FOR A SMARTER AUSTRALIA PRIME MINISTER’S MANUFACTURING TASKFORCE REPORT OF THE NON-GOVERNMENT MEMBERS AUGUST 2012 A report of the non-Government members of the Prime Minister's Taskforce on Manufacturing, with support from the Department of Industry, Innovation, Science, Research and Tertiary Education (DIISRTE) © Commonwealth of Australia 2012 This work is copyright. It may be reproduced in whole or in part for study or training purposes subject to the inclusion of the source and no commercial usage or sale. Reproduction for purposes other than those indicated above requires the written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to the Department of Industry, Innovation, Science, Research and Tertiary Education, GPO Box 9839, Canberra ACT 2601. PRIME MINISTER’S MANUFACTURING TASKFORCE REPORT OF THE NON-GOVERNMENT MEMBERS AUGUST 2012 SMARTER MANUFACTURINGCONTENTS EXECUTIVE SUMMARY 1 Australia’s economic prospects 35 Productivity growth 35 SECTION 1 Competitiveness 35 INTRODUCTION AND OVERVIEW 6 Innovation the Australian way 36 Smarter Manufacturing for a Smarter Australia 6 Priority policy directions 7 SECTION 4 Australian manufacturing 8 THE POLICY FRAMEWORK 39 The Australian economy 8 Section summary 39 Next steps 9 Key policy challenges 40 Key concepts 9 Applying knowledge: by value adding Background to this report 10 through innovation 40 Terms of reference 10 UK: TICs / Catapult Centres About this report 11 Singapore: Biopolis and Fusionopolis 42 Building businesses: unleashing the SECTION 2 demand side 46 MANUFACTURING: POSITION, PRESSURES What distinguishes high impact firms? 49 AND PROSPECTS 12 Driving collaboration: new capabilities, Section summary 12 new cultures and competitiveness 50 Manufacturing matters 13 International policy perspectives 55 Australian manufacturing: small and remote 14 The policy framework 57 Profile of Australian manufacturing 16 Manufacturing employment by industry 16 SECTION 5 Manufacturing employment by State/Territory 17 POLICY DIRECTIONS 59 Manufacturing employment by skill level 18 Section summary 59 Pressures on Australian manufacturing 18 Managing current pressures 60 High dollar has been the key to eroding What is the economics surrounding the loss competitiveness 18 of manufacturing capabilities? 60 Costs have risen and we have seen poor Addressing cost pressures 60 productivity growth 19 Government investment 61 Emergence of tougher competition 20 Improved Australian Industry Participation Plans Weakening private and public demand (AIPP) and anti-dumping measures 61 has made it harder 21 Managing change 62 Assessing the damage: urgency of the challenge 21 Economy-wide measures 63 Prospects for Australian manufacturing 21 Regulatory policies 63 Export competitiveness 23 Business tax reform 64 Productivity and innovation 24 Leveraging the broadband opportunity 64 A world of opportunity 25 A coherent approach to transport What are the arguments for a better future infrastructure investment and planning 64 for Australian manufacturing? 26 Standards and conformity 65 Energy policies 65 SECTION 3 Macroeconomic stability and readiness AUSTRALIA’S ECONOMY: POSITION, for the future 66 PRESSURES AND PROSPECTS 29 Smarter networks 66 Section summary 29 Industry and research working together Australia’s economic position 30 to boost productivity 66 Productivity and prosperity 30 Excellence in Research Australia 68 Australia’s economic pressures 31 Industrial Transformation Research Program 68 The patchwork economy 31 Cooperative Research Centres 68 A portfolio approach to traded industries 33 Researchers in Business – business people in research? 68 FOR A SMARTER AUSTRALIA The way ahead 69 Recommendation 14 90 Smarter Australia Network – a new platform for growth 69 Recommendation 15 90 Innovation hubs – building critical mass 70 Recommendation 16 90 Food – The National Pathfinder Project 72 Recommendation 17 91 Manufacturing capabilities 73 Recommendation 18 91 Example of how CSIRO and Monash may develop Recommendation 19 91 the Australian manufacturing and Materials Recommendation 20 91 Innovation Precinct in Clayton Victoria 74 Smarter networks 91 An emerging Australian advantage: design 75 Recommendation 21 91 Implications for roles and responsibilities 76 Recommendation 22 91 Smarter SMEs 77 Recommendation 23 91 Enterprise Connect – focused on value adding Recommendation 24 91 for SMEs 77 Recommendation 25 91 Improving researcher responsiveness – Recommendation 26 92 make it easier for SMEs to access knowledge 78 Recommendation 27 92 Smarter partnerships – meeting society’s Recommendation 28 93 needs through innovative SMEs 79 Recommendation 29 93 Access to capital for SMEs 79 Smarter SMEs 93 Implications for roles and responsibilities 80 Recommendation 30 93 Smarter workplaces 81 Recommendation 31 93 A new national partnership for smarter workplaces 81 Recommendation 32 93 Workplace capabilities 81 Recommendation 33 93 Researchers in business 81 Smarter workplaces 94 Supporting workplace change 82 Recommendation 34 94 Implications for roles and responsibilities 83 Recommendation 35 94 Recommendation 36 94 SECTION 6 Recommendation 37 94 NEXT STEPS 84 Recommendation 38 94 Recapturing reform ambition: the need for leadership 84 Recommendation 39 94 Expressing confidence and conviction 85 Recommendation 40 94 A shared responsibility 85 Recommendation 41 94 Taking the agenda forward 86 APPENDICES i SECTION 7 Appendix 1 ii CONSOLIDATED LIST OF RECOMMENDATIONS 88 Short term issues relating to Australia’s anti-dumping Recommendation 1 88 regime and Australian Industry Participation (AIP) in Managing current pressures 89 both government procurement and private sector Recommendation 2 89 projects Recommendation 3 89 Appendix 2 v Recommendation 4 89 Price and availability of natural gas for the Recommendation 5 89 domestic market Recommendation 6 89 Recommendation 7 89 Appendix 3 ix Recommendation 8 89 Policy observations Recommendation 9 89 Appendix 4 xiii Economy-wide measures 90 The importance of SME self help initiatives and Recommendation 10 90 leadership training for improving the productivity and Recommendation 11 90 competitiveness of Australian manufacturers Recommendation 12 90 Recommendation 13 90 EXECUTIVE SUMMARY Smarter Manufacturing for a Smarter Australia is a report of the non- government members of the Prime Minister’s Taskforce on Manufacturing comprising business and union leaders. The leaders have benefitted from the advice of CSIRO, a number of academics, the expertise and support of a Secretariat drawn from a number of Commonwealth Departments and agencies and consultations with industry, and state and local governments. It is a report that reflects both the critical challenges facing the sector and the rich opportunities for manufacturing over coming years. The non- government members of the Taskforce share the view that manufacturing is an important and dynamic part of the Australian economy with deeply embedded and mutually reinforcing links with primary production, utilities, construction industries and the services sector. Manufacturing can and should continue to play a key role in the development of the Australian economy and its ongoing strength, diversity and resilience. The unique combination of global, structural and cyclical forces that is currently putting so much pressure on so many Australian businesses threatens to undermine the capacity of the sector to take advantage of future opportunities. If manufacturers are not in a position to capitalise on emerging opportunities, the Australian economy as a whole will be weaker, narrower and more vulnerable now and over the longer term. The purposes of the non-government members of the Taskforce and of this report are to establish a shared vision for the future of the manufac­ turing sector; to respond to the immediate challenges of a high exchange rate, technological change and global competition and trading con­ ditions; to provide advice on how to make the best of existing govern­ ment policies and programs; and to make recommendations to capture the opportunities and respond to the challenges arising from the Asian Century. Challenges and opportunities The non-government members of the Taskforce recognise the full extent of the profound challenges that are confronting Australian manufacturing. More than 100,000 jobs have been lost since the start of the Global Financial Crisis and many workers, their families and communities are facing tough times and many family-owned businesses and factories that have been here for several generations are under pressure and some have closed. Many parts of the industry are operating at well below full capacity. Critical links in supply chains have been weakened and the businesses around them have been weakened. This state of affairs has unfolded in the face of a unique accumulation of global, structural and post-GFC cyclical pressures. As China has risen to vie with the United States for the position of the world’s largest manufacturing country, global production has swelled while prices and margins have fallen. At the same time, China’s demand for mineral resources has pushed up prices for key commodities and, as a key supplier, Australia’s currency has risen in concert. SMARTER MANUFACTURING FOR A SMARTER AUSTRALIA Executive Summary 1 Further pressures have come from the relatively slow In addition there is considerable scope to build growth in Australian productivity over the past critical mass in automotive