1st December, 2020
Speaking at a recent online event, Professor Göran Roos offered a grim picture of the state of Australian manufacturing industry. But there’s also plenty of opportunity for those willing to grasp it.
During a recent virtual event hosted by MYOB, Professor Göran Roos shared some sobering statistics – Australian’s manufacturing might be closer to third world countries, ranking last in economic sophistication among OECD countries of similar GDP/capita.
Roos, one of the world’s foremost observers of the manufacturing sector, explained that sophisticated economies use their IP, innovation and technology to add value internally. This means they do not have to compete on price – they can offer something no one else can. Additionally, they can export the means by which they create these unique products or services – that could be hardware, software or other IP.
After decades of focus on the extraction and export of raw materials, only 2.3 percent of Australia’s manufacturing is in this space (in Germany it’s 28.6 percent). Roos sees the Australian government’s new manufacturing strategy as just one small step.
Along with a panel of experts – Frank Feustel, head of product for MYOB and Michael Sharpe, national director for the Industry Advanced Manufacturing Growth Centre (AMGC) – Roos outlined what he saw as the solutions to Australia’s woeful record. And all three threw down a challenge to the nearly 200 virtual attendees.
“You have no choice in doing this or not, but you do have a choice in how you go about it and the scope you take.”
Sophistication must start with digitisation – and at the heart of that is investment in cloud ERP and big data, which many studies indicate have a positive and significant impact on operational and market performance.
In one study, 126 firms in the US were compared – some adopted ERP system and some hadn’t. Results showed that those with ERP had a significantly improved return on assets, investment and asset turnover in three years, compared to those who didn’t have ERP. Plus, firms without ERP saw financial performance deteriorate, while it held steady for firms who had ERP.
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While Australia is rich in precious materials, we don’t yet have the infrastructure, lead customers, access to suppliers, IP expertise to challenge global players in complex areas. Roos suggests there could be low-hanging fruit in niche areas that don’t require such complexity, such as food production.
Roos says the Government’s most important role is as a lead customer – in most OECD countries, governments are the largest buyers in the market. They must begin by establishing criteria that define acceptable trade-offs – perhaps choosing a more expensive Australian-made option is worth the added cost when factored against the overall benefit to the country.
Investment in R&D is also important, but Roos notes that in this area, business has the more important role.
“In Australia, there is very little business investment in R&D. Even just reaching two percent of GDP investment in R&D could make a phenomenal difference, if it was from industry, not from government.” said Roos
Collaboration will be a key part of our manufacturing sector’s growth.
Roos notes that a challenge Australia faces in this area is around our cultural attitude, which emphasises an adversarial approach to business.
He says that’s changing, however, pointing to the cluster of businesses in Jalong producing carbon fibre, as one example. Collaboration is also needed across industries, particularly where it connects manufacturers with research academics.
When it comes to skilled workers, we’re one million short – as an example, in the US at least one percent of manufacturing roles require skills in machine learning (AI). This isn’t through a lack of workers, but a lack of investment in upskilling. Roos suggests the focus needs to be on keeping the workforce relevant while attracting the new generation – in Denmark, for example, manufacturers are required to maintain a competence profile, so that employees remain relevantly skilled.
“We need to look at requirements and ensure the workforce is being continuously developed,” said Roos.
While this information may feel sobering and challenging, it’s an exciting start to what should be a bright future for the manufacturing industry – there’s so much to do, and so much opportunity.
That progress can only be made by leveraging technology, such as the MYOB Advanced Manufacturing Edition, which is rated by analysts as a leader in innovation and usability and will play an important role in putting Australian manufacturing back where it should be – among the best global players.