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Export success in Australian manufacturing

01 March, 2006

Traditionally Australian manufacturers were not major exporters. Under ‘McEwenism’ manufacturers typically sold to the domestic market and only ventured overseas when the business cycle was slow in Australia. It was left to our primary producers and resource industries to earn the lion’s share of our export dollars.

Tim Harcourt, chief economist, Australian Trade Commission

With economic reform over the past two decades, protection has been largely removed and manufacturers have been encouraged to be more international in their business outlook. Many commentators thought this would mean the end for Australian manufacturing. Furthermore, the idea that Australian manufacturing could become exporters, they said, was laughable. Surviving domestically was thought to be hard enough.

So what happened? Economic research from the Reserve Bank of Australia shows how the manufacturing sector has been internationalised over the past decade. Bank economists Jacqui Dwyer and Justin Fabo found that export orientation in Australian manufacturing in the 1990s increased at the same time that tariff protection has been reduced.

What were the main factors?

First, there were tariff and quota removals. Manufacturers had to become competitive to survive and in some cases, prosper.

Second, exchange rate falls helped manufacturers gain a ‘beach-head’ in new overseas markets. Basically, manufacturing businesses undergo various fixed costs to establish themselves in overseas markets. They stay in these markets (even if the exchange rate rises) in order to establish their brand and reputation. Once they have done so, they recover the costs sunk into establishing themselves and often make it possible for other Australian exporters to also enter the market. This establishes a permanent presence in the market and raises the 'natural rate of exporting' for Australian business.

Thirdly, globalisation increased intra-industry trade. So export orientation occurred as well as import penetration within industries. Global supply chains and outsourcing also opened up opportunities for manufacturing exports amongst small and medium sized enterprises (SMEs).

Recent Austrade research also supports the Reserve Bank findings. In the ‘Knowing and Growing the Exporter Community’ report launched by Trade Minister Mark Vaile this year, manufacturing featured prominently. Manufacturers appeared in Australia’s ‘Top 20’ fastest export industries – with sectors such as prefabricated building materials, wine manufacturing, shipbuilding and motor vehicle body and automotive component manufacturing playing a prominent part. Many manufacturers were generating ‘knowledge-based’ exports – that is, there was a high level of technology and highly skilled labour used in the production process.

A feature of the Austrade research was the rise of the ‘born globals’ in the exporter community. Born globals are businesses that export almost from the date of establishment rather than waiting to succeed in the domestic market first. Manufacturing accounted for 57 per cent of all ‘born global’ exporters in Australia (compared to 32 per cent of total exporters). An example of a ‘born global’ manufacturer is Lochard, a Melbourne-based world leader in airport noise and flight monitoring. Martin Adams, Lochard’s, Chief Executive Officer (CEO), who started the company in 1990, recognised that there were only a limited number of airports in Australia so the company had to ‘go global’ from the beginning.

The company is highly committed to exporting. Martin Adam’s says: “We have always been willing to drop everything and jump on a plane at a moment’s notice” and the company now brings in $20 million in export sales to the UK, US, Asia, the Middle East and South America.

What does this mean for workers in the manufacturing industry? Labour market data from the Australia Bureau of Statistics (ABS) shows that having more manufacturing exports is good news for workers. Prompted by Austrade research on the labour market characteristics of exporters, the ABS looked at its manufacturing census. Most interest has been in manufacturing given its labour intensity and traditional role as a large-scale employer of Australian workers.

The census in 1998-99 surveyed just over 45,000 firms or ‘management units’ in the Australian manufacturing industry. The management units employed just fewer than 977, 500 employees. Exporters represented only 16 per cent of all manufacturing firms in the survey but accounted for just over half (52 per cent) the total number of employees.

In terms of wages, the wages bill for the exporters was $22,449 m compared to $15,678m for non-exporters. On average, manufacturing exporters paid $44,600 per employee compared to $33,101 for non-exporters. Manufacturing exporters (as in the Austrade research) were more committed to training than non-exporters, out-spending them by a ratio of almost 2.3:1. This data supported earlier Austrade research showing that, on average, exporters paid higher wages, provided better working conditions, more education and training and more job security than non-exporters. This finding occurred across industry and for small, medium and large businesses.

In conclusion, the dour predictions about Australian manufacturing have proved to be overly pessimistic. Change has occurred, and it has been difficult for some and more rewarding for others. However, the export orientation of manufacturing did take place and its success has often surprised some of the more optimistic observers. A strong manufacturing export sector is good for business, good for workers and ultimately good for the Australian community as a whole. Let’s hope this success can continue given the importance of manufacturing exporting to the Australian economy and the hard work done by manufacturing industry players in the past to establish the outward looking, innovative, progressive export industry that we see today.

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