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Why it's time to bring manufacturing back to Australia

By: Grant King, IndustrySearch Journalist
16 August, 2015

If you're old enough to be nostalgic about the 1960s, wistful thoughts probably revolve around black suited Beatles rather than boom times in manufacturing.

But yesterday all our troubles really did seem so far away with 25 per cent of national GDP manufactured locally and a quarter of our entire workforce devoted to the task of making stuff.

The long and winding road we have taken since has led right out of the country and taken all but 10 per cent of our manufacturing with it.

Is it time to build a new road? One that leads right out of places like China, the USA and Japan. A road that gives manufacturing clear directions back home? Let's see how the land lies.

The anomalies of scale

It's easy to believe Australia is a major international player because we compete so well on the international stage. Yet Hugh Jackman and a bunch of quite fast Olympic swimmers don't make a large economy.

Quite frankly, we are little more than the chlorine in the international manufacturing pool. Our comparatively small population and distance from major markets have always made it hard to mega-manufacture anything on a large enough scale to compete with the likes of China. And with every economic downturn, every dip in our dollar, and every giddy up in globalisation, our manufacturing base erodes still further. 

Made in Australia? Who cares?

Not our younger shoppers it would seem. Having grown up in the international marketplace otherwise known as the Internet, young Australians are more likely to associate product origins with a website than a country. Through buying in cyberspace, the world effectively ceases to exist; geography becomes irrelevant; and website reputation becomes more integral to buyer decision making than such trivialities as patriotism.

It would seem that the very thing that's brought the world market into our lounge rooms has wiped the world off the face of the earth, at least from a marketing perspective. Perhaps www should now stand for World? What World?

Can we break through this web of indifference?

It's not yet a large scale issue; 87 per cent of Australians still buy local products if they can. But as long as eCommerce continues to drive world markets, a new geographically ambivalent generation will continue to grow and that's not good news for Australia's virtual shopping cart.

Long term, local manufacturers must find a way into the minds of this eGeneration. Short term, those same manufacturers must embrace the one thing that can make local manufacture truly viable: automation.

The rise of robots

Studies in the USA have shown that the average American worker is 10 to 12 times more productive than the average Chinese worker. This has nothing to do with work ethic or even relative abilities. It's merely a reflection of better infrastructure and a far greater use of automation and information technology in American manufacturing.

Quite simply, robots can work much faster than people can and it only takes a few people to run a robot. If Australian manufacturers are going to produce on a scale large enough to achieve competitive price points, they have to go global; a market of 20 million simply doesn't offer economies. And these days competing globally is all about speed to market.

Dealing with delivery

The 'I want it now' demands of eCommerce continue to drive manufacturers closer and closer to their markets as they seek next day delivery and even same day delivery to retain customers. Logistically this doesn't bode well for Australian manufacturers operating out of relative isolation in the South Pacific. But it is doable with the right automation in place, a high tech checkout-to-customer strategy and satellite warehousing close to major markets if necessary (and viable).

Building a knowledge base

If manufacturing is over there and development is here, the two are occasional pen pals at best. They will learn little from each other and any meaningful brainstorming involves long haul flights, plenty of them. The tyranny of distance oppresses training and knowledge sharing in a dialogue often already dumbed down by language barriers.

Such scenarios are even worse for start-ups fiddling with prototypes across oceans of miscommunication. The only way to facilitate fast learning and development and gain a competitive edge is to sit manufacturing and development down in the same room (figuratively) so they can get their heads together (literally) all day, every day. And that means bringing manufacturing home.

In conclusion

The future is there for the taking, but we don't have the answers yet. But there are no answers without questions, so let's hear from the real experts: you, the manufacturers and marketers of Australia.

Comment, criticise, discuss and share so all of us can relive some of that 60s magic.

Forbes: Why it's time to bring manufacturing back to the US, 02/02/2015

Sydney Morning Herald: Shoppers happy to buy goods made overseas, 28/072014
The Age: Where to now for Australian manufacturing? 15/04/2014
Roy Morgan Research

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Jeff Osman | Thursday, August 20, 2015, 3:37 AM
If it was possible to keep the Australian Dollar at about the current levels, this would make our goods 30% cheaper as compared when the dollar was at approx. $1.07 a year ago. With the likes of Holden, Ford, Toyota and the likes, may have thrown out the baby with bathwater too soon. Needless to say the number of jobs that have gone off shore not only in the direct manufacturing industries of these goods but to the support and supply companies also. Can we not direct our political and intelligent energies to this, rather than to gay marriage and helicopter flights.
John Hamon | Thursday, August 20, 2015, 4:13 AM
Its about time the Government showed a little bit of initiative by making it compulsory for Australian Products to be branded "Proudly Made in Australia", clarify what constitutes "Made in Australia" and make it free of charge. get rid of the dumb organisations like the one called "Australian Made" with the kangaroo logo that actually charge money to someone trying to be patriotic. surely there's a bit of taxpayers $$ that could underline our National pride.
Jason Barnes | Thursday, August 20, 2015, 4:33 AM
Perhaps tax breaks for products that are manufactured and sold within Australia.
Mohamed Yussouf | Thursday, August 20, 2015, 5:00 AM
I think the horse is already bolted. I think it is a cultural issue. One must have a national pride – and that must be taught at the school – to get the feel of what it means by Australian made. It is not the cost one pays. It is social value one receives. We say we should not put all our eggs in one basket in any investment. But that’s what happened in the mining boom. A national GDP is a big investment. It is all talk about long term, but only doing things that gives the short term benefit. We simply relied on the mining boom for the short term benefit that ultimately killed our manufacturing industry. People say the high dollar killed the industry. But that was the opportunity to invest more for the future – invest in research, education, infrastructure, etc. But the opportunity has been squandered. Now we didn’t just lose the skill of manufacturing, we lost the knowledge of it as well. Even if the Aussie dollar drops further, a closed car company or steel miss is not going to open again. The country needs a leader with vision who can steer the people, not thinking about their political life for the next day.
robert bosshard | Thursday, August 20, 2015, 5:36 AM
unfortunately the way the Aussie system works all is very short sighted, parliament term should also be 4 or 5 years to help politician with their planning. Also as far I know there is not a single politician with manufacturing knowledge.
Kelvin Duncan | Thursday, August 20, 2015, 5:57 AM
Although I am a Kiwi I feel I can comment since I established a couple of businesses in Australia and because our economies are very similar, with services making up by far the majority part of GDP. I recommend the Cambridge Economic History of Australia to everyone interested in business and economics. It is a far more riveting read than the title promises and it shows how the economy can be broadened and improved. I established those two business in Aus because venture capital was easier to get than in NZ. But those days seem to have gone. Perhaps established businesses should pay smaller dividends and use the cash saved to upgrade the business along the lines the article suggests (robots, machines etc). Most American businesses do this as the pay off in capital gains far outweighs the returns from dividends payouts. So American investors hunt for high growth companies which pay small or no dividends. Perhaps that is the strategy we should develop (I use the inclusive "we" as I have been voted to be an Honorary Banana Bending Aussie - it's better than be called a sheep ....). But seriously, you are much more as a country than the chlorine in the pool water. Should we educate investors into the advantages of high growth-big capital gain-small dividends?
Phil | Thursday, August 20, 2015, 6:25 AM
Australia successfully manufactured things for decades in isolation and with a small local market. The decline has come about because larger foreign manufacturers now have greater access to our local market. If only there was a way of controlling such access...but wait, there was one. It was called an import tariff! As long as our Government is prepared to sign off on one-sided FTAs for the benefit of other nations at our expense, we will continue to decline.
Hedley James | Thursday, August 20, 2015, 6:53 AM
I am the product from the 1960's where I served a five year apprenticeship at the HMA Naval Dockyards not that long after WW2 (for you youngsters that's World War 2). That had me operating a lathe next to a quiet 45 year old who didn't have a hair on his body. Changi POW camp survivor. This terrible time for the generation before me set a standard: how lucky we are here in Australia; let's all keep it that way. That, of course, didn't happen. My career in engineering went through the ship building, farm machinery manufacturing,(went back to U.S.A. after tariffs changed), truck differential manufacturing, (went to India after horrendous unionism (of the bad kind) drove the ultra-modern manufacturing plant off shore), automotive parts manufacturing, warehousing, and engine reconditioning, a service industry, and for the last twenty plus years running our family engineering business. The Button Plan started the demise of the automotive manufacturing industries. I say started , because it was only one of the cascade of legislation changes that crippled us. Before experiencing the Button aggression towards manufacturers, I saw the "clean air act" destroy foundries within a few years; EPA laws with punitive compliance legislation with financial penalties that dissuaded all but the hardy from staying in manufacturing; and then the Button plan kept rolling over us whilst the Reserve Bank took it upon themselves to give in to Paul Keating and float the dollar. That has been a disaster for long term engineering budgets where the time to purchase plant, install, train staff, start making product/money, needs reasonable security and a floating dollar is not that. I must add, that one of the irritating pieces of legislation has been the incredible changes to the financial packages for our public servants: flexi-time, salary sacrifice, (includes a sundry of things including home loan payments and car leasing for their private cars), and very high salaries by what is possible in manufacturing. I will also add the destruction, strong word, of TAFE, elimination of examinations, four year apprenticeships, and I hear some clown is thinking of much less to get qualified, without understanding an employers point of view. That is that engineering trade training is very much a one-on-one training model in modern shops. TAFE have never trained every thing that a trades person needs. They couldn't be expected to. The committee work setting up these courses always set down the basics for TAFE to cover; manufacturing did the rest in-house and always has done.This is simply mandatory and driven by the high rate of changing technology. This costs dollars born by the employer and a cost that we need some recovery for, the like of which we once received with the longer term of apprenticeship. That way our training investment is spread over five years before the young person decides to move off to drive trucks or join the police service. And now, after having our financial investments diluted by decisions made by poorly educated "public servants", some elected, some not, our terms of trade are in decline, manufacturing can save us "Group Think" comes along and we, the manufacturers who are left, are expected to forgive and forget? Give me a break. My thoughts are that all of us in this economy need to be pulling in the one direction. Control the exchange rate, in part, by containing our overhead costs (public servant/politician helicopter life styles right down to local councils), stop selling off our infrastructure to finance pet ideas for the next election; stop the policeman approach by punishing us with more legislation; instead, having identified the EPA issue, hand it to the universities with funding to solve the problem while we keep the money coming in; sort out a new contract with the risk takers. I for one have had the other way up to my back teeth and I don't blame the next generation for redirecting engineering investments towards less
Cecil J Scholar (ceirano) | Thursday, August 20, 2015, 8:21 AM
All valid comments. I worked in TAFE training Fitters & Machinists. Hedley James saw trained tradesmen leave the trade & move into better paid work. Eighty per cent of those who completed the course moved into better paid occupations. Some started engineering enterprises & were very successful. Some moved into Toolmaking. Some became tool designers. Some continued their education in Uni and gained professional status. After five years TAFE & 'on the job' training many found better paid work outside the trade. Were process workers at GM earning more than many tradesmen in other industry. Are Unions part of the problem?
Steve Rowling | Thursday, August 20, 2015, 8:52 AM
The major point I disagree with in the article is that manufacturing is not adversely affected by dips in the $A. Manufacturing has been decimated by years of a high $A, competing with the mining industry on wage rates and Asia for our market. The best thing to happen for my business in the last 4 years was the drop in iron ore and oil prices and the devaluation of the $A which followed. Although based in WA we received very little business from the resources boom as we were priced out of the market. My small business became a much smaller business. At least with a drop in the $A I have a bit of a chance of competing - mind you China pays its manufacturing employees $US 5K per annum - mine cost me $US 5K per month so the dollar will need to drop a lot further before my workforce becomes internationally price competitive. I am not concerned about free trade agreements per se as there are no barriers to entry of manufactured goods in my segment of the economy. For the last 3 years I have been trying to focus my business on providing services to local consumers because I foresee a very gloomy future in Australian manufacturing. Ford, GMH and Toyota are leaving Australia because they will still have the Australian market for their vehicles - they will just source their product from overseas. Any investment in automation will get a much better ROI with a lower paid overseas workforce. The businesses which set up to support local manufacture of vehicles are not so fortunate as their domestic market will no longer exist. It has taken a long time to bring about the demise of Australian manufacturing. Once it is gone, it won't be coming back because there is no incentive for the big manufacturers to come back.
Ganesha | Thursday, August 20, 2015, 10:02 AM
Australia has everything in place except organised approach. Few of the problems of Australian manufacturing industrues: 1. Majority if the manufacturing companies are too small to handle world demand. 2. Australian small companies has less knowledge of globalisation and international business. 3. No standard processes are followed in manufacturing. 4. No statistics are used for demand projection and process optimisation. 5. No plans of diversification. Government has to take steps in modernising the companies by providing low interest loans for BPRE of companies. Companies should try to optimise the process and increase efficiency. Govt should take responsibility of centeralising the market demand of world and help group of small manufacturing companies to serve the demand in simple terms.. we can win only with correct process and logistics.
Alan Swales | Thursday, August 20, 2015, 10:43 PM
I was born in 1935, grew up during the 2nd World war, was the son of an innovative Electrical Engineer. I saw the innovations that were being applied before working age. I know Australians are well-suited to develop new innovative systems, I have been part of it. We MUST participate in our own manufacture because transport is an increasing cost and it will suddenly hit us, isolating us from overseas sources. We MUST produce our own goods!
Boris Frankovic | Thursday, August 20, 2015, 10:50 PM
I had a business in the 90's. I was doing 12 hours a day, I had paid every one and when I reached in my own pocket there was only a few coins left. The worst adversary was the government. With the taxes, penalties and regulation, they had won - I walked away. I was a bit naive as well, thinking that hard work alone would bring prosperity. Manufacturing in Australia? - forget it!!! BF
David Clark | Monday, August 24, 2015, 7:06 AM
You need to guarantee the dollar will not rise if you want the country to grow manufacturing again, we are, at $0.70 it is feasible and I am gearing up manufacturing in the hope the government can see we need to employ the people here and not bring overseas labour.
Martin Stewart | Thursday, August 27, 2015, 6:58 AM
If only we had invested the $ billions that were poured by politicians into US and Japanese car companies into funding innovative companies that could compete on the Global stage we may have had a bigger Hi-tech industry base. Can't see the steel industry lasting given the depreciation of the Yuan and dumping of cheap Chinese steel on the global market as China's domestic consumption slows.
Chris Forster | Wednesday, October 14, 2015, 6:50 AM
Its time governments and large nationals & internationals considered Australian made or manufactured first, not how cheap or fast can you get it. The other problem is share holders and directors are more interested in the bottom line than jobs for Australians.As a service organisation we find that the manufacturing industry is woeful in delivery times, hopeless at replying to requests for information and does not listen to customer base in what we require, even choice of goods is limited in Australia. We recently tried to source goods from a manufacturer in Australia and we got so frustrated we went off shore using e commerce, got the goods in by the next week not the 12 weeks quoted by Australian manufacturer. Its hard to believe that big organisations don't consider manufactured or assembled in Australia as it provides jobs for us supporting the country. Feel sorry for the next generation because there isn't going to be much around. especially WA ware big companies wanting more profit are moving out of the state but expect us to still support them
angela | Wednesday, October 14, 2015, 9:52 AM
Tried to find some Australian made tracksuit pants, anything, Australian made. Not available. People want to buy, good stuff, but not available. I went internet trying nothing nothing in Australia. Surely one manufacturer, could provide damn trakkie pants for Aussies, that want home made?
Geoff trowbridge | Thursday, May 19, 2016, 8:12 AM
One of the results of ww2 commented on was the sudden influx of modern machinery during and late in the war. The commonwealth government invested g Heavily in warehouses also and training operators. This led to a glut of unrequited manufacturing assets and returned soldiers. A perfect storm to start an enterprise These buildings are now 70 years old and require replacement thrught private equity China offers this now on its home soil so I think that's the growth driver. We need to focus on creating low cost infrastructure for small business and focussed labour supplies in our near rural locations. This would take a lot of load off housing, rural labour and make possible cheap factory costs