Australia has been a rather lucky country to have avoided the worst of the GFC some 10 years ago. However, we are not immune to global market uncertainty. As AMGC’s Building Resilience in Australian Manufacturing report points out, we see “rapid and unpredictable global fluctuations in price and demand” in our marketplace.
How is Australian manufacturing coping? Well, it’s been highly volatile, with upswings and downswings 20 per cent deviation from trend between 1996 and 2015, the same period without a recession. This is compared to 14 per cent for the Brexiteers and eight per cent for Germany.
With attention given to all sorts of volatility lately, we think it’s a good time to return to AMGC’s Resilience report. If we’re in for ups and downs, we may as well think about how to better manage them.
AMGC studied 136 companies trying to figure out why some performed better than their industry’s average in a downturn. We found that over 25 per cent of Australian manufacturers that were riding high before the GFC were in the bottom quartile of profitability post-GFC. This does not bode well for an industry which employs 1.27 million Australians.
The good news is that we did uncover what makes Australian manufacturers more resilient in turbulent times. Resilient manufacturers were more likely to display one or more of the following three attributes:
1. Superiority: They collaborated with research institutions, invested in R&D, and adopted servitisation – making them superior.
2. Diversity: They exported, operated in multiple markets and global supply chains and across different product types. Their business pursued different industries based on market needs, making them more diverse.
3. Flexibility: Or they adapted to change input costs to be more flexible.
Consider one of our local manufacturing stars: Sutton Tools. Sutton is a company that achieved a century anniversary in 2018 and therefore could rightfully be called resilient.
Sutton decided after the 90s recession-we-had-to-have that they needed to grow into new markets to insulate itself against future shocks. Sutton learned that it had work to do for being world-class, leading to a big uptick in R&D investment and collaboration with universities and organisations such as the Defence Materials Technology Centre.
One of their projects is in tungsten carbide milling cutters: precision engineered tools for the machining of super alloys such as titanium, Inconel and exotic stainless steels for the aerospace industry.
This dogged pursuit of superiority and diversity has helped establish Sutton Tools as an internationally successful and resilient company, for example as a supplier to subcontract component manufacturers for Airbus and Boeing.
Australian manufacturing’s 26-month long run of uninterrupted expansion took a slight hit in December, only to continue its expansion in January again. Let this be a reminder to think about volatility, and how to push through it.
Note: Jens Goennemann is the Managing Director at the Advanced Manufacturing Growth Centre