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Opinion article

Action needed to develop advanced manufacturing sector

In this post, Professor Göran Roos examines actions governments, business and individuals need to take to create a vibrant advanced manufacturing sector and increase national prosperity.

The move towards advanced manufacturing is also a move towards a higher economic complexity which in itself is an enabler for higher national prosperity.

To accelerate the move towards a higher share of advanced manufacturing in Australia actions need to be taken by federal and state governments, firms and individuals.

The term advanced manufacturing is frequently used but what is it? An advanced manufacturing firm is likely to exhibit at least one of the following characteristics: use recent science and technology advances for production processes and equipment, deploy new raw materials, produce products that include key enabling technologies, deploy business models that enhance the value capture of the firm and reduce the resource footprint of both the firm and customer.

Government, firm and individual action

Governments, firms and individuals need to take action and implement policy that will be effective in increasing the productivity and competitiveness of Australia’s advanced manufacturing sector.

Some key actions are outlined below.

Government-level action

Firm-level action

Individual-level action

Use of smart regulation to induce innovation led industry development. Ensure a well-educated and trained workforce. Take responsibility for keeping competence up-to-date and relevant.
Ensure a substantially higher level of formal education on entering the workforce complemented by substantial amounts of continuous education to stay productive. This is a question of both quality and quantity and is relevant for both the shop floor and management. Ensure a substantially higher level of formal education on entering the workforce complemented by substantial amounts of continuous education to stay productive. This is a question of both quality and quantity and is relevant for both the shop floor and management. Ensure a substantially higher level of formal education on entering the workforce complemented by substantial amounts of continuous education to stay productive.
Spur next generation technologies through support for manufacturing institutes and investments in manufacturing research and development (R&D). Have continuous investment in R&D. The level of investment is sector dependent but should vary between five and 20 per cent of turnover.  
Strengthen workforce skills and regional clusters. Ensure high managerial competence.  
Lower tax rates to make Australia more attractive and competitive for manufacturing. Participate in clusters to achieve agglomeration economic benefits. Typical benefits are 14 percentage points higher value added growth, seven percentage points higher profitability growth and two percentage points higher wages per employee (a proxy for productivity) to the advantage of firms in clusters versus those not in clusters.  
Keep increasing market access through free trade agreements that are beneficial for manufacturing. Ensure the presence of managers with experience from international high performing firms.  
Ensure a steady and reliable low cost energy supply. Ensure modern managerial practices.  
Use smart procurement, lead customer logic and small business innovation research (SBIR) type programs to induce demand led industry development. Ensure a high performance work system operating in the business.  
Support clusters and other ways of appropriating agglomeration economic benefits. Invest continuously to ensure up to date capital equipment embodying the latest proven productivity improving technology.  
Develop competence aimed at individuals and firms. Ensure continuous access to competence in relevant key enabling technology domains.  
Technology adoption support aimed at firms. Ensure a well-functioning integrated innovation management system with all its components.  
Participate in standard setting bodies to lay the groundwork for successful domestic firms. Implement a strategy that requires five per cent productivity improvement annually.  
Support the demand and supply side of advanced manufacturing for the development of core firms within new value chains created by emerging technologies. Develop skills in coopetition; that is mutually beneficial collaboration between competitors.  
Link wage cost changes to productivity changes. Link wage cost changes to productivity changes.  
Policy should strive to avoid conditions that lead to outsourcing and offshoring. These include medium level technological complexity, high wage differential, slow increases in technological complexity is slow and low productivity improvement in the outsourcing country. Ensure that the firm has a high absorptive capacity  
Ensure sectoral collapse is avoided as a consequence of firm exits. Firm exits lead to lower demand for intermediates which forces remaining firms to import more at higher costs whilst operating under reduced competitive pressure. Hence, rapidly becoming uncompetitive and going under. Ensure a combined and integrated product service systems offering portfolio.  
Facilitate co-location between firms by drawing on common knowledge domains between firms and their input providers. For example precinct and clusters can be facilitated to generate formal knowledge exchanges through market relationships where proximity allows the establishment of closer ties and informal knowledge exchanges through social networks of individuals. Pursue a focused niche strategy with a balanced resource and market orientation.  
Implement policies that drive an increase in economic complexity and broaden and deepen industrial commons. Develop and nurture local lead customers and be one for others.  
Provide a consistent and stable policy environment, free from election cycles which allows for longer-term certainty for business investment decisions. As capital investment and workforce hiring decisions have long-term consequences – often 10 to 20 year time horizons or more – establishing policy stability over longer time periods facilitates the setting of business and investment strategies with greater confidence and enhances the ability to commit to stakeholders. Pursue a strategy that requires global leadership in the selected niche.  
Establish policies that are globally competitive with other nations and which do not create competitive disadvantages for businesses is essential. Further, policies should strive to help level the playing field and be rigorously enforced for all global competitors. Policy makers have a critical role to play regarding the establishment of fair and competitive global markets. Strong enforcement is essential particularly in the areas of intellectual property protection, currency manipulation and trade violations.    
Ensure policies are developed in meaningful dialogue and collaboration between business leaders and policy-makers contributing to more informed and thoughtful policy development and limit unintended negative consequences.    
Ensure policies that create institutional legitimacy in the court systems, the financial systems and markets, for intellectual property protection, for asset protection, for enforcement, and for fair and consistent consequences of infractions and violations are implemented. This is essential for markets to thrive and grow and to attract investment of capital and talent.    
Reduce the fragmentation and complexity of today’s policy environment through synchronisation and harmonisation of national, state and/or local policies and across agencies and branches of government.    

 

Individual policies and the overall policy bundle must be financially affordable and reasonable for business and society. The costs associated with policies – even those that may be well intentioned and arguable necessary – should not outweigh the benefits.

Here it is important that the benefits are expressed in all value dimensions (instrumental, extrinsic and intrinsic) for each of all legitimate stakeholders enabling a stakeholder-specific value for money estimate to avoid limiting the value to instrumental value only for a narrow stakeholder group.

It is essential that pressure is put proactively to ensure these action and that reactions (positive and negative) are articulated reactively on any policy (proposal) put forward if Australia is to secure its future prosperity, something that it cannot do without manufacturing in the absence of a resources boom. 

About the authors
GR

Göran Roos

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Professor Göran Roos is a member of the Economic Development Board of South Australia, a member of the Council for Flinders University and also a Stretton Fellow appointed by the City of Playford at University of Adelaide. Adjunct Professor at Entrepreneurship, Commercialisation and Innovation Centre, University of Adelaide, South Australia; Australia; Adjunct Professor at University of Technology Sydney Business School, Australia; and Adjunct Associate Professor in the College of Business, Nanyang Business School, Nanyang Technological University, Singapore.

Göran has advised government bodies in UK, Sweden, Norway, Denmark, Finland, Spain, Austria and Australia on issues relating to strategy, research and development, national and regional innovation systems issues, knowledge management and intellectual capital.

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