MAKE FOR ASIA
The emerging Asian middle class and opportunities for Australian manufacturing King S, Hine D, Brea E, Cook H (2014) Make for Asia – The emerging Asian middle class and opportunities for Australian manufacturing, CSIRO, Australia.
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2 Foreword
I am delighted to introduce Telstra’s latest piece of research: “Make for Asia – The emerging Asian middle class and the opportunities for Australian manufacturing”.
Telstra challenged CSIRO to explore what At the core of all future innovation will be the future opportunities for Australian fast, reliable and secure global networks manufacturers might be, particularly in through which manufacturers, suppliers, the context of the dramatic rise of the and customers will collaborate and create. Asian middle class. Our research found Future manufacturing communities will that by 2030 the Asia Pacific will be home use ICT collaboration platforms, fixed to two thirds of the world’s middle class and wireless networks, the internet, (up from 28% only a few years ago), an social media and devices as the lathes astonishing 3.2 billion people. and workbenches of the 21st century. Cloud-based services will support Our research shows that the emerging access to these new markets, as they are Asian middle class will demand what flexible, scalable and accessible across middle classes across the world demand – geographies. high-quality, safe, sustainable and reliable products. We hope this research offers a valuable contribution to the conversation about Australia, geographically near to this how Australia can thrive as part of the “meganiche” market and with first- globe’s biggest and most exciting market world manufacturing processes, is well opportunity. placed to capitalise on these enormous opportunities emerging. Finally, I would like to thank the team at CSIRO – particularly the lead researchers, Our research identified four broad areas of Sarah King, Damian Hine, Edgar Brea, and manufacturing opportunity for Australia: Hannah Cook – who have worked tirelessly resource-efficient manufacturing, over the past few months to produce this business model innovation, industry insightful piece of research. collaboration and connected manufacturing. We have explored what technologies underpin these Charlie Macdonald manufacturing opportunities and how our manufacturing sector can leverage them to access this huge market.
This is where we believe Telstra can help the Australian manufacturing industry to recover, innovate and grow.
3 about the authors
Charlie Macdonald Dr Damian Hine Sarah King Industry Executive Manufacturing Associate Professor, Leader, Sustainable Manufacturing, CSIRO Transport and Logistics, Telstra University of Queensland Future Manufacturing Flagship
Charlie was born in Lagos, Nigeria and Damian is currently the Strategy Sarah King leads Sustainable educated in the UK. He has spent over 20 Cluster Leader at the University of Manufacturing and Innovation within the years in a variety of leadership roles in the Queensland (UQ) Business School, and CSIRO Future Manufacturing Flagship. express logistics sector, based in Europe, Associate Professor in Innovation and She spearheads cross-disciplinary Asia and, since 2004, Australia. In these Commercialisation in UQ Business projects which improve resource roles, he has developed and deployed School. Damian’s expertise builds on efficiency for the benefit of Australian mobility, supply chain visibility and his perspectives as an evolutionary manufacturers. Sarah’s projects focus customs clearances solutions globally. economist and centres upon building on resource efficient technologies, In 2012, Charlie was appointed intellectual assets in organisations and industrial ecology, life cycle assessment, Manufacturing Transport and Logistics economic systems, including capability and generating wealth from waste. Sarah Industry Executive in Telstra’s Industry building and intellectual capital through recently co-authored two pivotal reports Development team. interdisciplinary collaboration, all aimed at with the CSIRO Futures team which enhancing organisational growth through described megatrends and strategic Charlie holds a Bachelor of Science in innovation. His focus is on employing novel directions for the Australian Chemicals Fuel and Energy Engineering from the quantitative modelling techniques using and Plastics Industry. University of Leeds. large data sets to offer new insights on innovation and knowledge. Damian has led Sarah holds a Bachelor of Forestry a number of large projects, both nationally Science from Canterbury University and a and internationally, in innovation and Masters in Corporate Environmental and entrepreneurship. Sustainability Management from Monash University. Her knowledge and expertise is Damian has also been commissioned to garnered from experience in the forestry, write papers in innovation and intangible agriculture, IT, manufacturing and R&D assets for the OECD and UNESCO. He sectors. Sarah is also an active member has published two books including one of the Australasian Industrial Ecology on Innovation and Entrepreneurship in Network. Biotechnology, numerous book chapters and over 30 journal articles. He is currently the International Consultant on Vietnam’s National Innovation Training Program, and is currently running Innovation and Commercialisation programs in Vietnam, Fiji, Chile, Ecuador and Colombia.
4 contents
Executive summary 6 1 Introduction 8
Part 1 – Setting the scene 9 2 Trends in Asian Demand 10 2.1 Economic trends behind the Asian middle class consumer 10 2.2 Demand in Asia – Five consumer trends 11 3 Megatrends Influencing Manufacturing 14 3.1 Emerging markets 14 3.2 Resource scarcity 15 3.3 Food for all 15 3.4 Responsible industry 16 3.5 Technological advances 17
Part 2 – What are the Manufacturing Opportunities for Australia? 18 4 Resource-efficient Manufacturing 20 4.1 Overview 20 4.2 Additive Manufacturing for the Asian health sector 20 4.3 Implications for manufacturers 23 5 Business Model Innovation 24 5.1 Overview 24 5.2 Adding value through innovation and servitisation 25 5.3 Implications for manufacturers 26 6 Industry Collaboration 28 6.1 Overview 28 6.2 Australian food and beverage goods to feed a growing and demanding Asia 30 6.3 Implications for manufacturers 31 7 Connected Manufacturing 32 7.1 Overview 32 7.2 Agility and market growth through automation in food processing 34 7.3 The potential for increased agility through digital connectivity 34 7.4 Implications for manufacturers 35 8 Conclusion 36 9 References 38
5 executive summary
This report explores the opportunities for Australian manufacturers in Asia by first addressing the characteristics of the emerging middle class: increased discretionary income, a desire for choice and convenience, and (in some cases), a preference for high quality, foreign products.
The central themes include agility, In 2009, the global middle class held 1.9 3. Industry Collaboration – working customisation for the mass market and billion people with 28% of this total in the together to innovate, build the emergence of the “meganiche”. These Asia Pacific region. This is forecast to grow competitiveness and take on export meganiches are beyond our traditional to 4.9 billion people by 2030 with the Asia markets. idea of a niche, with markets of 50-300 Pacific share growing to 66%, equating to 4. Connected Manufacturing – million people who are seeking a better around 3.2 billion people. This represents low-cost intelligent robotics, quality of life, and a reward for their risk a huge market and opportunity for automation, sensors and data analytics and effort. These markets will provide Australia, which has unequalled proximity across the factory and supply chain. opportunities for the astute, agile and to Asian markets. sophisticated manufacturer who can These four broad opportunity areas offer a product from a well-regulated, This report identifies four opportunities: intentionally cut across business sectors. clean, design-driven, high-technology 1. Resource-efficient Manufacturing – They aim to strike a balance between environment with a focus on individualised driven by new technologies such as addressing business competitiveness service to create a “fit-for-specific- additive manufacturing, combined with and corresponding market sector purpose” product. These massive markets innovation and IP protection. opportunities in the Asian middle class. are central to the emerging opportunities 2. Business Model Innovation – Figure 1 shows some more specific in Asia. developing new services, R&D driven examples relating these opportunity areas solutions and novel manufacturing to particular industries. models to deliver to meganiches.
Figure 1: Example sectors relevant to the Asian middle class
By 2050, Asia will be home to 24% of people over 60. China has the largest number of older people and Japan has the oldest
HEALTH
Contributes $10 billion annually to MINING FOOD & the economy, of which $3 billion are EQUIPMENT & MEGANICHE BEVERAGE Preference for foreign food exports. China, Indonesia, PNG and averaged to be an estimated 158 India are priority markets TECHNOLOGY million in 2009 and 970 million SECTOR in 2030
SERVICES
A high margin option for Australian manufacturers, only 23% of which currently provide a service
6 Technology enablers have the 3. Data Analytics – are essential to Australia must also seek to leverage capabilities to improve manufacturing building greater awareness and value what might be seen as burdens sophistication and therefore have a from inside the factory walls and domestically: regulated markets, role to play in building competitiveness, across the supply chain. high quality control and adherence flexibility and the ability to customise for 4. ICT Fixed and Wireless networks – to standards. We must make full use the meganiche. Examples discussed in fast and reliable networks for devices of our highly-educated, highly-skilled this report include: provide real or near real time access population, and our reputation in 1. ICT Collaboration platforms – to decision-making tools and provide mining and food quality, to innovate our supporting a digital relationship with greater control. way to excellence. The combination of the customer as the gap between technologies referred to in this report manufacturer and consumer closes. will support Australian manufacturing opportunities created by the emerging 2. Data Security – is paramount as middle class in Asia. value shifts from the physical to digital, and digital relationships are formed across the supply chain.
7 1 introduction
Manufacturing is a vital part of Australia’s economy. It accounts for 34% of Australia’s export trade, employs almost a million people and is the lead sector contributing the greatest investment to business expenditure in R&D, ahead of Australia’s mining sector. As such, manufacturing is a driver of technological innovation.
Australia is also a good location for To remain competitive, Australian The report is divided into two sections. The manufacturing, with its stable political manufacturing needs to navigate a first section sets the scene by describing environment, skilled and well-educated new path. the Asian consumer demand trends and population, strong IP protection regime, the manufacturing megatrends. In the and supportive infrastructure for One path Australian manufacturers can second section, we describe four major innovation and research through leading take is to deliver to emerging markets opportunity domains for Australian universities and the CSIRO. such as the Asian middle class. This is manufacturing arising from these trends not simply a case of identifying sectors of (as illustrated in Figure 2). However, manufacturing in Australia is not importance, such as food and beverage. without its challenges, as recent events It is also about remaining competitive Consider this report as a call to action. will attest, arising from the current high through innovation by exploiting There are fantastic opportunities arising dollar and global competition from low technology enablers. This is why our from the emerging Asian middle class wage economies. To remain competitive in report aims to strike a balance between literally on our doorstep. the face of emerging economies striving defining manufacturing opportunities to advance their manufacturing capability, that can enhance Australian business Australian manufacturing needs to competitiveness and identifying promising navigate a new path. market opportunities in the emerging Asian middle class.
Figure 2: Project methodology – manufacturing opportunities are underpinned by technology enablers and supported by megatrends and Asian consumer demand trends
MEGATRENDS OPPORTUNITIES DEMAND TRENDS
Resource Scarcity Resource-Efficient Manufacturing Personal & Environmental Health
Responsible Industry Business Model Innovation Increased Discretionary Spending
Technological Advances Industry Collaboration Increased Diversity of Consumer Preferences
Emerging Markets Connected Manufacturing Demand for Convenience
Food for All Trading-up on the Rise
TECHNOLOGY ENABLERS
8 Part 1: Setting the scene
9 2 Trends in Asian Demand
2.1 Economic trends behind the Asian Indeed, by 2030, the Asia Pacific middle But the largest rate of urbanisation middle class consumer class will dwarf Europe and North America in the continent will be seen in China, As identified previously, Asia will host combined, see Figure 3b. As Asian where the percentage of the total the world’s largest middle class by 2030. economies struggle to keep pace with population who live in urban areas will This projected growth correlates with the internal demand this rampant growth increase by nearly 20% between 2010 an intensification of the consumerist brings, imports of value added product will and 2030 [4]. China is, however, seeking behaviour in the region. Figure 3a depicts inevitably grow [3]. to address this demographic flow to OECD research forecasting that Asia’s the east with coordinated policies to share of middle class consumption will One particularly noteworthy trend is strengthen the economies of the central grow more than 2.5 fold between 2009 and Asian urbanisation. People are rapidly Chinese provinces – such as the National 2030 [2]. populating urban areas in Indonesia, Development and Reform Commission’s Thailand and Vietnam in search of plan to set the region as a base for energy improved living conditions. and machinery production [5].
ToFiguretal 3a: Middle Total middle Class class Consumption, consumption by region: Regions 2009, 2020 and 2030 estimates [2]
TOTAL% 444 Middle East and North Africa 111 Sub-Saharan Africa
Asia Pacific
23 Central and South America 42 Europe 7 59 North America 38 7 29 6 20 26 17 10 2009 2020 2030
10 Figure 3b: Total middle class consumption by region: 2030 estimate [2] 2030
Middle East and North Africa 4%
Sub-Saharan Africa 1%
Asia Pacific 59%
Central and South America 6%
Europe 20%
North America 10%
2.2 Demand in Asia – Five 2.2.1 Increased discretionary spending As Asian economies successively develop consumer trends As income rises, Asian consumers are – from the early lead of Japan to the With wealth, and an increasingly complex shifting from essential spending on most recent examples of Laos, Myanmar, economy, comes choice. Asian economic primary goods and services to more Cambodia and Bangladesh – more people and demographic trends are influencing discretionary items [6]. Growth in non- are becoming first-time consumers of consumers’ purchasing behaviour, essential categories such as imported manufactured goods such as televisions, with trends showing similarities to cars, electronics and recreational mobile phones, motorcycles, air industrialised nations in Europe and North equipment is surpassing those of primary conditioners, and leisure equipment. In America. An evaluation of the evidence goods in Asian economies [7]. In China, 2012, China became the world’s leading behind this behaviour has resulted in for example, discretionary spending is PC market for the first time. During that the following list of five key emerging projected to grow almost twice as fast as year, shipments to China amounted to consumer trends: expenditure on essentials. 69 million units, exceeding the 66 million 1. Increased discretionary spending total reached by the United States [10]. The intensity and focus of this trend may 2. Increased trading-up be affected by factors such as fluctuations 3. More diversity in consumer preferences in the price of essential goods, such as 4. A greater focus on personal and food and energy, and by the regulatory environmental health environment. One illustrative example of this is the move by the Beijing City 5. Stronger demand for convenience. Government to ban cars from central Beijing (where cars are well on the way There is a lot of overlap across these to replacing bicycles and motorcycles as five consumer trends. Opportunities the transport mode of choice) and to limit in niche markets are being created as the availability of vehicle registration [8, a result of these interrelated trends; 9]. This regulation is in direct response however, these will only be seized by to the rapid proliferation of private motor those Australian manufacturers who vehicles, which has stretched the city’s can move swiftly before the void is filled infrastructure to breaking point. by local manufacturers, or other astute international competitors.
11 2 Trends in Asian Demand (cont.)
2.2.2 Trading-up is on the rise What makes the trading-up trend The bulk of this growth will come from The Asian story is one of increased even more relevant for Australian Asia: by 2030, Asia will represent 66% trading-up: the purchase of more manufacturing is the fact that many of the global middle-class population expensive products and services with consumers in Asia, particular the younger and 59% of middle-class consumption, improved features, as a sign of greater generations, believe that foreign brands compared with 28% and 23%, respectively personal aspiration and affluence. This is are more capable of supplying high quality in 2009 [14]. fuelled by consumers’ desire to improve goods that are increasingly in demand themselves, the conditions in which they (see Figure 4). So while the percentages of the groups live and their perceived social status [11]. of respondents to the McKinsey survey To put Figure 4 in context, according in Figure 4 demanding foreign-branded, A perfect example is the consumption to the OECD, the middle class in 2009 manufactured food products ranges from of improved versions of mobile phones. included 1.9 billion people, with Europe 18-40%, if we average this at 30%, this During the 2010-15 period, smartphone (664 million), Asia (525 million) and North would equate to almost 158 million people sales in Asia will total 0.83 billion units America (338 million) accounting for the in 2009 and around 970 million in 2030. sold, equalling total sales in the Americas highest number of people belonging to for the same period [12]. this group. The size of the “global middle class” is anticipated to increase from 1.8 billion in 2009 to 3.2 billion by 2020 and 4.9 billion by 2030.
Figure 4: Percentage share of respondents who prefer foreign brands versus local brands (China), by segment [13]
Personal digital gadgets Household electrical appliances Personal care products Household care products Food & beverages
Older (35-65 years) 47 46 28 25 18 60 59 43 39 30
AGE
Younger (18-35 years) 67 60 43 34 29 73 70 64 53 40
Lower (
HOUSEHOLD INCOME
12 2.2.3 Increased diversity of There is a lag in the response to these 2.2.5 Stronger demand for convenience consumer preferences rapid developments in consumer demand The most valued commodity for most The search for products tailored to by local manufacturers; however, the in the emerging middle class is time. individual consumers’ explicit wants is increasing capacity of local manufactures For example, as citizens move from also rising in the region. Asian customers to deliver sophisticated quality product isolated rural areas to densely populated value a firm’s ability to customise its will see the window of opportunity urban centres, the faster pace drives product to suit local preferences [15]. for international competitors narrow them towards ‘grab-and-go’ outlets and At the individual level, there is a growing [16]. Thus, it is the agile sophisticated products in convenient portable packaging focus on emotional considerations manufacturers who will most likely seize [19]. Convenience also drives increasing when shopping, as well as an increasing and maximise the opportunities presented consumption of pre-cooked and ready- emphasis on self-expression. As this by this growing diversity. to-eat meals. The expedience of home sense of individualism increases, delivery and the convenience of being able expectations for a diverse set of 2.2.4 Personal and environmental health to shop anywhere at any time are two of offerings will also rise. This aligns with gains in importance the factors driving the growth of online a progression from mass production to Good health is not just a sign of affluence; sales. By 2016, the Asia-Pacific region will mass customisation, to servitisation. it is also essential to the earning capacity account for nearly 40% of worldwide B2C of many in Asian economies where health e-commerce sales [20]. In the manufacturing sector, the term and welfare systems have not kept pace servitisation describes a manufacturer with economic development. who provides services that complement their product offering. Servitisation can Increasingly, consumers in India, China provide a manufacturer with higher and South East Asia are demanding margin and new market opportunities, attributes such as ‘organic’ and ‘green’ leverage the knowledge of workers, secure labels [17]. In Japan, an ageing population customer loyalty and promote ongoing will boost the global health food segment exchanges with customers. in the medium term – Japan is already the world’s second-largest market for that Additionally, an increasing wealth category after the United States [18]. disparity causes a divergence of consumer segments across the region, Furthermore, there are indications that which results in a diverse consumer a substantial number of consumers base. China, in particular, is developing in emerging markets are willing to pay a strongly polarised consumer market a premium for eco-friendly products; with a growing base of consumers, hungry one recent survey showed that Chinese for discretionary goods and services and consumers would agree to pay 10% even luxury items, and a broad mass more for ‘green’ products. (In contrast, of consumers whose behaviour, and consumers in developed markets, economic circumstance, has yet to convert like France and Canada, would only from aspirational to actual. pay 5% more for such products [19]). Consequently, the ability of Australian Asian customers value a firm’s ability manufacturers to meet or surpass to customise its product to local recognised standards for organic, preferences ‘green’ and sustainable production will potentially be a key asset to Australian manufacturers.
A substantial number of consumers in emerging markets are willing to pay a premium for green and healthy products
13 3 Megatrends Influencing Manufacturing
The second part of setting the scene is to understand the megatrends influencing manufacturing. A megatrend is defined as a substantial shift in conditions – the social, economic, environmental, technological and political conditions – that may reshape the way an industry operates in coming decades. Each of the megatrends detailed below will influence Australian manufacturing and opportunities in Asia. In this section we describe these megatrends quite broadly and we will draw out the connection with specific manufacturing opportunities later in the report.
3.1 Emerging markets Figure 5: The five manufacturing megatrends Rapid income growth and technological advancement in Asia, and the developing world, will see the emerging middle class demand new goods and services as their newfound consumer wealth changes their preferences and enhances their buying power. This will open up new markets for Australian manufacturing products, but competitors in Australia and abroad are likely to be aware, and in hot pursuit of, the very same opportunities. EMERGING MARKETS Rapid growth in Asian markets, including China, Hong Kong, Indonesia, Malaysia, Singapore, South Korea, Taiwan, Thailand and Vietnam, will see GDP collectively growing at 6.4% per year between 2011 TECHNOLOGICALHNOLOGICAL RESOURCE and 2020. This is compared with growth ADVANCES SCARCITY in the US and Europe of 2.5 and 1.3 respectively [21].
Incomes in these countries will increase accordingly, contributing to the growing middle class. The OECD defines the global middle class as those households with FOOD daily expenditure between US$10 and RESPONSIBLELE FOR ALL US$100 per person. In 2009, 1.9 billion INDUSTRY people fell in this bracket, with 28% in the Asia Pacific region. By 2030, the middle class is expected to grow to 4.9 billion people, with the Asia Pacific share growing to 66% [22] . Global expenditure from the middle class is expected to grow from US$21 trillion in 2009 to US$56 trillion in 2030, with 80% of that growth coming from Asia [22].
1 Expressed in purchasing power parity terms in order to account for the difference in the relative value of currencies.
14 3.2 Resource scarcity 3.3 Food for all However, people in developing countries Energy, mineral and water resources are Global population growth and economic are, on average, increasing meat essential inputs into the manufacturing growth will fuel increased demand for consumption at the rate of 5% per year industry. These resources have limited food in coming decades. It is forecast that with expectations of further growth supply in the natural world. In contrast, food production must increase by 60% ahead [31]. Such interactions between domestic and global resource demand is by the year 2050 to meet the expected demand and supply factors in the food rising. Global water demand is forecast rise in food demand [26]. Food prices are sector may create opportunities for to increase 55% between 2000 and 2050, high and most forecasts suggest they the manufacturing industry in food with the largest increases coming from will remain high, or increase even further processing. manufacturing, electricity and domestic in the coming decades [27]. Between 25 uses [23]. Global energy demand is to 50% of the household budget in many The interaction between demand and forecast to increase by 40% between developing countries is already allocated supply factors in the food sector may the years 2009 and 2035 [24]. Previous to food expenditure [27, 28]. Higher food create opportunities for the Australian decades have seen prices rise and prices will have significant impacts on the manufacturing industry become more volatile. A shrinking supply distribution of household expenditure. will lead to increased development of, and Based on predictions of population investment in, more efficient production The quantity of food traded across borders growth, changing diets and changes to techniques. For example, the gradual is also rising sharply. Combined with agricultural systems, the United Nations decline in ore grades from exploitable increased spending power, increased food Food and Agriculture Organization (FAO) reserves of major mineral commodities trade is changing dietary preferences [29]. forecast that food production must [25] is likely to contribute to increased In developing countries the most popular increase by 60% by the year 2050 [26]. At interest in recycling of existing resources. source of protein, for example, is from the same time, every year the world loses plants, whereas in developed countries it around 12 million hectares of productive Manufacturing industries which best is mainly derived from animal protein [30]. agricultural land which, if kept in adapt to an increasingly resource- production, would have produced around constrained world will be able to derive 20 million tonnes of grain [32]. Thus gains significant competitive advantage. in production must predominantly come from yield and efficiency gains and not through the expansion of agricultural land [28]. This reinforces the need for Australia to continually improve its agricultural productivity.
15 3 Megatrends Influencing Manufacturing (cont.)
3.4 Responsible industry Cleantech is a growing sector as China’s Company engagement with corporate Coming decades will see an increased 12th five-year plan, 2011-2015 identifies sustainability and the triple bottom line is emphasis on environmentally and socially ‘New Energy’: nuclear, wind and solar shifting from being of moral importance responsible industry performance by power, as one of seven priority industries to a necessity for companies operating in companies, governments, communities for investment and aims to increase the 21st century. An Australasian Investor and consumers. Environmental and non-fossil fuel use to 11.4% by 2015 Relations Associations’ investor survey social credentials will be an increasingly [33]. Ernst & Young’s 2013 ‘Cleantech found that investors are requesting more important differentiator for consumer industry performance’ report lists an information on a company’s operational products and major corporate or 18% global market capitalisation growth impacts and governance [35]. All aspects government contracts. The social licence over the previous 12 months. The Asia of company operations are coming under to operate will obtain elevated importance. Pacific region experienced the greatest scrutiny. KPMG’s survey on corporate Recycling and waste management will increase in the number of companies and responsibility reporting found 93% of gain greater attention. employees in this market [34]. the world’s largest 250 companies now report on their environmental and social activities. The biggest increase in reporting rates is from the Asia Pacific region [36].
16 3.5 Technological advances Disruptive technologies are hard to see Some examples of the technologies likely The pace of technological development coming [37]. These technologies have the to influence the manufacturing industry in the manufacturing industry is rapid. potential for a significant transformative in Australia and around the world include Future advances have the capability to effect on the way businesses operate and additive manufacturing, automation, and substantially alter production processes, people live. The Economist Intelligence intelligent robotics, seizing the power of supply chains and the competitiveness Unit [38] forecasts a continuing increase the industrial internet, flexible electronics of companies and the whole industry. in the rate of technology disruption over and resource-efficient technologies such These technological advances will help the coming decade. as flow chemistry. manufacturers reduce and avoid costs, and also innovate and access Technological advances will help new markets. manufacturers reduce and avoid costs
17 Part 2: What are the Manufacturing Opportunities for Australia?
18 The consumer trends, outlined in the previous section, point to a proliferation of niche markets for those manufacturers who are technologically prepared, ready to listen to their customers, and deliver a product that is individualised and accounts for rapidly changing preferences.
Meanwhile, the megatrends influencing Opportunities for Australian The following section describes four ways manufacturing point to where the manufacturers exist where middle in which Australian manufacturing can drivers of change reside, namely, in a class consumer trends in Asia meet the access the new markets created by the steep technological trajectory. This is megatrends that are driving change in emerging Asian middle class. due, in part, to increasing aggregate the manufacturing landscape. However, R&D expenditure across the globe and a the opportunities we discuss in this simultaneous need to produce customised section are not only open to Australian goods both efficiently and sustainably manufacturers. The global innovation at (two goals that would typically be mutually the heart of megatrends means that other exclusive without technological advances). manufacturers, from both emerging and developed countries, are either already seeking to target these opportunities, or are not far from their Eureka moment.
19 4 Resource-efficient Manufacturing
4.1 Overview Resource efficiency supports the A key enabler of resource-efficient Efficiency and innovation are not the principles of sustainable or green manufacturing is the adoption of new mutually exclusive domains they were manufacturing by employing processes technological advances, such as additive once considered to be. The pursuit of each or technologies that minimise negative manufacturing (AM). AM has application in its own right is not only increasingly environmental impacts, conserve energy in the aerospace, construction and the legitimate, but also necessary to compete. and natural resources. The Asian demand automotive sectors, but the biggest A manufacturer achieving both will enjoy trend ‘Personal and Environmental Health opportunity relevant to the Asian middle advantages in a sector recognised for Gains in Importance’ indicates that the class market is within the health sector. regular, almost constant technological demands for products that are ‘green’ or advancement globally, and pressure on eco-friendly are rising. 4.2 Additive manufacturing for the margins locally. Asian health sector Efficient manufacturing could therefore Additive manufacturing (AM) technologies, Resource-efficient manufacturing is support an improved environmental including 3D printing, have the potential supported by three manufacturing image and brand, and the production of to improve business operations by megatrends, including resource scarcity, manufactured products with superior facilitating the more efficient use of responsible industry and technological environmental credentials. It could resources in manufacturing. Additive advances, as depicted in Figure 6. encompass new market opportunities manufacturing creates objects layer Resource-efficient manufacturing through the delivery of manufactured by layer (as opposed to subtractive delivers a combination of economic and goods into cleantech markets, such as manufacturing, which removes material to environmental benefits through reduced renewable energy or waste management create an object). resource consumption and less waste, solutions, to support the quality of modern resulting in reduced costs. life in the rapidly growing and emerging 3D models are no longer just generated on economies. Cleantech markets are screen, but are created in real time using A key enabler of resource-efficient particularly relevant for China as it plans 3D printing. The part to be manufactured manufacturing is the adoption of to invest RMB 3.4 trillion on environmental is sliced into stacks of layers and read new technological advances, such as protection during 2011-2015. It is into the additive manufacturing process, additive manufacturing (AM) estimated that environmental degradation with the part built up layer by layer until costs China 8% GDP per annum [39]. complete. Additive manufacturing has the potential to use less raw material, create less waste and eliminate the need
Figure 6: Resource-efficient manufacturing opportunity supported by Asian demand trends and megatrends
MEGATRENDS OPPORTUNITIES DEMAND TRENDS
Resource Scarcity Resource-Efficient Manufacturing Personal & Environmental Health
Responsible Industry Business Model Innovation Increased Discretionary Spending
Technological Advances Industry Collaboration Increased Diversity of Consumer Preferences
Emerging Markets Connected Manufacturing Demand for Convenience
Food for All Trading-up on the Rise
TECHNOLOGY ENABLERS
20 for retooling [40]. By using less material, AM supports the transition from mass the process makes more efficient use production to mass customisation; that Technology enablers for of valuable resources and significantly is, from competing based on high volume resource-efficient reduces costs. For example, Timberland manufacturing to high tech, high value manufacturing shoes typically spent one week and manufacturing of customised products Additive manufacturing/3D printing $1,200 to design a new shoe sole, but this delivered en masse. Custom product – costs are forecast to drop by 79% process now takes 90 minutes and $35 applications, such as dental crowns or over the next five years and 92% over with a 3D printer [41]. medical implants, will benefit from AM the next 10 years [1]. This makes AM technology as they could be produced even more cost effective for Australia The ability of AM technology to economically in low volumes. manufacturers. significantly improve the cost and speed of the product design process both There are other applications of AM in the Digital product design software – creates new business models and makes health care sector. AM techniques are AM begins with a digital 3D design such iterative prototyping approaches being used in the production of medical and there are multiple software accessible to a much wider range of implants such as the titanium implants packages available. This allows manufacturers. used in hip and knee replacements. early collaboration between the manufacturer and consumer or The flexibility of AM is bringing AM is also capable of building complex end user. manufacturing closer to the consumer geometries that cannot be fabricated while also allowing the individual to play by any other means [43]. Bioengineering Data security for digital product a greater role in the creation of a product. start-up company Organovo has designs – As value shifts from For example, individuals are now able to developed a 3D bioprinter that uses the product to the design, or the upload their own designs for affordable human cells to print functional human physical to the digital, technologies manufacturing, collaborate on designs tissue. Potentially such techniques might that provide IP protection, data via open source software or even sell their be capable of producing complete human encryption or rules for file access are designs directly. organs for transplant, for example, into increasingly important. soldiers injured in combat [44] or cancer ICT collaboration platforms – Bringing manufacturing closer to the victims with disease-ridden organs [45]. Manufacturers need to establish consumer closer relationships with customers, The potential of AM to revolutionise many consumers and suppliers across Companies such as Ponoko (New Zealand aspects of manufacturing for the health the supply chain. This supports based) and Shapeways (Netherlands sector point to a significant opportunity the transition from mass based) act as manufacturer, retailer, in the Asian market. Like many regions, production to mass customisation. broker and design marketplace – Asia has an ageing population. The Technologies including social media connecting individuals to potential buyers median age in Asia has already risen and networking, cloud-based through their online network [42]. from 21.2 in 1980 to 29.5 in 2011 and will video conferencing, and virtual Combined with digital software, novel continue to increase to 41 in 2050 [46]. collaboration tools could support designs and new business models, AM By 2050, Asia will be home to 24 percent “cloud manufacturing” – where is fuelling a manufacturing revolution. of those aged over 60 [46]. Japan has design and manufacturing services This revolution allows a far more rapid Asia’s oldest population while China is are sourced from the cloud and and potentially much cheaper R&D and home to the largest population of aged manufacturing becomes distributed. prototyping process, permitting quicker individuals [47]. Increased life expectancy speed to market for new products and decreased fertility are contributing ICT Networks – fast, secure and and easier and faster redevelopment to growth of the ageing population [46]. reliable fixed and wireless networks of existing products (often linked to This will have significant implications for to support, for example, mobile customer closeness in the design the Asian economy, not least for health communication, internet-enabled process). care expenditure. Also, as the ageing applications and access to cloud- population are seeking to preserve a based services. high quality of life for much longer, this leads to greater demand for products such as dental implants and titanium hip replacements.
21 4 Resource-efficient Manufacturing (cont.)
Australia has a significant competitive In this example, the focus has been on AM; But in countries where the health and advantage in meeting future demands however, broader health and healthcare welfare systems have not kept pace with for titanium medical implants using delivery considerations are driving meteoric economic development, and AM techniques. In 2011, Australia was demand among the emerging middle where the user retains the ability to pay, the world’s second largest producer class in much of Asia. there exists a strong market for health of titanium and also holds the second and medical interventions – from medical largest titanium reserves (China has Unlike patterns of economic development devices, to biopharmaceuticals, vitamin the largest reserves and is the largest among already industrialised nations, supplements and nutraceuticals, to producer [48]). Research is already well there remains an acute susceptibility to hospital equipment, sports, leisure and progressed in the development of efficient loss of income and wealth across newly fitness equipment, sensor and monitoring and effective AM processes and methods industrialising countries such as China, devices and remedial health products. that could be transferred to applications India, Vietnam, Cambodia, Thailand and in the health sector. beyond. A high proportion of the middle Extensive niche opportunities for class here operates in informal sectors, Australia’s more astute manufacturers and as noted by the OECD, “if those in the middle have precarious incomes and The growing concern for personal and unstable employment, their consumption environmental health, coupled with the cannot be counted upon” [14]. discretionary spending and diversity of preference trends, points to extensive niche opportunities for Australia’s more astute manufacturers.
22 4.3 Implications for manufacturers Steps to achieve this are identified 4. Leverage the greater flexibility in Australia already has a very strong as follows: your manufacturing operations that design component in our manufacturing 1. Get closer to the end user. Building AM delivers. For example, products industries. AM increases the importance customer links through digital, internet could be designed in Australia and of this capability. Even Australia’s highly or cloud-based systems supports manufactured close to markets. regulated intellectual property regime, greater customer engagement, 5. Investigate opportunities to with registered IP such as registered product usage and application collaborate. For example, secure designs, patent and trademarks, knowledge and feedback. access to AM machines to evaluate the offers manufacturers advantages 2. Understand the market segment. technology, receive technical advice over in-country competitors in Asia Research the Asian health sector and de-risk capital investment. The via strengthened brands and clearly demand for products that can be CSIRO recently established the first recognised quality parameters. delivered with AM technology. Arcam AM facility in the southern hemisphere to provide industry with 3. Undertake R&D to develop fit-for- In order to capitalise on this opportunity, access to AM technologies [49]. however, manufacturers need to be purpose products. Matching AM prepared for a digital and software techniques, materials and design revolution. Further action needs to be for the chosen medical application taken to develop this opportunity in will result in valuable IP that can be connection with serving an Asian middle leveraged by Australian manufacturers. class market. This will not be a problem Technology that supports data security for those who are already, or seek to be, and IP protection is paramount. on a global footing.
23 5 Business Model Innovation
5.1 Overview Global competition brings with it the The combination of megatrends, emerging Business model innovation requires increased likelihood of disruptive markets and technological advances building an agile, flexible, highly- technologies emerging in manufacturing. (see Figure 7) has created opportunities connected business that is intensively However, disruption can be seen as either for those companies that have built a innovative (usually built on strong positive or negative, depending on how reputation for strong intellectual property R&D expenditure) and has responsive innovative and how prepared for change founded on research and development. manufacturing processes that rapidly your business is. Those who can seize the manufacturing transition from prototype to product. It opportunities with their own disruptive requires extensive coordination internally Those who succeed as innovators technologies (or with a model that – so that both efficiency and novelty can are able to establish a dominant leverages the capabilities of collaborators, be achieved – and externally to ensure the design, build their brand and attract offers enhanced features beyond the opportunities and insights partners bring collaborators as well as competitors basic product, and provides the sensation are fully integrated into the product and of personalisation and customisation) service pipeline. The increasing complexity of the emerging have a distinct advantage in markets economies of Asia also means that where competitors are not as advanced. Speed and agility are at the core, with disruptive technologies can no longer be fail-fast strategies being supported by expected to emanate from industrialised rapid retooling, the flexibility of simulation, countries alone. Being prepared, not only modelling and 3D printing technologies, to to be the innovator, but also to respond match the fast-search market intelligence rapidly to the almost constant innovations that comes from being highly-connected that dictate the technological trajectories across a global business network. pointed to by the megatrends. Those who succeed as innovators are able to establish a dominant design, build their brand and attract collaborators as well as competitors.
Figure 7: Business model innovation manufacturing opportunity supported by Asian demand trends
MEGATRENDS OPPORTUNITIES DEMAND TRENDS
Resource Scarcity Resource-Efficient Manufacturing Personal & Environmental Health
Responsible Industry Business Model Innovation Increased Discretionary Spending
Technological Advances Industry Collaboration Increased Diversity of Consumer Preferences
Emerging Markets Connected Manufacturing Demand for Convenience
Food for All Trading-up on the Rise
TECHNOLOGY ENABLERS
24 Cochlear’s hallmark as an innovator is Evidence is emerging that Chinese Technology Enablers for built on intensive investment in R&D. It companies are concerned about Business Model Innovation has established over many years a large protecting their own intellectual property patent portfolio, and continues to lead rights as they deal with Australian, US and ICT collaboration platforms – To on a global scale. Cochlear’s success is European firms. build a digital relationship (B2B or not just product based. The company B2C) with the end user to facilitate has established a strong network of 5.2.2 Servitisation – no boundaries greater levels of customisation or research, manufacturing and distribution between manufacturing and service understanding of a market. This collaborators. Companies such as solutions includes tools to monitor service ResMed and Cochlear offer products The provision of manufacturing services delivery and client satisfaction e.g. that are high-cost and sophisticated, but is the simplest form of business model NPS, survey monkey, and the delivery life-changing. Uptake has been strongest innovation for manufacturers. This can of product system services such as in high-wealth countries such as the US, be described as ‘additional services to post-sale maintenance or services. and in countries with well subsidised complement a tangible product offering Additive manufacturing/3D health systems such as Australia and in order to add value’. This denotes a printing technologies – To enable Canada. Cochlear is penetrating the Asian shift to a product-service relationship rapid prototyping, customisation markets even where the health systems with customers, which creates lengthier and faster, cheaper, more efficient are not well subsidised because their relationships, potentially excluding development and production product offers dramatic improvements to competitors, improves the longevity of a processes. quality of life for the hearing impaired and product’s life and produces more reliable productivity improvements on traditional revenue streams. Globally, an average Data security for intellectual hearing devices. Uptake in Asian countries manufacturing services firm has around property – Innovative companies has increased dramatically in the last five 30% of sales as services [51]. In Australia, developing unique, high-quality years, led by Singapore, Japan and China. around 23% of Australian manufacturing solutions require IP protection or companies already provide a service [52]. data encryption to protect their Despite being in North America and There is room for more firms to adopt this competitive advantage. Europe for over 20 years, currently ‘The strategy to add value and deliver services Cloud services – Providing access to proportion of Cochlear’s sales to end to Asian markets. services anywhere and, importantly, customers by region is approximately: from a position of location Americas 40%, EMEA 40% and Asia An Australian example of business model independence. Cloud services Pacific 20%’ [50]. In the last year alone, innovation that has helped penetrate may provide the ability to rapidly Asia Pacific sales revenue of $147.6 Asian markets in a highly competitive relocate points of production, which million increased 20%. Indicative of environment comes from the mining has the potential to de-risk capital the opportunities in Asia, a Central sector. High value service occurs in investment. Cloud services enable Government tender sale into China of Orica Mining Services through the cloud manufacturing. approximately 2,800 units was won this provision of exploration and customer year [50]. With each unit being worth over solutions. Orica’s focus is no longer just $50,000, this is a major step into a very explosives and chemical compounds, lucrative market. but also assisting the rapid movement of 5.2 Adding value through innovation minerals through to market. This has also and servitisation Concerns raised about the inability to provided an improvement in margin for protect intellectual property in some Orica. As Orica builds a more substantial 5.2.1 Disruptive technologies – Asian countries are real, though that service delivery function, this not only the r&d intensity of cochlear reality is diminishing in China since augments its products, but also drives Cochlear is the pioneering hearing device it signed the TRIPS (Trade Related penetration into new markets. In Asia, company that is at the forefront of the Aspects of Intellectual Property Rights) these include a strong presence in China, success of Australia’s medical device agreement. As countries play a more India, Indonesia, Japan, Kazakhstan, industry, along with the respiratory sleep significant role in global trade, they Malaysia, Philippines, Singapore, Taiwan, device company, ResMed. These two cannot afford to ignore world standards Thailand, and Vietnam. The benefits for global successes point to our developed of intellectual property. Legal systems are Orica include a higher margin business capabilities in this field, which leverage also starting to catch up, with legislation model. Orica’s profit jumped to $602M our world-beating capabilities in health supporting intellectual property on the strength of its innovative changes and medical research. recognition in many of the emerging [53]. Orica believes it will ‘Succeed economies of Asia. through collaboration’ [54].
25 5 Business Model Innovation (cont.)
5.2.3 Collaborative manufacturing – Their financing options, which have In general terms, manufacturers seeking global supply chains in an instant seen them grow 300% above industry to take advantage of business model Not all opportunities for our average in the last three years, taps in to innovation should: manufacturers lie in the advanced a demand for convenience. The custom 1. Be prepared to move into niche manufacturing or large scale industry nature of the motorbikes satisfies markets by always inventing, markets. Just because an industry the increased diversity of consumer innovating and undertaking new is mature it doesn’t mean there are preferences that offers the niche market product development. Employ no niches left to exploit. Enabling opportunities that Braaap is fulfilling developmental technologies such technologies have increased market [55]. So how do you measure their as simulation, modelling and AM access to new and small innovative firms success? “We are the only motorcycle technologies to ensure rapid and with less disruptive technologies. Braaap on the planet with lifetime warranty and effective new product development, Motorcycles offers one such example, as we are the only motorcycle brand to win where fast-fail means more likelihood shown in the following case study. back-to-back championships at the of creating a successful new product. world title for our sport [56].” Use these strengths to attract Braaap is a 2013 Telstra Business Awards collaborators or local Asian partners of Victorian Business of the Year. It was 5.3 Implications for manufacturers similar calibre who can open doors to established by Brad Smith, a motorcycle There are many ways to employ agility and new niches. enthusiast who wanted to give people implement business model innovation in 2. Connect to a strong network – for motorbikes that could compete with Asian markets, including mix-n-matching access to partners’ insights, ideas, custom designers from the US, but also strategies. For example, Cochlear has solutions to problems and greater be affordable. To do this Braaap sought successfully captured individual needs access to technical and market out like minded manufacturers from and demands through a premium knowledge. This is more than just a around the globe who could integrate product. Its markets are niche, and it can supply chain; it is a value web, where his Australian designed components protect its position through the proven all partners are interconnected. in to their manufacturing processes. high quality standards that have built its Increasingly, these network While many rejected the ideas put reputation. This reputation offers a level partners are going to be found in forward by Brad Smith, a small number of branding that will sustain its market the Asian countries that Australian of foresighted collaborators came on position. manufacturers want to target. Their board. The business model that has capabilities have increased and their emerged can be outlined by their need Orica has leveraged its high quality value adding potential dramatically to compete in a heavily contested space. standards to move beyond its product improved. Seek them out. Their business model has helped capture base. The service focus has also permitted markets in China, India, Mongolia, the an emphasis on its environmental 3. In the health sector, take a two- Middle East and Papua New Guinea. credentials that would be difficult to pronged approach. Direct targeting Braaap’s strategy fits ideally with the achieve as an explosives and chemical of both middle class consumers and Asian consumer demand trends, with compound business. governments whose health spending discretionary spending directed at has increased dramatically in recent recreational and leisure pursuits years. that enhance personal well-being 4. Add value. This is key for Australian through play. manufacturing. Stand out from the crowd with a whole-of-life offering that is solution-focused. Partner with other local service providers to enhance the value of manufactured products.
26 27 6 Industry Collaboration
6.1 Overview Industry collaboration is closely linked with innovation, productivity and competitiveness, as shown in Figure 8. It is supported by all Asian demand trends, and also by resource scarcity, technological advances, food for all and the emerging market megatrends shown in Figure 9.
Figure 8: Industry collaboration is the antecedence of innovation, productivity and competitiveness
INDUSTRY COLLABORATION INNOVATION PRODUCTIVITY COMPETITIVENESS
Figure 9: Industry collaboration supported by megatrends and Asian demand trends
MEGATRENDS OPPORTUNITIES DEMAND TRENDS
Resource Scarcity Resource-Efficient Manufacturing Personal & Environmental Health
Responsible Industry Business Model Innovation Increased Discretionary Spending
Technological Advances Industry Collaboration Increased Diversity of Consumer Preferences
Emerging Markets Connected Manufacturing Demand for Convenience
Food for All Trading-up on the Rise
TECHNOLOGY ENABLERS
“If you want to go fast, go alone; if you want to go far, go together.” An African proverb
28 Much has been written about the Each of these barriers can be reduced Industry collaboration and innovation challenge faced by Australian through collaborative partnerships that are intricately linked, as shown in Figure manufacturing in raising its productivity can reduce cost and risks of innovation. 8, and are essential ingredients for the and responding to competition. It Moreover, by collaborating with people success of Australian manufacturers must be remembered, however, that outside the organisation, it’s possible in Asia. Australian industry was coming off a to gain access to new knowledge that high productivity base established in addresses a lack of access to skilled the 80s and 90s, so maintaining the people. If another reason to collaborate same momentum was always going to was needed, recent neuroscience Technology Enablers for be difficult. Nevertheless, innovation is research shows that our brains are wired Industry Collaboration recognised as being a key contributor to to cooperate [59]. ICT collaboration platforms – To improving productivity, and collaboration enable access to social media or is essential to innovation. Innovation will The collaboration imperative is upon open source software to support help manufacturers to mobilise to take us. Industry collaboration is without a collaboration and the relationship advantage of opportunities in Asia. doubt a necessary feature of success in between manufacturers, suppliers, an increasingly fast-paced, competitive, customers, and innovation partners. Collaborative partnerships can reduce globally-connected world. The latest This supports the collection of the cost and risks of innovation global GE innovation barometer study consumer insights from Asian found that 87% of respondents believe markets back to Australia. Innovation is credited with increasing innovation would be better if they competitiveness. Businesses actively partnered rather than embarked on their RFID, Micro-Electro-Mechanical engaging in innovation are more likely own innovation projects. The top reasons Systems (MEMS) & GPS – These to engage in the digital economy, and for collaborating with other companies technologies are particularly invest in problem solving capabilities, are: important for maintaining quality and proving the provenance of collaborate across the supply chain • Access to new technologies and Australian food and beverage and with competitors – creating new markets services and products to meet customer products by enabling real time • Increasing speed to market needs and engaging with new technology logistics tracking, product and processes [57]. Innovation active • Improving an existing product or traceability and quality assurance. service [60]. companies are also: Data Analytics – To support the • 42% more likely to report an increase in analysis of Asian consumer insights The Australian data from the GE survey profitability or logistics data. Analytics in the reported an overwhelming 92% of food processing sector could • Three times more likely to export Australian respondents strongly agree support quality improvement or • 18 times more likely to increase the that partnerships would ensure they were the development of new, innovative number of export markets targeted more successful at innovation. products. Data visualisation tools • Four times more likely to increase their could support the synthesis or Yet Australia’s track record on range of goods and services [57]. interpretation of big datasets. collaboration is far from commendable. Australia is last on two OECD league ICT Networks – To support These are impressive and enviable tables, 2008-2010; percentage of firms virtual collaboration across metrics although it’s worth reflecting collaborating with suppliers and clients, the manufacturing sector or on the barriers to innovation for SMEs, and percentage of firms collaborating supply chain. in particular. The top three barriers with publicly funded research nominated in a 2012 Australian organisations [61]. Government report were [58]: • Lack of access to funds Collaboration data is acknowledged to be • Cost of development or implementation volatile and varies from year to year [57]. Regardless, Australia is lagging behind • Lack of skilled people. in the collaboration stakes and could be doing better. A lack of collaboration and low levels of industry innovation is bad for business and bad for Australia’s prospects in delivering goods and services to the emerging Asian middle classes.
29 6 Industry Collaboration (cont.)
6.2 Australian food and beverage Increased diversity of consumer For example, a Singapore food and goods to feed a growing and preferences and a stronger demand for beverage company understands the demanding Asia convenience need for product differentiation as their Demand for high quality food products product formulations vary by country is being driven by rapid population Australian food and beverage [21]. It is therefore vital for Australian growth and the expanding middle class – manufacturers have a significant manufacturers to secure feedback supported by the megatrends ‘Food for All’ opportunity to cater for the emerging directly from Asian consumers to support and ‘Emerging Markets’. Asian market by delivering high-value, future sales. Digital technologies can play processed food and beverages and a role in capturing this information from People in developing countries are, on associated services. The Australian Trade the consumer or facilitating feedback average, increasing meat consumption at Commission reports that processed food through the supply chain. the rate of 5 % per year, with expectations exports to China have doubled from $794 of future growth ahead [31]. In Asia, meat million to $1.511 billion over the last five The Australian sector is highly regulated consumption increased by a factor of 14 years. Market research demonstrates and compliance with safety standards between 1961 and 2009 [62]. Developing particular Australian opportunities in should be advertised as part of marketing nations’ diets are shifting towards greater China for milk powder, seafood, processed Australian products, as it is important consumption of processed foods, fats and foods, wine, beer, convenience foods, to build Asian consumer awareness animal protein. This drives demand for confectionery and snacks [39]. of food security and safety within the meat and dairy products and, indirectly, Australian industry. Food safety is a livestock feed [28, 63]. Global demand for The Asian demand trends connected valuable attribute for foreign processed fish protein means production in global to this opportunity include increased food in China, particularly milk products fisheries and aquaculture will grow by diversity of consumer preferences and a following the 2008 scandal of melamine 15% from 2012 to 2021 [28]. These trends stronger demand for convenience, both added to powder. This event caused drastically change the types of food of which connect with the type of food six infant deaths and induced pain in demanded. products consumers will purchase. 300,000 children. This single event has Understanding consumer demand and repercussions felt today as Chinese feedback is crucial as it is likely to vary parents still prefer foreign brands to across the Asian region. domestic ones [64].
30 Informing the consumer could be 6.3 Implications for manufacturers 2. Data networks that support the flow achieved directly through product Above all other manufacturing of information from product to the packaging; however, a strategy such as subsectors, there is a significant consumer are vital. Partnerships with linking a product through a QR code, opportunity for the Australian Food and technology service providers, such as social media or an online presence can Beverage sector to deliver products for Telstra, will enable the infrastructure to cater for a more discerning, technology the ever-demanding Asian middle class. support this information. savvy, Asian consumer with greater The strength of Australia’s high quality 3. Develop an online presence or social discretionary income. The benefit of products, stringent quality control media profile. This should target the this approach is that a greater amount and brands can be leveraged for the increasingly savvy Asian middle class of information can be conveyed; for benefit of all firms. However, the ability and aim to influence their purchase of a example, information about traceability to secure these bountiful opportunities prestigious Australian-made product by and the product’s regional origin, safety will be dependent upon collaboration educating consumers on food source, and quality standards, owners, brand, and innovation. Examples of how relevant company information, brand, company vision or environmental manufacturers can address industry and safety and quality standards. credentials e.g. GM free or organic. This collaboration include: 4. Build connections and partnerships strategy could also support a connection 1. Consider collaborating on product with government initiatives and between the source of a food product development or sourcing market agencies that can help. The Food and Australian tourism by advertising the segment or customer information. This Industry Innovation Precinct is one Australian brand and key locations such will reduce your costs. Open innovation example. Austrade have informative as the wine regions of South Australia or – sourcing knowledge from outside market-based information and tools cheese of Tasmania. This type of cross- the organisation – can add value to such as the ‘International readiness sector collaboration could positively your business, and collaborative R&D calculator’ that support manufacturing influence both the manufacturing and partnerships can reduce risks. exports into Asia. tourism sectors.
31 7 Connected Manufacturing
7.1 Overview Full data integration between the physical In particular, recent achievements in The opportunity for connected and digital world is often referred to as the sensing systems, machine learning, manufacturing (CM) arises from the ‘industrial internet’ or ‘internet of things’, navigation and dexterous manipulation convergence of technologies: sensors, where everything will be connected, have created a new breed of intelligent automation, intelligent robotics, everything will be intelligent and robots capable of sensing, reacting and embedded electronics and their internet everything that can be measured, interacting with the external environment connectivity. is measured. [65]. These technologies are increasingly accessible due to their low cost. The These technologies are the foundation All of the demand trends are relevant to newest generation of intelligent robotics for developing greater capacity for this opportunity. Technological advances cost as little as USD $25,000 and can be data capture and analytics across the also have a strong influence (see Figure operational within one day [1]. Their agility factory and supply chain, enabling digital 10) and this report applies an example provides manufacturers with competitive connections and the integration of data from the food sector to illustrate advantage through better quality across manufacturing functions and CM’s potential. assurance, management of resources, and value chains. reduced costs. These technologies also have the potential to generate valuable information for production processes, as well as customer and supplier relationships.
Figure 10: Connected manufacturing supported by megatrends and Asian demand trends
MEGATRENDS OPPORTUNITIES DEMAND TRENDS
Resource Scarcity Resource-Efficient Manufacturing Personal & Environmental Health
Responsible Industry Business Model Innovation Increased Discretionary Spending
Technological Advances Industry Collaboration Increased Diversity of Consumer Preferences
Emerging Markets Connected Manufacturing Demand for Convenience
Food for All Trading-up on the Rise
TECHNOLOGY ENABLERS
32 Technologies that enable the integration The potential of LAMS in the This allows manufacturers to customise of data across manufacturing functions manufacturing environment is to augment products for the Asian market and develop and value chains worker capability, improve productivity advanced, niche, high-tech products while by operating alongside workers and also being cost effective. SMEs are an important group of support tele-supervised operations for CM technological advances offer manufacturers, comprising 89% challenging and dangerous manufacturing substantial promise for Australia and (business by numbers) of the Australian environments [66]. These concepts are this report describes a physical robotics manufacturing sector [58]. The integration fundamental to CM and the technology example and digital scenario to illustrate of ICT and lightweight assistive enablers supporting CM are described in how manufacturers could capitalise on manufacturing solutions (LAMS) for SMEs Figure 11, adapted from an earlier CSIRO this opportunity. Although this report has been identified as a key enabler report on LAMS [66]. provides only two sector examples – of competitiveness and access to new food, and mining equipment technology markets [66]. CM is of relevance to the needs of the and services (METS) – the adoption of emerging Asian middle class by improving connected manufacturing will support manufacturing flexibility. agile Australian manufacturers in many other sectors as well.
Figure 11: Technology enablers influencing connected manufacturing
IMMERSIVE INTUITIVE INTERFACES INTERFACES
CONSUMER HMI MOBILE (HUMAN DEVICES MACHINE DEVICES INTERFACES)
CHEAP SENSOR, INTEGRATED SOCIAL UBIQUITOUS PROCESSORS SENSORS NETWORKING CONNECTIVITY AND ACTUATION
INTELLIGENT CONNECTED ICT (INFORMATION AND ROBOTICS MANUFACTURING COMMUNICATION TECHNOLOGIES)
DEPENDABILITY MOBILE DIGITAL COLLECTIVE ROBUSTNESS TELE-PRESENCE WORLD INTELLIGENCE
FACTORY SENSING IN DYNAMIC PERCEPTION DATA CLOUD ROBOTICS UNSTRUCTURED ANALYTICS SERVICES ENVIRONMENTS SERVICES
33 7 Connected Manufacturing CONT.)
7.2 Agility and market growth 7.3 The potential for increased agility through automation in food through digital connectivity Technology Enablers for processing Pure automation is not enough for those Connected Manufacturing In manufacturing, the use of industrial who wish to remain responsive and agile. Intelligent robotics – Low-cost, automation has been associated with This is particularly true for complex, smart robotics located on the factory increased production efficiency, speed, niche products that demand continuous floor to automate manufacturing precision, and reduced operational adaptation via high-value-added activities processes. costs for high volume products [67]. such as engineering design, product Automation has proved to be an optimum evaluation for regulatory compliance, Mobile devices – Giving access way to improve productivity, particularly and significant amounts of integration of and control over business and in sectors where economies of scale are various components and technologies. manufacturing processes in a variety relevant, and also where structured, highly of locations. repetitive tasks are required, such as in a An example of where increased digital bakery as outlined in the case study below. connectivity could be applied is in the ICT networks – Both fixed and METS sector, which includes equipment wireless, supporting the collection of Perryman’s Bakery, a small artisan supply, mining consumables and data from sensors within the factory. bakery manufacturer from Adelaide, software and advanced technologies. Integrated sensors – Within the decided to introduce an automation The Australian METS sector contributes factory to monitor energy, heat system into their gingerbread cookie $10 billion annually to the economy, $3 and emissions, factory processes production process in 2009 [68]. At that billion of which are exports. Importantly, monitoring productivity and quality time, the objective was to increase their Austrade has identified China, Indonesia, and parts, or condition sensors production output by automating the Papua New Guinea and India as priority that communicate environmental manual, yet demanding task of dotting growth markets [70]. conditions across the supply chain. the decoration on each biscuit. The implementation of an ABB industrial An example of a METS sector SME is RFID, Micro-Electro-Mechanical robot and computer vision system MineArc Systems, an award-winning, Systems (MEMS) & GPS – Enabling allowed them to increase overall output Perth-based manufacturer of refuge real time logistic tracking, product by three times. chambers and safety equipment for traceability and quality assurance. the underground mining, tunnelling, Data analytics – Integrated data Since implementation, staff numbers and chemical processing industries. from multiple sources – parts, factory have increased which, in this case, The company has a strong presence in environment, supply chain – analysed nullifies the myth that automation is a Asia, with projects deployed in China, in real time for rapid decision-making. threat to jobs [69]. The robotics system Indonesia, Mongolia, Kazakhstan and has also contributed to improved health Japan [71]. ICT collaboration platforms – To and safety, as well as reduced waste. enable access to social media, Importantly, there was absolutely MineArc constantly deals with changes HD video or open source software no impact on the product recipe and in mining regulatory rules that creates a to support collaboration and the homemade feel for which the Perryman’s dynamic environment for their production relationship between suppliers, brand is well known. processes [72]. Asian demand for customers, and innovation partners. manufactured goods and population Cloud services – Providing access to Today, this acceleration of the production growth will indirectly drive an increased services anywhere and, importantly, process has allowed Perryman’s Bakery need for raw material in mining and from a position of location to grow and expand overseas, tackling chemical processing. For MineArc, agility independence. export markets in New Zealand and is crucial to cope with this demand. Singapore [69]. The Perryman’s Bakery example demonstrates the potential In an advanced manufacturing, high- of automation and low-cost intelligent tech, high-value niche market, such as robotics for speeding production where MineArc finds itself, connected processes and supporting growth into manufacturing could enable a translation Asian markets. of digital information from technical specifications and quality assurance and standards requirements directly to the physical domain for immediate implementation by an intelligent robot.
34 Intelligent sensors, real-time visualisation Telstra’s collaboration with technology 7.4 Implications for manufacturers systems and symmetric, high speed company Sendum shows what is The implications vary depending on broadband technologies have the possible in logistics, including the the level of engagement with CM potential to facilitate this data translation tracking, monitoring and protection technologies. One thing is certain: CM between the digital and physical of product. Sendum’s technology, technologies support greater flexibility environments [73]. For MineArc, this enabled through Telstra’s telecoms and agility – both of which are required digital to physical translation step could framework, allows producers to GPS by manufacturers hoping to deliver to the accelerate time-to-market and provide track packages in real-time along the meganiches within the emerging Asian access to new business models that cold chain, from inside warehouses, middle class. support the company’s continued growth to semi-trailers, containers, rail cars, 1. Intelligent robotics are probably into Asia. aircraft, and offices. Their trackers can cheaper than one might expect. monitor a range of parameters that Consider how intelligent robotics could Furthermore, the integration of digital affect quality during transport and support your business. Engaging in CM information with data analytics has the storage, including temperature, humidity, starts with low-cost automation and potential to shorten product launch cycles motion, light, pressure and altitude – all robotics, but these technologies set the and speed up the reconfiguration and the simultaneously. There is also a protective foundation for more connected systems customisation process – the latter being a aspect to their technology that alerts the that support data analytics and highly crucial part of MineArc’s business. manufacturer to product tampering and flexible, customisable products. unauthorised use or movement. This is Moreover, embedded electronics and all achieved remotely using sophisticated 2. Consider factors that were previously sensors could provide information to sensor technology providing full web external to your business. Every manufacturers about products during access [74]. piece of information is vital. Data their use phase and proactively indicate management and connectivity within service requirements for customers with Data from tracking technologies such as and beyond the factory wall should be enough lead-time to address issues RFID, Micro-Electro-Mechanical Systems characterised by system integration, before a catastrophic and costly failure. In (MEMs), and GPS can be integrated with networking and analytics. The ability short, connected manufacturing supports quality analytic technologies such as to deeply analyse data will help the flexibility and agility of manufacturers colour and flavour analysers, fluorescence manufacturers be proactive rather than wishing to access niche, high value export scanning, mass spectrophotometers, reactive towards market opportunities markets. phenotypes sensory testing, and product and address potential issues before sampling using nuclear magnetic they have a catastrophic business or The food and beverage sector is another resonance (NMR) spectroscopy to permit brand impact. example of where agility through digital molecular testing. Such integration 3. Measure your agility. connectivity could help Australian facilitates real-time or near-real-time Agile manufacturing helps companies manufacturers seeking to enter the Asian monitoring of product quality across the to enhance efficiencies and maximise market. Getting the product safely and production and distribution chain, as well new opportunities. To support improved quickly to the consumer is a major issue as helping to identify the cause of product Australian manufacturing agility, an in food manufacturing where secondary deterioration. It is possible to better index for agility could be developed. This processed foods must be delivered match different food types to suitable would allow manufacturers to rank their to retail outlets in multiple countries transport modes. Ultimately, this improves agility across functions and benchmark with as little deterioration in quality end product quality, reduces waste and themselves against global competitors, as possible. Integrated technologies enhances production credibility – all thereby making them a more attractive and condition sensors are needed for of which are key concerns for the Asian market choice and also helping them to successful cold chain management across consumer, as outlined previously. understand where they need to improve. monitoring, measurement, evaluation and improvement of packaging, and transport and logistics.
35 8 Conclusion
The emerging middle class in Asia These niches, remember, are meganiches, • A transition from mass production to presents many opportunities for with markets of 50-300 million people mass customisation Australian manufacturers. This report who are seeking a better quality of life and • Deriving additional value from service identified four opportunities for a reward for their risk and effort. delivery or digital technologies. manufacturers: 1. Resource-efficient manufacturing The four manufacturing opportunities Innovative Australian manufacturers have common elements that underscore 2. Business model innovation will need to consider the entire value the need for Australian manufacturers to chain, from design, product development 3. Industry collaboration be increasingly agile, including: and manufacturing to distribution and 4. Connected manufacturing. • Customisation, either to individuals or services. These are no longer discrete to the meganiche markets linear phases conducted in isolation These opportunities jointly build domestic • High tech, advanced manufacturing behind closed doors. We are truly in an competitiveness and support entry to era where networked and fully open • Innovation and R&D to build competitive the Asian market. Both consumer trends innovation allows manufacturers to move advantage and manufacturing megatrends provide quickly from idea to market, to respond evidence for the abundant future that • Increasing speed to market rapidly to the changes in demand that waits for Australia’s manufacturers if • Closer relationship and engagement discretionary spending patterns bring, they are innovative and agile enough to between the manufacturer and end user and to move in and out of the niches as move into the niches that will constantly they evolve. develop.
Figure 12: Manufacturing sector opportunities for the Asian market
By 2050, Asia will be home to 24% of people over 60. China has the largest number of older people and Japan has the oldest
HEALTH
Contributes $10 billion annually to MINING FOOD & the economy, of which $3 billion are EQUIPMENT & MEGANICHE BEVERAGE Preference for foreign food exports. China, Indonesia, PNG and averaged to be an estimated 158 India are priority markets TECHNOLOGY million in 2009 and 970 million SECTOR in 2030
SERVICES
A high margin option for Australian manufacturers, only 23% of which currently provide a service
36 Each of the four manufacturing Innovative business models built At a higher level, ICT technologies opportunities reflects the current on collaborative and open design support all opportunities and, equally, all economic environment. As local and and development offer a way for manufacturing sectors. There is a distinct international competition increases, manufacturers to meet the changing need for manufacturers to understand access to sophisticated knowledge bases needs and tastes of their middle the capabilities of ICTs and how to exploit allows any size of business to anticipate class customers in lucrative Asian them. They should also look to digital future demand patterns through deep markets. Meanwhile, resource-efficient value, as well as traditional product value analysis of big data. Every business now manufacturing ensures that the quality and quality. has access to this data, but in many and product features that created the cases they remain oblivious to it. This market opportunities are maintained. While manufacturing technologies opportunity may be realised through support the efficient production of goods, connected manufacturing. In this paper, we have highlighted the ICT technologies support improved role of technology enablers in capturing connection with customers, collaboration Rapid access to new knowledge is no opportunities. Two levels of technology and innovation, efficiencies across the longer a luxury but a necessity enablers are identifiable as shown in supply chain and improved value beyond Figure 13. Manufacturing technologies a physical object. These capabilities Rapid access to new knowledge is no support the transformation of materials, are increasingly required of competitive longer a luxury but a necessity. Monitoring and relate to and support resource manufacturers. of customer needs, buying patterns and efficient and connected manufacturing. shifts in demand – a rapid response to These include automated production for Our collective challenge is to collaborate, these changes is the way to create value efficiency, active and intelligent sensors, innovate and leverage these technology and enhance competitiveness. This is new technologies such as additive enablers to secure value from the Asian supported by industry collaboration. manufacturing and the new generation of middle class and be more competitive. The intelligent, low-cost robotics. gates are open, but you’d better run fast. Others are already running, so don’t be left behind – make for Asia.
Figure 13: Technology enablers (manufacturing and ICT) for each manufacturing opportunity
MANUFACTURING RESOURCE-EFFICIENT CONNECTED BUSINESS MODEL INDUSTRY OPPORTUNITIES MANUFACTURING MANUFACTURING INNOVATION COLLABORATION
Additive Manufacturing
MANUFACTURING Intelligent Robotics TECHNOLOGIES Sensors
Automation
Logistics Technologies
ICT Collaboration Platforms ICT TECHNOLOGIES Cloud Services
Data Analytics
Data Security
37 9 References
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39 CONTACT US t 1300 363 400 + 61 3 9545 2176 e [email protected] www.csiro.au/futuremanufacturing
FOR FURTHER INFORMATION Future Manufacturing Flagship Sarah King t + 61 3 5246 4747 e [email protected] www.csiro.au/futuremanufacturing
YOUR CSIRO Australia is founding its future on science and innovation. Its national science agency, CSIRO, is a powerhouse of ideas, technologies and skills for building prosperity, growth, health and sustainability. It serves governments, industries, business and communities across the nation.
Make for Asia CSIRO Sarah King, Damian Hine, Edgar Brea, Hannah Cook Telstra Charlie Macdonald
April 2014
NBN0859 jan14