For Australian manufacturing, most of the news in recent years has been negative. However, as reported by Manufacturers’ Monthly, Mark Goodell from the Australian Industry Group says there are still reasons to believe that the sector will survive.
Australian manufacturing has long been doing it tough, and optimism, it would seem, is thin on the ground.
It is difficult to overstate the extent of the challenges the industry has faced over the past decade, which in many ways have been bigger even than the shocks experienced with the wind-down of tariffs from the 1980s, or the recession of the early 1990s.
Ai Group’s own Business Prospects Survey, released in January, reported that the majority of manufacturers said business conditions deteriorated notably in 2014 – 60% of CEOs reported business conditions in 2014 as being worse than 2013, while only 18% reported an improvement.
Looking ahead, 44% of manufacturers expect business conditions to worsen in 2015 compared to 2014, versus 24% who expect an improvement. Fortunes, of course, are mixed: business in food and building materials is growing well, whereas metals and machinery continue to struggle.
So where do we look in 2015 to find reasons for optimism? Contrary to the prevailing dark mood, there are a number of positive signs to indicate that manufacturing sectors have much to look forward to.
Gaining from the pain
In response to the difficulties they have been facing, many companies have restructured and now feel quite good about their own prospects, even if industry-level sentiment is poor and the macro-economic environment is unclear.
These companies are better positioned to weather currency fluctuations and have used the stress of operating at or above $US parity, with high domestic labour and energy costs and chronic skills shortages, to really lean out their operations.
Smaller companies have learnt that you have to sell before you make, and have invested in the capacity to understand customers’ problems deeply and look in strange places and new sectors for customers – skills that were only optional in the old world of manufacturing.
Major currency realignment, especially against the US and China, should offer us a major boost in competitiveness. This will take some time to flow through, but if sustained it should go a long way to boosting sectors such as manufacturing, as well as other sectors that manufacturing supports including, education, tourism and business services.
It will also help offset the fall in national income and the tax base stemming from lower commodity prices.
Undeniably, the global centre of gravity is still moving irresistibly towards our region. In the 1970s, the centre point of the world’s middle class consumption could be located somewhere in the Atlantic, but it is quickly shifting east and in 15 years’ time it will certainly have shifted to Asia.
Tremendous opportunities are emerging in our region, and these will only become more available to Australian business as we grow more familiar with doing business in Asia and take advantage of a large domestic population with deep knowledge of Asian cultures and languages.
While consumer confidence has been brittle in recent times, the increase in household wealth in the past few years and the continuation of low interest rates should begin to underwrite stronger household spending.
State governments who have been able to recycle capital locked up in their assets now have increased spending power.
Given these developments, and the historically demonstrated Australian capacity to solve problems in the national interest and forge new opportunities, there are plenty of reasons to believe that manufacturers can start to have more positive stories to tell in the future.
[Mark Goodsell is the NSW Director at the Australian Industry Group and in 2014 was appointed to the new position of National Director – Manufacturing.]