Australia needs to rely more on local innovation and supply chains

Calix Limited

Tuesday, 19 May, 2020

The COVID-19 pandemic has caused significant disruption across every industry. It has highlighted risks in the global supply chain and unveiled potential opportunities for Australian manufacturers to reinvigorate the industry and compete more effectively into the future. With so much innovation already occurring in Australia, it’s essential for business and the government to take a locally focused approach to commercialisation in the future, according to Calix.

“COVID-19 is highlighting the inherent risks of relying too heavily on an international supply chain,” said Calix’s Managing Director, Phil Hodgson. “Interruptions due to pandemics, geopolitical tensions, or other reasons can affect businesses across the country. With such a heavy dependence on imports, Australia can’t continue to accept the risk that comes with having a hollowed-out manufacturing industry.”

Australian manufacturing’s contribution to the economy peaked at just under 30% of GDP in the late 1950s and early 1960s.¹ It currently sits at around 5.8% of GDP.² This contraction could be reversed but to do so will take a concerted effort from government and industry alike.

Many Australian organisations can innovate and conduct research and development here but are forced to move offshore when it comes to manufacturing. While Australia’s small economy might not allow local manufacturing to produce everything the country wants, it’s essential for Australian manufacturers to be able to produce everything the country needs.

“Infrastructure, energy, food and water are all basic pillars of society that local manufacturing should be able to support,” Hodgson said. “The more the supply chain for these needs are offshored, the more risk society must bear. Supply chain interruptions could be catastrophic, in a very short space of time, if it means Australians can’t get essentials such as treated water and clean food.

“However, most private and public sector organisations make purchasing decisions based on price alone. But price, as we are now learning, is not the only factor that should be considered. Choosing a local product over a seemingly cheaper, imported one can protect local jobs, provide guaranteed continuity of supply even during a crisis, and traceability of raw materials. The tangible and intangible benefits of such a decision are enormous and far-reaching, and could improve the long-term viability of industry in this country.”

Ideally, the manufacturing industry would benefit from a balance of global trade as well as risk mitigation. If Australian manufacturers can make at least a meaningful portion of what Australia needs, then local manufacturing would rebound. Innovation-wise, success would include the ongoing encouragement of R&D and commercialisation onshore, rather than forcing Australian ideas offshore.

A local manufacturing industry would flourish if the Australian Government were to take the lead on local sourcing. If government departments and agencies demanded a minimum local content of suppliers during public tenders, the private sector would be more encouraged to do likewise. Based on proven examples over a longer timeframe, both industry and government would benefit significantly. Importantly, the supply of products for Australia’s needs would be more secure.

“There are some really innovative ideas coming out of Australia; however, the local manufacturing industry isn’t necessarily there to help commercialise, and benefit from, these ideas,” Hodgson said. “The government must do what it can to support and champion local manufacturing, especially now that the risks of an over-reliance on global supply chains are laid bare. While the R&D tax incentive and government grants are welcomed, there are many additional steps that could be taken to bolster local manufacturing in this country.

“And ultimately, as huge purchasers of goods and services, local, state and federal governments and associated statutory bodies have a responsibility to take the lead on this, now, and start buying local.”