Australia: we need to reassess our manufacturing needs

Australia needs to accept the challenges of the Advanced manufacturing future

Australia and the traditional manufacturing states of South Australia, Victoria and New South Wales have struggled in recent years to help their traditional economic drivers transition to a new comparative and competitive advantage. In Australia we are still under the “illusion” that we can compete broadly as a manufacturing centre with the rest of the world. This illusion is unachievable due a variety of factors, and there are some key community expectations which mean maintaining our manufacturing heritage as it was in the 1970’s, 80’s or 1990’s is just not possible. The goal of maintaining this bulk manufacturing base is not compatible with our Australian standards of living and expectations. In Australia we have mortgages, rent payments, spending and consuming expectations which mean that any reduction in our labour costs will come at a substantial societal cost to the broader Australian community. Australia can compete on a global scale if we increase productivity. This would require increased output compared to cost of labour. We can achieve this in a couple of ways in Australia. The first is if we lower the minimum wage to levels like the US – $5 per hour for example, this would allow our productivity to increase to a comparable level to our competitor manufacturers in North and South America, although still putting us at a disadvantage compared with our regional neighbors in Asia. The alternative would be to reduce our workforce numbers through increased investment in automative manufacturing. These two options would neccessarily result in reduction in the manufacturing workforce, and more than likely see adverse reactions from Unions, not to mention the political difficulties associated with these moves. There is also a significant cost expenditure associated with the up-tooling of the manufacturing facilities for bulk manufacturing. Australian manufacturers do however need to address the reduction in productivity on the global platform, and corporate boards, management teams, and state and federal governments should be seeking to help their home grown manufacturers rationalize their investments, operations and manufacturing into areas where we in Australia can maintain our competitive advantage.

Low cost manufacturing from Asia has meant that it is no longer cost effective to manufacture in Australia in bulk products. We must transition to a high technology, advanced manufacturing future.

An alternative option for Australian manufacturers to address the issues of reduced manufacturing productivity and cost effectiveness should be to strategically manufacture in Advanced High technology sectors. Australian state and federal governments should bite the bullet and help our manufacturers rationalize their bulk manufacturing to our Asian neighbors in a manner that allows us to focus on the advanced value adding and R&D components of Manufacturing. Outsourcing and relocating bulk manufacturing will lower our cost burden in Australia, and allow Australian manufacturers to remain competitive on a global scale. It has the added benefit of helping these same manufacturers to rationalize their operations so that they have control over the intellectual property and R&D components of there businesses. This is the realistic path to maintaining a sustainable manufacturing industry in Australia. Our friends in Asia should be seen as our partners not our foes when it comes to our manufacturing future.

The main issue we have across Australia at the moment is that our political leaders at both a state and federal level are risk adverse and in the main lack the leadership and strength of conviction required to help our economies transition to a new advanced manufacturing and sustainable level. The sooner we realise this the sooner our Australian economy, and manufacturing industry will become a strength once more.

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Asia: More than the Sum of its Chinese Parts

There is more to Asia than China - To succeed in the Asian Century it will be important to look beyond the Forbidden City.

Too often in Australia we think and talk of Asia as being China. Government strategies, political rhetoric, journalistic commentaries, and in many cases business strategies look to China as the be all of Asia. This is a simplistic and dangerous view to hold. China undoubtedly is a thriving and impressive market with somewhere around 1.3 billion people, including over 250 million in the middle class. It is the world’s largest country by population and will soon overtake the US as the world’s largest economy. China is a vast country stretching from the pacific coast in the East to Central Asia in the West, Russia and Mongolia to the North and India and the Himalayas to the South. Mega cities are abundant seeking to buy and sell all the worlds fare, while the resource potential is emerging anew with exploration and exploitation of rare earth minerals, and shale oil and gas reserves. China is clearly a behemoth, and it is important for any business and sovereign western government to plot a clear strategy for engagement with China. Asia however is more than just the sum of its Chinese parts.

Unfortunately I hear and see too often “Asia” being used as a proxy descriptor for “China”, which it clearly is not. We must remember that Asia is a vast continent which includes South Asia: Pakistan, India, Bangladesh (1 . 5 billion), Central Asia: Uzbekistan, Kazakhstan, Tajikistan, Kirgizstan, Iran etc (500million), and South East Asia: Indonesia, Vietnam, Thailand, Malaysia etc (600million). The rest of Asia dwarfs the population and labour resource potential of China. Asia makes up around half the world’s population. It is important to place this scale of opportunity into perspective.  The trade opportunities in these other Asian markets are equally impressive. Central Asia and Indonesian have abundant oil and gas resources, while in many countries there are rare earth minerals amongst other mineral resources readily sought on global exchanges. Indonesian for example is now the world’s largest exporter of Coal.

We should remember also that in addition to China, India and Indonesia make up three of the four most populous countries in the world…..and two of these markets are democracies ( India 1 billion, and Indonesia 250 million). The population size of other countries in Asia provides a renewed opportunity for manufacturing in the region from a non-Chinese market. The labour supply in Asian Countries such as Indonesia and India provide an opportunity for international manufacturers to tap into location benefits that can arise from proximity to sales markets and global supply chains.  The market opportunities in Asia are indeed more than just China and many successful companies are developing strategies to tap into these emerging market opportunities. So when you next hear a politician, businessman, journalist or man on the street talk of Asia….ask them which part? If businesses are to truly succeed in the Asian century they will need to actively build a strategy that goes beyond solely a China Strategy, as Asia is a big place, and increasingly likely to be the economic super region of the future.

f you would like to meet with me to discuss how I can help you and your organisation achieve success in the broader Asian markets, or you would like to discuss new opportunities emerging in the near future, please send me an email (nathan@asiaaustralis.com). Alternatively check-out my LinkedIn Profile and the website of my company AsiaAustralis.

Help Celebrate Indonesian Independence Day with a new look at the Indonesian market

Take a new look at Indonesia

 

August 17th was Indonesian Independence Day and celebrates Indonesia’s emergence as an independent State at the end of World War II. Although there have been ups and downs over the past 65 years, including an attempt by the Dutch to reinstate colonial rule, Indonesia has emerged as one of the strongest economies in the Asian Region, and arguably the most promising economy in the world. In my role as the South Australian Chairman of the Australia Indonesia Business Council I had the opportunity to attend the formal reception at the Indonesian Ambassador’s residence in Canberra on August 17th, and what a reception it was…. The warmth that was accorded to both the Indonesian hosts and  conversely the international guests was amazing. Indonesia has truly emerged as an important player in the Asian region and hundreds of guests were there to help Indonesia celebrate. In Australia, businesses are starting to once more look to Indonesia for growth opportunities, and it is indeed a market to consider if your business is looking to engage with Asia. But why is Indonesia such an attractive Market?  

Indonesia has since Independence attempted to diversify its economy, through development of manufacturing and new industries, to compliment the traditional focus upon agriculture and oil and gas revenues. However when we look at the major exports from Indonesia we can see that Oil and Gas is still the major export product accounting for approximately 90% of exports to Australia for example. This export figure is replicated across Indonesia’s other major trading partners. Indonesia does not have the same trade profile as China, and we will rarely see cheap toys and textiles with ‘Made in Indonesia’ printed on them. This does not mean that there are no manufacturing opportunities in Indonesia, because there are, and there are also agricultural opportunities and mining opportunities for international Businesses. Indonesia is a land of increasing opportunities.  

Indonesia is close to established International Shipping Channels and destinations such as Singapore

 

As a resource base Indonesia is growing with investments from all the major global miners, and these mining operations all need crucial technical and service support, and Australian companies have jumped into the void to help the Indonesian partners supply this need. As a manufacturing base, Indonesia has many advantages. Firstly, the government is keen to expand and encourage foreign investment in manufacturing in Indonesia, while for manufacturers looking for a location close to existing distribution channels, Indonesia could not be a better location. Indonesia is a stone’s throw from Singapore the major through port for trade from east to west and north to south. In fact, most trade between China and Australia, and China and Europe will pass through Singapore. Think of the time advantage from manufacturing in Indonesia, instead of China, there is a potential saving of 10 days or more in transport time alone.  

Indonesia is also a strong market in its own right, with economic growth in 2010 above 5%. This is great in anyone’s language, and the strength in the Indonesian economy has seen its credit ratings rise to BB+ ratings, which is a good result for an emerging economy. The Indonesian domestic market is moving in the right direction and many Australian and global MNC’s are taking advantage of these strong market conditions. Finance, banking, mining, manufacturing, automotive and service industry companies are all moving into the Indonesian market to reap the rewards on offer. With a population in excess of 245 million people and growing, Indonesia has a large domestic economy and labour force ready for foreign investment. So when you are considering investing in a new international market in Asia, seriously consider Indonesia. It is perfectly positioned to be a springboard of success for you company into Asia and beyond.  

If you would like more information on the market opportunities in Indonesia, consider joining the Australia Indonesia Business Council (www.aibc.com.au), who can help your business with the networking, advocacy and business tools to succeed in the new emerging Indonesia.

Manage your risk: business in China is about having the right partner

China is for many businesses the great big unknown. It seems to hold so much potential, it is powerful, it is the source of low cost manufacturing, and shouldn’t your company be looking at entering the Chinese market in some capacity? China is also a large market in its own right and this is another opportunity which you could take advantage. But how do you do it?

China the forbidden country?

We have all heard the horror stories of business failure in China, or Intellectual Property being stolen and a product that is identical to your being launched on the global market place as a competitor. This is not necessarily how things need to be for a company looking to invest in China in any capacity.  It is critical for the success of any business venture for you to manage your exposure to risk, and with China, you may need to consider many more factors then those risk factors that are common in established ‘western’ markets. So how do you go about entering the Chinese market?

There are of course a few ways in which you can enter the Chinese market, those which are high risk, such as searching for manufacturers on the Internet. A simple search on http://www.alibaba.com will show you a plethora of manufacturers who can provide products to any specification required, and many will have pictures of their “manufacturing plant”.  Using this method of finding a business partner in China is rife with danger and risk. How do you know that the manufacturer is who they say they are? are they a middleman? or the manufacturer themselves? can you afford to take the risk? and are you getting the best deal possible? The answer to all these questions may indeed be NO!! The old refrain “buyer beware” is important whenever you enter into business relationships of this kind.

As in any culture and country, there are good people, and bad people, people who will do the right things and those who will try to take advantage of you and rip you off. But there are ways of offsetting this risk in China. The Chinese appreciate and treasure relationships, so you need to be aware of this with any business venture in China.  An alternative to the high risk strategy described above is to attempt to minimise your risk exposure by conducting research on the ground in China. If you want to succeed in business in China, then you need to get over to China and meet with business people who can help you, either with a joint venture, or who can help you establish a wholly owned subsidiary. It is important that as a western company that you engage good people and partners to investigate the Chinese market. Each market opportunity is unique in China, and as a consequence any investigation needs to be unique. It is here that specialist “China” companies such as The Australia China Development Company (www.tacdc.com.au) can help. Companies of this kind specialise in investigating market opportunities for western companies looking to invest in China. They can find the opportunities on the ground in China for your company, and perform a full time role that saves your company the time and manpower to fully investigate the Chinese market.

It is important to remember that this all takes time and there are no real quick deals to be made in China. If you want a good long lasting deal then you need to be prepared for the long haul. Ultimately however if you engage the right business partner to help you, your success in China will be for the long-term.

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