broad industry policy is stuck.

For all the activity focused at digital and tech-enabled startups at one end and the “we’re OK” inertia of Australian corporates in traditional sectors, innovation policy is missing the biggest potential targets among the broad swathe local mid-tier companies.

The Turnbull Government started with a compelling innovation and science agenda last December, when it looked like we might be in a position to achieve some sort of bipartisan consensus.

“And then somehow the air went out of the tyres over subsequent months,” Prof Green said. “And in the election, instead of substantive messages round innovation, we had empty slogans, which together with commentary on technological disruption has frightened people off.”

This is a bigger problem than appears because it now makes broader innovation policy harder to sell into industries outside of StartupLand.

The whole point of the innovation discussion has been about longer term growth and jobs, which means the conversation must be about broader industrial transformation. And that is now harder than it needs to be.

Prof Green has written extensively about the innovation message being about more than tech-enabled startups. You can read a recent contribution to The Australian here.

The same thinking formed the basis for the issues paper Prof Green wrote for a Senate inquiry into the National Innovation System last year (and which was released not long before the Prime Minister’s National Innovation and Science Agenda.)

Prof Green says the NISA statement was a critical point for both policy-makers and industry. The government’s messaging from the PM gave innovators permission to get on with it. The market signals were about a rebalancing of the economy – and that meant the industries that had despaired of getting some attention had a brightened outlook.

But the NISA statement was supposed to be Part One of an on-going series of policy announcements that would drive this economic transition. Unfortunately perhaps, the election got in the way. And the stultifying tenor of the campaign sucked the oxygen out of the NISA breath of fresh air.

“[People were] frightened off to the point where it is going to be much more difficult to rescue innovation as a concept – and as an agenda – than it would have been otherwise,” Prof Green said.

“We have to re-calibrate not just the message, but the way it is delivered, because we seem to have created a good deal of resistance in the electorate.”

The rebalancing of the economy away from a reliance on commodity-based resources is not going to be achieved simply through a focus on startup techs. This will not fill the gap in export earnings. And it won’t generate the number of new jobs that the nation will need to maintain its enviable prosperity.

There are existing Australian businesses – and certainly existing expertise – where Australia has some competitive advantage that should be acknowledged. But it will take a re-arrangement of focus from policy-makers, Prof Green says.

Advanced manufacturing has been much maligned, he says. But it is among our mid-tier manufacturers where we might find great potential for export growth, if we can get expertise of our smart, well-educated workforce matched with global supply chains.

Prof Green has talked a lot about the rise of the ‘micro-multinational’ – small specialised manufacturers building into global supply chains.

Here’s the thing. This is going to take a repositioning of policy. Malcolm Turnbull has talked a great deal about his plagiarising of other government’s policies. He modelled the Digital Transformation Office (DTO) on the UK’s Government Digital Service (GDS). Australia’s Industry Growth Centres were modelled on the UK’s Catapault Centres.

Prof Green is hoping government is now looking at the UK, where the new Prime Minister Theresa May has re-organised the machinery of government to create a new Department of Business, Energy and Industrial Strategy. It is the ‘industrial strategy’ component her that is important.

The new ministry effectively replaces the business, innovation and skills portfolio of Sajid Javid, an ex-McKinsey free market thinker with a focus on finance tech. Mr Javid was recently in Australia.

There is a lesson we can learn here, Prof Green says. It’s not like Australia is the only economy that needs to rebalance what it does. The UK is shifting away from a reliance on finance to areas of specialised manufacturing, and industrial strategy is a part of that.

Certainly Germany has been an exemplar in industrial strategies – not just through its global manufacturers, but in the way it incorporates its mid-tier firms into the same supply chains.

“And likewise here. We are rebalancing against the resources boom [that is receding] and we have to find new areas of growth and capability, and that’s going to require a bit of foresight – a bit of a technology foresight exercise,” Prof Green said.

“Whether it’s picking winners – or just identifying where the capabilities are and letting the winners pick themselves – is a semantic question. As long as there is a framework and resources provided to enable those sectors that do have potential to succeed.”

“I think a good example is the car industry. With car assembly moving out, it leaves hundreds of auto component suppliers wondering what to do.”

And there’s the challenge. According to Prof Green’s own research of the sector, 50 per cent of all manufacturing suppliers to the car assembly sector will fail immediately – as soon as the car maker’s caravan moves on.

About 15 per cent have already repositioned or diversified into new value chains. Or into other areas of the car industry. Or gone into medical devices, or renewables or defence electronics.

But it’s what happens to the other 35 per cent that policy-makers should now have a laser-focus on.
“That’s really the critical question for industrial policy and innovation. What happens to them?” Prof Green told InnovationAus.com.

“Because they are the companies that want to evolve, that want to change, and that want to get involved in a global market or supply chain – but they don’t know how and they don’t have the resources to do it.”

“That’s really the critical area of interest now.”

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