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Building resilience in Australia's volatile manufacturing environment

18 April, 2018

Australia is currently home to one of the most volatile manufacturing industries in the world. Opportunities for companies to protect themselves against these economic ups and downs is the topic of the Commonwealth supported Advanced Manufacturing Growth Centre’s most recent report.

  • 26% of Australia’s most profitable manufacturers were the lowest performing after the Global Financial Crisis
  • Over recent decades, average output across Australian manufacturing sub-industries has swelled to 20% above trend during economic upswings, while contracting to 20% below this level during downturns.

Resilient firms are defined as those that outperform their industry in a downturn, with higher earnings than average companies. This report identifies three strategies for building resilience and how manufacturing leaders can use these approaches for continuing success.

“The AMGC’s Sector Competitiveness Plan identified ways to drive competitiveness for Australian manufacturers, but there was an ingredient we found that needed to explain long-term performance, namely resilience,” said AMGC’s Managing Director, Dr Jens Goennemann. “Instead of seeing parts of Australia’s manufacturing base being wiped out in the next downturn, let’s rather learn how some of our manufacturers adapted and survived in such times of contraction.”

From 1996 to 2015, the period examined by the report’s researchers, and even without a recession, the manufacturing sector expanded to above and below 20 per cent of its trend size. This 20 percent deviation compares to 14 percent in the UK, 10 percent in the US, and 8 percent in Germany.

For one in three Australian manufacturing businesses, the loss of one customer would have a moderate to significant impact on their business. For one in 10 manufacturers, the loss of one customer would force their business to shut down. Building Resilience in Australian Manufacturing outlines what drives resilience, with 70 per cent of resilient manufacturers exhibit technical leadership, 64 per cent produce a diverse product offering, and 54 per cent have business models that allowed for high flexibility

The characteristics of resilient manufacturers in this context are highlighted through the report’s case studies. One manufacturer, Sutton Tools, benchmarked themselves against the world’s best and decided to bolster its technical leadership through a dogged commitment to research and development. “We stuck at it, not only for the pride of getting that product to successfully work, but more importantly what it did for all our other products and our manufacturing processes,” explains Managing Director Peter Sutton on their demanding but rewarding decade-long R&D project.

The report outlines three business factors driving resilience:

  • Superiority: superior firms possess an unassailable competitive advantage by offering technically superior products or services that are unique within the market, and highly valued irrespective of accompanying conditions
  • Diversity: diversified firms possess a competitive advantage across many product segments, service offerings or geographically diverse export markets. This enables them to respond to shifting consumer tastes or reduced overall demand
  • Flexibility: flexible firms possess an agile business structure allowing them to manage fluctuations in input costs or change industry focus in the event of a downturn

The full report can be downloaded from the AMGC website: https://www.amgc.org.au/Story?Action=View&Story_id=59

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