The Next Wave of Manufacturing

Transcription

Centre for Entrepreneurial Management and Innovation
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The Next Wave of
Manufacturing
Presentation to Council for Economic Development of Australia (CEDA) conference
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20 August 2013, Melbourne
Consulting
CEMI Discussion Paper 1301
Tim Mazzarol
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CEMI Discussion Paper Series
ISSN 1448-2541
Discussion Paper 1301
© Copyright Tim Mazzarol 2013
Discussion Papers should not be reproduced without attribution to the author(s) as the source of the material.
Attribution for this paper should be:
Mazzarol, T. (2013) “The Next Wave of Manufacturing” CEMI Discussion Paper Series, DP 1301, Centre for
Entrepreneurial Management and Innovation, www.cemi.com.au
NOTE:
This paper is based on a presentation given to the Council for Economic Development of Australia (CEDA)
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conference, 20 August 2013, Melbourne, Victoria.
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THE NEXT WAVE OF MANUFACTURING
Tim Mazzarol, University of Western Australia ([email protected])
ABSTRACT
Manufacturing remains an important sector in most economies and offers the most value adding of all sectors.
Over the past 40 years globalisation as impacted on manufacturing; making it more challenging for advanced
economies with high labour costs to compete. However, there has been a major shift in the global business
model that underlies manufacturing. This is a shift from control over stocks of knowledge and assets, to the
ability to tap into global flows of knowledge and intellectual capital. The use of additive manufacturing tools
such as 3D printers can potentially change the nature of how manufacturing works. If Australia’s
manufacturing industries are to be sustainable they must embrace bundling high-value added products and
services and engage actively in global supply chains. Attention should be given to low and mid-tech industries
as well as high-tech sectors.
Key words: manufacturing, 3D printing, innovation, global supply chains, globalisation.
INTRODUCTION
Good morning ladies and gentlemen, I wish to thank CEDA for giving me the opportunity to speak to you
today. Over the next 15 minutes I will outline my thoughts on the future of manufacturing with particular focus
on Australia; in doing so I will draw on a series of articles that I published in “The Conversation” online news
magazine over the past 18 months (Mazzarol 2012; 2013).
In particular I wish to address the reasons why manufacturing remains an important industry for Australia, and
overview some of the major trends that have shaped and are shaping the future of manufacturing. Finally, I
will try to highlight some of the issues that Australia must face if it is to retain a viable manufacturing sector
into the future.
GLOBALISATION ’S IMPACT ON MANUFACTURING
However, let me start by reviewing some history on the forces that have shaped the world’s manufacturing
sector. In doing so I draw on paper by Tim Sturgeon and Richard Florida published in 1999 for the Alfred Sloan
Foundation, which examined the impact of globalisation on the car industry from a historical perspective
(Sturgeon and Florida, 1999).
Although it is around 14 years since this report was completed, the analysis it offers remains fresh today.
Further, the car industry is such a critical part of the overall manufacturing sector that it can be a useful guide
to the factors that drive and shape the entire manufacturing environment. According to Sturgeon and Florida
four key forces have impacted automotive manufacturing at a global level:
GLOBALISATION HAS CHANGED THE ECONOMIC GEOGRAPHY OF THE AUTOMOTIVE INDUSTRY
The construction of new production plants in developing economies were driven by market saturation at home
and the desire to reduce production costs via offshoring, the desire to create new markets and pressure from
governments of developing nations to establish local production.
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The ending of the Cold War in 1989 led to a “new hegemony” for global capitalism with the expansion of
production facilities across Eastern Europe and into former communist states in Asia. Countries like China,
India and Brazil have benefitted from this.
GLOBALISATION IS CREATING NEW CHALLENGES AND OPPORTUNITIES FOR CORPORATIONS
There was a trend towards global supply chains and “modular” designs, enhanced innovation and the
development of flexible and smaller production plants. A critical issue that was already present in the late
1990s was excessive “overcapacity” of production.
GLOBALISATION IS HAVING A SIGNIFICANT IMPACT ON INDUSTRY STRUCTURE
Changing relationships emerged between suppliers and manufacturers with key suppliers taking on the role of
“global supplier”. By the late 1990s the growth of global suppliers was reaching a point where they were as
large and important as the car manufacturers.
GLOBALISATION IS HAVING A VARIETY OF EFFECTS ON THE QUANTITY AND QUALITY OF JOBS
The total growth in manufacturing jobs in developed nations had remained static or in decline and had shifted
towards higher skilled and higher paid work such as design, research and engineering or administrative work.
Outsourcing and off-shoring of the “blue collar” work was a growing.
THE CASE OF AUSTRALIA’S CAR INDUSTRY
The current crisis facing the Australian car industry has attracted a lot of media and government attention. The
loss of Ford Australia and the cloud that hangs over the future of Toyota and General Motors Holden in
maintaining car manufacturing in this country are major concerns. However, the analysis of Sturgeon and
Florida (1999) highlights lessons that help explain the reasons why we find ourselves in this situation.
As with most countries that have car industries there is nexus between government protection and
subsidisation on the one hand, and the existence of a car manufacturing industry on the other. The
antecedents of Australia’s car industry can be traced back to World War 1 when the Australian government
introduced a ban on the importation of car bodies in order to preserve shipping capacity. This triggered a
growth in small car body building firms who filled the local market demand.
Following the war the Commonwealth Government continued to use tariff barriers to restrict the importation
of car parts. This led to the concentration of local manufacture by the major car companies such as Ford and
General Motors. For example, in 1923 GM developed an alliance with Holden to build car bodies for all its
models, later in 1932 GM merged with Holden and continues today. Ford, who had used a wide range of car
body builders across Australia, moved to concentrate all production at its Geelong plant in 1925.
The relationship between Government intervention and the growth of the local car industry continues from
that time. However, the lessons from this history are clear:
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Government support for car manufacturing remains a vital part of the industry’s development, and
follows a similar pattern to that taking place in newly emerging markets.
As the government removes its support the industry is unable to sustain itself due to the focus on
frequently fragmented and small domestic markets.
There is also overproduction of different models for local consumption which lack the necessary
economies of scale to remain competitive.
Sustainability requires the design of global products and the ability to plug into global supply chains
with manufacturing dispersed around the world.
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DOES IT MATTER THAT WE MAKE THINGS ?
This leads to my next point, which is to address the question raised by some commentators that perhaps it
doesn’t matter whether or not we have a manufacturing sector at all. This was a view expressed as long ago as
1973 by Daniel Bell in the book “The Coming of Post Industrial Society” (Bell, 1973).
The thesis of this book was that as the advanced economies moved into a post-industrial era with services
replacing traditional secondary manufacturing industries, high-value added new jobs would emerge supported
by technologies and management systems. This vision remains in place today with the notion of the
“innovation-driven” economy.
Yet the evidence available over the passage of the past 40 years is that manufacturing still matters (WEFDeloitte, 2012). There has been a 30 year decline in manufacturing’s share of global value added in relation to
services. This has been driven largely by higher wages in developed economies and a rising demand for
services. However, the role played by manufacturing remains critical. It has a significantly higher multiplier
effect on economic growth than any other sector.
F IGURE 1: P ATENTS AND T RADE M ARKS PER - CAPITA SELECTED COUNTRIES
An examination of the interrelationship between patents and trademarks per capita over the period 20052007 across a range of selected countries demonstrates a clear hierarchy for nations that manufacture (see
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figure 1). For example, a country such as Switzerland (which ranked 1 in the Global Innovation Index of 2013),
performs well on both trademarks and patents per capita. Despite its size it is home to major firms such as
ABB, Nestle, Omega, Rolex and Pilatus (OECD, 2010).
Australia continues to hold its place in the bottom of the top, but there should be no room for complacency.
Growth in developing economies such as China and India is being driven by their rapid industrialisation. By
2030 it is forecast that China will account for a greater proportion of global GDP than both the United States
and the OECD European nations (see Figure 2).
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F IGURE 2: GDP BY REGION 1990-2030 – E XPRESSED IN PURCHASING POWER PARITY
An examination of capital investment by Australian manufacturing firms over recent years suggests that there
has been a decline. This means that new technologies may not have been embraced and the upgrading of
plant and equipment may have been neglected (see figure 3).
F IGURE 3: A USTRALIAN MANUFACTURING VERSUS ALL INDUSTRIES CAPITAL INVESTMENT TRENDS
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Australian manufacturing’s share of gross value added (GVA) has also declined since the 1980s (GVA = GDP –
Taxes, subsidies and ownership of dwellings). By comparison services have experienced a major rise in GVA
(see figure 4). Manufacturing also holds a major proportion of the aggregate capital stock in the national
economy. However, over the past five years its contribution to this capital stock as also declined (see figure 5).
This contrasts with the substantial growth in the mining sector over the same period (Parham, 2012).
F IGURE 4: I NDUSTRY GROSS VALUE ADDED 1986-2011
F IGURE 5: A NNUAL CONTRIBUTIONS OF M INING AND M ANUFACTURING TO GROWTH IN MARKET - SECTOR
CAPITAL SERVICES
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THE FUTURE OF MANUFACTURING – “THE BIG SHIFT”
So where is the future of manufacturing heading? One vision is that outlined by John Hagel and John Seely
Brown from Deloitte who describe what they title “The Big Shift” (WEF-Deloitte, 2012). This refers to the
transition of the global manufacturing sector towards a new paradigm driven by globalisation and the
emergence of digital technologies.
The “Big Shift” is driven by two forces – the global spread of powerful digital technology infrastructure, and the
market liberalisation by national governments. The role of digital technologies helps to reduce the barriers to
global business and offers opportunities for small, niche players to design products in one location and have
them distributed globally to other locations for final manufacture. This can now be more readily undertaken
with the emergence of high performance 3D printing technologies or “Additive Manufacturing”.
These technologies are changing the dynamics of how global manufacturing takes place from a “world of
stocks” to a “world of flows”. To explain this, the conventional business model for manufacturing was to
accumulate stocks of proprietary knowledge, capital and other resource stocks in given locations. Scale
economies from such accumulation and the protection of these assets along with their efficient management
and delivery to markets formed the basis of sustainable competition.
However, the “big shift” has seen this old business model challenged by the emergence of a new one built
around the ability to quickly capture and employ flows of knowledge to rapidly refresh their existing stocks. As
described by Hagel and Brown:
“One way to describe the challenge for companies is that they are caught in a pincer movement. On one
side, they face more and more powerful customers armed with greater information about products and
vendors than ever before. These customers find it easier and easier to access vendors wherever they are
and to switch from one vendor to another whenever one vendor disappoints. On the other side,
companies face knowledge workers who are increasingly essential for competitive success. These
knowledge workers have much greater bargaining power to extract more cash compensation for their
services, given greater visibility on other employment options in an increasingly competitive labour
marketplace.” (WEF-Deloitte, 2012 p. 28)
The message for managers is that they should avoid seeking to simply defend their existing stocks of
knowledge, and embrace the global flow of knowledge, tapping-in to extract new value while making their
own unique contributions. This will require enhanced global network formation, and building such networks
around digital technologies designed to facilitate ideas exchange, knowledge sharing, flexibility of production
and specialisation.
THE RISE OF ADDITIVE MANUFACTURING
A key development in the future of manufacturing may be the use of additive manufacturing technologies or
what have been termed 3D printers. The use of 3D printers first emerged in the 1980s through the work of
Charles Hull with stereo-lithography. It was further developed in the 1990s by researchers at MIT who
patented the first 3D printer in 1993. By the mid-1990s the use of 3D printers for rapid prototyping was
already common. Yet during the past decade these machines have emerged as significant tools for the
production of major components such as titanium wing and engine systems for the A380 Airbus and
Eurofighter.
More recently there has been the emergence of low-cost 3D printers that can be operated by people at home,
such as the “Reprap” machine invented by Dr Adrian Bowyer from the University of Bath. His vision is for a
self-replicating machine that everyone can own and use. This device clones itself and allows one owner to
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manufacture a machine for another person. The “Mendel” version of Reprap shown in figure 6 emerged in
2010 and there are other commercially available systems such as the Airwolf 3D printer from the United States
(see figure 7).
F IGURE 6: R EPRAP “M ENDEL ” 2010 3D PRINTER
F IGURE 7: A IRWOLF 3D P RINTER
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IN CONCLUSION – FUTURE TRENDS AND CHALLENGES
To conclude we can only guess at the general trends that will shape the global manufacturing sector over
coming decades. Australia needs to retain a strong and resilient manufacturing industry. To achieve this will
require attention to some of the following (DIISR, 2011):
A STRONG FOCUS ON BUNDLING PRODUCTS AND SERVICES INTO HIGH VALUE-ADDED SOLUTIONS FOR
SPECIALISED NICHES WITHIN GLOBAL MARKETS
Australia’s manufacturers, many of which are small to medium firms, will need to learn how to bundle
products and services in order to offer enhanced value to customers and to capture more value from target
markets. This will also help to differentiate them and allow them to secure niches in global markets.
THE DEVELOPMENT OF CAPABILITIES THAT ENABLE LOCAL FIRMS TO TAP INTO GLOBAL MARKETS
PARTICIPATING IN SUPPLY CHAINS AT POINTS WHERE THEY CAN SECURE DEFENSIBLE POSITIONS
Access to global supply chains for Australian manufacturers is vital. The domestic market is too small to allow
for adequate growth. Tapping into global supply chains will require firms to strengthen their quality and
capacity, but it will also help to drive future innovation and management capacity. Rather than seek to
undertake the full cycle of manufacturing processes (e.g. from design to build to distribution), Australian firms
can secure access to parts of this process.
ENHANCEMENT OF MANAGEMENT SKILLS TO OBTAIN OPTIMAL PRODUCTIVITY AND EFFICIENCY FROM
HUMAN, INTELLECTUAL AND PHYSICAL CAPITAL
The future of an innovation-led manufacturing industry is the ability to unlock human and intellectual capital,
while making more efficient use of tangible assets. Australian firms must embrace investment in education and
training, research and development and the creation of organisational cultures that encourage innovation and
high performance teams.
ENSURING THAT AUSTRALIA FIRMS AT ALL LEVELS ARE ABLE TO SECURE ACCESS TO LOCAL, NATIONAL AND
INTERNATIONAL SUPPLY CHAINS AND FORGE STRONG AND SUSTAINABLE PARTNERSHIPS
Sustainable manufacturing industries must be connected to global markets. Small firms must be assisted to
participate in strong local, national and international supply chains through the development of partnerships
and strategic alliances. These must be fostered by attention to social capital building whereby managers from
supplier firms can engage with their counterparts from lead customer organisations.
TARGET EMERGING GROWTH ECONOMIES THROUGH PARTICIPATION IN GLOBAL SUPPLY CHAINS
There is significant growth potential for Australian manufacturing in the “mega-markets” of China and India, as
well as other developing areas such as the Middle East and Africa. This requires stronger international business
skills and is more than simple exporting of finished products. It will require the formation of partnerships,
joint-ventures and other structures.
RECOGNISE THAT INNOVATION CAN WORK FOR LOW TO MID-TECH INDUSTRIES
Attention should not just focus on high-technology sectors. There are substantial opportunities for innovation
and global market expansion of low to mid-tech industries. This can embrace areas such chemicals, electronics,
plastics, furniture, building products, food and beverage, plus clothing, textiles and footwear.
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“NEW NORMAL” – UNCERTAINTY AND UNEXPECTED CHANGE
In conclusion let me draw on the Global Manufacturing Competitiveness Index report for 2013. It describes the
“New Normal” as one of uncertainty and unexpected change. While China has held top spot for manufacturing
on the index, it holds this position on the basis of lower labour costs and attractive corporate tax rates. By
comparison Japan continues to lead in terms of the number of researchers per million persons in the
population, and the United States holds some potentially valuable trump cards with a strong entrepreneurial
spirit and an ability to embrace soft people skills (e.g. creativity and tolerance of diversity).
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Australia has fallen from 16 to 17 place in the index with some pessimism by the CEO’s who are surveyed
for the report as to the nation’s ability to maintain competitiveness over the next five years. This should be a
wake-up call as should the relative decline in capital investment and value adding across our manufacturing
sector.
REFERENCES
Bell, D. (1973) The Coming of Post-Industrial Society, New York, Perseus Books.
DIISR (2011). Trends in manufacturing to 2020: A foresighting discussion paper. Canberra, Future
Manufacturing: Industry Innovation Council, Department of Innovation, Industry, Science and
Research (DIISR).
Jasinowski, J. (1992). "The Contribution of Manufacturing to Long-Term Economic Growth." Eastern Economic
Journal 18(1): 65-72.
Mazzarol, T.W. (2012) “3D printing: the game changer for future manufacturing?”, Enterprise Society, The
Conversation, 10 July, [available online] www.theconversation.edu.au
Mazzarol, T.W. (2012) “Manufacturing matters: why it is important for an economy to have a manufacturing
base”, Enterprise Society, The Conversation, 24 July, [available online] www.theconversation.edu.au
Mazzarol, T.W. (2012) “Poor management performance and the implications for Australia’s economic
outlook”, Enterprise Society, The Conversation, 15 July, [available online]
www.theconversation.edu.au
Mazzarol, T.W. (2012) “Some big ideas for manufacturing, but will they happen?”, The Conversation, 17
August, [available online] www.theconversation.edu.au
Mazzarol, T.W. (2012) “Working smarter not harder: the future of manufacturing in a global economy”,
Enterprise Society, The Conversation, 2 July, [available online] www.theconversation.edu.au
Mazzarol, T.W. (2013) “At the bottom of the top, Australia and the 2013 Global Innovation Index”, Enterprise
Society, The Conversation, 20 July, [available online] www.theconversation.edu.au
OECD (2010). The OECD Innovation Strategy: Getting a Head Start on Tomorrow. Paris, Organisation for
Economic Co-operation and Development.
Parham, D. (2012). Australia's Productivity Growth Slump: Signs of Crisis, Adjustment or Both? Canberra,
Productivity Commission, Government of Australia.
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Sturgeon, T., and Florida, R. (1999). The World that Changed the Machine: Globalization and Jobs in the
Automotive Industry. Cambridge MA, Alfred P. Sloan Foundation.
WEF-Deloitte (2012). The Future of Manufacturing: Opportunities to drive economic growth. Geneva, World
Economic Forum in collaboration with Deloitte Touche Tohmatsu Ltd.
About the author:
Tim Mazzarol is a Winthrop Professor in Entrepreneurship, Innovation, Marketing and Strategy at the University of
Western Australia and an affiliate Professor with the Burgundy School of Business, Groupe ESC Dijon, Bourgogne, France.
He is also the Director of the Centre for Entrepreneurial Management and Innovation (CEMI), an independent initiative
designed to enhance awareness of entrepreneurship, innovation and small business management. Tim is also a Qualified
Practising Market Researcher (QPMR) as recognised by the Australian Market and Social Research Society (AMSRS), and
President of the Small Enterprise Association of Australia and New Zealand (SEAANZ). He has around 20 years of
experience of working with small entrepreneurial firms as well as large corporations and government agencies. He is the
author of several books on entrepreneurship, small business management and innovation. He holds a PhD in Management
and an MBA with distinction from Curtin University of Technology, and a Bachelor of Arts with Honours from Murdoch
University, Western Australia.
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The Next Wave of Manufacturing

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