Chapter 5 Rail manufacturing and component supply 5.1. A critical part of the Committee’s inquiry was its investigations around the rail manufacturing and component supply sectors. Capacity in these two sectors has obvious benefits for the delivery of reliable passenger and freight services. Just as important, however, are the broader economic and employment benefits associated with rail manufacturing and component supply. A skilled manufacturing workforce that is capable of responding flexibly and efficiently to emerging challenges and opportunities is fundamental to realising these benefits. The manufacturing sector 5.2. The Committee recognises advanced manufacturing capabilities as critical for Victoria’s future as an innovative, technologically advanced and internationally competitive economy. An advanced manufacturing sector drives research and development, leading-edge technologies, workplace practices, supply chain management, skills development and productivity. It is also a key focus for the investment and industry activity that provides markets for the numerous small and medium sized businesses that make up the supply chain. Manufacturing in Victoria 5.3. Manufacturing remains a key part of Victoria’s economy, accounting for $30.6 billion, or 11.4 per cent of Gross State Product (GSP). The sector directly employs 326,000 people.287 Victoria’s traditional areas of manufacturing include food, automotive, textiles, clothing and footwear, chemicals, pharmaceuticals, printing and aluminium. However, sectors such as ICT, aerospace and defence are emerging as major contributors to jobs and export growth.288 Enabling sectors such as design, nanotechnology, ICT and biotechnology are also an important part of the economy, and help other industries to gain a competitive edge in global markets. 5.4. Victorian manufacturing operates within an increasingly competitive global marketplace and, worldwide, manufacturing is changing. New technologies are transforming development and production, and the value of goods produced by modern manufacturing is increasingly being driven by factors such as design, research and development, licensing and branding.289 Supply chains are spread over 287 Department of Innovation, Industry and Regional Development (Victoria), Building Our Industries for the Future: Action Plans for Victorian Industry & Manufacturing (Melbourne: DIIRD, 2008), 8. 288 ibid. 289 ibid., 8–9. 83 Inquiry into Skills Shortages in the Rail Industry many countries, often where low labour and unit costs provide competitive advantages for manufacturing activities.290 5.5. The Committee notes that modern manufacturing requires increasingly diverse skill sets, including engineering and production, research and development, intellectual property management, design, software, supply chain management, marketing, sales, after-sales services and many other areas.291 As manufacturing advances, the skills required within the sector change, and demand for higher-skilled professional, paraprofessional and technical occupations increases.292 As at August 2008, managers and professionals accounted for 30 per cent of manufacturing jobs, up from 20 per cent in 1996.293 The Victorian industry and manufacturing development strategy 5.6. The Victorian Government’s goal for Victorian industry and manufacturing is to reinforce Victoria’s position as a global leader in strategic industry sectors driven by skills and technology, and a supplier of high value-added goods and services.294 To deliver on this goal, the Victorian Government has outlined an overarching industry and manufacturing development strategy which aims to: − deliver broad economic reforms and business programs to boost competitiveness; − invest in the skills and innovation capabilities that Victoria will need for the future; and − stimulate the growth of more globally competitive and sustainable industries and companies.295 5.7. There are three major statements which support the Victorian Government’s aims for strengthening Victorian industry and manufacturing. Two of these statements, Innovation: Victoria’s Future and Securing Jobs for Your Future, were released in August 2008. These statements were followed in November 2008 by Building Our Industries for the Future, which focuses on specific sectors and industry issues central to Victoria’s future. Building Our Industries for the Future includes four separate action plans, namely: the Manufacturing Action Plan; the Services Action Plan; the Global Markets Action Plan; and an action plan to influence the national policy agenda. 5.8. Building Our Industries for the Future acknowledges Victoria’s place as the nation’s manufacturing hub, especially in skills and technology-driven sectors. It also recognises the emerging challenges facing local manufacturing, including globalisation, pressure on environmental resources, slowing global economic growth, and unpredictable global financial markets.296 290 ibid., 12. 291 ibid., 9. 292 ibid., 18. 293 ibid., 9. 294 ibid., 4. 295 ibid., 3. 296 ibid. 84 Chapter 5—Rail manufacturing and component supply 5.9. Building Our Industries for the Future provides an overview of the Victorian Government’s current and planned actions to build a more competitive business environment. It describes how, using the resources and leverage available to a state government, the growth of core and emerging manufacturing and services industries are being supported. 5.10. A key platform of Building Our Industries for the Future is a strengthened Victorian Industry Participation Policy, which applies to all Victorian Government procurement projects with a value of $3 million or more in metropolitan areas and over $1 million in non-metropolitan areas. When two or more bids are comparable in terms of quality and whole-of-life pricing, the government will continue to give preference to bids that maximise local industry benefits in areas such as skills development, capacity building and local research and development.297 5.11. The objectives of the Victorian Industry Participation Policy are to: − boost employment and business growth in Victoria by expanding market opportunities for local small and medium sized enterprises; − provide the main contractors for major projects with increased access to a wider range of companies able to deliver the best value for money; − promote a culture in local business, raising awareness and shifting perception from ‘imports are always best’ to ‘local suppliers can be world class’; − expose Victorian companies to world’s best practice in workplace innovation, e-commerce and use of new technologies and materials; − develop industry’s international competitiveness and flexibility in responding to changing global markets, by giving local small and medium sized enterprises a fair opportunity to compete against overseas suppliers; and − maximise skills and training outcomes.298 5.12. Under Building Our Industries for the Future, major projects that meet the stated criteria will be declared of strategic significance to the Victorian economy, and will be subject to additional requirements, including minimum local content requirements. For the purposes of Victorian policy, ‘local content’ refers to goods and services that have value-added activities based in Victoria, Australia or New Zealand.299 5.13. The criteria for assessing strategic significance will capture projects that: − have whole-of-life costs of $250 million or more; − contribute over their whole lives to the productive capability of Victoria and make a strategic contribution to the state’s ongoing economic wellbeing; − have potential to generate significant local industry participation, employment and skills or technology transfer during the project or procurement activity; 297 ibid., 16. 298 Department of Innovation, Industry and Regional Development (Victoria), ‘About the VIPP,’ DIIRD, http://www.diird.vic.gov.au/diird-strategies-and-initiatives/victorian-industry-participation-policy/about-the-vipp (accessed 23 September 2009). 299 Department of Innovation, Industry and Regional Development (Victoria), ‘Victorian Industry Participation Policy: Frequently Asked Questions (FAQ’s),’ DIIRD, http://www.diird.vic.gov.au/CORPLIVE/STANDARD/PC_65237.html#intNav11 (accessed 23 September 2009). 85 Inquiry into Skills Shortages in the Rail Industry − have potential for building ongoing industry capability, skills and employment benefits resulting from the project ; and − present a clear choice between using local and overseas suppliers.300 5.14. Within the framework of strategic projects, rail rolling stock is one of the largest areas of government procurement, and is of particular importance to the manufacturing sector.301 Rail manufacturing in Victoria 5.15. Rail manufacturing is dependent on effective and efficient supply chain clusters similar to those seen in automobile manufacturing. The key components of these supply chain clusters are steel fabrications, sheet metal, tooling and fibreglass mouldings. These components feed into various systems, including the car body, brakes, communications, propulsion, interiors and other systems. 5.16. In many instances, the maintenance of rolling stock is closely interrelated with manufacturing contracts. As rolling stock has a long operational life, many rail manufacturing companies are interested in developing the skills and capacity within their facilities to be able to maintain rolling stock and to take on technology upgrades across its operational life. According to the Victorian Tram