Local cost structures mean Australian manufacturers must be technically advanced and efficiently structured to succeed.
The Chamber of Commerce and Industry WA highlighted the challenges facing the manufacturing sector in Australia in a timely paper earlier this month titled 'Future of Manufacturing'.
The sector's current structure allows only the most technically advanced, efficient and export-oriented operators to survive. Many operators will cease to exist going forward unless they streamline their operations, differentiate their product and service base and increase the size of their markets.
Manufacturing in Australia isn't for the fainthearted. There are many challenges, although the rewards do exist for highly efficient, strategic operators.
'Manufacturing' crosses all industries, as Matrix discovered when acclaimed Hollywood director James Cameron contacted the company for buoyancy to use on his Deepsea Challenger diving submersible some time ago.
More recently, Matrix sourced buoyancy for the company operating the survey vessel looking for the debris of flight MH370 – indicating the breadth of opportunity available.
Technology and intellectual property are integral to the success of niche product manufacturers in Australia. Products and the manufacturing process involved must be protected through IP. If the product is globally transportable, IP becomes even more important in the countries where the product is marketed. Manufacturers of generic products will only survive if they are supplying the local market or if they have very short product turnaround times, a key differentiator in the market.
Eventually, lower-cost offshore operators will displace the majority of manufacturers without IP.
Technology is an integral factor required for manufacturers to successfully compete. Due to the high cost of labour in Australia, successful manufacturers will likely have a highly automated operation. The cost of labour in Western Australia is between 30-50 per cent higher than the equivalent skill set in Houston, US.
Payroll tax adds to the cost of labour, along with the legal requirement to pay shift loading and overtime rates. Shift loading and overtime curtail the ability of a company to flex their shifts up and down in accordance with client demand. This ultimately results in a limited ability to fully leverage capital.
Australia is a small marketplace. Manufacturers need to be globally competitive in order to access and succeed in larger offshore markets. Doing business in the global arena demands a global presence, especially during the negotiation phase of the sales process.
A conduit to market could include sales offices, agents or distributors as used by Matrix in all five continents. Local people with local knowledge, connections and time zones are the most effective in terms of advancing the sales process and ultimately closing the deal.
CCIWA provides advice and support to manufacturers looking to enter foreign markets through its International Trade Services offering.
Manufacturers today can no longer rely on manufacturing a product. For a product or product line to succeed, it must have a strong service element attached. A service element will create additional value for the client, generate a diversified revenue stream and will make the overall offering or 'package' more sustainable. A service element could encompass a range of activities including product distribution, support or logistics to name a few.
The availability of capital investment is another factor that acts as an impediment to the industry. Capital investment is vital for the growth of a business. Australia does not have the same number or type of financing options that are available in Europe and the US. We are also limited in terms of the accessibility to cheaper finance options compared with what is available in other countries.
Unlike other countries, Australia does not offer manufacturing incentive programs to local or international companies operating within its borders. Countries such as Malaysia, Thailand, Vietnam and South Korea offer incentives including subsidised land, corporate tax holidays for local and expatriate executives of up to eight years, ready-made industrial parks and labour and training subsidies, to name a few. Many of these countries have established manufacturing infrastructure that is highly attractive for companies, and are highly focused on generating local employment.
To succeed and reap the benefits of operating within a politically stable, low-risk country, companies must be technically advanced, streamlined operators offering a niche product and service to the global market.