There is an elephant in the room whenever labour shortages in Western Australia are discussed, and that is the offshoring of work.
THIS week’s cover feature is our annual Biggest Employers survey. It paints a picture of a vibrant state economy with strong growth and low unemployment.
All of the employers surveyed for the feature are concerned at the prospect of labour shortages emerging again as a major growth constraint.
We all remember two or three years ago, when it was near impossible to find suitable labour; wage and contractor rates rocketed as employers chased the available talent.
After the lull caused by the GFC, the labour market is starting to tighten again, but the problem is nowhere near as acute.
There are several reasons for this. The issue is much more ‘top of mind’ for employers, who are working harder to retain good staff and provide training and development pathways.
State and federal governments are also very conscious of the issue, though on this front it is harder to identify tangible results. There has been a lot of talk, and multiple taskforces established, to look at everything from apprentice reform to streamlining skilled migration.
The state migration strategy, for instance, is something that has been a long time coming, and we are still waiting to see if it will deliver.
Similarly, the state government is working on yet another strategy to address training and apprenticeships.
This all has a very familiar ring; is there anything new to be said after all the reviews that were initiated just a few short years ago?
Apart from the employer initiatives and the policy responses, there is another, far more significant change that’s not often discussed – the trend to send work offshore.
This is not a new phenomenon, but its occurring at a pace that is causing dislocation in some industries, and in a manner that has left many firms disappointed by the very modest ‘dividend’ from the booming resources sector.
Steel fabrication is the classic illustration of this trend. Companies such as AGC-Ausgroup, Park Engineers, Fremantle Steel and Pacific Industrial all reasonably anticipated they would be working at full capacity at the present time, supplying steel for the construction of LNG plants, wharves, and numerous other resources infrastructure project applications.
The large assembly hall and load-out wharf at the Australian Marine Complex at Henderson were established nearly a decade ago to facilitate this type of work.
The AMC is still a busy place, but it’s hardly overflowing in the way that most people had anticipated.
In practice, business is lean, in large part because it is now cheaper and in many respects easier for project developers to purchase their steel from Asian suppliers.
AusGroup, listed on the Singapore stock exchange, acknowledged this situation in its latest quarterly report where it said the fabrication and manufacturing businesses “will continue to experience ongoing competitive pressure from low cost country competitors”.
The trend towards offshoring of fabrication work has occurred in tandem with the increased use of modular construction.
With large modules sent by barge from Asian fabrication yards to the Burrup Peninsula and Port Hedland, project developers such as Woodside, Chevron and CITIC need far fewer on-site staff for the construction of their LNG plants, concentrators, power stations and so on.
The high Australian dollar has added to the compelling business case for getting work undertaken offshore rather than domestically.
However, even if the dollar slumped in value, it s unlikely there would be a major shift in procurement strategies.
The massive scale, high efficiency and increasing standards achieved by Asian suppliers makes them hard to beat.
The big question for Australian industry is how far this trend will extend. Everything from structural steel and LNG modules to engineering design services and transportable accommodation can be sourced offshore.
Industry talk is that projects with Chinese ownership have an even greater inclination to send work offshore, leaving little opportunity for local suppliers.
The challenge for WA is to find areas where the state has a sustainable competitive edge, beyond the raw mineral extraction.