Speech

Address by: Austrade CEO, Mr Peter O’Byrne
Event: CPA Australia’s annual Manufacturing Conference
Location: Melbourne
Date: 17 July 2007

Welcome

As a fellow CPA I’m delighted to be here to share the Austrade experience with you.

You have asked me to discuss the positioning of the manufacturing industry for future success.

This focus is timely. It recognises that we must continuously adapt to new circumstances to remain competitive…

…in a rapidly changing world marketplace.

The challenges to industry are, indeed, great.

As always, there are challenges to our manufacturing industries, contending against high commodity prices and the rising dollar as well as generational, environmental and global change.

Although manufacturers are facing many challenges, at present there are also as many, if not more, exciting opportunities.

And I make the point that these opportunities are at a time of high employment, with Australia’s unemployment rate at 4.9 per cent, at a 30-year low.

Learning from the past

To assess future success, let us journey from the sheep’s back to cyberspace.

Last month, an event was held in London to commemorate the 200th anniversary of the arrival of Australia’s first export––wool to Britain sold by sheep breeder John Macarthur.

From the time of that first shipment until well into the 20th century, the old adage of Australia riding on the sheep’s back held true.

Less than two weeks ago, on July 6, Australia and Japan marked the 50th anniversary of the signing of the Australia-Japan Commerce Agreement.  A decade after that agreement was signed in 1957, Japan became Australia’s largest export market. Trade with Japan was worth $48 billion in 2005-06. Trade with China, Australia’s second largest trading partner, was $41 billion in the same period.

The huge demands created by World War Two provided the impetus for a major expansion of our manufacturing capabilities, when Australia contributed heavily in terms of its iron, steel, ammunition and other manufactured supplies.

That expansion of Australia’s manufacturing capability continued after the war, but ongoing growth occurred behind a wall of tariff protection, and consequently remained inward-looking and domestically oriented.

Over recent decades, however, Australian governments have pursued an agenda of opening up our international trading environment and reducing our tariff barriers.

In the grand scale of time, a significant reduction of trade barriers has already promoted innovation and entrepreneurship, with their capacity to cut costs, which has led to increased export performance.

Australia today has one of the most open and innovative economies in the world and is keen to see world economies open up even further, multilaterally via the World Trade Organization and the Doha Round, and bilaterally through a range of free trade agreements. This freeing up of markets I will revisit later.

• Manufacturing exports grew from $3.6 billion in 1982 to $42.1 billion last year––an all-time record!
• The recent Trade Statement delivered by Minister Truss noted that over the past 25 years, Australia’s manufacturing output has risen by around 40 per cent and the volume of manufacturing exports has risen five-fold.
• Total exports reached new heights in 2006 to reach $210 billion––up 16 per on the previous year’s record of $176.7 billion.
• And unemployment is at its lowest point since November 1976.

These are significant achievements. They have occurred not by accident. We talk about the broad figures, but remember, it’s individuals, entrepreneurs and companies that make things happen.

Australian manufacturing responded to the demands of the times, embracing change and shifts in domestic and international trading environments.

While it was self-evident that Australia could not compete against low-cost producers in the high labour segment of manufacturing, we did learn that:

• We must innovate in terms of what we do best;
• We must add value by transforming manufactures, both simply and elaborately; and
• We must import in order to export, gaining ideas, expertise and presenting other countries with a greater capacity to buy our goods and services. 
• We must concentrate more on the role of global supply chains.

Success of the present

Australian industry has had to manage low production volumes due to our comparatively small domestic market. 

This has given us a degree of flexibility in terms of plant and machinery, management and our workforce.

That, in turn, has encouraged Australian manufacturers to be efficient niche low-volume manufacturers, well suited to export.

The result is that while in the 1950s manufacturing only contributed 6 per cent of Australia’s total exports, now it is almost 28 per cent.

Now there are over 9,000 manufacturing exporters in Australia taking on global markets in industries like auto-components maker, Dobinsons Spring and Suspension Companies from Rockhampton, Women’s surf-wear maker Aztec Rose from Western Sydney, or kitchen-appliance maker and Think Appliances, from Thomastown in Melbourne.

Such industries make a significant difference to Australia not only in terms of export revenue but also in providing employment.

The number of Australian businesses that have used Austrade’s network of export advisers and trade facilitators has risen significantly over the past five years. Austrade clients receiving services have risen from 8,900 in 2002-03 to reach 12,800 in 2006-07.

The number of businesses achieving export success with acknowledged assistance from Austrade has grown from 2,015 in 2002-03 to around 6,000 in 2006-07.

Over 80 per cent of Austrade’s clients belong to the small to medium sized business (SME) segment

A significant achievement of our times is the growth of our exports of elaborately transformed manufactures, which by calendar year 2006 stood at $27.4 billion.

Australian innovation and entrepreneurship played an important part in building this export excellence.

It’s a spirit that continues to this day and I am proud that Austrade is a sponsor of our new Corporate Partner, Ernst & Young’s Entrepreneur of The Year Awards which recognises entrepreneurs such as Sydney’s Napoleon Perdis, who saw a gap in the market for women’s cosmetics and Craig Winkler, who has made $120 million out of his Melbourne software company, MYOB.

Australia’s resourcefulness is typified by medical accomplishments.

We have produced more Nobel Prize laureates per capita than any other country––13 in all since 1915, three of them shared with fellow Australians.

And interestingly, 10 of those 13 were from the medical sector.

This year marks the 25th anniversary of the establishment of Cochlear, a world leader in implantable hearing solutions.

Australia has been at the forefront of cochlear implant discoveries since the 1970s when Professor Graeme Clark undertook his first implant surgery in Melbourne.

Today, Cochlear is a global enterprise with a market capitalisation of over $3 billion, employing 1,800 people around the world, 1,000 of them right here in Australia.

All their products continue to be manufactured in Australia and nearly all their R&D is conducted here.

To date, Cochlear implants have been performed on around 90,000 people in 90 countries––half of them children.

Twenty years ago Holly McDonald became the first child to receive a Cochlear hearing implant.

This year Holly graduated from Sydney University with first class honours in law.

In May, Australia’s Minister for Trade, Warren Truss visited ResMed’s headquarters in Bella Vista, Western Sydney, to launch the 2007 Australian Export Awards.

ResMed, founded by Dr Peter Farrell in 1989, won the accolade of 2006 DHL Australian Exporter of the Year, is another true originator, manufacturing equipment to diagnose and treat sleep-disordered breathing.

The company’s 3,000-strong team around the globe, including 1,250 at their recently opened high-tech plant, now sells its Australian-made products in 68 countries.

Its equipment brings peace to many thousands with sleep breathing disorders that can lead to profound effects on health.

Another example is CSL of Melbourne, which produces pharmaceutical products and vaccines and is engaged in R&D. It is a company that has risen to employ 8,500 people in 27 countries.

I could talk about manufacturing successes in many other sectors, such as the food processing industry --- Paddy’s Foods, which makes Four ‘n’ Twenty Pies; Bitton Gourmet; King Island Foods, who do a range of cheeses; and Pastilla Nash, whose prune and walnut logs are enjoyed in the US.

There is a steady demand for Australian manufactured goods and Australian business talent is reaching more markets than ever before, despite the recent high exchange rate and fuel costs.

The Manufacturing Technology InFocus Exhibition at the Sydney Convention Centre next week will showcase to buyers the exciting, expanding range of sophisticated goods Australia’s manufacturing industry has on offer.  Such as in robotics and automation, instrumentation and control, hydraulics and pneumatics and electronics.

Almost a quarter of Australia’s small and medium-sized companies are now exporters of manufactured goods.

In 2006-07, manufacturers received over $50 million through the Austrade-administered Export Market Development Grants scheme ––well over a third of the total number of grants issued.

And we at Austrade are pleased that so many manufacturing SMEs, through their drive and determination, have gone on to become international export success stories with the assistance of our programs.

Navigating our tomorrows

Trade liberalisation

Let me turn to aspects of the international business environment that have a direct bearing on the future of manufacturing industry in Australia.

The Australian Government continues to work hard to progress broad-ranging liberalisation through the World Trade Organization, to maximise opportunities for Australia.

Success of the Doha Round has been consistently pursued.

Trade Minister Warren Truss reaffirmed multilateral trade liberalisation as a Government priority earlier this month at a meeting of APEC Trade Ministers in Cairns.

At this meeting, the APEC Ministers agreed on a new Trade Facilitation Action Plan intended by 2010 to further reduce trade transactions costs by 5 per cent in the Asia-Pacific region.

This Action Plan will deliver more competitive pricing, of benefit to both businesses and consumers.

FTAs

While progress at the multilateral level remains slow, the Australian Government continues to push improved market access for Australia’s businesses through comprehensive free trade agreements with our strategic markets.

Australia already has robust free trade agreements in our major markets of the United States, Thailand, Singapore and New Zealand.

These FTAs have seen big reductions in tariffs for many Australian manufactured goods.

Negotiations are proceeding toward free trade agreements with China, Japan, Chile, the Gulf Cooperation Council, Malaysia, and ASEAN.

A joint study on a possible FTA is underway with Korea.

A Joint Experts Group is investigating ways to strengthen Australia’s economic relations with Mexico, including the possibility of negotiating a future FTA.

I thank CPA Australia for your work with Austrade as members of the FTA Advisory Panel and all the hard yards you have put in with us in this sphere.

I acknowledge your efforts in gaining, through the Australia-US Free Trade Agreement, mutual recognition of accountancy qualifications in the United States.

The Industry Statement

In addition to a robust international trade agenda, the Australian Government continues its support to Australian business, to help them enter and succeed in international markets.

The Prime Minister announced in the Industry Statement in May an allocation of more than $1.4 billion over 10 years to enhance our international trading capabilities.

The Industry Statement, as well as further initiatives in the Budget, will further enhance Australia’s international competitiveness.

Among these initiatives is the creation of the Trade Advisory Council, a pre-eminent source of advice to the Trade Minister from the business sector on vital trade and investment issues. 

Manufacturing industry will play a significant role in the Council’s work. 

Among other initiatives are:

• continued support through Austrade to pursue export opportunities arising from AUSFTA;
• creation of Australian Industry Productivity Centres;
• encouragement of additional R&D and technology;
• widening the scope of companies engaged in nanotechnology;
• extending small business entrepreneurship; and
• expansion of the Export Finance and Insurance Corporation’s mandate to further support exporting businesses.

Global supply chains

The Industry Statement also announced the establishment of a new Global Opportunities Program which will provide over $254 million for a range of initiatives to assist Australian businesses break into global supply chains…

…offering greater scope for our manufacturers to bid for and present their innovation to major international projects.

This program will expand the assistance that Australian Government agencies are providing to business, to unlock the increasingly important opportunities provided by tapping into global supply chains.

The Department of Defence and the Department of Industry, Tourism and Resources have achieved excellent results in gaining access for Australian manufacturers into the US automotive and European aerospace initiatives to access global supply chains aerospace industry where GKN Aerospace Engineering Services has designed 12 per cent of the Joint Strike Fighter and is examining setting up manufacturing facilities in Australia.

Component companies and tooling suppliers in the automotive sector, with marketing support from Government, are now seizing opportunities to bid on work for car companies overseas rather than relying solely on the Australian market.

The Budget

Austrade will implement a number of specific Budget measures of advantage to manufacturing industry.

As foreshadowed in the Industry Statement, funding for Austrade’s USA Export Facilitators Program has been extended for two more years. 

The program has provided an additional 30 export advisers located in the USA and Australia, to help Australian businesses take advantage of increased opportunities in the United States following the implementation of the Australian-US Free Trade Agreement.

These additional export advisers have allowed Austrade to extend its geographic reach in the USA, and now offer Australian businesses representation in 19 cities, including the creation of dedicated agribusiness and US Government procurement teams.

EFIC

I mentioned earlier the expansion of the Export Finance and Insurance Corporation’s mandate to further support exporting businesses.  

Effectively, EFIC has been given additional capabilities to help Australia’s small to medium-sized exporters expand globally into supply and distribution chains.

This broadened capability will complement EFIC’s current programs in support of SMEs, including the recently launched ‘EFIC Headway’ product.

EFIC Headway helps SME exporters who have reached their maximum loan capacity and need to extend their existing lending facilities.

It’s an Australian Government guarantee to a business’s bank, increasing access to working capital for exporting SMEs by up to 20 per cent.

For example, additional working capital through EFIC Headway contributed to Haltech Engine Management Systems, based at Wetherill Park, Sydney, making export inroads into the high performance motor vehicle market.

And the Sykes Group, headquartered at Castle Hill, Sydney, was able to fast-track development and distribution of their pump products to export markets.

Adding value to potential and existing exporters is new legislation passed this month which exempts domestic and foreign investors in early stage venture capital limited partnerships from income and capital gains tax.

This will benefit small to medium enterprises seeking capital injections to finance expansion––including into exports. 

Another initiative under the legislation is provision of $80 million through AusIndustry’s Innovation Investment Fund initially to four new venture capital managers across a range of sectors, from environmental and communication technologies to the life sciences.

Exports of the future

So what kind of exports can we expect from manufacturing industry in the future?

Professor Keith Smith, Chair in Innovation at the University of Tasmania makes an interesting point in a recent paper for the independent think tank, the Committee for Economic Development of Australia (CEDA).

He writes that it is often claimed that high dependence on resource industries like coal, iron ore or oil helps keep economies stuck in low-growth activities.

But being endowed with natural resources does not weaken an economy’s capacity to innovate and grow.

A nation can have large mining or agricultural industries and still be not only prosperous but innovative, continually finding new ways to improve products and services, Professor Smith says.

Australia has proved this hypothesis. The innovation and efficiency of our resources sector has spawned a growing number of innovative companies providing technologies and services that go on to become world leaders.

An interesting statistic that 60 per cent of the world’s mining and minerals technology software comes from Australia – sold primarily to Latin America, Russia, Africa and North Asia.

And there are many examples of Australia’s exports acquiring a very 21st century flavour.

• CSIRO’s semi-conducting polymer electronics promise products such as roll-up television sets, flexible display screens and cheaper, superior solar cells.
• Scientists at Monash University have shown that anti-biofilm agents developed by the Sydney-based company Biosignals can prevent pipeline corrosion by targeting bacterial biofilms, a major problem in the oil and gas industry. 
• The CSIRO has developed a less invasive fibre-optic to help treat dysphasia [PR: DIS-FASE-IA], a serious swallowing disorder mostly affecting young children and recovering stroke victims.

Climate change

The direct involvement of manufacturing industry and business is central to Australia’s international cooperation in finding ways to deal with climate change.

The challenges we face in terms of climate change offer many opportunities to our export champions.

Australia is in partnership with China, Japan, the USA, the  European Union, New Zealand and South Africa in seeking responses to global warming.

Australia’s clean coal technology, plus research in CO2 sequestration––pumping emissions into deep underground seams––hold out promise for many business opportunities.

The Fire Company of Sydney has been successful in China with its EcoSmart Fire that keeps people warm without producing polluting emissions.

Australia sports a clean, green image all around the world.

It’s an image that has had a lasting effect on our exports, including our capacity to supply infrastructure, construction and techniques that meet high standards of environmental responsibility…

…generating interest in China, intent on creating its own green Olympic Games next year.

The Beijing Municipal Government has allocated $15.57 billion to environment spending in that regard. Australian industry is well-qualified to tap into that capital.

Information economy

While some maintain that Australia’s geographic isolation continues to present challenges, there is no doubting that Information Revolution technologies have opened up opportunities to overcome the so-called “tyranny of distance”.

CPA Australia is an excellent example of thought-leadership in this area.

Information technology is built into the support and training you provide to your members around the world.

It’s a mindset that will bear fruit for SMEs that follow your example.

Sophistication in 21st century ways of buying, selling and communicating can only help SMEs work their way into global markets.

ICT opens doors to joint ventures, strategic alliances and global supply chains.

The highest rates of growth in Internet use will take place in the businesses of China, India, Japan, Korea and among our trading partners in South East Asia.

The latest DHL Export Barometer reveals that:

• 85 per cent of exporters use the Internet for marketing their goods and services, including 48 per cent with an e-commerce portal. 
• 67 per cent of manufacturers have invested in the development of new technologies over the past 12 months. 
• Of those who had an e-commerce portal, 31 per cent derived more than half of their export sales via the Internet.

Tribute to manufacturing industry

The May DHL Export Barometer also found that 69 per cent of Australian exporters expected an increase in orders over the next 12 months, with 65 per cent expecting an increase in orders from Europe.

Australia’s manufacturing industry is to be applauded for how well it has coped in the face of high commodity prices, drought and the rising dollar. 

Despite that, there is still optimism: Australia’s exports reached their highest monthly level for the month of May, increasing across all major sectors and rising to $18.7 billion.

Of that, $4 billion was in manufactured exports, according to the ABS.

According to the Australian Industry Group’s PricewaterhouseCoopers Performance of Manufacturing Index, manufacturing activity grew for the thirteenth consecutive month in June.

And this was achieved despite the value of the Australian dollar averaging US$0.83–around the highest levels since October 1990.

Close

I thank CPA Australia, our valued Corporate Partner, for its productive links with Austrade.
We are great allies in assisting Australian businesses expand into international markets.

Together we have a tremendous reach across the globe:

• CPA with its membership of more than 108,000 finance, accounting and business professionals, and 
• Austrade with our representation at more than 140 overseas locations in over 60 countries.

Your support has been invaluable in communicating the need for Australia’s business leaders and entrepreneurs––including many small and medium size enterprises––to show:

• Commitment to international business; and 
• A fostering of innovation and product development capabilities.

With the support of CPA Australia’s membership:

• Manufacturing industry has delivered to Australia and for Australia in the past; 
• Manufacturing industry is delivering today;
• Manufacturing industry is consolidating its competitive advantage by thinking long-term along lines of continuous improvement; and
• Its tenacity, flexibility and willingness to adapt to change, are guarantees that it will continue to deliver in the future.

Congratulations and thank you.