Senator Sam Dastyari Chairperson Senate Economic References Committee Parliament of Australia Parliament House CANBERRA ACT 2600

Monday, 15th September 2014

Dear Senator

RE: SENATE INQUIRY INTO THE CHALLENGES TO AUSTRALIAN INDUSTRIES AND JOBS POSED BY INCREASING GLOBAL COMPETITION IN INNOVATION, SCIENCE, ENGINEERING, RESEARCH AND EDUCATION.

At the suggestion of your colleague the Hon Senator Kim Carr on a recent visit to our business in Ararat Victoria, we have prepared a submission to the inquiry by the Senate Economic References Committee as outlined above.

Please find our submission attached herewith.

Should you require any further information or clarification of the issues we have chosen to submit to you and the Committee, then please do not hesitate to contact us.

We wish the Committee success in its deliberations of the critical issues involved in this Inquiry.

Yours sincerely

PETER CARTHEW AM Chairman and Managing Director

1 | P a g e

AME SYSTEMS PTY LTD.

18 GORDON STREET, ARARAT, VICTORIA 3377 AUSTRALIA.

SUBMISSION TO THE ECONOMIC REFERENCES COMMITTEE OF THE SENATE STANDING COMMITTEE ON ECONOMICS, PARLIAMENT OF AUSTRALIA

Inquiring into “The challenges to Australian industries and jobs posed by increasing global competition in innovation, science, engineering, research and education”.

SEPTEMBER 15th 2014

TERMS OF REFERENCE

That the Economic References Committee of the Senate Standing Committees on Economics inquire into:-

The challenges to Australian industries and jobs posed by increasing global competition in innovation, science, engineering, research and education, with particular reference to:

(a) The need to attract new investment in innovation to secure high skill, high wage jobs and industries in Australia, as well as the role of public policy in nurturing a culture of innovation and a healthy innovation ecosystem;

(b) The Australian Government’s approach to innovation, especially with respect to the funding of education and research, the allocation of investment in industries, and the maintenance of capabilities across the economy;

(c) The importance of translating research output into social and economic benefits for Australians, and mechanisms by which it can be promoted;

(d) The relationship between advanced manufacturing and a dynamic innovation culture;

(e) Current policies, funding and procedures of Australia’s publicly-funded research agencies, universities, and other actors in the innovation system;

(f) Potential governance and funding models for Australia’s research infrastructure and agencies, and policy options to diversify science and research financing;

(g) The effectiveness of mechanisms within Australian universities and industry for developing research pathways, particularly in regards to early and mid-career researchers;

(h) Policy actions to attract, train and retain a healthy research and innovation workforce;

(i) Policy actions to ensure strategic international engagement in science, research and innovation; and

(j) Policy options to create a seamless innovation pipeline, including support for emerging industries, with a view to identifying key areas of future competitive advantage.

-1- EXECUTIVE SUMMARY

This is a submission from AME Systems Pty Ltd of Ararat Victoria to the Economic references Committee of the Standing Committee on Economics of the Senate of the Parliament of Australia. The submission endeavours to respond to the Terms of Reference referred to the Committee on 18th March 2014, which directed the Committee to report by the first Senate sitting day of July 2015 as to:-

“The challenges to Australian industries and jobs posed by increasing global competition in innovation, science, engineering, research and education”.

AME Systems Pty Ltd (AME) is a privately owned business situated at Ararat, approximately 200 kms west of Melbourne, in Western Victoria. It employs approximately 300 persons and has a current annual turnover of approximately A$35 million. AME is the archetypal Australian small-medium enterprise (SME). The company is a “Tier 1” supplier to the heavy vehicle and related industry (trucks, off- road equipment, heavy mining equipment, defence equipment etc). The principal products are wiring harnesses which control on-board electrical signal distribution and vehicle management systems on the vehicles in which they are installed. Principal customers are businesses in the “on-road” truck and omnibus industries, builders of “off road” agricultural/civil engineering/mining equipment, rail and tramcar builders, defence related equipment and applications, and some “static” applications of wiring harness technology.

This submission is unashamedly based entirely on the experience of AME over forty (40) years as a manufacturing business engaged in the processes of elaborately transformed manufacture of relatively unsophisticated components into high technology products and systems to supply to the largely domestic Australian market of heavy vehicle original equipment manufacturers (OEM’s). The submission does not draw heavily on theoretical economic research, but rather addresses from a very practical “real world” perspective the terms of reference of the Committee as they affect a typical Australian SME working at the “coal face” of investment, innovation, new product development and redevelopment, research and design, manufacturing, market development, and employment.

In summary, our response to the ten (10) specific Terms of Reference is as follows:-

(a) The need to attract new investment in innovation has never been more urgent and relevant to the future health and well being of all industries in Australia, in particular manufacturing based industries. Moreover, we believe that there is a general failure to understand what “innovation” actually means, and that there is a fundamental need to uplift the general and specific understanding of Australians as to the genuine meaning and implications of the whole area of “innovation”.

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(b) Regarding the Australian Government’s approach to innovation, we believe that there are significant opportunities for Governments (at both elected and bureaucratic levels) to significantly upgrade the knowledge and importance of innovation, research and development, and the growth of significantly industry funded activities in these areas which will create and maintain an environment and culture of innovation as the norm rather than as the exception. We believe very strongly in the support offered to industry by the provisions of the R&D Taxation Incentive Program which recognises the critical importance of R&D at the level of the individual business and SME.

(c) We strongly believe that research MUST be translated into clearly identifiable social and economic benefits for all Australians. The clearest manner in which research output can provide economic benefits for Australians is by the maintenance and up-skilling of existing jobs, and the creation of new and ever higher skill based jobs. Research and innovation purely for the sake of research and innovation is, we believe, not supportable - unless it manifests itself in the creation of new and/or more employment opportunities, then the investment becomes purely academic.

(d) The relationship between “advanced manufacturing” and an innovation culture is in our view absolutely critical. We believe that this cultural revolution has to start in the education space, and at all levels - primary, secondary and tertiary, and post tertiary. Moreover, we believe that there is a clear and urgent need to “up-class” contemporary views of what actually constitutes “manufacturing”, and at the same time to raise community perceptions of the manufacturing industry - the days of “manufacturing” as being typified by being the “smoke stacks” of industry are long gone!

(e) Policies as they relate to funding and procedures of Australian publicly funded research and related agencies need renovation in our view. There is a clear need and opportunity to establish “ownership” in the output of these agencies by a significant uplift in private sector involvement, engagement and financial co-operation. We do not believe that Australia needs to “re-invent the wheel” in this aspect - we provide one classic and highly successful example from the UK (the Warwick Manufacturing Group) which we believe could and should provide a perfectly adequate model for the development of (in particular) a culture of innovation in the advanced manufacturing sector.

(f) We have included comments concerning this Term of Reference in the immediately previous Term (e).

(g) We believe that we are not in a position to competently comment on the effectiveness of mechanisms within universities and other industries as they relate to the development of research and career pathways.

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However, we believe that there are significant opportunities to establish mechanisms as and between research and academic institutions (including the CSIRO) on the one hand, and individual private sector enterprises on the other hand which would significantly improve understanding of the respective roles played by each, and more importantly provide deep understanding of the needs and capabilities of ach sector in the eyes of the other.

(h) & (i) & (j). We believe that these three terms of reference are inexorably interwoven, and are best left to the policy makers in Government to determine.

-4- ABOUT AME SYSTEMS PTY LTD.

AME Systems is a privately owned proprietary limited company situated at Ararat, Western Victoria, and is a “Tier 1” supplier to the heavy automotive and automotive related industry (trucks, off-road equipment, heavy mining equipment etc). The principal products are wiring harnesses that control on-board signal and vehicle management systems on the vehicles in which they are installed. Some principal customers are Kenworth, Volgren, Caterpillar, Thales, and Macdonald Johnson Engineering to name a few.

The company is increasingly exposed to fierce competition from less costly imported products; such imports are principally sourced from Taiwan, Thailand, Malaysia, Mexico and increasingly from the Peoples Republic of China.

The company is approximately 30 years old, and has operated from Ararat for practically the entire company life. It also has a small Melbourne warehouse/finishing and servicing facility based at Kilsyth, near to a number of its major customers. The company employs approximately 300 personnel, including 10 Senior Managers. Essentially all Staff and Managers are domiciled in the Ararat district. Current turnover is in excess of A$30 million.

The business is both labour and components intensive, but possesses well established capabilities to meet exceedingly high technical, quality, performance and product reliability demands. Financial management, labour relations and management, purchasing and supply management, innovation and R & D, and on- time-delivery are critical components of the success of the company. The company has a strong balance sheet, and a quite significant net worth.

The owner (and founder) of the business is Mr Peter Carthew AM, who is also Chairman of the Board. Mr. Carthew is a member of the Victorian Manufacturing Council. The Board consists of the Chairman and Managing Director Mr. Peter Carthew, Mrs Lyn Carthew, and Messrs Ross Hatton and John Gault, all three of whom are non-executive Directors. Currently, the Chairman is actively engaged in the business on a day-to-day basis.

The company operates from modern, fully owned premises at 18 Gordon Street, Ararat. Well over 85% of the workforce is drawn from the surrounding district, and is regarded as reasonably stable; workforce turnover of approximately 12% per annum.

AME Systems is the largest single private sector employer in the region, and is a major benefactor supporter of the Ararat community.

For further detailed information regarding AME Systems P/L, please see our website at: www.amesystems.com.au

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RESPONSES TO THE TERMS OF REFERENCE

In response to the specific Terms of Reference of the Inquiry, we submit the following:-

With considerable regret, we have to submit that the understanding (and processes of successful implementation) of innovation seem to be only partially understood in both the community, industry and the Government sectors.

In a report in “The Australian” newspaper of the 10th Of September 2014, Federal Minister for Industry the Hon. Ian MacFarlane is reported from a speech to the Sydney Institute as follows:-

“Businesses will get government help to invent and commercialise new products and enter global markets under a plan to be released within weeks.

But Industry Minister Ian Macfarlane says it won't be a case of "picking winners", nor will it be a return to "endless cash programs and handouts".

For the past year, Mr Macfarlane has been working with industry, researchers and trainers to develop the National Industry Investment and Competitiveness Agenda.

The agenda is set to be released within weeks, the minister said.

Some of the proposals put forward have included employee share schemes, changes to intellectual property rules and competition policy and measures to break down barriers to global trade and investment.

There have also been ideas for improving training and skills, lowering the cost of doing business and building better economic infrastructure.

Mr Macfarlane said the economy was on the cusp of a third wave: the transition into higher value-added industries based on innovation, research and a sophisticated skills base.

The first wave involved farming and agriculture and the second wave focused on heavy manufacturing and commodity-based industries.

While he said the government would not pick winners, the best prospects for jobs lay in professional and business services, agribusiness, mining technology, energy, oil and gas, advanced manufacturing and medical technologies.

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"The challenge for Australia is to nurture those strengths and run with them," Mr Macfarlane told the Sydney Institute on Tuesday.

Rather than take the attitude of "government knows best", the new plan would "set the context" for investment and industry-led growth.

Australian industry should be solving problems in collaboration with scientists and researchers.

"Just three per cent of Australian business involved in innovation turn to universities or higher education sources for ideas," the minister said.

By far, this is the most refreshing contemporary indication that there are the beginnings of an understanding of what “innovation” really means. There are many definitions of the meaning of “innovation”, as exampled as follows:-

“The Conference Board of Canada defines innovation as the process through which economic and social value is extracted from knowledge through the generation, development, and implementation of ideas to produce new or improved strategies, capabilities, products, services, or processes.” (The Conference Board of Canada, 2014).

“New products, business processes and organic changes that create wealth or social welfare.” (OECD World Forum, 2007).

“Innovation is the specific instrument of entrepreneurship… the act that endows resources with a new capacity to create wealth.” (Peter Drucker, 2009).

“Innovation is the embodiment, combination, and/or synthesis of knowledge in novel, relevant, valued new products, processes, or services.” (Dorothy Leonard, and Walter Swap, Harvard Business Review, 1999, Boston: Harvard Business School Press, 7.)

Even President Barack Obama attempted to define “innovation”, when in 2009 he said:-

“Innovation is the creation of something that improves the way we live our lives.”

All of these “definitions” add weight to the clear need to invest in “innovation” as a means of securing not only high skill, high wage jobs, but as a veritable underpinning of a healthy society. But perhaps the most relevant “definition” of “innovation” in an industrial sense is the following from Innovation World (2012) as follows:-

“Innovation is a process, involving multiple activities, performed by multiple actors from one or several organizations, during which new combinations of means and/or ends, which are new for a creating and/or adopting unit, are developed and/or produced and/or implemented and/or transferred to old and/or new products and/or processes”.

At AME Systems, we believe that all of the above “definitions” are valuable.

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Yet, we believe that none of the attempts at defining what “innovation” fully embraces really captures the breadth of the concept of innovation . . . . our belief is that innovation is best “defined” or embraced as . . . . .

“Innovation is really about responding to change in a creative way; it’s about generating new ideas, conducting R&D, improving processes or revamping products and services. At another level, it’s also a mindset in our business; always striving to have ALL our employees focused on continuous improvement and constantly thinking outside the square.”

For AME Systems, all the aforementioned definitions hit on two strong chords of what “innovation” really means to us. For us, “innovation” must have two key components - these are:-

a) be “something” fresh (new, original, or improved); and “something” which; b) creates value

Also we believe that the “something” can be a process, product, or service and can start as small as mental ideas and thoughts. In that case, it might just be called “innovative thinking”.

These comments apply particularly so in the case of regionally based enterprises such as AME Systems, where the tyranny of distance from major metropolitan centers and their inherent institutions means that the role and mindset of innovation takes on a far more “independent” significance. As employers of nearly 300 people, each of whom plays a significant community role in our region, we believe we have a corporate social responsibility to (inter alia) encourage the innovation mindset in the workplace which can then be carried into the home, the family, and the community at large.

We believe that there are significant opportunities for the Federal Government at elected and bureaucratic level to upgrade their approach to the fundamental underlying of innovation to the whole of the Australian community.

In our own particular case, we fundamentally believe that Government has a role to play in creating and maintaining the environment in which business and industry can fully and comprehensively embrace the concepts of innovation. In this regard, we need to submit that there are fundamental differences between pure and applied research and development which sadly, we differences we fear are not necessarily clearly understood by neither Government nor the agencies which serve Government.

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Not all R&D takes place in air-conditioned laboratories by white coat clad scientists working on sophisticated analytical equipment such as spectrophotometers or linear particle accelerators, working with ground breaking studies into some of mankind’s greatest medical challenges such as research into human disorders such as cancer and other illnesses. From the perspective of an industrial workplace such as ours at AME, we view this “pure” R&D somewhat with awe and immense admiration.

Whilst we wholeheartedly applaud such “pure” research and the provision of Government funding to fulsomely support such research, we must also point out that for enterprises such as AME, there is a vast amount of “applied” R&D which is undertaken almost as an unseen and unheralded part of everyday work-life within the enterprise. The continual search for the new or improved better product, or the better processes by which to make the product just become part of the hourly, daily, weekly and yearly growth and development of the business. In some instances, this philosophy is called “TQM” - total quality management; in our business we describe this as “Continuous Improvement”. No matter the title by which we describe these activities, they are nonetheless described by one simple mantra - and that is:-

“That there has to be a never ending pursuit to find the better product or a better way of designing and building our products, and our challenge is to continually and inexorably seek the better product or processes by which we can achieve that result”.

In our case, we can state clearly that this philosophy extends right throughout and across our business. It may not (indeed almost certainly IS not!) as “sexy” as the R&D carried out by the PhD’s and scientists in the laboratories of this nation, but it is nevertheless every bit as much R&D. It is APPLIED R&D, and it needs to be recognized as such. Applied R&D may not and almost invariably does not conform to the same rigorous methodology of almost all pure R&D, but it is nevertheless R&D contributing to the enterprise prosperity, and maintaining and improving the prospects for employment into the future of the firm.

We wish to submit that there needs to be a renovation of the approach taken in the funding of R&D Taxation Incentive Programs towards a better understanding and recognition of “applied” R&D as opposed to “pure” R&D.

In regards to the funding of education, we have the following to submit to the Committee. Although we are generally regarded as an employer of choice in the Western Victorian region, we from time to time (due to attrition or major industry movements) have to recruit new staff. For quite some years now, we have noticed alarming trends in the quality of individuals presenting for employment at our business. Increasingly we have noticed that in terms of literacy, numeracy, and logic/thinking process ability, there has been as serious decline in prospective employees.

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This has now reached a point such that in the recruitment process, we often have to decline to appoint three or four applicants before we can discover one in the recruitment process with the necessary basic numeracy, literacy and logic processing skill sets. Sadly to report, nearly all those rejected have reached a minimum of Year 10 in their education, and yet they are simply not equipped for the tasks of the workplace.

It is not the role of employers to determine neither the extent or magnitude nor the manner in which education funding should be deployed; however, we DO have an obligation to submit to this Committee that it is our finding that, in terms of employability of school leavers, there are immense suitability and skill gaps which need to be recognized and rectified within the education system before as taxpayers we could all applaud the outcome of financial resources applied to education in our region at least, and we believe elsewhere across the nation.

On the subject of the allocation of investment in industries, we believe that it is not a role of Government to provide scarce taxpayer financial resources by way of either debt or equity funding to privately owned enterprises. We believe that the most effective manner in which Government can assist the financial performance of business is by so improving the efficiency and effectiveness of Government that taxation can be reduced, thereby releasing increasing amounts for enterprises such as AME to re-invest in innovation based new capital for new products and new processes. In this regard, we believe there is a role for the Federal Government through COAG to move to a funding arrangement where State Governments can finally do that which they were duty bound to do (but have NEVER done!) when the GST was initially introduced in the early 2000’s - and remove the crippling burden of State imposed payroll tax from the employers of this state and nation.

(c) The importance of translating research output into social and economic benefits for Australians, and mechanisms by which it can be promoted.

As previously indicated, AME Systems undertakes significant R&D (largely of an applied nature), and has an innovative, continuous improvement philosophy at the core of our operational behavior. Within the AME organization, we re-invest the benefits of our R&D into producing more and more internationally competitive products and by modifying existing products, and by developing new (and modifying existing) processes to enable higher quality, improved productivity, and enhanced cost competitiveness in our products. Since our R&D and innovations are unique to our product range and process capabilities, we do not share the outcomes of our R&D with the broader “open” market place. We do so on the basis that we believe that to those who take the risks and commit the resources should go the rewards.

Ultimately, the social and economic benefits of AME Systems R&D programs are the levels of employment we can maintain, and the associated wages and salaries we provide for our staff.

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At the broader aggregated community level, we believe that similar principles should prevail. Ultimately, the greatest benefit of Australian R&D and innovation, and in our view by far the most efficient and effective redistributive mechanism is the creation of new jobs which otherwise would never have existed, and the protection of jobs which otherwise might have been lost to international predators and competitors.

Research and innovation purely for the intellectual sake of research and innovation is, we believe, neither sustainable nor supportable. Unless innovation and R&D become manifest in the creation of new jobs or the maintenance of jobs which otherwise might be lost, and hence the betterment of Australian society as a whole, then we submit that the expenditure on R&D largely becomes purely academic.

(d) The relationship between advanced manufacturing and a dynamic innovation culture.

At AME Systems, we believe that a healthy and respected relationship between advanced manufacturing and a dynamic innovation culture is fundamental to present and future success.

We believe that “manufacturing” industry is perhaps the least understood of the industry spectrum base in Australia and therefore we submit that in order to cultivate the cultural environment in which the relationship between manufacturing and innovation can prosper, there needs to be a clearer understanding of what is actually meant by the idea of “manufacturing” and thence to more adequately understand what is meant by the term “advanced manufacturing”.

Ever since the industrial revolution, manufacturing industry was typified and maligned by being described as “smoke stack” industries . . . . . what went on in the “dark satanic mills” was a deep mystery to most of the community, save only for the tales of the wretches condemned to endure the dreadful working conditions inside these establishments where they had to work. Steel mills, rubber vulcanizing plants, food processing kitchens, chemical plants, textile mills and dye houses, foundries and metal fabrications plants, etc., etc., etc . . . . . ALL under the banner of “manufacturing”. The poor reputation for inadequate working conditions and an almost entire absence of environmental responsibility were reputations which, sadly, were in an overwhelming preponderance justified.

Happily those dark days have almost entirely passed, and for firms such as AME Systems, as with the overwhelming majority of employers, the working conditions and environment in our plant are both of the highest order. No one would wish for a return to the early days of the industrial revolution, and comparatively speaking, our working conditions and environmental standards are, we believe, at the highest level in the OECD group of nations.

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Nevertheless, to much of the “outside world”, what “goes on” inside our plant remains largely a mystery. It is “something to do with making electrical wiring harnesses for big trucks and buses and the like, but how they do it is just too hard to understand”! To the community at large, it’s “manufacturing” . . . . . it isn’t anywhere near as “sexy” as (for example) the IT industry, anywhere near as obvious as agriculture (our staff and the community drive past farm after farm after farm every day to and from work), and working in a “factory” certainly isn’t as “nice” as a career in the service industries such as commercial, retail, medical, and other “preferred” industry sectors.

We believe that there is an urgent need for the broad community to begin to understand what manufacturing REALLY means . . . . that it is undertaken in clean, healthy and exciting places where some of the world’s best products (and in our case components) are produced by highly skilled people and to worlds leading edge standards. That “manufacturing” takes place wherever one or more skilled and highly trained people come together to put one or more raw materials together to produce a value-added outcome which is of value to a customer, or can be further value added into an even more desirable and sought after product or set of products.

And in our view, we submit that this community level of understanding must commence in the education space. That a career in manufacturing IS a career with a future, that it IS undertaken in clean and safe environments, that it DOES produce higher and higher value-added products which benefit our society as a whole, and that it DOES encourage innovation, research, development, and that it is of critical national and strategic importance.

Gaining a broader community understanding of “manufacturing” will then unlock the pathway to understanding what advanced manufacturing might mean and involve. We believe that advanced manufacturing is NOT measured by (for example) the number of robots in place in a production facility, nor by the number of CNC drilling machines in an engineering products plant, nor by the number of automatic palletizing machines in a bottle manufacturing plant etc., etc., etc. - what advanced manufacturing SHOULD be measured by is the positive growth in the cultural environment in the total group of people engaged in the enterprise who continually seek better ways and means to improve the product or products, who are unceasingly looking for better and better ways to produce and process the components and equipment used to make the product(s), and who are endlessly looking for new products and new processes to meet the unceasing changes in demand from domestic and international markets. The answers to the endless search for answers to these issues will determine whether or not (for example) robots are needed, or whether CNC equipment is necessary, not whether it is “advanced” to adopt a “new” technology just for the sake of having the technology.

We submit that we would not want these comments to imply that there is not a need to continually seek out the world’s best equipment, technologies and methods to aid in the inexorable drive towards higher and higher levels of productivity and internationally competitive cost of production.

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That would be to mis-read our underpinning philosophy. Indeed, in our manufacturing operations at AME we utilize some of the world’s leading edge equipment and technologies in the pursuit of remaining and improving market competitiveness in terms of design, service and cost of the component products which AME supplies to the markets we service. We recognize that in the face of intense global competition in the markets which we serve, our future growth (indeed survival) will largely depend on our ability to unceasingly improve our cost competitiveness, our design capability, our commitment to absolute product quality and reliability, our on-time delivery, and our commitment to superlative customer and product service. We fulsomely acknowledge that these business strengths will be significantly enhanced by investment in new and emerging technologies, but largely these investments will be underutilized unless we develop, maintain and improve the organizational cultural context into which the new technologies are introduced and harnessed.

In other words, we submit that “advanced manufacturing” is largely an endlessly changing and improving state of mind and organizational culture, not only how much bigger and better equipment and gadgetry is employed.

(e) Current policies, funding and procedures of Australia’s publicly funded research agencies, universities and other actors in the innovation system. & (f) Potential governance and funding models for Australia’s research infrastructure and agencies, and policy options to diversify science and research financing.

We previously noted (see page 5) the report of Minister MacFarlane’s address to the Sydney Institute; in particular, the Minister is reported as having remarked (inter alia) that:-

“Australian industry should be solving problems in collaboration with scientists and researchers. Just three per cent of Australian business involved in innovation turn to universities or higher education sources for ideas." the Minister said.”

We submit that in this remark, Minister MacFarlane has come very close to the core of the whole funding issue concerning Australia’s publicly funded research agencies and institutions - whilst they are world renowned institutions, and perform internationally recognized work, less than 3% of Australian businesses turn to these institutions as a source of ideas and innovation.

In our experience it is a noticeable characteristic of many businesses in Australia that, unless they have direct “skin in the game”, then they have little to do with the enterprise or institution with whom they are or should be engaged. It is certainly acknowledged that a significant amount of corporate taxation revenue to the Commonwealth is indirectly applied to many research agencies, universities and other research institutions such as the CSIRO.

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To the best of our knowledge and experience, whilst there are a significant number of private sector corporations engaged in specific and highly focused research (eg. in the pharmaceuticals industry) there are very few privately funded research agencies in the fields of manufacturing and innovation. Whilst such situations exist, we submit that absent a massive effort to demonstrate relevance to the industrial sector, much of the work which goes on in universities and agencies such as CSIRO will go largely untapped; this is a situation which we believe provides an opportunity to directly involve industry in what would otherwise be regarded as “the world of academia” by harnessing proven innovative schemes and methods which have demonstrably been proven to work in other OECD countries.

We also submit that, unless and until private sector funding and investment can be directly applied to institutionalized research, development and innovation, then the low level of harnessing institutionalized research will continue.

One such arrangement which we would strongly commend to the Inquiry is the international example set by the renowned and prestigious Warwick Manufacturing Group, which works out of the University of Warwick at Coventry in the United Kingdom, but which is largely if not now solely funded by the private sector.

The Warwick Manufacturing Group (WMG) was originally founded in 1980 by Kumar Bhattacharyya to support the reinvigoration of UK manufacturing through research and knowledge transfer (Professor Bhattacharyya, who was elevated to a life peerage in 2004, remains a director of WMG). Its first venture was a part-time master's degree for senior industry staff; this considered technology and management as a unified whole, with modules taught at a purpose-built residential centre. While the course was initially criticized by academics, it proved popular with industry and companies began to send staff to WMG in greater numbers.

Bhattacharyya then decided to also provide industry-related research services too, convincing the university to loan money for a centre where academics could collaborate with industrialists on the development of new products for the aerospace and automotive industries. The building was officially opened on 8 January 1990 by Margaret Thatcher and its success (and the income generated) allowed WMG to build two further buildings to enable expansion into other areas, including construction, pharmaceuticals, mining, information technology and food and drink.

In 2007, the Group rebranded with the abbreviated title of WMG (instead of Warwick Manufacturing Group) to reflect its move to more diverse activities outside its original manufacturing roots.

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WMG is contemporaneously based in six buildings on the University of Warwick campus as follows:-

 International Automotive Research Centre  International Manufacturing Centre  Engineering Management Building (the Westwood campus)  International Digital Laboratory (completed 2008)  International Institute for Product and Service Innovation (completed in 2012)  International Institute for Nanocomposites Manufacturing (completed in 2014)

WMG has created strong international links in China, where WMG has been engaged since the 1980s, and in India, where it helped establish a technical university.

In 2011, WMG accounted for 30 per cent of the university's research activity and had over 2,500 postgraduate students, 650 studying full-time at Warwick. Just 20 of 450 staff and 10 per cent of its £120 million annual research budget was funded by the Higher Education Funding Council for England, the balance being funded by the private sector which in a very real sense have become owners/investors in the Group.

The WMG could be described as a department at the University of Warwick, providing research, education and knowledge transfer in engineering, manufacturing and technology. As well as providing advanced residential programs at Coventry for senior (and middle/junior level) level management in British industry, the group also provides taught and research degrees for postgraduate students at the University of Warwick campus, as well as at overseas centers in China, India, Singapore, Malaysia, Cyprus, Russia and Thailand.

We believe and submit that there is a clear need and opportunity to establish “ownership” in the output of research agencies (and other institutions) by a significant uplift in private sector involvement, engagement and financial co- operation. We submit that the founding and operation of the Warwick Manufacturing Group could and perhaps should provide an adequate and highly successful model (without having to “reinvent the wheel”) for the establishment of a “Centre for Manufacturing Excellence” (or the like) here in Australia.

More detail regarding the WMG is available at the following websites:-

http://www2.warwick.ac.uk/fac/sci/wmg/

http://www2.warwick.ac.uk/fac/sci/wmg/about/

http://www2.warwick.ac.uk/fac/sci/wmg/business/

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We are firmly of the opinion that, unless private ownership (or “buy in”) of largely Government funded institutions and research agencies can be achieved, then there will be a continuing low level of harnessing of the knowledge available through collaboration and intellectual co-investment.

We submit that the establishment of a high level of collaboration between the Australian Government and the WMG would be highly beneficial; we would encourage that this be undertaken as a matter of significant urgency.

(g) The effectiveness of mechanisms within Australian universities and industry for developing research pathways, particularly in regards to early and mid-career researchers.

We do not believe that we are in a position nor are we sufficiently aware or competent to comment on the effectiveness of mechanisms within universities and in other industries as such mechanisms might relate to the development of research and career pathways.

Within our own AME Systems organization, and even although innovation, research, and development are inimical to our success, we do NOT have a separate managerial function of “Innovation and R&D Manager”. We do so on the basis that we regard the culture of innovation to be so imbedded into the performance of all our staff, that it becomes an underpinning part of fundamental approach and performance of each and every individual. Hence, research pathways, or research career pathways have no direct relevance within our AME organizational structure.

We do however wish to submit that we believe a significant opportunity exists by examining the feasibility of introducing a personnel interchange program between enterprises such as ours whereby researchers from institutions, agencies and academic organizations could be placed into assignment based placements in industrial enterprises. We believe that this could and should greatly enhance the exchange of knowledge as and between industry and research agencies/institutions, and perhaps open up career pathways which otherwise not be recognized or realized.

We believe that there are significant opportunities to establish such mechanisms as and between research and academic institutions (including the CSIRO) on the one hand, and individual private sector enterprises on the other hand which would significantly improve understanding of the respective roles played by each, and more importantly provide deep understanding of the needs and capabilities of each sector in the eyes of the other.

(h), (i) & (j). We believe that these three terms of reference are inexorably interwoven, and are best left to the policy makers in Government to determine.

Submission.SenateEconomicsReferenceCommittee.September15.2014.