SA Premier, Jay Weatherill, has offered a refreshed vision of South Australian industry where Advanced Manufacturing is essential to support mining and Defence projects.
The Premier invoked Sir Thomas Playford, whose post-World War II vision drove a “dramatic transformation” of South Australia’s economy, at The CEO Institute’s South Australia – Looking Forward full day event at the National Wine Centre this week.
He notes Sir Thomas was “well before his time” in risk analysis, seizing the opportunity to develop manufacturing using “cheap land and cheap labour behind a high tariff wall”.
Those advantages have largely vanished, but the Premier says manufacturing is “on the wrong end of a self-propelling prophecy” without regard for the industry’s strong local legacy and he is “challenging the idea that we can’t be a manufacturing state”.
He says SA can’t realize the full benefit of a resources boom “if we are not cognizant of our strengths in agriculture and manufacturing”. Manufacturing must be based on value and innovation, immune from currency fluctuations.
The point of the Premier’s recent mission to the USA, a deal in principle with General Motors regarding Holden operations, was not to prevent job losses at GMH – which he has acknowledged are likely – but to highlight and develop Holden’s input to GM’s global operations. The Premier defends government support noting cars are made in only 13 countries and in every case has government support.
Long term agreement would also prevent “the corrosive effects of yearly doubt” hanging over carmaking at Elizabeth, in contrast to the Mitsubishi experience.
Like Playford, who invested heavily to support manufacturing operations with cheap employee housing and certainty of electric power supply cost, the SA Government investment aims to retain and build “State capacity” in the automotive field.
Similarly, opportunities in Defence, clean technology and resources “will be a catalyst for our push to Advanced Manufacturing”, the Premier says. Support for the BAe Systems at Edinburgh aims to help BAe enter other Defence industry fields.
The Premier says both government and SA industry want an innovative workforce, which “starts at school”. Education reform has achieved “dramatic” retention rate improvement in secondary schools, but the Premier acknowledged more work is required.
He says students also needed to learn “enterprising spirit” to become “entrepreneurs of the future” and “that’s the spirit we need in our education system.” Changes to the SACE system aimed to produce those changes.
Since capital cities are gaining importance as assets in their own right, for attracting international organizations, Adelaide needs to be “attractive, liveable and affordable”. He was happy to have “slain a few sacred cows” blocking development of key sites such as Adelaide Oval.
Interestingly, the Premier was disinclined to engage in elaborate planning processes, such as the SA Strategic Plan. Instead, he intends to focus on a more narrow set of key priorities “which will be tattooed on every public service forehead”.
“This will involve some brutal choices, but Advanced Manufacturing will be one of them,” he says.
Darryl Gobbett, Chief Economist for Prescott Securities, summarized the global economic environment – positive outlook in North America and Asia, grim risk remaining in Europe – with South Australia’s having reasonable prospects in commodities export markets, admittedly volatile.
Darryl believes consumer confidence has almost “bottomed out” and will recover this year, although 2012 is likely to be “dull” in terms of activity, with weak residential and motor vehicle sales.
However, 2013 will be “stupendous” in terms of project spending. In the long term, Darryl expects investment in smaller mining operations to roughly equal that of Olympic Dam’s expansion.
The Australian dollar will remain strong as long as commodities exports remain high.
Darryl expects revenue from mining and agriculture to surpass that of SA manufacturing, which raises questions over “the (consequences of) political support for manufacturing in SA”.
He expects the epochal change, where consumers now spend only 80cents from every dollar earned rather than $1.05, will continue. The challenge for local SMEs, he believes, will be to attract such “mum and dad” savings as investment capital.
“The (high) cost of bank funds will likely be the same for two or three years and the question is where do you get starter funding? How can we directly access the retail deposit base?” he says.
Former Thinker in Residence, Professor Goran Roos evaluated SA industry as “very good – amazing – at tactical problem-solving” to come up with product solutions, but “very bad at strategic vision”, the much more lucrative process of delivering solutions people want.
Long-term, dedicated corporate R&D in Australia is also “very bad” by global standards, and SA industry does not focus enough on industrial design.
Prof Roos says we need to understand the industrial technology “road map” for innovation and the life cycle of innovative products in global value streams.
Success hinges on appropriating value from a value stream at its most profitable level - not necessarily the point of delivery. The most profitable level is “strategic”, where the innovator understands the problem “that matters to others” and manages delivery of a behaviour-changing solution.
High management skill is the key to extracting the most value from the process and Australia is only a “second tier country” in this regard. Prof Roos says 25% of Chinese and Indian firms are better managed than half of Australian firms by global performance measures.
SA’s advantages include cheap resources, proximity to Asia and prolific research resources – which industry doesn’t engage enough.
“You have a very nice trade surplus with China, but you get it by selling dirt,” Prof Roos says, which is fair enough if SA wants a “nice life” derived from mineral royalties.
Improving SA’s prospects for winning more from global value streams requires “active and knowledgeable” support from politicians who “understand the complexities”.
Priorities for SA businesses should be to:
• develop employee skills to enable them to do more things
• learn about design and how to apply it to products
• learn how to adjust business models to appropriate more from value chains
• work in value chains which are growing rather than declining
“It’s mindset,” Prof Roos says. “The issue is learning how to value-add rather than allowing raw materials to just leave the country.”
Phil Speakman, Chairman of Morton Philips, says one of the major issues will to secure and retain skills and people in South Australia.
Phil outlined 11 strategies to help business meet these challenges. The strategies range from cutting-edge internet-based technology to shaping student education to meet market demands; together with harnessing ‘grey power’ by slowing down retirement, addressing the gender imbalance, investing in relentless education and training and the greater encouragement of supportive performance based cultures.
Updated 20 Jan 2012
