Government must still support industry: expert

AUSTRALIA’S economy is in danger of being “hollowed out” if the federal government fails to remain engaged with the manufacturing sector, a prominent Sydney professor has warned.

Speaking at the ‘Cars of Tomorrow’ conference in Melbourne last week, professor Roy Green, who is dean of the UTS Business School at the University of Technology Sydney and a widely respected industry expert, said Australia still had a bright future in manufacturing, despite Toyota, Holden and Ford all closing their factories over the next two to three years.

However, Prof Green said government support was vital for a small country like Australia to thrive.

“If we’re to contribute as well to our trade balance we cannot expect to retain first-world lifestyle and import first-world products from other parts of the world if we hollow out and our economy becomes a third-world economy, at least in terms of its structure,” he said.

“Simply to export unprocessed commodities and agricultural products is not going to generate the export values that are going to be required to maintain the national income that we have.”

Prof Green said Australia did not need large manufacturing operations to achieve a balanced economy.

“We’re now in a time of global production networks which are not only driven by the large global companies but by the myriad suppliers, the SMEs (small and medium enterprises), the micro-multinationals,” he said.

“They are carving out spaces in global value chains and capturing value not just from production, but intangibles like design, computer engineering, sales and marketing. Production is only one part of the global value chain.”

Prof Green said it would not be easy as companies may have to find ways of innovation that are not technological: developing new business models and high-performance management practices, for example.

“It requires a transformative approach, not just continuous improvement or incremental innovation,” he said. “That’s the challenge facing the car components sector.”

According to Prof Green, ongoing federal government support is vital. He said the government needed to co-ordinate Australia’s innovation effort into a linked-up national system if Australia was to develop competitive advantages in new areas.

He also pointed to Nordic countries, the UK and the US, all of whom had recently conducted surveys into where technology might develop in future.

“In other words, they are not asking is the age of entitlement over, or other such meaningless rhetoric. They are asking: where do the real competitive advantages and capabilities lie in the next 10 or 15 or 20 years?” he said.

“This is the real challenge confronting governments today.”

Prof Green also said the Abbott government needed to invest in education and knowledge to lift the general standard of skill in the population.

The Nordic countries were well ahead of Australia in this area, he said.

Sweden (6.8 per cent of gross domestic product), Finland (6.1 per cent) and Denmark (5.5 per cent) were all well ahead of Australia, which invests only 4.1 per cent of GDP in knowledge.

“The Nordic countries are right up there, but even Canada is way ahead in terms of its investment in these areas, which are ultimately the basis of our ability to build an innovation system and the innovation capability of our enterprises,” he said.

The third area where government can help is in facilitating interchange and contact between educational and research institutions and business.

And this is not about formal conferences and seminars, he said, referencing a UK survey of 5000 businesses that asked what drove innovation in those companies.

“It wasn’t technology licencing or the more commercial relationships you might expect, but informal contacts, which everyone thought would be a residual in this survey. It came right at the top.”

The area where companies needed to help themselves more was in the areas of leadership and management, because that will be what sets apart Australian companies, which work in a high-cost environment.

Prof Green said the Australian government had commissioned the London School of Economics to survey management performance in Australia and comparable economies around the world.

“What we find on a global scale is we are not on the bottom of the 16 country list, but nor are we at the top,” he said.

“Those at the top are the high-cost economies and we are one of those now and we need to operate at that level.”

The professor also said that the ‘Australia in the Asian Century’ report lays out various challenges and requirements.

“If we could fulfil our ambitions in those three areas of government support – a national innovation system, investment in knowledge and education and support for collaborative links between business, universities and research institutions – and focus on talent of the people who work for us and release that talent into new products and services and accessing those global value chains, then I think the future of Australian manufacturing is as bright here as it would be anywhere in the world.”