Some big ideas for manufacturing, but will they happen?

What does the future of manufacturing in Australia look like? Tim Mazzarol takes an in-depth look at a new report and what it means for First 5000 members.

The recently released Report of the Non-Government Members of the Prime Minister’s Manufacturing Task Force provides a comprehensive and well-considered blueprint for the future of Australia’s manufacturing sector. However, the sheer breadth of its scope may pose some significant challenges in seeing its recommendations fully implemented. 

What’s in the report?

Manufacturing employs around 950,000 people and is an important part of the national innovation system. But around 100,000 jobs have been lost since the global financial crisis of 2008-2009, in spite of the otherwise robust growth of Australia’s minerals and energy sector over the same period. With around 71% of all manufacturing employment located in Australia’s non-resource rich states, it helps to explain why we have been experiencing a two-speed economy.

The report’s first recommendation is a call for the federal government to make a clear statement on the importance of manufacturing to Australia’s economic future. In doing so it seeks a policy response to the current challenges facing many manufacturing firms in the two-speed economy.

In conjunction with this long-term vision is a request for a package of short-term measures to help alleviate the pressure currently being experienced by Australia’s manufacturers. Other key recommendations are enhanced federal government investment in infrastructure projects, and measures to stimulate residential and commercial construction.

The report also recommends a “buy-local” policy, anti-dumping measures and more support for SMEs and job skills development. It asks for the Council of Australian Governments (COAG) to take action to enhance the built environment and social and community infrastructure in mining communities.

This package of short-term stimulus is reminiscent of the federal government’s response to the GFC. It is understandable why the Taskforce has recommended these measures. However, it is questionable whether Prime Minister Julia Gillard will be willing to implement them. Her desire to produce a modest budget surplus and counter the Opposition’s claims of excessive spending in the lead-up to an election might turn such short term action into a political football. Time will tell.

Macro-level economic reform

The report calls for more consultation with industry in relation to the impact of regulatory changes, plus more coordination of state and federal legislation and regulations. Taxation gets attention with a desire to see lower company tax rates and more R&D tax incentives. Given the recent noises coming from the federal government’s Business Tax Working Group this is an area for significant debate.

There are also recommendations for greater investment in national transport infrastructure with more multi-modal transport systems. The need for enhanced investment in information and communications technologies (ICT) is raised, with a focus on upgrading the capacity of small to medium enterprises (SMEs). Such areas are long overdue for attention and despite the National Broadband Network (NBN), Australia’s transportation infrastructure is need of substantial investment.

Among the more politically contentious recommendations is the need to reform Australia’s energy markets to reduce energy costs, as well as reducing overlaps between state and federal carbon reduction schemes.

The report suggests that Australia’s carbon reduction programs should be linked to international schemes.
However, it also wants the impact of the carbon pricing scheme to be ameliorated for energy intensive businesses. The Clean Energy Technology Investment Program is strongly supported by the report.

Other recommendations include investigating the creation of a sovereign wealth fund (a recommendation the government has already said it will not support) and the adoption of a conformity marking scheme similar to the CE Marking system used in the European Union (EU).

CE Marking was introduced in 1993 and is a compulsory requirement for all products sold in the EU. It guarantees that the manufacturer complies with appropriate EU regulations and compliances. Although not a quality mark, the CE Marking has become a form of quality assurance branding and signals that products are made to acceptable standards.

Such a scheme would appear to have merit, particularly if it could be developed in conjunction with New Zealand as a Trans-Tasman initiative within our free-trade agreement. By benchmarking such a CE Marking process against EU standards it would provide a potentially useful mechanism for enhancing the overall quality and reputation of Australia’s manufactured products.

Mid-level reform

At the meso-level, the Taskforce recommends establishing a small number of “Smarter Australia Precincts” and a larger number of smaller scale “innovation hubs”. The idea of industry clusters and innovation precincts has been around since the 1980s. It lies at the heart of government strategies around the world in which science parks and technology precincts are co-located near to universities and provided with technology incubators. Sadly, the success of many of these initiatives has been much less than was hoped for by the governments who fostered them.

What is important in clusters is often the presence of major “focal” firms that serve as key actors within production systems. In car manufacturing, these are companies such as Ford, General Motors or Toyota. In an ideal world these focal firms will be exporting their products and fostering international best practice ideas and innovation amongst their network of suppliers and related and supporting industries.

Currently, Australia has a globally competitive minerals and energy sector that has fostered some highly innovative clusters in areas such as iron ore or liquid natural gas (LNG) production. What is needed is for a similar industry cluster to be formed around manufacturing industries. However, too much of Australia’s major manufacturing base has been created for a primarily domestic market. While this worked during the days of high tariff barriers, it is not sustainable in the future.

The role of the university sector

The role of Australia’s university and publicly funded research agencies gets special mention. The report recommends that a committee be established to review how universities and other organisations (such as the Australian Research Council, CSIRO and Cooperative Research Centres) facilitate applied innovation and technology transfer. The creation of a “digital nervous system” for Australia’s national innovation system is recommended. A key part of this are measures to foster formal and on-going dialogue between industry and the research and education sector.

What lies behind these recommendations is a fundamental plank of the concept of a National Innovation System (NIS). This concept emerged in the 1980s, with research undertaken into the economic growth of Japan. An important element in the NIS is the role played by publicly funded research institutions such as universities. Government investment in these institutions is meant to provide dividends in the form of technology transfer that will help to boost the innovation and global competitiveness of the national industries.

Although this role for universities sounds reasonable in theory, it is fraught with practical problems. These are associated with getting technology transfer and commercialisation out of universities. For example, the reward and recognition systems that apply to academics favour peer reviewed publication not applied industry engagement. Universities are also not structured as commercial R&D centres and often cannot respond in the time-frames demanded by industry. They are also not financially or organisationally set-up to take on commercial risk.

Australia’s universities are currently tasked to provide high quality education and the pursuit of fundamental research. Resources are stretched and any significant engagement into applied R&D and commercial project work will require significant funding. Such funding will require more contribution from both government and industry.

The importance of design

One of the more interesting but important recommendations in the report is the call for the recognition of the role of design. This correctly identifies the key role that design plays in innovation and competitive manufacturing. A longer term goal is to see design thinking become an integral part of Australia’s manufacturing industries and to include design as part of future leadership programs.

Without doubt, design plays a key role in the development of competitive products. It includes not only product design, but the associated graphic and related design including interior and architectural design. Australia’s designers are amongst some of the best in the world. However, there is a lack of appreciation of design amongst many managers. There is a need for better integration of design education with engineering and business management courses within our universities.

Smarter SMEs and workplaces

The final recommendations of the report deal with how to enhance the SMEs who make up the majority of manufacturing firms, and how to foster high performance workplaces. Here, there are some valuable ideas. One of these is the adoption of the Small Business Innovation Research Program (SBIR) developed by the US Small Business Administration. This program sets aside federal funding to support R&D within SMEs that have fewer than 500 employees. The SBIR provides grants for early and intermediate stage R&D and commercialisation projects for SMEs.

There is a strong call for enhancing the role of Enterprise Connect and Commercialisation Australia in order to assist SMEs to grow and innovate. The provision of “innovation vouchers” and the expansion of the Researchers in Business Program are also part of the report’s proposals.

However, the recommendation to make Enterprise Connect the “one front door” for SME support in Australia raises some concerns over how this can be undertaken without addressing federal and state overlaps.

Support for SMEs is clearly an important issue and any initiatives that can provide assistance are welcome. SMEs need more than just tax breaks and broadband. One of the most critical areas for attention should be the development of managerial competencies via education, training and networking programs. Currently there are far too many overlapping and often competing SME support initiatives across Australia.

Enterprise Connect, despite it being a worthwhile scheme in broad concept, has suffered from some significant implementation problems at the local level. It generally does not work that closely with existing state and territory SME support programs and there are clearly some unfortunate overlaps. Any future development of Enterprise Connect should involve COAG and the various Small Business Commissioners working towards a more integrated approach to SME support rather than having multiple agencies that often duplicate each other’s work.

Finally, the report acknowledges that innovation is not just about high technology. It recognises the importance of innovation within low to mid-tech industries (e.g. furniture, food processing, clothing, electrical goods, and motor vehicles). This is important for the SME sector.

Building a globally competitive manufacturing sector

The Taskforce report is ambitious, although it is broadly consistent with the findings of the US Council on Competitiveness and Deloitte Global Manufacturing Competitiveness Index study.

The Prime Minister will now be under scrutiny over whether she accepts or rejects its recommendations. There are some big ideas in the report that Julia Gillard or any future Prime Minister could and probably should draw upon to reshape the future of Australia industry. The question is: will she?

This article was originally published on The Conversation 17 August 2012 and is re-published here with the kind permission of the author.

Tim Mazzarol is a Winthrop Professor in Entrepreneurship, Innovation, Marketing and Strategy at the University of Western Australia and an affiliate Professor with the Burgundy School of Business, Groupe ESC Dijon, Bourgogne, France. He is also the Director of the Centre for Entrepreneurial Management and Innovation (CEMI), an independent initiative designed to enhance awareness of entrepreneurship, innovation and small business management. He has around 20 years of experience of working with small entrepreneurial firms as well as large corporations and government agencies.