Engineering & Manufacturing Influence News – Issue 8 January 2013

ISSUE 8 – JANUARY 2013

EDITORIAL

Welcome to the first 2013 edition of the Vernier Newsletter.  In a period when many manufacturers are enjoying their short summer breaks, we have at least had one good piece of news from the government and that of course is the date for the next election.  In the same presentation made to the National Press Club on Wednesday, the PM also announced that the long waited action plan for manufacturing built on the report from her Taskforce, which we reported on back in September, will be issued shortly – a document and more importantly, the actions to be taken to re-boost manufacturing.  A plan that I am sure Vernier members will be interested in and one we will explore in detail in future newsletters.

Job Losses

Of course, not even the summer break could keep further manufacturing job losses out of the news.  The Australian ran a piece on 17th of January that listed the losses over the last two months:

  • Boral axe 700 management and office jobs
  • Bluescope cuts 170 jobs to downsize in Victoria
  • Boral sheds 90 production jobs at cement plant
  • Santos cuts 100 jobs in SA

Latest on the car industry

Then following on from our extensive feature on the future of the car industry in Australia we had (AFR 16/1/2013) the headline “Car makers gear up for more cash” suggesting that both Toyota and Holden could seek extra financial assistance  on top of the estimated $1 billion they have each received over the last decade.  Holden sparked the controversy (according to the report) in an interview with their CEO that the Port Melbourne Engine Plant that makes the V6 engine and employs around 320 employees, is under threat as the commodore production starts to wind down.  While there is a commitment to build engines to 2016, it would seem inevitable that in these fuel economy conscious times larger engines are going to decline in sales.  Significant in the article was the fact that Ford did not join the bandwagon, perhaps suggesting as was argued in our analysis, that the plants future is even more uncertain.

American Manufacturing is starting to see the light.

One of the most interesting articles of the month was in last Friday’s AFR Review section entitled “Offshoring Comes Home” written by Charles Fishman.  The article described the encouraging reversal of manufacturing in the US as companies start to bring manufacturing jobs back from overseas.  The main company focused was GE who in 1951 built a huge Industrial Park in Louisville Kentucky which at its peak in 1973 employed 23,000 people produced  60,000 appliances a week across a range of white goods  to feed the explosion of the United States consumer economy.  However, the intervening years saw a gradual reduction in people employed and amidst the height of its labour battles GE’s CEO Jack Welch suggested that the site would be completely closed by 2003.  By 2011 the people who made appliances was down to 1863.

But in 2012 a new assembly line was opened in one of the 6 huge shopping mall sized buildings – the first new assembly line in 55 years!  The line started to produce cutting edge, low energy water heaters – a product that had previously been made in GE’s Chinese contract factory.  Pretty soon afterwards, another line was opened in another building producing French-Door style refrigerators – replacing a model previously made in Mexico.   In 2013 there is a plan to start producing stainless steel dishwashers.  The site also has new plastics manufacturing facilities to make parts for these appliances.  The current CEO Jeff Immlett has stated that outsourcing is “quickly becoming mostly [sic] outdated as a business model for GE”.  To support this GE are putting $800m in this park in the belief that they can make money from the initiative.

In 1979 at its peak, America employed 19.6 million people in manufacturing but the growth of China and globalisation has seen that steadily decline.  None more so than in the first decade of this century where factories lost jobs 7 times faster than before.  But GE is bucking that trend.  At the heart of this change is the Geospring Water heater with a small heat pump that uses 60% less electricity than normal heaters.  One of GE concerns was that producing this in China exposed their innovation to knock off and so this was one of the reasons to consider bringing it home.  Not only that though; oil prices are now 3 times what they were in 2000 increasing shipping costs, The US natural gas boom has made energy prices in US more attractive and Chinese wages are now 5 times more than they were in 2000 and are expected to keep rising by 18% per annum.  In addition US unions are changing their attitudes from the previous fractious dispositions (The park was known in the 80’s as Strike City) and the lowest wage is now $13.50 almost $8 lower than what it used to be.

The other thing that has occurred with the new water heater line is that it has been redesigned by a multi-functional team from across the plant including the actual operators and using the latest lean thinking.  This is so successful that material costs have been cut by 25% and the total assembly time has come down from 10 hours in China to 2 hours in the Louisville facility.  And of course the leadtime has lost the 5 weeks shipping time from China lowering net inventories.  The net result is they have been able to beat the ‘China price’ by nearly 20%.  The China product retailed at $1599 and now the US is $1299. As a GE executive points out in the article; when you outsource the product you lose the link between manufacturing and design, the iterative innovation so in reality your whole business goes with the outsourcing.  Other experts point out it is easy to look initially at just the cost but there are hidden costs that come after the initial outsourcing.  Groups who cannot talk to each other, cultural barriers to limit integration and the cost of management hours travelling to ensure quality standard are met and maintained.

The overall message is that GE are one of the companies in the US starting to appreciate not only does made in the US create jobs but it can also now cut costs and build innovative products and a new mentality in Manufacturing!

This article raises thinking about whether Australia could learn from this reversal and start to bring manufacturing jobs back to Australia.  However, there are many differences that have to be recognised in our situation as opposed to America:

  • The consumer market in the US is probably 15 times larger than here and so the economies of scale that apply in most manufacturing plants would need to be ameliorated here somehow.
  • Despite our abundance of natural gas, the effects of the carbon tax have made our energy costs significantly more expensive and we have no strategic policy to use our natural resources internally to reduce these costs.
  • Australian Corporate tax rates are significantly higher than the US and most other OECD countries and add to this the red tape involved in running businesses in Australia are both burdens on the cost of manufacturing.
  • Despite the government spending huge sums of money on training particularly in Lean manufacturing thinking, the adversarial nature of our industrial relations means that there is no common purpose between management and unionised workforce to create a new climate of mutual interest and this fault does not just rest with the unions but more with the system itself.
  • Australian labour rates are high now compared to other major manufacturing nations – remember the previous comparison in a past newsletter at $1.61 for Australia compared to a $1 for the States.  Eventually the disparity between wages and productivity output will have to been reconciled in Australia.  Being one of the few countries in the world that did not have a recession may not have been in our best long term interests.

Despite what our December speaker said that manufacturing jobs will just be replaced by other service jobs, I still believe, born of my years in manufacturing that it is special; it is both the driver of research and innovation and also the benefactor.  The net message is that manufacturing needs a completely fresh approach in Australia – but I cannot see the soon to be released Government plan delivering the change required.

Engineering & Manufacturing Influence News – Issue 7 November 2012

ISSUE 7 – N0VEMBER 2012

Editorial

this month’s newsletter updates members with the latest manufacturing news and also includes three new sections; a book review of Andrew Liviris’s book on how to regenerate America’s manufacturing industry; a new feature identifying Australian companies that are succeeding in this tough global market and a letters’ section that invites readers to ask questions or give feedback.

The latest automotive job losses further support last month’s analysis of the industry, endorsing the message that the companies and the government’s current policies will not prevent the slow death of the industry in Australia without a radical and transparent rethink.  Australia’s need to dramatically change its productivity performance is endorsed by the Productivity Commission’s outgoing boss’s public statements, solidly supported by many industry bosses and analysis experts.  Industrial relation changes is still not even considered by the current government as demonstrated by the latest tweaking of the Fair Work rules and Shorten’s proposal to stack the board.  Cochlear, this month’s featured company clearly demonstrates the adversarial nature of IR in this country.  They have been involved in a 5 year battle with the AMWU over their EBA leading Cochlear CEO to comment that “They [unions] don’t have relevance without conflict”.

It seems a clear message to everyone, except perhaps the government, is that the mining boom has peaked and Australia needs to assertively restructure its economy, expand its industrial base and as Liviris clearly states put manufacturing – leading edge manufacturing – at the forefront of its policies.  The recent figures that show Australia as one of the most costly countries in the world seems to fall on deaf ears as this very left leaning, social democratic government continue to increase social spending without appropriate revenue.  A recent presentation by financial analyst Bridgette Leckie stated that while America appears to be coming out of recession and Europe stabilising but still uncertain; Australia, with its current policies, has only possibly two more years of performance before the economy reaches a massive cliff!

Australian Dollar is the dearest of top economies according to a study produced in the ‘AGE’ October 23rd.  We have the third most expensive currency in the world and the most expensive of the world’s 20 largest economies, with only Norway and Switzerland more expensive to do business in based on Purchasing Power Parity (PPP).  This makes us ($161) much more expensive than USA ($100) and Germany ($105) in terms of productivity value and when compared with China ($67) and India ($41) the size of the global predicament can be clearly appreciated.

Car News – since last month’s article, Holden have cut 170 jobs and Ford affected their 220 forced redundancies from the 440 people loss announced in July.  While Autodom are back at work, their future in the hands of the receiver is still very uncertain.  In light of the anti-Japanese sentiment in China, Koita a Toyota parts supply in China has suspended plans to triple production leaving their new factory half built.  In addition, Sumitomo Electric and Toyo Type companies are rethinking plans to expand and refocusing their expansion plans on Thailand, Vietnam, Myanmar, Indonesia and Cambodia (AFR 13/11).

The government has rejected calls to reconsider buying overseas built nuclear submarines so as to support the manufacture of conventional subs in SA where manufacturer ASC employs 2500 people on three sites in Adelaide and Perth and is the leading builder for the air warfare destroyer and maintains the aging Collins class sub fleet.

Qantas axed 500 aircraft maintenance jobs in Sydney and Avalon as the next phase of restructuring that is seeking to save $110m annually (AFR).  The company has said that before these current efforts, its number of engineers per aircraft was about 40 compared to about 20 per aircraft at British Airways.

Outgoing Productivity Commission chairman Gary Banks has criticised Labor’s reform agenda by calling for an overhaul of the Fair Work Act, GST increases and a winding back of industry handouts including the car companies.  His extensive proposals, which included deregulation of doctors and lawyers, changes to teachers’ recruitment and pay but mainly focuses on issues directly associated with productivity and was roundly supported by Reserve Bank Chairman Glenn Stevens (AFR 2/11).

Good Australian Companies – With the gloom and doom about Australian manufacturing, the newsletter will each month try to identify Australian companies that are succeeding in this tough globalised market.  One such company is Cochlear the hearing specialists, whose CEO Chris Roberts was featured in this month’s ‘AFR/Boss’ magazine.  Streamlining manufacturing Systems have underpinned Cochlear’s ability to keep its cost of goods sold at about 25% despite the appreciating dollar.  Also instrumental to the company’s success has been its relationship with its 800 manufacturing staff and crucial to this is their employee consultative committee that includes workers from each of the company’s main functions, but no one directly representing the AMWU.  Wage rates are 50% above award rates and wage rises occur when staff learn new skills set out in a skills matrix, which has assisted 96% of staff to be paid at the top level of the matrix.  At the same time, Cochlear have been involved in a 5 year EBA fight with the unions.  The company is still continuing to negotiate in good faith with the unions but this is not stopping the company and its workers drive for productivity improvements.

Book Review – Andrew Liviris “Make it in America: The Case for Reinventing the Economy” published by John Wiley and Sons, New Jersey USA.

The Australian born Liviris is the President, Chairman and CEO of Dow Chemical Company, a $60billion global specialty chemical, advanced materials, agro sciences and plastics company, based in Michigan USA.  He was also recently appointed to the Co-Chair of President Obama’s Advanced Manufacturing Partnership in the US because of his strong advocacy for the criticality of Manufacturing to the long term health of a nation’s economy.

The book focuses heavily on the manufacturing issues in the US and some of the policies Dow have employed to continue their global expansion, explaining how a manufacturing sector creates economic value at a scale unmatched by other sectors and how central manufacturing is vital in creating jobs, both inside and outside the factory.

In his concluding chapters, Liviris lays out a policy framework for economic growth:

  1. Make it easier for businesses to keep or locate their operations in the United States.
  2. Remake the manufacturing sector with a focus on advanced, high value products.
  3. Create an economy that can sustain itself and can, in turn, produce long-term job creation and economic growth.
  4. Prepare the next generation’s workforce for the changing economy.
  5. Improve America’s global competitiveness in both the short and the long term.

He then expands on his short term measures under the banner of ‘Immediate Impact Agenda’

  • Changing the way the US taxes – An area highly pertinent for Australia, he explains how America is still stuck at a 40% corporate tax rate compared to the European norm of 24%.
  • National Incentive Strategy – He points out that many countries are offering further financial incentives to relocate such as free land, low interest loans and even up to 80% start up salary support.  While this could be considered as corporate welfare, Liviris asks America to recognise this is the competitive nature of globalised manufacturing.
  • Regulatory Policy – again with messages for Australia, Liviris points out the need to simplify and harmonise rules; design performance standards to assist creativity not stifle it, increase collaboration between government and business, and benchmark regulations against other developed countries.
  • Continue to expand trade policies.

In his longer term policies he identifies:

  • A new look at education to first increase the number of ‘Science, Technology, Engineering and Math (STEM) graduates.  He expands on this through actions to improve teacher quality, lift national standards and improve skills training.  He proposes a number of positive incentives including tax credits to employers to encourage continuing education for existing workers and scholarships for STEM courses.
  • Change the immigration rules for graduates and other valued skilled people and increase the opportunities for entrepreneurs to set up in America.
  • Increase the innovation capacity and increase global competitiveness by using energy as a underpinning resource.  America is currently making great strides in self reliance through shale oil resources but on top of this Liviris wants America to put a price on carbon and aggressively pursue renewable energy expansion by supporting energy innovation.  Linked with this Liviris proposes that energy costs to America industries should be reduced to increase their competitiveness.  This is also a policy that Liviris endorsed strongly for Australia in his recent speech at the Australian Press Club.
  • Liviris recognises, again as Australia has, that America’s infrastructure is a limitation to productivity improvements and providing incentives for private- public partnerships and the creation of a national infrastructure bank.

While the book is heavily focused on the analysis of American issues, it has many parallels for Australia.  The good news for America is that some of these considerations are already being adopted into a national strategy that is seeing, as an example, companies like Brook Brothers, Adidas and Ford, moving their operations back to America.  The issue for Australia is that we are still waiting for positive and affirmative action.

Letters to the Editor:

One of our readers, Wayne, has written to the newsletter asking for advice;

“I am again planning the family festivities this Christmas.  In the past we have always been able to afford a lavish Christmas, thanks to some money my uncle John left us in his will and then of course the old credit card but things are getting tougher with the cost of living.  My eldest son is away working in the WA mines but he sent a very generous sum for us to spend this Christmas.  My middle child is disabled so I want to get her a good wheelchair and my other son has just been made redundant from a manufacturing apprenticeship and so I want to get him one of those little foreign cars so he can attend the job centre.  My youngest daughter is still at school and last year we built her a basketball court in the back garden to help her studies, so this year we thought we might actually get her some study books.  We are always able to put on a good spread as my wife Julia’s job means she gets lots of gifts at Christmas and this year we are inviting the immigrant family from across the road to have dinner with us so there is more to feed.  But my question is – we always have lots of lights on the house to make the neighbourhood happy and appear prosperous but is this what we should do this year? Will it add to global warming or should I get some solar panels to provide the energy?  I can buy these with some money I put aside for a holiday next year.  My next door neighbour, Joe is quite miserly, just has a battery driven three wise men scene and says we shouldn’t waste our money but I see the lights, not for us but for the entire street to enjoy.  Should I keep spending the money?

Editor’s response; – Wayne, keep spending; the economy is strong and the government gave you money for the carbon tax to keep on spending!  Don’t you get a great feeling when your house is the envy of the street?  So you can be good ‘King Waynelas’ looking out for all on the feast of Stephen!

Engineering & Manufacturing Influence News – Issue 5 September 2012

ISSUE 5 – SEPTEMBER 2012

The most significant development in this last month has been the release of the report on the future of Australian Manufacturing from the non-governmental taskforce set up by PM Julia Gillard.  The full report of over 90 pages is the result of over 8 months work by two governmental working groups under the direction of a 25 person taskforce comprised of eight parliamentarians, eight high powered industrialists, six unionists and three academics.

The report identifies what it says is a simple strategy; “Smarter Manufacturing for a Smarter Australia” and concludes with forty-one recommendations for government action outlined over a one, four and ten year timeframes.  The report is not easy to digest but the executive summary identifies a number of key future actions to be focused on the opportunities created by the Asian century:

  • Building a new and stronger generation of capable manufacturing organisations
  • Turning the $9.4b of investment in science and research into better applied knowledge
  • Ensuring companies see good reason for continuing to invest in Australia
  • Building better global supply chains
  • Building a smarter and more efficient manufacturing industry
  • Building more productive and collaborative workplaces

It would be very difficult for anyone to disagree with these proposals.  As manufacturing is such a broad church covering at least sixteen different sectors, the report does stress that there cannot be a broad brush approach but will have to be targeted to sectors that can give the most national benefit and have the most opportunity.  In this regard and with respect to Asia, it is suggested the focus should be on the following:

  • Automotive components
  • Clean energy and the environment
  • Food and beverage
  • Health and medical
  • Infrastructure and Building Materials

Of course, the Vernier Society’s primary interest is in sectors associated with ‘making things’ notably in metal and so the rest of this synopsis will try to expand on issues in these sectors whilst providing facts associated with the manufacturing industry in general.

Manufacturing employs close to 1 million people or 8.5% of the working population (as compared to mining that employs 200,000) It has lost over 107,000 jobs in the last four years and the report forecasts that it may lose a further 85,600 over next five years.    Manufacturing contributes over $103b of Gross Value Added (Value of goods and services produced) to the national economy or 8% of GDP and contributes 29% of Australia’s exports.  The major contribution sectors to the $103b are; Food, Beverage & Tobacco $22b, Petrol, Chemical & Rubber $21b and the two sectors of main interest, Metal Products and Machinery & Equipment, both contributing $18b each.

The distribution of GVA was given over eight sectors but when the employment split is further analysed this is over sixteen sectors with the major ‘making things’ sectors employing:

Sector Number of people
Clothing and Textiles 38,000
Fabricated Metal Products 55,000
Machinery and Equipment 110,000
Furniture 61,000
Total % 27%

The report has a complicated forecast of reducing employment but shows that three of these sectors (excluding Machinery and Equipment) will suffer the bulk of the further losses.

Of the 945k people employed, Victoria has 310,000 in total manufacturing or nearly 32% share.   When classifying roles, 25% of the people are now classed as highly skilled up from 19% ten years ago.  However, the report identifies that 43% of the workforce have either numeracy or literacy skills and 50% have no formal qualifications.  Finally more than 500,000 people work for small or medium sized manufacturing businesses and there are over 50,000 SME’s that employ less than 200 people.

Australian industry is currently said to be multi-speed economy with mining disguising ills in other industries.  To examine this more closely the report uses analysis done by the McKinsey Global Institute Sectoral and Industry Analysis (page 33/chart 3.2) which shows some very interesting results based on two key drivers.  ‘Differentiation’ that shows how differing industry sectors have different levels of value adding based on the uniqueness of the products, services and features and ‘Tradability’ that is the sectors ability to withstand competitive pressures.  As the report says the chart is complex but it shows that “more than other sectors, manufacturing is dependent on its ability to succeed in traded industries”.  Put another way and pertinent to Vernier, ‘making things’ sectors are highly tradable (both export and import) and so increasingly compete on differentiation of unique inputs, capabilities and consumer relationships.  The report further finds that “within-industry developments have greater economic impacts that changes in the industry mix. Or put simply as Michael Porter says “How a nation or region competes in its industries matters more than the industries it competes in””.  The full McKinsey report (interesting read) expands on this by identifying four areas in which government involvement can assist or hinder competition:

  • ‘Setting the ground rules’ – through setting a roadmap or using regulations
  • ‘Building enablers’ – R&D support and skills and training
  • ‘Tilting the playing field’ – protectionism
  • ‘Playing role of principal actor’ – State ownership or intervention

It will be interesting to see how the government applies these tools across various industry sectors.

While the report list 41 specific recommendations, the proposals are covered under some major policy directions:

  • Meeting current pressures by helping with investment and industry participation, to reduce the risk of loss of jobs and core manufacturing capabilities.
  •  Lifting productivity growth and reducing business costs via economy-wide proposals in transport infrastructure, broadband, energy, regulation and taxation reform.
  • Improving the benefits flowing to Australian manufacturing from our research investments including through a new platform for systemic collaboration with innovation hubs and stronger networks.
  • Building a cohort of medium sized world competitive firms and improving SME competitiveness through a new SME Strategy that targets SME capability.
  • Forging of a shared competitiveness culture through a new national partnership for workplaces, focused on the capabilities of managers and workers.

Editorial Comment:

 

The document stresses repeatedly that it is from the non government members of the taskforce, which are primarily industry leaders and union leaders.  The report is likely to therefore be a compromise between what at times must be opposing views.  The report suggests that is will not be recommending radical change, rather iterative, albeit innovative steps and this is what is delivered.  In fairness, in the detailed expansion of the overarching policy directions listed above, there are many good recommendations, particularly around the linking of research and innovation more directly to the needs of business and industry sectors in which Australia hold or have the potential to hold, a global competitive advantage.

Detailed reading of the report reveals a number of issues to the editor:

From the report is seems there are currently a myriad of government funded organisations that seem to operate across the manufacturing spectrum offering opportunities to industries and businesses.  Organisations such as AMTIL, CSIRO and Austrade are well known, but the report mentions among others;

  • Manufacturing Technology Innovation Centre (MTIC)
  • Enterprise Connect
  • Australian Manufacturing and Materials Innovation Precinct (AMMIP)
  •  Victorian Smart SME’s Market Validation Program
  • Researchers in Business Program
  • Defence, Science and Technology Organisation (DSTO),
  • Australian Research Council Centre of Excellence (ARCCE)
  • Commercialisation Australia

Besides this there are private organisations such as Insight Economics who provided information (one assumes paid for) to this report.

How can all these separately funded organisations be well managed so as to not to duplicate purpose, be well monitored and regulated and still ensure focus on benefit to the comprehensive manufacturing sector?  This seems to me to be a classic example of bureaucratic madness  and the task of controlling  these separate organisations must be huge.   One of the organisations mentioned is the ARRCE – a Centre of Excellence for Knowledge.  One of the 2011 funded projects listed on their website is a $24m, 7 year study into the ‘History of Emotions’ by the University of WA.  However valuable this research may be, I would have thought there were more beneficial uses for the money directly associated with manufacturing.

The report clearly identifies that Australia has gone backwards in productivity growth and international competiveness in which we have slipped from 5th in the world a decade ago to 20th today.  The analysis provided suggests specific comparative Australian weaknesses are in innovation, technological readiness and business sophistication (which has been translated in the report into management capabilities?).  The report, interestingly, quotes a Treasury Secretary suggesting that “we will get the biggest benefits from reform efforts, not in the same areas as the past but in areas that we have not yet focused on”.  Yet the report completely avoids any suggestions that our system of industrial relations should be an area for review and overhaul.  It can be reasonably assumed that consensus could never have been reached amongst the non government members on such a provocative issue and would probably have been vetoed from the report by the government anyway, but it seems such a denial to the elephant in the room!  How can a system based on bargaining, on adversarial relations and ambit claims ever lead to a collaborative and progressive culture?  We now live in a world of instantaneous global connection; a 24/7 world of commerce and of societal interaction yet we still see the working week as Monday to Friday and 37 hours.

The report quite rightly suggests that knowledge, innovation, design capability and skills are what will differentiate us in a highly competitive world and there are numerous good ideas including the setting up of innovation hubs for various competitive strengths to collect and disseminate knowledge for the benefit of Australian businesses.  Unfortunately, the report also recognises that that such innovation takes time to set up and accelerate and 4 years is a realistic timescale.  Of course, these actual benefits will also need to be recognised and agreed and governments are always reticent of choosing such capabilities for fear of failure.  Also governments seem to be using the economic climate for cost reduction rather than investment spending.  But a very good point was made by Mark Carnegie (Q&A 24/9) that investing in education (in this case the Gonsky Report) should be seen as vital for the future, regardless of the debt.  Surely this argument applies to manufacturing.  Leading the world in tradable engineering products based on leading edge knowledge and innovation is the key to the future prosperity.  Unfortunately, I cannot see either of our political parties having the courage to shed the baggage of the past nor the visionary intellect for the future to lead Australian manufacturing into a resurgent twenty first century.

Engineering & Manufacturing Influence News – Issue 3 July 2012

ISSUE 3 – JULY 2012

Editorial

The big event this month was the arrival of the long awaited Carbon Tax.  The tax which is regarded by many as highly divisive is also linked to a household compensation package and a revision of personal tax thresholds.  Whatever your personal views on the need and level of this tax, it is clear that it does not come at the best time for the Australian manufacturing industry as it faces further contraction.  With the Coalition vowing to repeal the tax immediate upon taking power at the next election; this can only add further uncertainty to many sectors of the economy, which may also be further threatened by economic slowdowns in our largest export trading partner – China.

Trawling the news this month produced two Australian manufacturing success stories (see below) and an interesting article on the visit of NZ Prime Minister John Key.  Key’s was in Australia to take local manufacturing back home to NZ says the AFR 6/7.  Fresh from winding back the carbon tax, cutting the top rate of income tax to 33% and kicking off partial privatisations he said Government is a practical business; making a series of sensible decisions which build on each other.  During questions he was asked from the audience; “Prime Minister, I’m not sure what you are doing next week but the question is; Australian business would like you to run the country”!

On July 1 the government’s long awaited Carbon Tax finally came into being.  The tax will tax all companies that emit more than 25,000 tonnes of CO2 equivalent a year.  It will apply to about 60% of the country’s emissions with carbon units at a initial price of $23 rising in the next two years.  Companies can lower their tax bill by claiming carbon credits for emissions from a number of activities including transport and domestic aviation.  In addition, a clean energy finance corporation has been set up with an investment of $10 billion over 5 years to lend money and invest in clean energy companies.

Australia’s manufacturing sector contracted for its fourth straight month in June, a private sector survey shows.  The Australian Industry Group/Price Waterhouse Coopers Australian Performance of Manufacturing Index (PMI) remained below the key level of 50 points in June, indicating the sector continued to contract.  However, the index rose 4.8 points to 47.2 points, indicating the sector contracted at a slower pace compared to the previous month.  The index, released on Monday, showed eight of the 12 manufacturing sub-sectors – including wood products and furniture, food and beverages textiles and chemicals – recorded decreases in June.

(By AAP 02/07/2012 – www.thebull.com.au)

Manufacturing activity in China hit a seven-month low in June; a private survey has shown, due to a slide in exports and weak domestic demand.  HSBC’s preliminary purchasing managers’ index (PMI), which gauges the manufacturing sector, fell to 48.1 in June from 48.4 in May marking the 8th consecutive month of contraction..

Analysts said the results suggest China will move again to boost its slowing economy, after cutting interest rates earlier this month for the first time in three years and encouraging more government investment.  A spokesman said China is facing weak demand in key export markets such as the US and Europe.  The government has reduced its economic growth target for this year to 7.5 per cent, down from growth of 9.2 per cent last year and 10.4 per cent in 2010.  (ABC news.net.au)

National kitchen designer and manufacturer Australian Kitchen Industries has gone into voluntary administration, a victim of tough economic conditions for manufacturers and last year’s floods in Queensland.  The company has 20 stores across the nation, which operates under the brands Kitchen Connection, Wallspan Kitchen Connections and Impala Kitchen Connection, and it employs around 200 staff.  There are stores in Melbourne, Sydney, Adelaide and Brisbane, although Impala Kitchens in states other than Victoria is not part of the AKI group and is not affected by the administration. (www.smartcompany.com.au)

The Horsham foundry of failed car parts maker CMI Industrial will be closed next month after receivers failed to find a buyer for the business.  The company is a major parts supplier to Ford but it went into liquidation earlier this year. Twenty-nine employees will be made redundant and the factory is expected close by July 6 after the receivers who initially believed the foundry could stay open for another 6 months admitted they could not find a buyer for the foundry business.  (www.abcnews.net.au)

And now a couple of success stories:

Bartco a traffic management business, started  an off shoot manufacturing their own road signs has grown to become a multi-million dollar operation and has just secured a $2 million contract to deliver traffic management signs for the London Olympics. So we decided to build them ourselves, basically. We put the specifications together, contracted out the manufacturing, and then started building up things with LED technology. We put them on the road, and to cut a long story short, people started noticing them and wanted to buy them off us.  Using new technology, solar powered and LEDs and subcontracting manufacture they started building a technology company, investing substantially in R&D to keep ahead of the competition.  The contract for the Olympics came out of a new type of sign using new colour LED’s and solving power consumption by use of solar.

Barry Thomas’s Brisbane-based company, Cook Medical, is at the forefront of manufacture in the medical device field. Cook Medical Australia reported $164 million in revenue in 2011. This included $76 million in export sales of product manufactured locally in Australia, $8 million in sales of locally manufactured product into the Australian market and $78 million in sales of imported product from other Cook companies outside of APAC.

Thomas, who received a 2012 Australian Export Heroes award from the Australian Institute of Export, has some simple advice. Watch your input costs, keep management structures flat, make sure you are either making money out of the dollar or hedging yourself and, most importantly, look after your employees. It’s about making sure the people you have on board are the right fit, and then taking care of them so that they stay.  “It’s about having a workforce that’s working with you to maintain manufacturing,’’ Thomas says.   Cook Medical now employs about 600 people in Australia. It has a low turnover of staff because it works almost as a family company.

That doesn’t mean the company can’t cut staff when it has to. But it needs to be strategic in the way it goes about it, he says.