Leo D'Angelo Fisher Columnist

Leo covers management and leadership issues, business trends and corporate strategy. He is a former senior business writer at The Bulletin and a former host of The Business Hour on 3AW.

View more articles from Leo D'Angelo Fisher

Manufacturing sector in need of some tough love

Published 01 February 2013 12:34, Updated 06 February 2013 17:29

+font -font print
Manufacturing sector in need of some tough love

Tough decisions ... Maybe Australia can no longer afford a manufacturing sector that is all things to all people Luis Enrique

Australia’s struggling manufacturing sector has got off to a disastrous start in 2013. The Australian Industry Group’s monthly manufacturing index reveals further deterioration in new orders, exports and capacity utilisation for January. This latest bombshell for manufacturing will place further onus on the question: does manufacturing in Australia have a future?

The industry group’s benchmark index shows a 4.1 point drop in January from 44.3 to 40.2. This is well south of the critical 50 mark, below which indicates contraction in activity.

If Australian manufacturing is not yet at crisis point, it’s not far from it. Manufacturing activity has fallen for the 11th consecutive month, which can no longer be attributed to continuing washout from the global financial crisis. Australia’s manufacturing base has been undermined by many pressing factors, including the high dollar, increasing costs (including the carbon tax) and an uneven economy, but there are longer-term structural trends at play.

Australia’s manufacturing woes cannot be explained exclusively by the global outsourcing phenomenon and the flow of production activity to Asia. The ubiquity of “Made in China” labels makes it obvious that many Australian companies have succumbed to the low-cost alternative of offshore manufacture. But as the renaissance of manufacturing in the United States illustrates, it is not a given that Asia is the future home of manufacturing.

Improving manufacturing data in the US reflect not only an economy in recovery but a firming view by major corporations such as Apple, DuPont and General Electric that, despite lower labour costs in Asia, “reshoring” or “inshoring” production has the benefit of better control over supply chains, intellectual property and quality. Returning production inhouse also has the benefit of improving organisational culture, skills and innovation.

The renewed viability of manufacturing in the US offers some hope – and lessons – for Australian manufacturers. But the solution to Australia’s struggling manufacturing sector will not be found in the experience of the US or anywhere else. As the relative resilience of the Australian economy since the global financial crisis illustrates, ours is now a distinct, unique and vibrant economy. It is also an economy in transition.

Our economy is in the midst of massive transformation as it adjusts and adapts to a range of global economic, technological and social trends. The question is whether – or to what extent – manufacturing has a place in that economy.

Given that we are in a federal election year and that the campaign for the September 14 poll is now effectively under way, there is no better time for discussing the future of manufacturing. More than that, Australians are entitled to hear from the major parties what their blueprints for manufacturing are. That means not sloganistic “white papers” but real policies and programs of detail, substance and resolve.

Modern political leaders are fond of saying that they have what it takes to make tough decisions. Tough policy decisions need to be made about manufacturing. One of the toughest may be that Australia can no longer afford a manufacturing sector that is all things to all people.

A smaller, focused and more nimble manufacturing sector based on innovation, distinctive products and service, and high-end technology utilisation is likely to make a more robust and reliable contribution to economic prosperity, job creation and consumer satisfaction.

This could mean letting go – or at least leaving to market forces – sectors such as automotive manufacturing. It has become abundantly clear that government handouts to foreign-owned car makers of $1 billion a year bring negligible benefits to Australian consumers and workers. Despite generous handouts to Toyota, Holden and Ford – often extracted from governments on threats of abandoning the Australian market – these companies think nothing of shedding jobs and cutting back production as it suits them.

With only three of the 10 top-selling new cars in 2012 made in Australia, according to the Federal Chamber of Automotive Industries, it would seem that the car makers need government subsidies more than consumers need their cars.

Comments