If the Australian advanced manufacturing sector can’t get itself fully integrated into global supply chains it is in for a rough ride, a new report has found.
Advanced Manufacturing Growth Centre (AMGC) managing director Jens Goennemann, says an over-reliance among Australia’s manufacturers on supplying the domestic market made it more susceptible to fluctuating economic conditions.
“Rather than give our attention to 25 million customers domestically, we can turn that same attention to seven billion globally,” he told InnovationAus.com.
This reliance on a single, modest-sized market meant the Australian manufacturing sector suffered greater volatility. Whether it’s an upturn in market conditions or a downturn, Australia’s average volatility rate is plus and minus 20 per cent over the long-term, compared to other manufacturing powerhouses like the UK, USA and Germany where the fluctuation is only plus and minus 10 per cent.
“This means that when things are going well, it’s going really well. But when it’s going bad, it’s going really bad”, said Mr Goennemann, who believes intense volatility during a downturn can erode a manufacturing base and make it more difficult to bring back.
Volatility simply makes a manufacturing business more difficult to manage, and the sector less sustainable overall.
Unsurprisingly the AMGC report found the automotive sector was on average the most volatile manufacturing industry in Australia.
However, it also found that how 90 per cent of more resilient firms in the automotive sector were exporters, and more than 60 per cent had diverse international connections or participated in global value chains.
“Australia’s automotive companies are very strong at delivering to the global value chain. We need to give manufacturing a broader view,” Mr Goennemann said.
“Manufacturing is not about assembly alone. Manufacturing is not production alone. There is something that happens before production and there is something that happens after production. This is all manufacturing,” he says.
“For example, if you want to assemble the car, you need to think about it, carry out R&D, and once you’ve built a car, you need to sell in the services. You can see in this simple example there is something happening before and after.”
In a bid to further encourage exporting activity, the report recommended that the government continue to push for free trade agreements with key partners including the UK, India, the European Union, Hong Kong and Taiwan.
While at present fewer than one in five Australian exporters take advantage of the available free trade agreements, Mr Goennemann says the work carried out by Austrade is helping to “bring Australian ingenuity to the world”.
“We are working together with Austrade to bring potential target markets for Australian manufacturers.”
Mr Goennemann also suggested a mind shift needs to occur within Australia’s manufacturer sector, so that the focus is on delivering products of superior value, rather than price.
“If you have a product that is so good – and better than anybody else’s – you can sustain a downturn [in the economy] because your customers are dependent on the greatness of your product,” Mr Goennemann said.
“That relates to how Australian manufacturers should not get compete on [price], but compete on value, so if you have something so valuable, you are superior even when things goes south,” he said.
Mr Goennemann also wants to see reforms made to the existing research and development tax incentive and the Entrepreneurs’ Programme.
“R&D is absolutely crucial. However, reforms to the R&D tax incentive are needed. AMGC wholeheartedly supports the recommendations that were recently made in the ISA 2030 strategy report.”