Australian manufacturing: From dying industry to dream factory?

Lower tariffs and cheaper imports have battered the manufacturing industry, but a new report suggests a shift to high value-added production could save the sector from extinction.

Is the Australian manufacturing industry slowly marching towards extinction? Not necessarily, according to a new report by the Australian Workforce and Productivity Agency.

However, to become competitive, we need to shift from heavy industrial manufacturing towards higher value-added, technologically advanced production.

Manufacturing has been in a state of transition for decades. Lower tariffs, changing technologies and the outsourcing of tasks to low-cost economies have adversely affected the sector.

Over the past 20 years, the Australian manufacturing industry has lost around 200,000 jobs as the Australian economy has transitioned from a manufacturing/agriculture base to an economy that is driven by services and mining.

With the mining boom pushing the Australian dollar higher, Australian manufacturers have found it increasingly difficult to compete with low cost competitors overseas.

The globalisation of resources and technology has left some Australian manufacturers flat-footed as they realised that low-cost workforces overseas could produce the same products at the same quality for a mere fraction of the price.

But while Australia will continue to lose low-skilled manufacturing jobs, AWPA sees a future for high-end innovative products where Australia has a competitive advantage.

“To remain competitive Australian manufacturing needs to transition to a more diverse, high-end base, where there will be a stronger focus on research and innovation and more niche manufacturing of complex high value added goods,’ said AWPA chair Philip Bullock.

A shift to advanced or niche manufacturing will be disruptive and difficult for some workers, particularly older workers in industries that are becoming obsolete. The median age in the manufacturing sector is 41 years, compared with an industry-wide average of 39 years.

Around 45 per cent of the manufacturing workforce do not hold any post-school qualifications, compared to 39 per cent for all industries, and may need support to develop the skills necessary to meet the demands of a modern workplace and find new jobs.

“Raising skill levels in this workforce will be critical, and the industry will require more people with higher education skills, particularly science, technology, engineering and mathematics skills and improved management skills to provide the technical and leadership capacity to drive the sector’s transition,” Bullock said.

I don’t necessarily share the optimism of the AWPA, but if the sector is to succeed and flourish, then it can only do so by transitioning towards more advanced forms of manufacturing. Australian manufacturers simply cannot compete against low-cost producers for low-skilled manufacturing -- nor should we.

Australian manufacturing needs to be innovative and it needs to differentiate itself from its competition.

Higher-cost producers can compete when they provide a product that is different from that of its competitors; they must offer something that cannot be sourced elsewhere for cheaper. There has to be a reason to buy Australian-made beyond the fact that it is Australian-made.

The problem for Australia is that most other advanced economies are in the same boat. Each country wants to manufacture something, but they cannot compete in low-skilled manufacturing. Is the global economy big enough for developed countries to compete in high value-added, technologically-advanced manufacturing?

Graph for Australian manufacturing: From dying industry to dream factory?

There is certainly a window of opportunity for Australian manufacturing but current data leaves me far from optimistic.

Capital investment by manufacturing firms is set to decline to its lowest level in over 20 years by 2014/15. A transition towards high-skilled, technologically advanced production will be costly and so far it appears that Australian businesses are unwilling to foot the bill.

The AWPA report is a fairly optimistic about Australian manufacturing but it correctly recognises that Australia needs to change if it is to compete internationally. If this period of transition is successful, it will be incredibly disruptive for many Australians, but it is necessary and inevitable.

We cannot cling to the old ways of doing things. If we continue to do so, there is a very real chance that we will miss out on the benefits of advanced production to the range of developed economies making the same transition.

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