manufacturing green paper

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MANUFACTURING GREEN PAPERSETTING DIRECTIONS FOR THE TRANSITION OF

MANUFACTURING IN SOUTH AUSTRALIA

/indiawww.dmitre.sa.gov.au/manufacturing

Manufacturing

Green PaperSetting directions for the transitionof manufacturing in South Australia


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Where we are now Where we want to be How we propose to get there

This Green Paper is designed to stimulate conversation and generate ideas relating to the issues

and actions that can best support development of a robust and resilient manufacturing sector in

South Australia.

Key business and industry stakeholders are invited to comment on the proposals and overview

outlined in this document, which should be read in conjunction with the final report, Manufacturing

into the Future,by recent Thinker in Residence Professor Gran Roos. Your feedback will

contribute to the Manufacturing Strategy of the Department for Manufacturing, Innovation, Trade,

Resources and Energy (DMITRE).

The Manufacturing Strategy will be a framework within which the government will outline its

priorities, activities and work programs to help build a strong manufacturing sector in a diverse,

resilient economy.

Using a shared approach, we want your help in determining where we are, where we need to be

and how we will get there.

Q1 2012

Release of Manufacturing Green Paper for public consultation.

Launch of report by Thinker in Residence, Professor Gran Roos,

Manufacturing into the Future.

Targeted industry meetings will be held to seek feedback on the

discussion paper.

Q2 2012

Targeted industry meetings continue to seek feedback on the

discussion paper.

Release of South Australian Government Manufacturing Strategy.

Online www.dmitre.sa.gov.au/manufacturing

Contact David Rush, Manager, Office of Manufacturing

Telephone +61 8 8303 2261

Email [email protected]

Setting Directions


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MANUFACTURING GREEN PAPERSETTING DIRECTIONS FOR THE TRANSITIONOF MANUFACTURING IN SOUTH AUSTRALIA

Contents

Ministers foreword P 2

Why a Manufacturing Green Paper? P 4

SECTION 01:Introduction P 6 Global manufacturing today and tomorrow P 6

Providing a global perspective - Professor Gran Roos P 8

A new Manufacturing Strategy P 9

Role of government P 10

Role of DMITRE P 11

Advanced Manufacturing Council P 11

SECTION 02:A changing environment P 12 Manufacturing is changing P 12

The current situation in South Australia P 13

International responses P 15

SECTION 03:Fork in the road P 18 Innovation and competitive advantage P 18

Clusters and value chains P 19

Economic opportunities P 20

Resources, manufacturing, services and technology P 20

High-value manufacturing P 21

Cleantech P 22

Tonsley Park P 22

SECTION 04:The way forward P 24 Vision for manufacturing in South Australia P 24

1 Smart decisions P 24

2 Smart opportunities P 25

3 Smart firms P 25

4 Smart people P 26

SECTION 05:

ConclusionP 28

Have your say P 28


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Ministers foreword

South Australia has a strong and proud history of manufacturing,which has been central to the well-being of South Australianssince the 1940s. Today, South Australia is an economy in transition.Manufacturing has a crucial role to play in the transformation of oureconomy. We must ensure a strong manufacturing sector is front andcentre in our future.

But there are critical decisions we need to make.

Manufacturing is at a crossroads, with the rapid changes occurring internationally and locally

prompting us the State Government, business and community to consider how manufacturing

can remain core to the economy and wider community. Our capacity to create and capture high-

value and niche manufacturing is essential to the growth and prosperity of the State. With input

from government, industry and academia we are seeking a response to the fundamental question:

what will it take for manufacturing to survive and prosper, even with external factors such as the

high Australian dollar?

Reflecting the urgency and importance of the challenges ahead, the State Government sought the

advice of international manufacturing and innovation expert Professor Gran Roos, who became

South Australias 20thThinker in Residence in 2011. Professor Roos highlighted the need to improveour innovation capabilities and broaden our industry base within a modern, advanced, high-value

manufacturing sector. He has also recommended how government should play a role in promoting

the transformation of manufacturing and our Manufacturing Strategy is a vital component of this.

That is why this government has identified advanced manufacturing as one of its seven primary

focus areas and is establishing an Advanced Manufacturing Council to implement the Strategy and

deliver strong outcomes.

Here in South Australia, we have a strong foundation for growth: the states rich mineral and

energy endowments together with our deepening relationships with Asia, and particularly China

and India. A strong manufacturing sector is vital if we are to capture the potential benefits of these

assets and an investment pipeline that is now valued at more than $109 billion. However, growth

will not occur without targeted efforts by the State Government, industry and educational andresearch institutes.

The redevelopment of Tonsley Park is one integral component in our plans to modernise

manufacturing in this case, by providing a springboard for capability development and new

investment in advanced, high-value manufacturing in Adelaides southern suburbs. Tonsley Park

will also provide a new benchmark for interaction between industry and research, university and

training institutes.


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Developing a better understanding of the capabilities of our existing industries and technology

trends, identifying new market opportunities and value chains, improving productivity through

innovation, and unlocking leadership and entrepreneurship potential are also key elements of

this strategy.

This Green Paper is designed to encourage industry feedback on how the State Government, in

partnership with industry and the community, can best support the transition of manufacturing

to give our state the future we all want. Feedback received will inform the development of the

Manufacturing Strategy.

I look forward to working with all stakeholders to help ensure manufacturing contributes to a

prosperous South Australia.

Hon Tom Koutsantonis MP

Minister for Manufacturing, Innovation and Trade

A strong manufacturing sector is vital if weare to capture the potential benefits of ourassets and an investment pipeline that is nowvalued at more than $109 billion.Hon Tom Koutsantonis MP,Minister for Manufacturing, Innovation and Trade


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Why a ManufacturingGreen Paper?

Most of us know how important manufacturing has been to SouthAustralias history, but what of the future?

The stakes are high. South Australias manufacturing sector faces critical challenges ones we

must all meet together. We must plan for a future with advanced, and high-value manufacturing at

its heart.

To gain an up-to-date international perspective on the future of manufacturing in the state, theState Government sought the input of South Australian Manufacturing Thinker in Residence,

Professor Gran Roos. Professor Roos provided a perspective on the ongoing role and importance

of manufacturing to high-wage countries that remain competitive and are not prepared to let their

industry simply wither. He said that South Australias manufacturing base was centred around

wine and metals, had a predominance of small-to-medium sized firms and could be exposed to

the crowding out effects of Australias resources boom. He said that substantial government

involvement is required to overcome these vulnerabilities. Professor Roos brought practical how

to expertise to bear on problems that require us to learn from the worlds best.

A workshop held by DMITRE in November 2011 with more than 100 key manufacturing stakeholders

agreed that manufacturing and the resources sector must grow together, not at the expense of each

other. Workshop participants concluded that manufacturing will be based on high value-adding

and innovation, where the role of government should be to facilitate, rather than lead, modernisation.

The focus areas identified for government activity included:

providing information to SMEs about new market and industry opportunities

undertaking smart procurement that rewards innovation

facilitating collaboration and clustering within industry, research and government

promoting skills and leadership development.

These ideas have informed the development of this Green Paper which, together with any final

submissions, will form the basis of the South Australian Governments Manufacturing Strategy.

The Manufacturing Strategy will be a framework within which the government will allocate

appropriate resources to help build a strong manufacturing sector in a diverse, resilient economy.

Specifically, the strategy will establish a framework for government and industry action to help: ensure that manufacturing particularly advanced, high-value manufacturing remains a

vital part of the South Australian economy, so that distance, scale and cost structures are not

barriers to prosperity

build competitive advantage through superior business organisation and innovation rather than

cost-based competition

ensure that the benefits of the mining expansion are captured through carefully expanding the

related manufacturing and services sectors

enable manufacturers to develop the skills and capabilities to strengthen and expand their

businesses in an increasingly demanding global marketplace

improve the competitiveness and productivity of the South Australian economy.


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DMITREs vision for manufacturing in South Australia is:

An advanced manufacturing sector that competes internationally through innovation and excellence

and through superior organisation and dynamic capability. Manufacturing will drive productivity

improvements across the whole economy through strategic leadership, a highly skilled workforceand applying knowledge and cutting-edge technologies. Our industry participates in dynamic value

chains and clusters in our mining and resources, defence, and emerging high-value industries. Our

manufacturing sector underpins rising living standards across the community.

With advice from Professor Roos and ongoing input from local industry and business, DMITRE has

determined the following four areas as key to the successful transformation of South Australias

manufacturing sector. Industry feedback on these strategies is welcomed.

1 Smart decisions

Global technology and business and consumer trends are shaping our manufacturers future

environment. Technologies such as biotechnology, embedded systems, 3D printing, sensing and

scanning, digital technologies, ICT and advanced materials will change the way manufacturing operates.

We need to know our current manufacturing capabilities, as well as the ones we will need in the

future. This means government and industry must together map the manufacturing industry

landscape in South Australia, including its capabilities, opportunities, technologies and value

chains. The outcome will be information that supports local manufacturers in making productive

decisions and taking advantage of emerging industry opportunities.

2 Smart opportunities

Global cluster strategies have proven successful in accelerating regional economic growth. They

promote collaboration, knowledge and technology transfers between stakeholders and enable

smaller companies to be competitive in bidding for major projects.

We need to accelerate the transfer of knowledge and information between companies, and

between business and education and research bodies. In addition, we must collaborate to

overcome disadvantages associated with South Australias small-scale businesses. Innovative

clusters that are linked to value chains will provide an important source of competitive advantage

for South Australian manufacturers whose size may otherwise prevent them from successfully

participating in major projects.

3 Smart firms

Innovation means applying new knowledge to solve a problem or capture an opportunity.

Innovation helps to develop and sustain competitive advantage based on superior organisation and

knowledge, and helps avoid having to compete against low-wage countries solely on cost.

Firms can create competitive advantage through the adoption of innovation strategies that ensure

they compete on factors including business models, design, services and knowledge. Government

can help provide and promote the appropriate tools and techniques to enable forward-thinkingfirms to improve productivity and to facilitate closer collaboration between industry and technical

institutions to identify opportunities and increase productivity.

Government can also stimulate innovation through smart procurement and industry participation

policies, and by supporting industry and research links. This will help us sustain and develop

smart jobs in a high-wage, high exchange-rate environment.

4 Smart people

Several studies have highlighted the potential for government to work in conjunction with industry

associations and educational institutes to unlock global leadership and entrepreneurship in South

Australian manufacturers. Offering research students and private-sector managers opportunities to

develop their business and entrepreneurship skills will encourage business growth and niche start-ups.

Issues associated with the appropriateness of South Australias education and skills development

system, particularly in the areas of entrepreneurship, and science, technology, engineering and

maths (STEM), are relevant to South Australias innovation culture.


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Global manufacturing today and tomorrow

The South Australian Government does not agree with those who say manufacturing is part of an

old economy that we can do without.

We believe a strong manufacturing base is an indispensable component of South Australias long-

term prosperity.

We have seen manufacturings share of overall employment fall, both relatively and in absoluteterms, in Australia and most advanced OECD countries. Manufacturings share of gross domestic

product (GDP) has also fallen in relative terms throughout the OECD, although the size and rate

of this decline varies throughout the OECD, with many countries taking a proactive approach to

building their manufacturing futures.

Furthermore, Australia is in the midst of a mining boom, in which Australias mines and resources

are underpinning the industrialisation and urbanisation of India and China. We know that the

accompanying strong commodity exports increase the value of our dollar, and that this tends to

disadvantage value-adding activities such as manufacturing.

However, while the mining and manufacturing sectors account for a similar level of economic

activity in Australia (7 per cent and 8 per cent of GDP respectively), manufacturing with almost

one million workers across the nation employs four times more people than mining.Does the growth of resources really mean the hollowing-out of manufacturing, or can we grow

mining and manufacturing together?

For a long time, and even after the Global Financial Crisis (GFC), the services sector was seen as a

potential substitute for an economy having an internationally competitive manufacturing sector.

But would a reliance on services really provide the high-skill jobs we want for our future

prosperity?

If we let high-value, advanced manufacturing go, can we ever get it back?

Can we effectively guard ourselves against the worst effects of international shocks such as the

GFC without strong manufacturing and a diversified economy?

The aftermath of the GFC has caused some countries to reconsider the value and place of

manufacturing in their advanced economies, even those that in recent decades came to regard

manufacturing as part of the old economy.

Countries not content to allow their manufacturing industries to decline, but instead focussed

on modernising them, recovered better and quicker from the GFC. These countries recognised

that to be competitive, manufacturing in advanced economies must be guided by strategies that

continually move activities up the value chain, as distinct from competing solely on cost. They

have accepted that manufacturing is crucial to the ability to innovate and be part of the global

knowledge economy.

Declining direct-manufacturing employment levels is a phenomenon common to all OECD

countries. However, in successful OECD economies, manufacturings share of overall value-added has either been maintained or has declined by a much smaller proportion than employment

(reflecting productivity gains). But other countries such as the UK, US and Australia have

SECTION 01 Introduction


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seen large falls in their manufacturing shares of GDP, even where the value of output of their

manufacturing sectors has not fallen absolutely.1

In advanced economies, manufacturing is central to driving productivity and innovation and is the

biggest spender on knowledge intensive services. Manufacturing is also the largest component ofworld trade.

In advanced economies, a dynamic manufacturing sector underpins higher net incomes and

employment than would otherwise be the case. In so doing, it also supports greater social

inclusion and cohesion.

Conservatively, almost a third of South Australians and their dependents rely on manufacturing for

their incomes, through direct and indirect employment.

The South Australian Government believes that to prosper and make the most of our great

opportunities ahead, we must ensure manufacturing is front and centre in our future.

The national debate about Australias deteriorating productivity performance must recognise that

a large part of this deterioration is due to compositional changes in the workforce, away frommanufacturing to lower-productivity services.

Manufacturing is a vital driver of employment because of its strong links to mining, agriculture

and services. The blurring of the boundaries between services and manufacturing, with a growing

proportion of jobs in manufacturing companies being service occupations, is of particular

importance. Up to 50 per cent of workers in the manufacturing sectors of certain OECD countries

are in service-related occupations2, while in Australia 23 per cent of manufacturers now offer

some type of service.3This means that official data based on outdated industrial classifications

may understate the true status of manufacturing, as highlighted by Professor Roos:

Manufacturing now includes the whole chain of activities from research and development through

to recycling of the manufactured product. This expansion of the role of manufacturing underpins its

importance as a crucial component of any advanced economy.With the right approach, South Australias economy can be significantly transformed towards

higher value-adding activities. However, the South Australian Government is aware that

manufacturers are facing considerable pressures that raise concerns about how manufacturing

can be sustainable in a high-wage, high exchange-rate economy. Significant issues include:

global pressure stemming from the emergence and significant growth of low-cost countries in

Asia, South America and eastern Europe

high-end manufacturing competition from successful high-wage manufacturing economies

the high Australian dollar and low-tarif f environment that have favoured imports over domestic

manufacturing, compounding the impact of growing lower-productivity services and related jobs

structural issues such as a narrow industry base dominated by food and beverages, transport

equipment and machinery, and metals.

There are many successful companies operating within the food and beverage, transport

equipment, machinery, and metals sectors. However, relationships and capabilities should be

developed to counter the effects of global cost-based competition and technology changes. Many

firms in these sectors are small and medium-sized, with limited capacity to adopt new information

about innovation strategies and technologies (known as absorptive capacity). South Australia is

also characterised by a lack of significant head offices and associated high-value jobs.

The residency of Professor Roos aimed to lift the quality of debate on the future of manufacturing

in South Australia. Professor Roos warned that doing nothing is not an option and that by

stimulating competitiveness today we create economic development for tomorrow.

1 See OECD (Pilat, Cimper, Olsen and Webb), The Changing Nature of Manufac turing in OECD Economies, 27 October 2006.

2 For analysis supporting these points, see OECD (Pilat, Cimper, Olsen and Webb), The Changing Nature of Manufacturing in OECD Economies 27 October 2006.

3 Gran Roos, Manufacturing into the Future, 2011.


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Developing manufacturing, mining and services together provides the best opportunity for

South Australia to develop a balanced, stable and resilient economy with benefits for the wider

community. In developing the manufacturing strategy, South Australia must consider that in

advanced economies, manufacturing is more about:

markets than sectors

capabilities than discrete products

creating and capturing value than reducing cost

effectiveness than efficiency

converging technologies than stand-alone technologies

being adaptive and agile than rigid and unchanging

selling solutions than pushing products.

Providing a global perspective - Professor Gran Roos

To gain an expert perspective on the states manufacturing sector and how it can prosper in a

high-wage economy, the government in 2011 welcomed international specialist on innovation

management and strategy, Professor Gran Roos as a Thinker in Residence.

In-depth discussion with many industry representatives across the state led Professor Roos

to conclude that South Australias narrow manufacturing base (centred on wine and metals

manufacturing), a predominance of small-to-medium sized firms, the high exchange rate

and exposure to Australias twin-speed economy all create a perfect storm in which key

manufacturing and value-added activities are at risk.

Professor Roos offered significant observations about where manufacturing is in South Australia

and internationally, and what we need to do to secure the prosperous future we all want.

Manufacturing is not dead or dying, but is evolving as the boundaries between it and high-end services have become blurred. Traditional manufacturing activities have succumbed to

competition from low-wage countries, but successful advanced economies have found ways to

transform their manufacturing sectors through a focus on innovation and constantly moving up

the value chain.

Services are not the substitute for manufacturing. Rather, they are complementary. To capture

high-end services, a regional economy needs to have a strong manufacturing sector that

consumes them.

Manufacturing is under pressure from the high Australian dollar, which is being driven by

growth in the resources sector.

Manufacturing is the largest provider of direct and indirect employment, with between two

and five jobs created as a result of each manufacturing job. It therefore contributes to socialcohesion in the wider community.

The manufacturing, resources and services sectors are interdependent and together provide

the basis for a strong, resilient economy. South Australia can learn much from the international

best of breed in relation to clustering and capability building, particularly from the way

countries such as Norway and Canada have leveraged their resources sectors to create new

manufacturing industries.

Australias manufacturing performance has been weak compared to leading manufacturing

nations such as Sweden, Finland, Germany and Switzerland. Further, these countries have best

survived the GFC.

The GFC has led some countries with poorer performing manufacturing sectors (such as the

US, UK and Australia) to question their earlier indifference to manufacturing.

The competitiveness of manufacturers can be enhanced through innovation strategies centred

on business models, design, customer solutions and technology, particularly in the converging


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fields of biotechnology, nanotechnology, information and communication technology and

cognitive science.

When manufacturing capabilities disappear they are prohibitively expensive to society to

replace, due to an increase in the speed of technology development and the highly mobile natureof capital.

Lead customers that are major public or private sector purchasers of goods and services can

create significant innovation opportunities for South Australian manufacturers through their

procurement activities.

Professor Roos saw key immediate opportunities in:

developing and executing an industry participation policy around building mining related

clusters, centred on resource extraction opportunities. Development of the policy could be

undertaken by a working group involving the key stakeholders and drawing on the Ontario,

Hebron project in Newfoundland and Norwegian examples

developing and executing a policy around Tonsley Park, drawing on industrial ecology/

symbiosis principles and links with other industry policy domains e.g., the mining relatedcluster initiatives.

In support of these immediate and other key strategic opportunities, Professor Roos

recommended the State Government develop an integrated and comprehensive Manufacturing

Strategy that makes greater use of demand-side policy tools such as strategic procurement,

development of key industry clusters (including around the Olympic Dam project and other mines),

and leveraging of lead customers. He emphasised the need to know the existing capabilities of our

industries, what capabilities they will need in the future to be competitive (through industry and

capability mapping), and the key enablers to allow this to happen.

An enabler of these activities is information related to firm-level capabilities, value chains,

opportunities and technologies. This information is difficult for single firms to acquire and use

effectively. Rather, it requires the coordinating and aggregating role of government to bring thistogether in a strategic manner. By itself, the market will tend to provide incomplete information.

The four proposed strategies related to smart decisions, smart opportunities, smart firms and

smart people are key elements of the governments proposed response to Professor Roos

recommendations.

A new Manufacturing Strategy

The new Manufacturing Strategy will be a framework for government to allocate its resources

to help build a portfolio of sustainable competitive advantages. It will set shared directions for

industry, government and the community to work in partnership, helping to underpin a diverse,

resilient economy. A strategy seeks to build strengths and minimise or address weaknesses. It

asks, where are we now, where do we want to be, and how do we get there? For South Australia this

means:

ensuring that manufacturing, particularly high-value, advanced manufacturing, remains a

vital part of the South Australian economy where distance, scale and cost structures are not a

barrier to our future economic prosperity

building competitive advantage through superior business organisation and innovation rather

than cost-based competition

ensuring that the benefits of the mining expansion are captured by growing mining,

manufacturing and services together

ensuring manufacturers develop the skills and capabilities to strengthen and grow their

businesses in an increasingly demanding global marketplace

improving the competitiveness and productivity of the South Australian economy.


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These objectives are proposed to underpin the development of the Manufacturing Strategy

to help secure the sectors future. Within the South Australian context, manufacturing must

also learn from international best practice, from those countries that have successfully built

manufacturing capability and whose experience can demonstrate what it takes to maintain a

strong manufacturing sector in a high-wage economy.

Critics will say that such action or intervention comes at a cost. Indeed, such strategies do involve

a cost; the issue, however, is whether the benefits exceed these costs.

The South Australian Government has decided that the cost of having no strategy is unacceptable.

Role of government

An underlying premise of this strategy is that government does indeed have a role in economic

development and helping build positions of sustainable competitive advantage. In a globalised

world, a collaborative approach involving industry, government and the education and technical

base is required. Government has an active strategic role of working to a plan, aligning its

activities to key economic development opportunities and leveraging the resources of the private

sector and broader community.4

In successful economies, government plays an active and sophisticated role in helping capture

information, including mapping current and future industry capacity and capability, workforce

requirements, future demand, gap analysis and R&D and technology forecasting. These activities

help build clusters of key capabilities and excellence that may have application across sectors, and

in that way accelerate diffusion of new knowledge, technology and practice to enable individual

companies to make informed decisions. Developing capabilities and building value chains, rather

than individual firms, is the usual target of activity. Tools such as public procurement targeted at

lifting local industry capability and fostering innovation and aligning supplier capabilities to lead

customers requirements along the value chain are often used.Clear priorities for South Australia will be to leverage our existing and future strengths in mining,

build strong local value chains that encompass manufacturing and high-end services, and ensure

our industry is placed to participate in emerging industries.

The governments focus on community impacts, its ability to take a medium to long-term view, and

its unique capacity to access and aggregate information (which often would be prohibitively costly

or is simply not available to small companies), give it a unique role in par tnership with industry.

With that in mind, the proposed principles on the role of government towards the development of

manufacturing are given below. Governments:

do not directly create wealth, however they play an important role in wealth creation.

Governments need to take an active medium and long-term view of the economic future and

build partnerships with business, the community and other economic actors

need to intervene in a strategic and sophisticated manner, particularly in small economies

where market failure is endemic, to create capabilities and address market gaps

should strengthen the innovation system by looking at new ways of facilitating connectivity

between industry, research and government

should develop policy with industry engagement and input to set robust common directions for

the future

should ensure its programs are finite with continuous monitoring and evaluation, particularly in

a dynamic and global business environment

must increase the use of non-financial instruments to add value to firms (for example,

procurement, regulation, industry participation, information provision, investment facilitationand skills development).

4 Economic Development Board, Economic Statement: South Australias Prospects for Growth, March 2009, p 99.


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Role of DMITRE

DMITRE brings together government responsibilities for manufacturing, mining, resources, energy

and renewables, together with the innovation agenda, to ensure South Australia captures thesynergies these sectors offer. DMITRE is the recognised voice of manufacturing within government

and, in recognition of the sectors significance to the state economy, has been charged with helping

modernise the sector and ensuring manufacturing and resources grow together. DMITRE will

work with groups of companies at the industry level to develop key manufacturing capabilities and

leverage new value-chain opportunities that benefit the state. However, DMITRE will work with

individual firms where it is appropriate to do so.

Specifically, DMITRE will design and deliver flexible programs that aim to help:

build the value chain from major projects, particularly mining and resources, to encompass

manufacturing and high-end services

build critical industry capability and capacity by leveraging lead customers, creating clusters,

providing opportunities for collaboration and by targeted investment attraction

capture the potential of emerging high-value and high-growth industries

brand and market the states manufacturing capabilities

forecast market opportunities and technology trends and increase SMEs absorptive capacity.

DMITRE will play a key role in capturing information of value to the sector and its companies, including

mapping current capacity, capability and future demand, gap analysis and technology forecasting.

The department will also work with key stakeholders and business leaders to bring new

intelligence and ideas to the table, building on the states existing strengths and creating new ones.

Advanced Manufacturing Council

An Advanced Manufacturing Council will be established to guide and steer the roll-out of theManufacturing Strategy. It will consist of recognised experts in the field and will advise on how to

build on existing strengths and opportunities to embed competitive advantage.

What are your thoughts?

How can manufacturing be sustainable in a high-wage, high exchange-rate economy?

How can DMITRE best serve the modernisation of manufacturing in South Australia?

What are the barriers to South Australian manufacturing capturing the opportunities in

mining and in emerging growth sectors?

Are the Tonsley Park Redevelopment (which is focussed on emerging industries) and

extending the mining supply chain to local manufacturing the priorities for action?

Is cluster development the way to go? What do we have and want do we want to develop?

What information do businesses need for increased productivity?

What other pressures on manufacturing should government consider?

What are the best future opportunities for manufacturing in South Australia?

What are the key competencies we need to develop?

What are the key lessons from successful countries?


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Manufacturing is changing

Our world is changing fast. The global environment for manufacturing is being driven by a

number of structural and cyclical forces that are changing the outlook and basis of competition.

Manufacturing has evolved from small-scale craft production in the 1800s, to large-scale mass

production in the early 1900s and again in the 1980s, to flexible production of a variety of products

in smaller volumes. In the 2000s, manufacturing is characterised by mass customisation and

personalisation that based on computerised manufacturing systems bring together the benefitsof low-cost mass production with customised goods. The evolution is shown in Figure 1 below.

Manufacturing today (Figure 2) can be grouped into four main areas:

1. Traditional cost-based, low-volume, low-technology manufacturing that uses existing

knowledge such as agriculture, construction, mining and forestry.

2. Scale-intensive cost-based, high-volume, high-technology manufacturing such as cement,

glass, automotive, metal refining and machinery production.

3. Specialised supplier industries cost-based, low-volume, high-technology manufacturing

such as chemicals, heavy electrical equipment, commercial aircraft, satellites, space launchers.

4. Science-based industries the fastest growing segment of the knowledge economy,

characterised by innovation and science and including biotechnology and professional

equipment, instrumentation, software and pharmaceuticals.

SECTION 02 A changing environment

Figure 1: Manufacturing evolves

Figure 2: Manufacturing - a changing environment

~ 1850CraftProduction

~ 1913MassProduction

~ 1980FlexibleProduction

~ 2010MassCustomisation &Personalisation

~ 2020SustainableProduction

Cost-basedLow-volumeLow-technology

Traditionalmanufacturing

Cost-basedHigh-volumeHigh-technology

Scale-intensivemanufacturing

Innovation-basedHigh or low-volumeHigh-technology

Science-basedmanufacturing

Cost-basedLow-volumeHigh-technology

Specialised suppliermanufacturing


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Looking beyond 2020, manufacturing is likely to move towards the science-based industries and

sustainable production enabled by converging technologies in biotechnology, nanotechnology,

information and communication technology and cognitive science.

A number of forces are driving these changes.5These include:

intensified competition through the rise of low-wage, low-cost manufacturing economies,

increasing global competition and the effects of a strong Australian dollar

more complex and varied opportunities for doing business globally, particularly through the

growth of distributed global value chains where different stages of the production process are

being unbundled around the world

a shift from mass production to customisation and personalisation, providing tailored solutions

that are more attractive, helpful and valued by customers

the growing importance of the low-carbon economy, requiring manufacturers to achieve

environmental sustainability and lower their carbon footprint while considering consumer

behaviour and market demand for green products

changing skills needs and imperatives, particularly access to talented workers capable ofmanaging and supporting innovation in an environment where manufacturing has a perception

problem that impacts on its skills and people

technology that transforms entire business models, including the organisational capabilities of

firms, the nature of their competitive strengths and their models for doing business profitably

over the long term

collaboration and connectivity that accelerates innovation and competitiveness through

access to critical knowledge about opportunities, changing markets and customer needs and

preferences outside a firm.

The current situation in South Australia

In South Australia, manufacturing has been a key industry since the 1940s and currently

represents 10 per cent or $8.9 billion of the economy, the highest level of any Australian state

or territory and higher than the national figure of 8 per cent.6Manufacturing also employs 79,000

people or 9.8 per cent of total employment. However, manufacturings share of the economy has

been in decline for some time, as shown in Graph 1 below.

5 Australian Business Foundation, Manufacturing Futures, commissioned by the NSW Business Chamber, 2011.

6 ABS Cat No. 5220.0, National Accounts.

0%

5%

10%

15%

20%

25%

AUST

SA

NSW

VIC

QLD

WA

TAS

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Graph 1: Manufacturing share of Gross State Product 1990-2011


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P 14

The latest available data indicate that in 2008-09 there were 6,972 manufacturers in South

Australia, representing 4.8 per cent of all businesses. On the whole, manufacturing firms tended to

employ more people than non-manufacturing firms.7

The latest data (August 2011) indicate that the largest employing manufacturing sectors werefood and beverages (23,000 jobs); transport, machinery and equipment (17,000); and primary and

fabricated metal products (12,000).8This is significantly different from August 2000, when the

largest sector was transport, machinery and equipment, which employed 27,000 people, while food

and beverages employed 19,000 people. This is explained in Graph 2 below.

The losses in the transport, machinery and equipment sector are consistent with other scale and

cost-based industries such as automotive, whitegoods, textiles, clothing and furniture.

Although manufacturing is still the largest spender on research and development, spending has

declined significantly in the past five years, from $347 million to $247 million. Expenditure has

fallen significantly (50 per cent), in the transport, machinery and equipment sectors.9

Manufactured exports peaked at $7.7 billion in 2007-08, but fell 32 per cent to $5.2 bill ion following

the GFC. Export earnings have started to recover (reaching $6.2 billion in 2010-11) but are still

$1.5 billion below their 2007-08 peak. The automotive sector has led the decline with exports down

from $1.5 billion to $290 million in this period.10

An additional review by Professor Roos found the five largest sectors in South Australia in 2011

by revenue were wine ($3 billion), iron and steel ($2.7 billion), copper, silver, lead and zinc

($2.5 billion), automotive ($1.1 billion) and meat and poultry processing ($1 billion).11

Further analysis by DMITRE indicates 90 per cent of manufacturing sector profits in 2011 were

generated from firms in traditional and scale-intensive manufacturing industries, with only 10 per

cent from firms within the science-based manufacturing industries.

However, South Australia currently has many manufacturing strengths upon which we can build

for the future. Our state is the nations defence technology centre of excellence. We are home to the

nations largest defence contract, the $8 billion Air Warfare Destroyer project, which is also South

Australias largest advanced manufacturing project. Beyond defence we have strong companies

7 ABS 2008- 09 Cat No. 8165.8 ABS Cat No. 6291.0.55.

9 ABS Cat No. 8104.0.

10 ABS Cat No.5368.0, International Trade in Goods and Services, unpublished data.

11 IBIS World data and Gran Roos, Manufacturing into the Future, 2011.

0

5

10

15

20

25

30

TotalEmployment(000s)

Food and

Beverages

TCF Wo od, Pu lp ,

Paper

Printing Petroleum,

Coal,Chemicals

Rubber and

Polymers

Non-

MetallicMinerals

Metals and

MetalProducts

Transport,

Machineryand

Equipment

Furniture

and Other

August 2006

August 2000

August 2011

Graph 2: South Australian manufacturing employment


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International responses

In light of the changing environment for manufacturing, a number of common approaches are

being taken by different governments in certain OECD countries, to stimulate manufacturing

competitiveness and innovation.

Examples include:

Germany one of the most significant features of Germanys industrial policy is the close

collaboration between industry, university and international research organisations that has

encouraged engagement with larger manufacturing firms. More recently, Germany has been

focussing on smaller manufacturers and their ability to engage with research organisations and

develop entrepreneurship skills.12

Switzerland considered by the European Commission13to be the most innovative nation in

Europe in 2011, Switzerland is funding collaboration partnerships between the higher education

sector and manufacturers, in addition to stimulating design, entrepreneurship and clusters on a

thematic and regional basis.14

Sweden policies tend to focus on rejuvenating Swedens manufacturing production

capabilities to include digital manufacturing techniques through enhanced links with the

education and research sectors.15

12 German Ministr y of Economics and Technology, Building on SMEs: greater responsibil ity, greater freedom, 2011.

13 European Commission, Innovation Scoreboard, February 2011.

14 Switzerland Commission for Technology and Innovation, www.kti.admin.ch.

15 Association of Swedish Engineering Industries (Teknikfretagen), Swedish Production Research 2020.

What does this mean?

Unless action is taken, South Australias economy will:

lose manufacturing activity at a rapid rate

deliver lower longer term growth, productivity, incomes and overall employment

miss out on key opportunities for innovation associated with advanced manufacturing

miss out on many knowledge economy opportunities, particularly in the high-end services

associated predominantly with manufacturing

fail to build a robust and diverse set of capabilities to underpin our sustained competitiveadvantage and international competitiveness

become more, not less, dependent on a small number of large sectors and hence, more

vulnerable to external shocks

become more, not less, reliant on lower value added activities and exports.

Failure to act would result in a loss of manufacturing workforce capabilities, particularly in

high-end engineering, design and technology, which would negatively affect the states ability

to capitalise on the resources sector expansion and other emerging opportunities. Without a

strong manufacturing sector, our social cohesiveness could also suffer.

in areas such as clean and climate-smart technologies, process engineering and process

control, and medical devices. We must build on these capabilities to create a strong, resilient and

diversified industry base.


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To summarise these international trends:

governments are delivering programs to stimulate innovation in the areas of new business

models, design capabilities, customer solutions and technology not just product and R&D

there continues to be a strong emphasis on research links between the applied research

sector and companies, with an increased focus on SMEs

the role of government as a facilitator of economic development is evolving to include cluster

creation, smart procurement, open data collection and technology demonstration

skills development including business skills, innovation management and entrepreneurship

are strategic components of economic development.

16 Finland Ministry of Employment and the Economy, www.tem.fi/inno.17 UK Department for Business, Innovation and Skills,Innovation and Research Strategy for Growth, December 2011.

Finland significant efforts are being made to refocus government innovation support

away from technology push and towards consumer pull through design and business

models. Collaboration with the research sector is also a priority, together with encouraging

entrepreneurship training, particularly for PhD research students.16

United Kingdom the UK government announced in December 2011 that it is focussing on

activities that support proof of concept, prototype development, design capability and university

collaboration. The government has also committed to exploring how clusters create economic

growth, how government can act as an intelligent lead customer and how government data

could stimulate industry innovation.17

Singapore while not an OECD member, Singapore is actively pursuing investment in

high-value manufacturing and services by promoting Singapore as a living laboratory for

research and development and for government and industry to co-create solutions related to

urbanisation and the ageing of the population in Asia and globally. Water and medical devices

are early focus areas.


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P 17



SMR - a high-value manufacturer supplying the automotive and medical devices industries


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Innovation and competitive advantage

The states Economic Development Board has pointed out that South Australia has unprecedented

opportunities for high growth and prosperity, the game changer being the $109 billion of major

projects underway and on the horizon. Many of these projects are mega-projects in the resources

sector.

The key strategic question is: how can South Australia leverage these projects to build

opportunities for manufacturing?

This includes the readiness and capability of local manufacturers to take advantage of these

opportunities.

Many firms are at a fork in the road, with some believing they will be competitive simply by

reducing their operating costs and those of others in their supply chain. However, this is not the

pathway to sustainable competitiveness in todays environment.

Competitive advantage can be created when a firms products or services differ from its

competitors and are seen as superior from a customers perspective. Cost competitiveness

is a necessary but not sufficient condition for sustainable competitive advantage. Long-term

sustainable competitive advantage comes from competing on value and innovation and by growing

top line revenues. The top line is the new bottom line for manufacturing in South Australia.The OECD cites that innovation will increasingly be needed to drive growth and employment and

improve living standards.18However, Australias global ranking on competitiveness is declining.19

But what is innovation? A common misconception is that innovation is linked only to research and

development, or worse yet that innovation is research and development.

Innovation is more about problem solving and learning than about scientific discovery, more about

the customer than about the producer, more about the marketplace than about the laboratory and

more about the business transformation than about the technology.20

South Australian manufacturing is perceived as being very good at tactical problem solving but

less proficient at strategic vision, which is where the value often lies.21This perception is backed by

research that found Australian manufacturers are good at operational management but weaker atstrategic management.22

Innovation strategies can be grouped into two types those that create value and those that

capture value (see Table 1). Professor Roos has advised that Australian manufacturers should

work more on value creation through design and also on capturing value from new business

models and focussing on customer needs.

SECTION 03 Fork in the road

18 OECD 2010, Getting a Head Start on Tomorrow.19 World Economic Forum, World Competitiveness Report.

20 Australian Business Foundation, Manufacturing Futures, commissioned by the NSW Business Chamber, 2011.


22 UTS, Roy Green, Management Matters in Australia: Just How Productive Are We?2009.


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Table 1: Innovation in manufacturing

Type of innovation Ability of Australianmanufacturers

Technologye.g. nanotechnology, social media, biotechnology Strong Innovations thatCREATEvalue

Efficiencye.g. operational, engineering, financial systems, leanmanufacturing

Strong

Designe.g. user-centred, behaviour-changing, marketing Weak

Business Modele.g. stakeholders, distribution, partnerships, revenuemodels, branding

Weak Innovations thatCAPTUREvalue

Effectiveness Improvinge.g. sell the right thing to the right personby providing tailored and customer-focussed solutions

Weak

With more resources at their disposal it is not surprising larger firms are more readily building

new forms of innovation into their businesses however many SMEs are yet to adapt.23

To overcome this, SMEs can align themselves with market-leading firms, known as lead

customers, to co-operatively develop new product and service solutions.

However, a major challenge for economies with a large propor tion of SMEs, such as South

Australia, is the ability of firms to adopt new information about business models, innovation

strategies and technologies, known as absorptive capacity. The key to government improving

SMEs absorptive capacity, is to target efforts towards firms that want to grow and are committed

to exploring new strategies for their business. Research suggests approximately 15 per cent ofall firms fall into this category24, which in South Australia would amount to approximately 1,050

manufacturers that need to be identified.

Clusters and value chains

While clustering as an economic development tool has been widely used in other countries, it

has been less frequently applied in Australia. A cluster is a particularly powerful way for SMEs to

overcome disadvantage associated with small scale, and may be defined as a group of companies

including competing and non-competing firms, lead customers, researchers and service providers

working within a geographical location to develop products and services for an identified market.

SMEs that are part of a cluster or value chain are more likely to collaborate to innovate than

independent firms. The development of clusters that emphasise innovation and l ink to value chains

is a potentially important role for government.

Clusters work best when they are industry-led, although the role of government in facilitating

their establishment is widely recognised. There is also a role for government to identify value

chains that are strategically important to South Australia, where the focus is on the consumers,

their needs and wants, product and service differentiation and adding value to generate profit.

This is different to a supply chain, where the focus tends to be on the producer and reducing costs.

Mapping value chains that present economic opportunities for the state will also be critical for the

Manufacturing Strategy. Some of these are explored in the pages that follow.

23 OECD 2010, Getting a Head Start on Tomorrow.



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P 20

Economic opportunities

South Australia has many opportunities to build competitive advantage from our natural

resources, particularly in mining and agriculture, as well as in emerging industries.

Resources, manufacturing, services and technology

South Australia is on the cusp of a major resources sector expansion, with 19 major mines

approved, a further 30 or so in the approvals pipeline, and almost 100 exploration targets being

evaluated. Continued strong demand from new markets such as China and India is expected to

underpin this sector for many years to come.

The proposed expansion of BHP Billitons Olympic Dam mine should become a model for the future

engagement of miners, manufacturers and service providers to develop new capabilities, increase

local industry participation and leverage the benefits across the economy.

South Australia has a broad range of manufacturing, services and technology capability to support

this expansion, including engineering design, project management and contracting, fabrication,mine processing equipment, and through life support engineering activities. These capabilities

must be developed and deepened. However, this must be done against two key factors:

the resources boom drives up the exchange rate, helping to crowd out value-adding activities

such as manufacturing.

the resources sector is heavily internationalised, both in terms of ownership and supply chains,

and has strong propensity to import plant and equipment.

By itself, mining provides limited labour absorption, which will likely decline in future due to

technological advancement. A proactive approach to value-chain development is therefore needed

to ensure that the state captures long-term benefits from the mining expansion.

Countries such as Finland, Canada, Norway and Chile furnish positive examples of partnership

between mining companies and jurisdictions to create local value chains.

These resource-rich jurisdictions have leveraged their resources to build internationally

competitive manufacturing and service clusters that in many cases now supply goods and services

to major projects around the world.

Clustering of several firms in complementary areas of activity and capability has been a key

feature of nations and regions that have successfully grown their resources and manufacturing

industries together. Firms in a successful cluster can benefit from accelerated knowledge and

technology transfer and acquisition of key capabilities. Smaller companies can overcome their size

disadvantage through collaboration for major contracts, making them more competitive in bidding.

Their customers (which are predominantly miners) benefit from having efficient and effective

suppliers at close proximity to their operation.

South Australia has recognised concentrations of excellence in applied research and education

related to the resources industry including, but not confined to, the Ian Wark Research Institute

(University of South Australia), Institute for Mineral and Energy Resources (University of Adelaide)

and the Co-operative Centre for Deep Exploration Technologies, as well as various high quality

graduate and post-graduate degree programs. Opportunities exist to add further expertise, such

as the Commonwealth Scientific and Industrial Research Organisation (CSIRO). These centres

of excellence produce knowledge workers for the resources expansion, provide a magnet for

investment in the industry and help industry optimise upstream and downstream value chain

opportunities from the resources sector.

An example of a mine value chain is presented in Figure 3. The profits of each part of the chain can

be viewed in isolation or collectively, to determine which areas of the chain are more valuable than

others, and so could form the basis of future competitive advantage for the state.


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Exploration& ResourceDefinition

Drilling equipment& service, camps,mobile power &water, catering,consumables &earthmoving

Geological,geochemical &geophysical analysis

Venture finance/capital raising

Venture/equity/capital financing

Resource/marketevaluation

Environmental fieldtrials & assessmentactivities

Hydrogeologicalstudies

Mine planning

Rehabilitation

Site preparation,earthmoving, airstrip,offices, change rooms,shaftsinking(if underground),power & watersystems

Mining equipment /vehicles

Semi/permanentaccommodationfacilities

Specialisedmining andearthmovingequipment

Service &maintenance

Grinding mills,concentratetanks,consumables &maintenance

Refractoryitems, iebricks, liners,consumables,clothing &maintenance

Manufacturecathode sheets,chemicals,wear products,clothing &consumables

Feasibility Mining &Environmental

Approvals

Construction

Export

Processed and unprocessed metalsand minerals are exported

Rehabilitation

Final rehabilitation stage earthmoving,decommissioning, removal & rehabilitation of site

Operational

Mining Mineral Processing

Concentrating Smelting Refining

Figure 3: Mining value chain

Typically, mining is conducted by open cut (from the surface) or underground via a shaft and tunnelling. There are however

other forms of mining such as in situ leaching, used predominantly in the uranium industry and bio-mining that are not

covered in the following value chain.

High-value manufacturing

As already noted, future manufacturing (beyond 2020) will move towards the high-value, science-

based, advanced manufacturing industries enabled by converging technologies in:

biotechnology using biological materials and processes to solve industrial and environmental

problems, leveraging the states existing strengths in medical biotechnology

nanotechnology an emerging area of capability working across chemistry, physics, biology and

materials science to manipulate molecular scale matter

ICT sensing, design and communications technologies with diverse manufacturing

applications including digital 3D printing and 3D software

cognitive science using new information about the human brain to transform industrial

processes and influence human behaviour.

Other areas that DMITRE considers worth exploring include:

cleantech renewable energy, smart grids and demand management, low-carbon buildings,

water and environmental services

automotive lightweight vehicles and components, alternative fuels, vehicle electrification and

green production techniques

medical technologies assistive devices, instruments, lasers, implants, pharmaceuticals and

other high-value manufactured medical products

food and beverage manufacturing dietary and functional foods, premium branding, innovative

packaging resources bio-mining, rare minerals, water and energy production, sensing and simulation.


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Cleantech

Urbanisation and population growth in Asia represent a significant opportunity for the

cleantech sector.25

At the national level, the introduction of a carbon tax and emissions trading scheme will also

create significant opportunities for the cleantech sector.

In South Australia, the expanding resources sector presents a major opportunity, with examples

including energy efficient housing, small-scale distributed energy generation, mini-smart grids,

energy-efficient mineral processing and resource recovery systems, water processing and storage

technologies.

The states already sizeable renewable energy generation capacity will create greater need for

utility-scale smart grids. There is also enormous potential in geothermal energy generation, as a

high proportion of the companies in this sector are South Australia-based.

DMITRE suggests there are strong capabilities in South Australia in electricity generation,

transmission and distribution; energy efficiency; and water and environmental products andservices that will support the growth of this sector.

Tonsley Park

The redevelopment of the former Mitsubishi Motors manufacturing site at Tonsley Park in

southern Adelaide as a sustainable technologies precinct is a significant opportunity to develop

a manufacturing cluster that will be a hub for the development of South Australias high-value,

advanced manufacturing capabilities and emerging technologies, including:

environmental and cleantech

automation and systems integration

defence composites

materials sciences and nanotechnology

renewable energy and energy efficiency

health and medical sciences

medical and assistive devices

building technologies.

The Climate Group, a coalition of leading international businesses and sub-national governments

is working with flagship urban precincts to test innovative policies, technologies and business

models. In its Adelaide Workshop Report, June 2011, the Climate Group identifies that Tonsley Park

has a significant opportunity to be a world-class centre for industry and design innovation of an

unprecedented scale in Australia.

The Tonsley Park Redevelopment will underpin industry development in high-value, advanced

manufacturing and services linked to opportunities in major mining, energy and resources

projects and strong growth in cleantech industries worldwide.

The site will act as a catalyst for developing and implementing cluster initiatives that promote

innovation and new technologies in resources and services technologies, renewable energy and

energy efficiency and medical and assistive devices.

The Tonsley Park precinct will support industry and business-model innovation through design.

Tonsley Park will integrate industry with research, education and a residential community within

a high quality environment. Industry and research collaboration, testing and demonstration will

be key features of the precinct that is designed to attract and support highly skilled knowledge-

based workers.

25 Breakthrough Institute and Information Technolog y and Innovat ion Foundation, Rising Tigers, Sleeping Giants, December 2009.


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Figure 4: Economic opportunities

Cleantech

Knowledgeintensive services

Resources,manufacturing,

services &technology

High-valuemanufacturing

InnovationStrategies

Technology

Design

Business model

Customer focus

ConvergingTechnology

Biotechnology

Nanotechnology

Cognitive science

ICT

Tonsley Park

Shape your future

What innovation strategies are most required to modernise manufacturing in South Australia

and how can government work with industry to deliver these?

How can government identify SMEs with the potential to develop their innovation capabilities?

How can government engage the private sector to map value chains so it can develop clusters?

These market development opportunities are interconnected as shown in Figure 4 below.


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Vision for manufacturing in South Australia

All the research and advice received by the State Government confirms there are no short-term or

single-strategy solutions to modernise the states manufacturing sector.

As raised previously, the fundamental issue that needs to be resolved is the sustainability of

manufacturing in a high-wage, high-dollar South Australian economy. Manufacturing will gravitate

towards the science-based industries and manufacturers must become better at creating and

capturing value through innovation. These are long-term strategies that demand long term

commitments.

DMITREs vision for the future of manufacturing in South Australia is:

An advanced manufacturing sector that competes internationally through innovation and excellence

and through superior organisation and dynamic capability. Manufacturing will drive productivity

improvements across the whole economy through strategic leadership, a highly skilled workforce

and applying knowledge and cutting-edge technologies. Our industry participates in dynamic value

chains and clusters in our mining and resources, defence, and emerging high-value industries. Our

manufacturing sector underpins rising living standards across the community.

Priority areas for the government to achieve this vision include:

1 Smart decisions

Global technology, and business and consumer trends are shaping the future environment our

manufacturers face. Technologies such as biotechnology, embedded systems, 3D printing,

sensing and scanning, digital technologies, ICT and advanced materials will all change the way

manufacturing operates in the future.

Making smart decisions about where to invest resources is critical to the success of any firm, and

indeed for government in the development of industry policy. Government is uniquely positioned

to support companies, especially SMEs, in information collection and dissemination related to

manufacturing capabilities, value chains and technology trends.

Using lead customers in the public sector, the initial focus for an opportunity mapping project

could involve SA Water and SA Health determining advanced, high-value manufacturingopportunities in the water and health sectors.

Capability and value-chain mapping could be undertaken simultaneously across a broader range

of firms in South Australia, while technology road mapping could be undertaken in partnership

with a research organisation with data about trends and technology made publicly available.

Professor Roos states, the lack of reliable data is presently a problem in South Australia.26

Practitioners working in the field endorse this finding and confirm that having such information

available would significantly enhance our collective abilities to make wise and informed decisions

about where to invest to capture the many new opportunities emerging in South Australia.

SECTION 04 The way forward



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2 Smart opportunities

Global cluster strategies have proven successful in accelerating regional economic growth. They

promote collaboration, knowledge and technology transfers between stakeholders and enable our

smaller companies to be competitive in bidding for major projects.

Manufacturing in South Australia has a number of exciting opportunities and challenges such as

the growth of the resource sector, the need to diversify and transform the automotive sector, and

the creation of higher value by rejuvenating the food and beverages sector.

Linking firms together into clusters that bring together lead customers, SMEs and researchers to

promote collaboration, knowledge and technology transfer, can overcome barriers to growth often

associated with SMEs such as scale, absorptive capacity, failures in the market for information,

pathways to market, investment and technology trends.

For example, to grow mining and manufacturing together in an environment where supply chains

are typically dominated by multinational firms with global reach and scale, a resources cluster or

clusters could be established to promote procurement, innovation, pre-qualification training and

mentoring. Such an initiative could be modelled on the existing successful PACE Mining programthat was established to encourage exploration in the resources sector.

In an environment where the automotive sector is under considerable pressure, the retention of

strategic capabilities in the supply chain can be facilitated by the establishment of a dedicated

automotive cluster. This cluster would aim to make its advanced manufacturing capabilities

available to other markets beyond vehicle manufacturing such as resources, defence, medical

instruments or water technologies.

South Australia is internationally recognised as a global supplier of clean and green food and

beverages. There are many opportunities to create more value for South Australia, such as

adding value to existing products (e.g. wheat, wine, fruit) or creating new products, together with

becoming more sophisticated with our branding strategies. A cluster-based approach would

enable rejuvenation in this sector to become more advanced and high-value.

A new approach to industry participation is being developed by the government to provide full,

fair and reasonable opportunity for local suppliers to participate in major public or private sector

procurements. A revised Industry Participation Policy will increase the use of public and private

sector procurement to build local capabilities, which could be accessed by these clusters.

3 Smart firms

This paper has extensively canvassed the critical role of innovation as a business tool to improve

competitiveness. As an area of significant market failure due to the high proportion of SMEs with

limited absorptive capacity, and the opportunity for the state to improve business competitiveness,

the government can promote the adoption of appropriate innovation strategies within forward-

thinking firms. This will create stronger firms with improved productivity and future growthprospects, and a stronger state economy.

Areas of innovation that could be explored further, and in some cases could lead to new programs

for manufacturers, include technology, design and business models. Raising awareness of the

technology development capabilities of our local research organisations should be considered,

in addition to promoting engagement between the research sector and local manufacturers

to create new advanced and high-value products and services. A dedicated technology portal

that showcases the latest international technology trends that are relevant to South Australian

manufacturers could also be established.

Professor Roos highlighted that a number of OECD countries are moving towards the use of

government procurement as a smart way of stimulating innovation within local economies. In the

UK, for example, a Small Business Innovation and Research Fund within government provides

funds for firms to develop solutions to specific problems identified by the British Government,

where there is no off-the-shelf product or service. Such an approach could be valuable for South

Australia and should be investigated.


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4 Smart people

Planning for and providing a skilled workforce is a major focus of the State Government, through

the six-year $194 million Skills for All reform. Combined with the existing Productivity Places

Program, the government will create 100,000 additional training places, many of which will be inoccupations related to advanced, high-value manufacturing. Developing strong skills in science,

technology, engineering and maths is another government priority in the Skills for All reform.

At the enterprise-management level, several studies have highlighted the potential to unlock

global leadership potential and entrepreneurship in Australian manufacturers. Offering research

students opportunities to develop their business and entrepreneurship skills could encourage

bright individuals to establish niche, high growth-potential start-ups in emerging market

areas. This may also assist in combating the brain drain phenomenon whereby highly qualified

graduates seek jobs overseas.

Similarly, there are strategic and long-lasting benefits to be gained from enhancing the leadership

skills of those responsible for leading manufacturing firms in a global environment.

Have we got it right?

Does the vision characterise what is needed in the future for manufacturing to be successful?

Are these the right priorities for government action?

Do you believe the government has a role to lead or facilitate any of these activities?

Should government programs target growth oriented businesses?


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P 27



Metallurgical processing plant, Olympic Dam


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P 28

The government and the community recognise there are major threats confronting manufacturing

in South Australia. At the same time, there are massive opportunities on our doorstep, including

building the mining value chain to supply advanced, high-value manufactured goods and ser vices

locally, leveraging Tonsley Park to stimulate the development of emerging industries, building

on the states leadership in renewable energy deployment, and expanding our high-value

manufacturing capabilities in food, defence, automotive and process technology. These are

urgent and high-impact opportunities to put manufacturing and the state on the path to economic

prosperity.

However creating the future we all want cannot be done by government or industry alone. Rather,

the challenges must be accepted by industry, government and the community, and the solutions

found through all three working together.

As a Thinker in Residence, Professor Gran Roos informed government and the community of the

directions we need to take. The next step is ours.

Having asked the question

What will it take for manufacturing to survive and succeed in a high-wage, high exchange-rate

South Australian economy?

will the suggested approach in this Green Paper make a difference to manufacturing in South

Australia, and what more needs to be done?

Have your say

DMITRE is seeking industry feedback on the following key questions which are covered in this paper.

Visit www.dmitre.sa.gov.au/manufacturingto have your say.

1. What critical changes will ensure manufacturing is sustainable in a high-wage, high exchange-

rate economy?

2. Would the four priority areas for government action (smart decisions, smart opportunities,

smart firms, smart people) assist your business or industry to grow? And how?

3. What are the most promising future manufacturing opportunities for South Australia and what

key competencies do we need to develop?

4. Professor Gran Roos urged us to upgrade our knowledge of our states existing manufacturing

capabilities, value chains, new opportunities and technology trends. How can government and

industry work together to achieve this? What is the key information that could improve the way

you do business?

5. What innovation strategies are most required to modernise manufacturing and which would

most benefit your business?

6. What skills and capabilities are going to be required to assist manufacturers to expand their

operations in the future?

SECTION 05 Conclusion


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Published March 2012

Contact

For more information visit:

www.dmitre.sa.gov.au/manufacturing

Department for Manufacturing,

Innovation, Trade, Resources and Energy

Level 9, The Conservatory

131-139 Grenfell Street

Adelaide 5000

South Australia

GPO Box 1264

Adelaide 5001

South Australia

Tel +61 8 8303 2261

Fax +61 8 8303 2509

manufacturing green paper

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