How Australia can better navigate Industry 4.0



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Professor Bronwyn Fox is the Deputy Vice-Chancellor (Research and Enterprise) at Swinburne University of Technology. Prior to this appointment, Professor Fox was founding Director of the university's Manufacturing Futures Research Institute with a mission to support the transition of Australia’s manufacturing sector to Industry 4.0. Professor Fox was previously one of the founders of the Carbon Nexus facility at Deakin University, which catalysed the creation of an industrial research precinct, and she is an internationally recognised expert on carbon fibre and composite materials

Professor Beth Webster is the Pro Vice Chancellor (Research and Impact) at Swinburne University of Technology and a member of the CEDA Council on Economic Policy. She has authored over 100 articles on the economics of innovation, intellectual property and firm performance and has been published in RAND Journal of Economics, Review of Economics and Statistics, Oxford Economic Papers, Journal of Law and Economics and Cambridge Journal of Economics

Leanne Barnes is the Senior Advisor to the Deputy Vice-Chancellor (R&D) at Swinburne University of Technology. In this position she is playing a key role supporting the delivery of Swinburne’s Industry 4.0 Strategy and the establishment of the National Testlab Network. Prior to this current role, Leanne has held managerial positions with state government departments in Tasmania and Victoria, developing and delivering science and technology industry and small business development strategies.

Australian business will have to invest in innovation to compete in global markets, but the right frameworks need to be in place to ensure this innovation leads to growth. Swinburne University of Technology Vice Chancellor (Research and Enterprise), Professor Bronwyn Fox, Pro Vice Chancellor (Research and Impact), Professor Beth Webster, and Senior Advisor, Leanne Barnes, survey the research on Industry 4.0 to show how business, government and researchers can work together to drive meaningful progress.

Innovation is the only way businesses can compete and improve their efficiency. Doing the same thing often means losing market share as rivals out-pace you. But innovating is risky, especially given the disruption and uncertainty caused by the COVID-19 pandemic.

There is compelling evidence that innovation is more successful when businesses cluster and collaborate through institutions that create bonds of trust and knowledge sharing.[i] Silicon Valley and its nexus with Stanford University is the classic example of a university precinct driving investment into high-risk ventures.[ii] In recent years, several industry reports have pointed to the need for government to provide a roadmap to reduce uncertainty and give the manufacturing industry the confidence to embrace advanced technologies and digitalisation. For Australian industry to remain competitive, business models need to include networking and collaboration around R&D. 

Industry 4.0 can boost Australian business

Business environments are becoming increasingly competitive. Falling communication and transport costs provide greater opportunities for Australian companies to enter global markets, but they also make it easier for international competitors to access the domestic market. Companies need business models that distinguish them from their competitors.[iii]

By embracing Industry 4.0, or digital technologies, companies can swim with this new global environment rather than drowning in it. Although Industry 4.0 is relatively new, it is already having an impact on how businesses compete and their corporate strategies. New digital technologies can disrupt how and where activities are located and organised within global value chains, who controls the chain and who captures the value added.[iv]

In 2019, a new report developed by PWC with Swinburne University of Technology, Siemens and the Australian Manufacturing Workers Union ‘Transforming Australian Manufacturing: Preparing businesses and workplaces for Industry 4.0 made recommendations to both reinvigorate the manufacturing sector and boost the research and education sector, including:[v]
  • Commonwealth Government to facilitate the development and release of a manufacturing Industry 4.0 Strategy;
  • Establishing hubs for Industry 4.0 commercial manufacturing activity (focused on priority industry sectors);
  • Removing barriers between Vocational Education and Training and higher education in the tertiary education system to facilitate collaboration opportunities and seamless learner pathways;
  • Establishing a workforce transformation leadership program.
These recommendations aim to match the needs of manufacturing SMEs with the Industry 4.0 skills and expertise of university Industry 4.0 test environments.[vi] Industry 4.0 hubs enable SMEs to rapidly develop innovative cyber-physical systems and innovative smart products. Similar systems have been established in Germany, South Korea and the USA.

Although it is too early to formally evaluate new Industry 4.0 test environments, numerous quantitative evaluations of government programs have assessed their effect on business performance. The majority of these tests have yielded positive results: participation in a government program that informs, curates and de-risks innovation or global market penetration leads to better business outcomes compared with a control group.[vii]

Pursuing the PWC recommendations will enable significant advances for the manufacturing sector and help boost the economy, both during and after the COVID-19 pandemic. We are seeing reassuring steps in that direction through a number of Australian Government initiatives and the establishment of the National COVID-19 Coordination Commission, which has been tasked with stabilising the Australian economy. A plan must now be set in place to signal a way forward for industry and the research sector. 

Collaboration hubs: making innovation work for everyone

Establishing collaborative hubs in priority sectors would enable the research sector and industry to work and grow together in a team environment, cost effectively sharing resources and combining expertise. The hub model has already proven its worth. A prime example of this is the hub formed around the Carbon Nexus facility established at Deakin University in 2014.  Developed in collaboration with the CSIRO, supported by the Geelong Manufacturing Council and several companies, and seeded by both state and federal government investment in response to the global financial crisis, this hub has spawned a new carbon fibre ecosystem, creating more than 1400 jobs in this precinct. Two rapidly growing companies within the hub, Quickstep and Carbon Revolution, have added more than 600 new jobs to the Greater Geelong Municipality – a critical development following the end of manufacturing at Alcoa and Ford.

Swinburne works closely with industry in a series of industry on-campus hubs, embedding global digital companies with us on site to grow research capability and impact in key digital sectors. This includes Amazon Web Services (cloud computing), Siemens (Industry 4.0), DXC (digital transformation) and Capgemini (blockchain). These hubs engage with Swinburne’s drive to work with the manufacturing sector to evolve their Industry 4.0 knowledge, capability and business models. They also deliver rapid innovation, co-creation and co-delivery to make Swinburne’s research, education and training remit industry relevant.  

In 2019, the Australian Government established the National Industry 4.0 Testlab Network across six Australian universities, with the oversight of the AiGroup’s Industry 4.0 Advanced Manufacturing Forum. These testlab hubs have a mandate to work closely with industry on research, education and skill development, and must form close links with TAFE colleges. Each one has been turbocharged with a digitalisation grant from Siemens.
Two testlabs are being developed by Swinburne University of Technology: an Advanced Manufacturing Industry 4.0 Open Demonstrator Testlab (complete) and the National Industry 4.0 Testlab for Composite Additive Manufacturing (a joint facility with CSIRO in Clayton, due for completion in late 2020). This second testlab has established national and international partnerships with industry including AREANA2036 in Germany. 

ARENA2036 is the research campus of the future, an innovation platform for cooperation between science and industry with more than 40 partners on campus at the University of Stuttgart. As a dual-sector university, Swinburne has experienced co-evolution of higher education and skill development programs through these testlabs and industry relevant innovation has thrived as VET and higher education students, researchers and industry work side by side. Swinburne’s pioneering Industry 4.0 Higher Apprenticeship, the Associate Degree of Applied Technologies, co-developed with Siemens and AiGroup, is an example of one such program.

A national priority

Many commentators have called for Australia’s sovereign manufacturing capability to be strengthened. This would clearly benefit the nation, especially when it comes to high-tech, high-value and niche products and services. Industry 4.0 has a crucial role to play, not only to increase this capability, but also to facilitate links to global supply chains. We should not see the push for increased sovereign capability as a way to limit international partnerships and engagement, but rather as a way to increase the value of our products, services and research.  We need to seek out the best businesses and research organisations in the world, not only those that are already willing to work with us, to rapidly advance innovations and reap the rewards, both economically and socially.

Before this crisis Australia was already lagging many western nations in its investment in research and development. The country’s Gross Expenditure on R&D (GERD) has fallen year-on-year to a low of 1.79 per cent of GDP in 2017-18.[viii] Other nations are rapidly expanding their research and development spend. For example, the UK and Germany have released strategies in the past two months committing significant funding to R&D.  Now is the perfect time to invest in research: Studies across the world have shown that for every dollar invested in R&D, the returns to GDP are about twice those of the returns to the firm undertaking the R&D.[ix]
 
Many global companies already choose Australia for their R&D endeavours. They know Australian researchers are some of the best in the world, and can collaborate and work at industry pace to create impact. Let’s capitalise on this, further build our reputation and ensure the world knows we are open for research business.

Australia’s handling of this crisis has shown we can act on the advice of experts and evidence-based research and deliver world-leading results. In 2017, the Advanced Manufacturing Growth Centre (AMGC) catalysed a paradigm shift in our ambitions for the manufacturing sector through the publication of its Sector Competitiveness Plan.

We now urge the Australian Government to lead the way in setting a new roadmap to support the manufacturing sector to navigate Industry 4.0. If we act now, a new strategy with the right policy support will reduce the cost of innovation, increase R&D investment and create a culture of true teamwork to bring research, industry, government and community together to solve problems and spark innovation. This will ensure Australia can be more competitive, more productive and more prosperous than ever before.
 

References
[i] Becheikh, N., Landry, R. and Amara, N. 2006 ‘Lessons from innovation empirical studies in the manufacturing sector: A systematic review of the literature from 1993–2003’, Technovation, 26, 644–664. Cohen, W. 2010 ‘Fifty years of Empirical Studies on Innovative Activity and Performance’, in B Hall and N Rosenberg (eds), Handbook of the Economics of Innovation, Volume 1, North-Holland, Amsterdam, pp 129–213. Criscuolo, C., Haskel, J., and Slaughter, M. 2010 ‘Global engagement and the innovation activities of firms’, International Journal of Industrial Organization, 28, 191–202. Lane, P. and Lubatkin, M. 1998 ‘Relative Absorptive Capacity and Interorganizational Learning’ Strategic Management Journal, 19, 461–477. Nelson R. and Winter, S. 1982 An evolutionary theory of economic change, Harvard University Press, Cambridge. Rosenberg, N. 1982 Inside the black box, Cambridge University Press, New York.
[ii] Saxenian, A. 1994 Régional Advantage: Culture and Competition in Silicon Valley and Route 128 Harvard University Press. Bloom, N., Van Reenen, J. and Williams, H., 2019. A toolkit of policies to promote innovation. Journal of Economic Perspectives33(3), pp.163-84.
[iii] Pfohl, H.C., Yahsi, B. and Kurnaz, T., 2015. The impact of Industry 4.0 on the Supply Chain. In Innovations and Strategies for Logistics and Supply Chains: Technologies, Business Models and Risk Management. Proceedings of the Hamburg International Conference of Logistics (HICL), Vol. 20 (pp. 31-58). Berlin: epubli GmbH.
[iv] Strange, R. and Zucchella, A., 2017. Industry 4.0, global value chains and international business. Multinational Business Review.
[v] Pricewaterhouse Coopers Consulting (Australia), Swinburne University of Technology (2019). Transforming Australian Manufacturing: preparing Businesses and workplaces for Industry 4.0. Available at: https://i4amf.aigroup.com.au/wp-content/uploads/2019/05/Industry-4.0-Report-May-2019.pdf  (viewed 14 May 2020).
[vi] Issa, A., Lucke, D. and Bauernhansl, T., 2017. Mobilizing SMEs towards Industrie 4.0-enabled smart products. Procedia CIRP, 63, pp.670-674.
[vii] Howell, S.T., 2017. Financing innovation: Evidence from R&D grants. American Economic Review107(4), pp.1136-64. Bloom, N., Van Reenen, J. and Williams, H., 2019. A toolkit of policies to promote innovation. Journal of Economic Perspectives33(3), pp.163-84. Criscuolo, C., Martin, R., Overman, H.G. and Van Reenen, J., 2019. Some causal effects of an industrial policy. American Economic Review109(1), pp.48-85. Trevor Kollmann, Alfons Palangkaraya and Elizabeth Webster (2019) Impact of Austrade Tailored Services 2012-16 A Report prepared for Australian Government Australian Trade and Investment Commission, Centre for Transformative Innovation Swinburne University of Technology. Alfons Palangkaraya, Thomas Spurling, Elizabeth Webster (2016) What drives firm innovation? A review of the economics literature, Centre for Transformative Innovation, Swinburne University of Technology. Dvouletý, O., Srhoj, S. and Pantea, S., 2020. Public SME grants and firm performance in European Union: A systematic review of empirical evidence. Small Business Economics, pp.1-21. Moretti, E., Steinwender, C. and Van Reenen, J., 2019. The Intellectual Spoils of War? Defense R&D, Productivity and International Spillovers (No. w26483). National Bureau of Economic Research.
[viii] Australian Bureau of Statistics (2019). 8104.0 - Research and Experimental Development, Businesses, Australia, 2017-18 - Gross Expenditure on R&D (GERD). ABS Canberra, available at: https://www.abs.gov.au/AUSSTATS/abs@.nsf/Latestproducts/8104.0Main%20Features22017-18?opendocument&tabname=Summary&prodno=8104.0&issue=2017-18&num=&view=  (viewed 14 May 2020)
[ix] Hall, B.H., Mairesse, J. and Mohnen, P., 2010. Measuring the Returns to R&D. In Handbook of the Economics of Innovation (Vol. 2, pp. 1033-1082). North-Holland.
 


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