Innovation: A Crucial Factor in the Rebound of the Australian Manufacturing Industry

There is a stereotypical view that manufacturing industries in developed economies will inevitably decline with manufacturing migrating to developing countries where labour and other costs are lower. This view has however been contradicted in a recent report by the Australian Institute in relation to the current status of the Australian manufacturing industry.

The Report by the Australian Institute and entitled ‘Manufacturing: A Moment of Opportunity’ shows that there has been a rebound in the industry since the dramatic downturn in 2008 when the GFC hit the world economy. The Australian manufacturing industry has since stabilised and remains an important part of the national economy.

In the last 12 months there has been 40,000 new manufacturing jobs created, second only to the 80,000 new positions in public administration and safety jobs. While this rebound has, in part, been as a result of the devaluation of the Australian dollar retracting by more than 30% from its peak 2011 levels, other factors have also contributed to this rebound.

Innovation within the Australian manufacturing industry has also played a major role according to the Report. The Report states on page 7 that:

‘No sector of the economy invests more, relative to its output, in new research and experimental development than manufacturing. Most recent data indicates that the sector allocates almost 5% of its sector value added to new RND expenditure, more than any other sector – even more than the scientific and professional services sector’.

This innovation is motivated in part by the increasing use of automation in manufacturing processes. Also, innovation in other sectors of the economy generally also requires the application of advanced machinery, equipment, and other manufactured products. This necessitates a healthy manufacturing sector to support innovation in other sectors of the economy.

Furthermore, changes in technology and international competition creates the need for manufacturing to continue to evolve and adapt to these changes. By relying on more sophisticated manufacturing that relies on innovation, customization, and specialization, the Australian manufacturing industry can distinguish itself from the old mass-production industries of the past. This is necessary in countries such as Australia having higher labour and other costs. In this situation, the Australian manufacturing industry needs to compete on the basis of quality and innovation, and not on the basis of low cost.