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MANUFACTURING GREEN PAPER

SETTING DIRECTIONS FOR THE TRANSITION OF
MANUFACTURING IN SOUTH AUSTRALIA
/india www.dmitre.sa.gov.au/manufacturing
Manufacturing
Green Paper

Setting directions for the transition
of manufacturing in South Australia
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Where we are now
Where we want to be
How we propose to get there
This Green Paper is designed to stimulate conversation and generate ideas relating to the issues
and actions that can best support development of a robust and resilient manufacturing sector in
South Australia.
Key business and industry stakeholders are invited to comment on the proposals and overview
outlined in this document, which should be read in conjunction with the nal report, Manufacturing
into the Future, by recent Thinker in Residence Professor Gran Roos. Your feedback will
contribute to the Manufacturing Strategy of the Department for Manufacturing, Innovation, Trade,
Resources and Energy (DMITRE).
The Manufacturing Strategy will be a framework within which the government will outline its
priorities, activities and work programs to help build a strong manufacturing sector in a diverse,
resilient economy.
Using a shared approach, we want your help in determining where we are, where we need to be
and how we will get there.
Q1 2012
Release of Manufacturing Green Paper for public consultation.
Launch of report by Thinker in Residence, Professor Gran Roos,
Manufacturing into the Future.
Targeted industry meetings will be held to seek feedback on the
discussion paper.
Q2 2012
Targeted industry meetings continue to seek feedback on the
discussion paper.
Release of South Australian Government Manufacturing Strategy.

Online www.dmitre.sa.gov.au/manufacturing
Contact David Rush, Manager, Ofce of Manufacturing
Telephone +61 8 8303 2261
Email david.rush@sa.gov.au
Setting Directions
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MANUFACTURING GREEN PAPER
SETTING DIRECTIONS FOR THE TRANSITION
OF MANUFACTURING IN SOUTH AUSTRALIA
Contents
Ministers foreword P 2
Why a Manufacturing Green Paper? P 4

SECTION 01: Introduction P 6
Global manufacturing today and tomorrow P 6
Providing a global perspective - Professor Gran Roos P 8
A new Manufacturing Strategy P 9
Role of government P 10
Role of DMITRE P 11
Advanced Manufacturing Council P 11

SECTION 02: A changing environment P 12
Manufacturing is changing P 12
The current situation in South Australia P 13
International responses P 15

SECTION 03: Fork in the road P 18
Innovation and competitive advantage P 18
Clusters and value chains P 19
Economic opportunities P 20
Resources, manufacturing, services and technology P 20
High-value manufacturing P 21
Cleantech P 22
Tonsley Park P 22

SECTION 04: The way forward P 24
Vision for manufacturing in South Australia P 24
1 Smart decisions P 24
2 Smart opportunities P 25
3 Smart rms P 25
4 Smart people P 26

SECTION 05: Conclusion P 28
Have your say P 28
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Ministers foreword
South Australia has a strong and proud history of manufacturing,
which has been central to the well-being of South Australians
since the 1940s. Today, South Australia is an economy in transition.
Manufacturing has a crucial role to play in the transformation of our
economy. We must ensure a strong manufacturing sector is front and
centre in our future.
But there are critical decisions we need to make.
Manufacturing is at a crossroads, with the rapid changes occurring internationally and locally
prompting us the State Government, business and community to consider how manufacturing
can remain core to the economy and wider community. Our capacity to create and capture high-
value and niche manufacturing is essential to the growth and prosperity of the State. With input
from government, industry and academia we are seeking a response to the fundamental question:
what will it take for manufacturing to survive and prosper, even with external factors such as the
high Australian dollar?
Reecting the urgency and importance of the challenges ahead, the State Government sought the
advice of international manufacturing and innovation expert Professor Gran Roos, who became
South Australias 20
th
Thinker in Residence in 2011. Professor Roos highlighted the need to improve
our innovation capabilities and broaden our industry base within a modern, advanced, high-value
manufacturing sector. He has also recommended how government should play a role in promoting
the transformation of manufacturing and our Manufacturing Strategy is a vital component of this.
That is why this government has identied advanced manufacturing as one of its seven primary
focus areas and is establishing an Advanced Manufacturing Council to implement the Strategy and
deliver strong outcomes.
Here in South Australia, we have a strong foundation for growth: the states rich mineral and
energy endowments together with our deepening relationships with Asia, and particularly China
and India. A strong manufacturing sector is vital if we are to capture the potential benets of these
assets and an investment pipeline that is now valued at more than $109 billion. However, growth
will not occur without targeted efforts by the State Government, industry and educational and
research institutes.
The redevelopment of Tonsley Park is one integral component in our plans to modernise
manufacturing in this case, by providing a springboard for capability development and new
investment in advanced, high-value manufacturing in Adelaides southern suburbs. Tonsley Park
will also provide a new benchmark for interaction between industry and research, university and
training institutes.
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MANUFACTURING GREEN PAPER
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Developing a better understanding of the capabilities of our existing industries and technology
trends, identifying new market opportunities and value chains, improving productivity through
innovation, and unlocking leadership and entrepreneurship potential are also key elements of
this strategy.
This Green Paper is designed to encourage industry feedback on how the State Government, in
partnership with industry and the community, can best support the transition of manufacturing
to give our state the future we all want. Feedback received will inform the development of the
Manufacturing Strategy.
I look forward to working with all stakeholders to help ensure manufacturing contributes to a
prosperous South Australia.
Hon Tom Koutsantonis MP
Minister for Manufacturing, Innovation and Trade
A strong manufacturing sector is vital if we
are to capture the potential benets of our
assets and an investment pipeline that is now
valued at more than $109 billion.
Hon Tom Koutsantonis MP, Minister for Manufacturing, Innovation and Trade
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Why a Manufacturing
Green Paper?
Most of us know how important manufacturing has been to South
Australias history, but what of the future?
The stakes are high. South Australias manufacturing sector faces critical challenges ones we
must all meet together. We must plan for a future with advanced, and high-value manufacturing at
its heart.
To gain an up-to-date international perspective on the future of manufacturing in the state, the
State Government sought the input of South Australian Manufacturing Thinker in Residence,
Professor Gran Roos. Professor Roos provided a perspective on the ongoing role and importance
of manufacturing to high-wage countries that remain competitive and are not prepared to let their
industry simply wither. He said that South Australias manufacturing base was centred around
wine and metals, had a predominance of small-to-medium sized rms and could be exposed to
the crowding out effects of Australias resources boom. He said that substantial government
involvement is required to overcome these vulnerabilities. Professor Roos brought practical how
to expertise to bear on problems that require us to learn from the worlds best.
A workshop held by DMITRE in November 2011 with more than 100 key manufacturing stakeholders
agreed that manufacturing and the resources sector must grow together, not at the expense of each
other. Workshop participants concluded that manufacturing will be based on high value-adding
and innovation, where the role of government should be to facilitate, rather than lead, modernisation.
The focus areas identied for government activity included:
providing information to SMEs about new market and industry opportunities
undertaking smart procurement that rewards innovation
facilitating collaboration and clustering within industry, research and government
promoting skills and leadership development.
These ideas have informed the development of this Green Paper which, together with any nal
submissions, will form the basis of the South Australian Governments Manufacturing Strategy.
The Manufacturing Strategy will be a framework within which the government will allocate
appropriate resources to help build a strong manufacturing sector in a diverse, resilient economy.
Specically, the strategy will establish a framework for government and industry action to help:
ensure that manufacturing particularly advanced, high-value manufacturing remains a
vital part of the South Australian economy, so that distance, scale and cost structures are not
barriers to prosperity
build competitive advantage through superior business organisation and innovation rather than
cost-based competition
ensure that the benets of the mining expansion are captured through carefully expanding the
related manufacturing and services sectors
enable manufacturers to develop the skills and capabilities to strengthen and expand their
businesses in an increasingly demanding global marketplace
improve the competitiveness and productivity of the South Australian economy.
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MANUFACTURING GREEN PAPER
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DMITREs vision for manufacturing in South Australia is:
An advanced manufacturing sector that competes internationally through innovation and excellence
and through superior organisation and dynamic capability. Manufacturing will drive productivity
improvements across the whole economy through strategic leadership, a highly skilled workforce
and applying knowledge and cutting-edge technologies. Our industry participates in dynamic value
chains and clusters in our mining and resources, defence, and emerging high-value industries. Our
manufacturing sector underpins rising living standards across the community.
With advice from Professor Roos and ongoing input from local industry and business, DMITRE has
determined the following four areas as key to the successful transformation of South Australias
manufacturing sector. Industry feedback on these strategies is welcomed.
1 Smart decisions
Global technology and business and consumer trends are shaping our manufacturers future
environment. Technologies such as biotechnology, embedded systems, 3D printing, sensing and
scanning, digital technologies, ICT and advanced materials will change the way manufacturing operates.
We need to know our current manufacturing capabilities, as well as the ones we will need in the
future. This means government and industry must together map the manufacturing industry
landscape in South Australia, including its capabilities, opportunities, technologies and value
chains. The outcome will be information that supports local manufacturers in making productive
decisions and taking advantage of emerging industry opportunities.
2 Smart opportunities
Global cluster strategies have proven successful in accelerating regional economic growth. They
promote collaboration, knowledge and technology transfers between stakeholders and enable
smaller companies to be competitive in bidding for major projects.
We need to accelerate the transfer of knowledge and information between companies, and
between business and education and research bodies. In addition, we must collaborate to
overcome disadvantages associated with South Australias small-scale businesses. Innovative
clusters that are linked to value chains will provide an important source of competitive advantage
for South Australian manufacturers whose size may otherwise prevent them from successfully
participating in major projects.
3 Smart rms
Innovation means applying new knowledge to solve a problem or capture an opportunity.
Innovation helps to develop and sustain competitive advantage based on superior organisation and
knowledge, and helps avoid having to compete against low-wage countries solely on cost.
Firms can create competitive advantage through the adoption of innovation strategies that ensure
they compete on factors including business models, design, services and knowledge. Government
can help provide and promote the appropriate tools and techniques to enable forward-thinking
rms to improve productivity and to facilitate closer collaboration between industry and technical
institutions to identify opportunities and increase productivity.
Government can also stimulate innovation through smart procurement and industry participation
policies, and by supporting industry and research links. This will help us sustain and develop
smart jobs in a high-wage, high exchange-rate environment.
4 Smart people
Several studies have highlighted the potential for government to work in conjunction with industry
associations and educational institutes to unlock global leadership and entrepreneurship in South
Australian manufacturers. Offering research students and private-sector managers opportunities to
develop their business and entrepreneurship skills will encourage business growth and niche start-ups.
Issues associated with the appropriateness of South Australias education and skills development
system, particularly in the areas of entrepreneurship, and science, technology, engineering and
maths (STEM), are relevant to South Australias innovation culture.
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Global manufacturing today and tomorrow
The South Australian Government does not agree with those who say manufacturing is part of an
old economy that we can do without.
We believe a strong manufacturing base is an indispensable component of South Australias long-
term prosperity.
We have seen manufacturings share of overall employment fall, both relatively and in absolute
terms, in Australia and most advanced OECD countries. Manufacturings share of gross domestic
product (GDP) has also fallen in relative terms throughout the OECD, although the size and rate
of this decline varies throughout the OECD, with many countries taking a proactive approach to
building their manufacturing futures.
Furthermore, Australia is in the midst of a mining boom, in which Australias mines and resources
are underpinning the industrialisation and urbanisation of India and China. We know that the
accompanying strong commodity exports increase the value of our dollar, and that this tends to
disadvantage value-adding activities such as manufacturing.
However, while the mining and manufacturing sectors account for a similar level of economic
activity in Australia (7 per cent and 8 per cent of GDP respectively), manufacturing with almost
one million workers across the nation employs four times more people than mining.
Does the growth of resources really mean the hollowing-out of manufacturing, or can we grow
mining and manufacturing together?
For a long time, and even after the Global Financial Crisis (GFC), the services sector was seen as a
potential substitute for an economy having an internationally competitive manufacturing sector.
But would a reliance on services really provide the high-skill jobs we want for our future
prosperity?
If we let high-value, advanced manufacturing go, can we ever get it back?
Can we effectively guard ourselves against the worst effects of international shocks such as the
GFC without strong manufacturing and a diversied economy?
The aftermath of the GFC has caused some countries to reconsider the value and place of
manufacturing in their advanced economies, even those that in recent decades came to regard
manufacturing as part of the old economy.
Countries not content to allow their manufacturing industries to decline, but instead focussed
on modernising them, recovered better and quicker from the GFC. These countries recognised
that to be competitive, manufacturing in advanced economies must be guided by strategies that
continually move activities up the value chain, as distinct from competing solely on cost. They
have accepted that manufacturing is crucial to the ability to innovate and be part of the global
knowledge economy.
Declining direct-manufacturing employment levels is a phenomenon common to all OECD
countries. However, in successful OECD economies, manufacturings share of overall value-
added has either been maintained or has declined by a much smaller proportion than employment
(reecting productivity gains). But other countries such as the UK, US and Australia have
SECTION 01 Introduction
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seen large falls in their manufacturing shares of GDP, even where the value of output of their
manufacturing sectors has not fallen absolutely.
1

In advanced economies, manufacturing is central to driving productivity and innovation and is the
biggest spender on knowledge intensive services. Manufacturing is also the largest component of
world trade.
In advanced economies, a dynamic manufacturing sector underpins higher net incomes and
employment than would otherwise be the case. In so doing, it also supports greater social
inclusion and cohesion.
Conservatively, almost a third of South Australians and their dependents rely on manufacturing for
their incomes, through direct and indirect employment.
The South Australian Government believes that to prosper and make the most of our great
opportunities ahead, we must ensure manufacturing is front and centre in our future.
The national debate about Australias deteriorating productivity performance must recognise that
a large part of this deterioration is due to compositional changes in the workforce, away from
manufacturing to lower-productivity services.
Manufacturing is a vital driver of employment because of its strong links to mining, agriculture
and services. The blurring of the boundaries between services and manufacturing, with a growing
proportion of jobs in manufacturing companies being service occupations, is of particular
importance. Up to 50 per cent of workers in the manufacturing sectors of certain OECD countries
are in service-related occupations
2
, while in Australia 23 per cent of manufacturers now offer
some type of service.
3
This means that ofcial data based on outdated industrial classications
may understate the true status of manufacturing, as highlighted by Professor Roos:
Manufacturing now includes the whole chain of activities from research and development through
to recycling of the manufactured product. This expansion of the role of manufacturing underpins its
importance as a crucial component of any advanced economy.
With the right approach, South Australias economy can be signicantly transformed towards
higher value-adding activities. However, the South Australian Government is aware that
manufacturers are facing considerable pressures that raise concerns about how manufacturing
can be sustainable in a high-wage, high exchange-rate economy. Signicant issues include:
global pressure stemming from the emergence and signicant growth of low-cost countries in
Asia, South America and eastern Europe
high-end manufacturing competition from successful high-wage manufacturing economies
the high Australian dollar and low-tariff environment that have favoured imports over domestic
manufacturing, compounding the impact of growing lower-productivity services and related jobs
structural issues such as a narrow industry base dominated by food and beverages, transport
equipment and machinery, and metals.
There are many successful companies operating within the food and beverage, transport
equipment, machinery, and metals sectors. However, relationships and capabilities should be
developed to counter the effects of global cost-based competition and technology changes. Many
rms in these sectors are small and medium-sized, with limited capacity to adopt new information
about innovation strategies and technologies (known as absorptive capacity). South Australia is
also characterised by a lack of signicant head ofces and associated high-value jobs.
The residency of Professor Roos aimed to lift the quality of debate on the future of manufacturing
in South Australia. Professor Roos warned that doing nothing is not an option and that by
stimulating competitiveness today we create economic development for tomorrow.
1 See OECD (Pilat, Cimper, Olsen and Webb), The Changing Nature of Manufacturing in OECD Economies, 27 October 2006.
2 For analysis supporting these points, see OECD (Pilat, Cimper, Olsen and Webb), The Changing Nature of Manufacturing in OECD Economies 27 October 2006.
3 Gran Roos, Manufacturing into the Future, 2011.
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Developing manufacturing, mining and services together provides the best opportunity for
South Australia to develop a balanced, stable and resilient economy with benets for the wider
community. In developing the manufacturing strategy, South Australia must consider that in
advanced economies, manufacturing is more about:
markets than sectors
capabilities than discrete products
creating and capturing value than reducing cost
effectiveness than efciency
converging technologies than stand-alone technologies
being adaptive and agile than rigid and unchanging
selling solutions than pushing products.
Providing a global perspective - Professor Gran Roos
To gain an expert perspective on the states manufacturing sector and how it can prosper in a
high-wage economy, the government in 2011 welcomed international specialist on innovation
management and strategy, Professor Gran Roos as a Thinker in Residence.
In-depth discussion with many industry representatives across the state led Professor Roos
to conclude that South Australias narrow manufacturing base (centred on wine and metals
manufacturing), a predominance of small-to-medium sized rms, the high exchange rate
and exposure to Australias twin-speed economy all create a perfect storm in which key
manufacturing and value-added activities are at risk.
Professor Roos offered signicant observations about where manufacturing is in South Australia
and internationally, and what we need to do to secure the prosperous future we all want.
Manufacturing is not dead or dying, but is evolving as the boundaries between it and high-
end services have become blurred. Traditional manufacturing activities have succumbed to
competition from low-wage countries, but successful advanced economies have found ways to
transform their manufacturing sectors through a focus on innovation and constantly moving up
the value chain.
Services are not the substitute for manufacturing. Rather, they are complementary. To capture
high-end services, a regional economy needs to have a strong manufacturing sector that
consumes them.
Manufacturing is under pressure from the high Australian dollar, which is being driven by
growth in the resources sector.
Manufacturing is the largest provider of direct and indirect employment, with between two
and ve jobs created as a result of each manufacturing job. It therefore contributes to social
cohesion in the wider community.
The manufacturing, resources and services sectors are interdependent and together provide
the basis for a strong, resilient economy. South Australia can learn much from the international
best of breed in relation to clustering and capability building, particularly from the way
countries such as Norway and Canada have leveraged their resources sectors to create new
manufacturing industries.
Australias manufacturing performance has been weak compared to leading manufacturing
nations such as Sweden, Finland, Germany and Switzerland. Further, these countries have best
survived the GFC.
The GFC has led some countries with poorer performing manufacturing sectors (such as the
US, UK and Australia) to question their earlier indifference to manufacturing.
The competitiveness of manufacturers can be enhanced through innovation strategies centred
on business models, design, customer solutions and technology, particularly in the converging
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elds of biotechnology, nanotechnology, information and communication technology and
cognitive science.
When manufacturing capabilities disappear they are prohibitively expensive to society to
replace, due to an increase in the speed of technology development and the highly mobile nature
of capital.
Lead customers that are major public or private sector purchasers of goods and services can
create signicant innovation opportunities for South Australian manufacturers through their
procurement activities.
Professor Roos saw key immediate opportunities in:
developing and executing an industry participation policy around building mining related
clusters, centred on resource extraction opportunities. Development of the policy could be
undertaken by a working group involving the key stakeholders and drawing on the Ontario,
Hebron project in Newfoundland and Norwegian examples
developing and executing a policy around Tonsley Park, drawing on industrial ecology/
symbiosis principles and links with other industry policy domains e.g., the mining related
cluster initiatives.
In support of these immediate and other key strategic opportunities, Professor Roos
recommended the State Government develop an integrated and comprehensive Manufacturing
Strategy that makes greater use of demand-side policy tools such as strategic procurement,
development of key industry clusters (including around the Olympic Dam project and other mines),
and leveraging of lead customers. He emphasised the need to know the existing capabilities of our
industries, what capabilities they will need in the future to be competitive (through industry and
capability mapping), and the key enablers to allow this to happen.
An enabler of these activities is information related to rm-level capabilities, value chains,
opportunities and technologies. This information is difcult for single rms to acquire and use
effectively. Rather, it requires the coordinating and aggregating role of government to bring this
together in a strategic manner. By itself, the market will tend to provide incomplete information.
The four proposed strategies related to smart decisions, smart opportunities, smart rms and
smart people are key elements of the governments proposed response to Professor Roos
recommendations.
A new Manufacturing Strategy
The new Manufacturing Strategy will be a framework for government to allocate its resources
to help build a portfolio of sustainable competitive advantages. It will set shared directions for
industry, government and the community to work in partnership, helping to underpin a diverse,
resilient economy. A strategy seeks to build strengths and minimise or address weaknesses. It
asks, where are we now, where do we want to be, and how do we get there? For South Australia this
means:
ensuring that manufacturing, particularly high-value, advanced manufacturing, remains a
vital part of the South Australian economy where distance, scale and cost structures are not a
barrier to our future economic prosperity
building competitive advantage through superior business organisation and innovation rather
than cost-based competition
ensuring that the benets of the mining expansion are captured by growing mining,
manufacturing and services together
ensuring manufacturers develop the skills and capabilities to strengthen and grow their
businesses in an increasingly demanding global marketplace
improving the competitiveness and productivity of the South Australian economy.
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These objectives are proposed to underpin the development of the Manufacturing Strategy
to help secure the sectors future. Within the South Australian context, manufacturing must
also learn from international best practice, from those countries that have successfully built
manufacturing capability and whose experience can demonstrate what it takes to maintain a
strong manufacturing sector in a high-wage economy.
Critics will say that such action or intervention comes at a cost. Indeed, such strategies do involve
a cost; the issue, however, is whether the benets exceed these costs.
The South Australian Government has decided that the cost of having no strategy is unacceptable.
Role of government
An underlying premise of this strategy is that government does indeed have a role in economic
development and helping build positions of sustainable competitive advantage. In a globalised
world, a collaborative approach involving industry, government and the education and technical
base is required. Government has an active strategic role of working to a plan, aligning its
activities to key economic development opportunities and leveraging the resources of the private
sector and broader community.
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In successful economies, government plays an active and sophisticated role in helping capture
information, including mapping current and future industry capacity and capability, workforce
requirements, future demand, gap analysis and R&D and technology forecasting. These activities
help build clusters of key capabilities and excellence that may have application across sectors, and
in that way accelerate diffusion of new knowledge, technology and practice to enable individual
companies to make informed decisions. Developing capabilities and building value chains, rather
than individual rms, is the usual target of activity. Tools such as public procurement targeted at
lifting local industry capability and fostering innovation and aligning supplier capabilities to lead
customers requirements along the value chain are often used.
Clear priorities for South Australia will be to leverage our existing and future strengths in mining,
build strong local value chains that encompass manufacturing and high-end services, and ensure
our industry is placed to participate in emerging industries.
The governments focus on community impacts, its ability to take a medium to long-term view, and
its unique capacity to access and aggregate information (which often would be prohibitively costly
or is simply not available to small companies), give it a unique role in partnership with industry.
With that in mind, the proposed principles on the role of government towards the development of
manufacturing are given below. Governments:
do not directly create wealth, however they play an important role in wealth creation.
Governments need to take an active medium and long-term view of the economic future and
build partnerships with business, the community and other economic actors
need to intervene in a strategic and sophisticated manner, particularly in small economies
where market failure is endemic, to create capabilities and address market gaps
should strengthen the innovation system by looking at new ways of facilitating connectivity
between industry, research and government
should develop policy with industry engagement and input to set robust common directions for
the future
should ensure its programs are nite with continuous monitoring and evaluation, particularly in
a dynamic and global business environment
must increase the use of non-nancial instruments to add value to rms (for example,
procurement, regulation, industry participation, information provision, investment facilitation
and skills development).
4 Economic Development Board, Economic Statement: South Australias Prospects for Growth, March 2009, p 99.
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Role of DMITRE
DMITRE brings together government responsibilities for manufacturing, mining, resources, energy
and renewables, together with the innovation agenda, to ensure South Australia captures the
synergies these sectors offer. DMITRE is the recognised voice of manufacturing within government
and, in recognition of the sectors signicance to the state economy, has been charged with helping
modernise the sector and ensuring manufacturing and resources grow together. DMITRE will
work with groups of companies at the industry level to develop key manufacturing capabilities and
leverage new value-chain opportunities that benet the state. However, DMITRE will work with
individual rms where it is appropriate to do so.
Specically, DMITRE will design and deliver exible programs that aim to help:
build the value chain from major projects, particularly mining and resources, to encompass
manufacturing and high-end services
build critical industry capability and capacity by leveraging lead customers, creating clusters,
providing opportunities for collaboration and by targeted investment attraction
capture the potential of emerging high-value and high-growth industries
brand and market the states manufacturing capabilities
forecast market opportunities and technology trends and increase SMEs absorptive capacity.
DMITRE will play a key role in capturing information of value to the sector and its companies, including
mapping current capacity, capability and future demand, gap analysis and technology forecasting.
The department will also work with key stakeholders and business leaders to bring new
intelligence and ideas to the table, building on the states existing strengths and creating new ones.
Advanced Manufacturing Council
An Advanced Manufacturing Council will be established to guide and steer the roll-out of the
Manufacturing Strategy. It will consist of recognised experts in the eld and will advise on how to
build on existing strengths and opportunities to embed competitive advantage.
What are your thoughts?
How can manufacturing be sustainable in a high-wage, high exchange-rate economy?
How can DMITRE best serve the modernisation of manufacturing in South Australia?
What are the barriers to South Australian manufacturing capturing the opportunities in
mining and in emerging growth sectors?
Are the Tonsley Park Redevelopment (which is focussed on emerging industries) and
extending the mining supply chain to local manufacturing the priorities for action?
Is cluster development the way to go? What do we have and want do we want to develop?
What information do businesses need for increased productivity?
What other pressures on manufacturing should government consider?
What are the best future opportunities for manufacturing in South Australia?
What are the key competencies we need to develop?
What are the key lessons from successful countries?
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Manufacturing is changing
Our world is changing fast. The global environment for manufacturing is being driven by a
number of structural and cyclical forces that are changing the outlook and basis of competition.
Manufacturing has evolved from small-scale craft production in the 1800s, to large-scale mass
production in the early 1900s and again in the 1980s, to exible production of a variety of products
in smaller volumes. In the 2000s, manufacturing is characterised by mass customisation and
personalisation that based on computerised manufacturing systems bring together the benets
of low-cost mass production with customised goods. The evolution is shown in Figure 1 below.
Manufacturing today (Figure 2) can be grouped into four main areas:
1. Traditional cost-based, low-volume, low-technology manufacturing that uses existing
knowledge such as agriculture, construction, mining and forestry.
2. Scale-intensive cost-based, high-volume, high-technology manufacturing such as cement,
glass, automotive, metal rening and machinery production.
3. Specialised supplier industries cost-based, low-volume, high-technology manufacturing
such as chemicals, heavy electrical equipment, commercial aircraft, satellites, space launchers.
4. Science-based industries the fastest growing segment of the knowledge economy,
characterised by innovation and science and including biotechnology and professional
equipment, instrumentation, software and pharmaceuticals.
SECTION 02 A changing environment
Figure 1: Manufacturing evolves
Figure 2: Manufacturing - a changing environment
~ 1850
Craft
Production
~ 1913
Mass
Production
~ 1980
Flexible
Production
~ 2010
Mass
Customisation &
Personalisation
~ 2020
Sustainable
Production
Cost-based
Low-volume
Low-technology
Traditional
manufacturing
Cost-based
High-volume
High-technology
Scale-intensive
manufacturing
Innovation-based
High or low-volume
High-technology
Science-based
manufacturing
Cost-based
Low-volume
High-technology
Specialised supplier
manufacturing
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Looking beyond 2020, manufacturing is likely to move towards the science-based industries and
sustainable production enabled by converging technologies in biotechnology, nanotechnology,
information and communication technology and cognitive science.
A number of forces are driving these changes.
5
These include:
intensied competition through the rise of low-wage, low-cost manufacturing economies,
increasing global competition and the effects of a strong Australian dollar
more complex and varied opportunities for doing business globally, particularly through the
growth of distributed global value chains where different stages of the production process are
being unbundled around the world
a shift from mass production to customisation and personalisation, providing tailored solutions
that are more attractive, helpful and valued by customers
the growing importance of the low-carbon economy, requiring manufacturers to achieve
environmental sustainability and lower their carbon footprint while considering consumer
behaviour and market demand for green products
changing skills needs and imperatives, particularly access to talented workers capable of
managing and supporting innovation in an environment where manufacturing has a perception
problem that impacts on its skills and people
technology that transforms entire business models, including the organisational capabilities of
rms, the nature of their competitive strengths and their models for doing business protably
over the long term
collaboration and connectivity that accelerates innovation and competitiveness through
access to critical knowledge about opportunities, changing markets and customer needs and
preferences outside a rm.
The current situation in South Australia
In South Australia, manufacturing has been a key industry since the 1940s and currently
represents 10 per cent or $8.9 billion of the economy, the highest level of any Australian state
or territory and higher than the national gure of 8 per cent.
6
Manufacturing also employs 79,000
people or 9.8 per cent of total employment. However, manufacturings share of the economy has
been in decline for some time, as shown in Graph 1 below.
5 Australian Business Foundation, Manufacturing Futures, commissioned by the NSW Business Chamber, 2011.
6 ABS Cat No. 5220.0, National Accounts.
0%
5%
10%
15%
20%
25%
AUST
SA
NSW
VIC
QLD
WA
TAS
1
9
9
0
1
9
9
1
1
9
9
2
1
9
9
3
1
9
9
4
1
9
9
5
1
9
9
6
1
9
9
7
1
9
9
8
1
9
9
9
2
0
0
0
2
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
Graph 1: Manufacturing share of Gross State Product 1990-2011
P 14
The latest available data indicate that in 2008-09 there were 6,972 manufacturers in South
Australia, representing 4.8 per cent of all businesses. On the whole, manufacturing rms tended to
employ more people than non-manufacturing rms.
7
The latest data (August 2011) indicate that the largest employing manufacturing sectors were
food and beverages (23,000 jobs); transport, machinery and equipment (17,000); and primary and
fabricated metal products (12,000).
8
This is signicantly different from August 2000, when the
largest sector was transport, machinery and equipment, which employed 27,000 people, while food
and beverages employed 19,000 people. This is explained in Graph 2 below.
The losses in the transport, machinery and equipment sector are consistent with other scale and
cost-based industries such as automotive, whitegoods, textiles, clothing and furniture.
Although manufacturing is still the largest spender on research and development, spending has
declined signicantly in the past ve years, from $347 million to $247 million. Expenditure has
fallen signicantly (50 per cent), in the transport, machinery and equipment sectors.
9
Manufactured exports peaked at $7.7 billion in 2007-08, but fell 32 per cent to $5.2 billion following
the GFC. Export earnings have started to recover (reaching $6.2 billion in 2010-11) but are still
$1.5 billion below their 2007-08 peak. The automotive sector has led the decline with exports down
from $1.5 billion to $290 million in this period.
10
An additional review by Professor Roos found the ve largest sectors in South Australia in 2011
by revenue were wine ($3 billion), iron and steel ($2.7 billion), copper, silver, lead and zinc
($2.5 billion), automotive ($1.1 billion) and meat and poultry processing ($1 billion).
11
Further analysis by DMITRE indicates 90 per cent of manufacturing sector prots in 2011 were
generated from rms in traditional and scale-intensive manufacturing industries, with only 10 per
cent from rms within the science-based manufacturing industries.
However, South Australia currently has many manufacturing strengths upon which we can build
for the future. Our state is the nations defence technology centre of excellence. We are home to the
nations largest defence contract, the $8 billion Air Warfare Destroyer project, which is also South
Australias largest advanced manufacturing project. Beyond defence we have strong companies
7 ABS 2008-09 Cat No. 8165.
8 ABS Cat No. 6291.0.55.
9 ABS Cat No. 8104.0.
10 ABS Cat No.5368.0, International Trade in Goods and Services, unpublished data.
11 IBIS World data and Gran Roos, Manufacturing into the Future, 2011.
0
5
10
15
20
25
30
T
o
t
a
l

E
m
p
l
o
y
m
e
n
t


(
0
0
0
s
)
Food and
Beverages
TCF Wood, Pulp,
Paper
Printing Petroleum,
Coal,
Chemicals
Rubber and
Polymers
Non-
Metallic
Minerals
Metals and
Metal
Products
Transport,
Machinery
and
Equipment
Furniture
and Other
August 2006
August 2000
August 2011
Graph 2: South Australian manufacturing employment
P 15
MANUFACTURING GREEN PAPER
SETTING DIRECTIONS FOR THE TRANSITION OF
MANUFACTURING IN SOUTH AUSTRALIA
International responses
In light of the changing environment for manufacturing, a number of common approaches are
being taken by different governments in certain OECD countries, to stimulate manufacturing
competitiveness and innovation.
Examples include:
Germany one of the most signicant features of Germanys industrial policy is the close
collaboration between industry, university and international research organisations that has
encouraged engagement with larger manufacturing rms. More recently, Germany has been
focussing on smaller manufacturers and their ability to engage with research organisations and
develop entrepreneurship skills.
12
Switzerland considered by the European Commission
13
to be the most innovative nation in
Europe in 2011, Switzerland is funding collaboration partnerships between the higher education
sector and manufacturers, in addition to stimulating design, entrepreneurship and clusters on a
thematic and regional basis.
14
Sweden policies tend to focus on rejuvenating Swedens manufacturing production
capabilities to include digital manufacturing techniques through enhanced links with the
education and research sectors.
15

12 German Ministry of Economics and Technology, Building on SMEs: greater responsibility, greater freedom, 2011.
13 European Commission, Innovation Scoreboard, February 2011.
14 Switzerland Commission for Technology and Innovation, www.kti.admin.ch.
15 Association of Swedish Engineering Industries (Teknikfretagen), Swedish Production Research 2020.
What does this mean?
Unless action is taken, South Australias economy will:
lose manufacturing activity at a rapid rate
deliver lower longer term growth, productivity, incomes and overall employment
miss out on key opportunities for innovation associated with advanced manufacturing
miss out on many knowledge economy opportunities, particularly in the high-end services
associated predominantly with manufacturing
fail to build a robust and diverse set of capabilities to underpin our sustained competitive
advantage and international competitiveness
become more, not less, dependent on a small number of large sectors and hence, more
vulnerable to external shocks
become more, not less, reliant on lower value added activities and exports.
Failure to act would result in a loss of manufacturing workforce capabilities, particularly in
high-end engineering, design and technology, which would negatively affect the states ability
to capitalise on the resources sector expansion and other emerging opportunities. Without a
strong manufacturing sector, our social cohesiveness could also suffer.
in areas such as clean and climate-smart technologies, process engineering and process
control, and medical devices. We must build on these capabilities to create a strong, resilient and
diversied industry base.
P 16
To summarise these international trends:
governments are delivering programs to stimulate innovation in the areas of new business
models, design capabilities, customer solutions and technology not just product and R&D
there continues to be a strong emphasis on research links between the applied research
sector and companies, with an increased focus on SMEs
the role of government as a facilitator of economic development is evolving to include cluster
creation, smart procurement, open data collection and technology demonstration
skills development including business skills, innovation management and entrepreneurship
are strategic components of economic development.
16 Finland Ministry of Employment and the Economy, www.tem./inno.
17 UK Department for Business, Innovation and Skills, Innovation and Research Strategy for Growth, December 2011.
Finland signicant efforts are being made to refocus government innovation support
away from technology push and towards consumer pull through design and business
models. Collaboration with the research sector is also a priority, together with encouraging
entrepreneurship training, particularly for PhD research students.
16

United Kingdom the UK government announced in December 2011 that it is focussing on
activities that support proof of concept, prototype development, design capability and university
collaboration. The government has also committed to exploring how clusters create economic
growth, how government can act as an intelligent lead customer and how government data
could stimulate industry innovation.
17

Singapore while not an OECD member, Singapore is actively pursuing investment in
high-value manufacturing and services by promoting Singapore as a living laboratory for
research and development and for government and industry to co-create solutions related to
urbanisation and the ageing of the population in Asia and globally. Water and medical devices
are early focus areas.
P 17
MANUFACTURING GREEN PAPER
SETTING DIRECTIONS FOR THE TRANSITION OF
MANUFACTURING IN SOUTH AUSTRALIA
SMR - a high-value manufacturer supplying the automotive and medical devices industries
P 18
Innovation and competitive advantage
The states Economic Development Board has pointed out that South Australia has unprecedented
opportunities for high growth and prosperity, the game changer being the $109 billion of major
projects underway and on the horizon. Many of these projects are mega-projects in the resources
sector.
The key strategic question is: how can South Australia leverage these projects to build
opportunities for manufacturing?
This includes the readiness and capability of local manufacturers to take advantage of these
opportunities.
Many rms are at a fork in the road, with some believing they will be competitive simply by
reducing their operating costs and those of others in their supply chain. However, this is not the
pathway to sustainable competitiveness in todays environment.
Competitive advantage can be created when a rms products or services differ from its
competitors and are seen as superior from a customers perspective. Cost competitiveness
is a necessary but not sufcient condition for sustainable competitive advantage. Long-term
sustainable competitive advantage comes from competing on value and innovation and by growing
top line revenues. The top line is the new bottom line for manufacturing in South Australia.
The OECD cites that innovation will increasingly be needed to drive growth and employment and
improve living standards.
18
However, Australias global ranking on competitiveness is declining.
19
But what is innovation? A common misconception is that innovation is linked only to research and
development, or worse yet that innovation is research and development.
Innovation is more about problem solving and learning than about scientic discovery, more about
the customer than about the producer, more about the marketplace than about the laboratory and
more about the business transformation than about the technology.
20
South Australian manufacturing is perceived as being very good at tactical problem solving but
less procient at strategic vision, which is where the value often lies.
21
This perception is backed by
research that found Australian manufacturers are good at operational management but weaker at
strategic management.
22
Innovation strategies can be grouped into two types those that create value and those that
capture value (see Table 1). Professor Roos has advised that Australian manufacturers should
work more on value creation through design and also on capturing value from new business
models and focussing on customer needs.
SECTION 03 Fork in the road
18 OECD 2010, Getting a Head Start on Tomorrow.
19 World Economic Forum, World Competitiveness Report.
20 Australian Business Foundation, Manufacturing Futures, commissioned by the NSW Business Chamber, 2011.
21 Gran Roos, Manufacturing into the Future, 2011.
22 UTS, Roy Green, Management Matters in Australia: Just How Productive Are We? 2009.
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MANUFACTURING GREEN PAPER
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Table 1: Innovation in manufacturing
Type of innovation Ability of Australian
manufacturers
Technology e.g. nanotechnology, social media, biotechnology Strong Innovations that
CREATE value
Efciency e.g. operational, engineering, nancial systems, lean
manufacturing
Strong
Design e.g. user-centred, behaviour-changing, marketing Weak
Business Model e.g. stakeholders, distribution, partnerships, revenue
models, branding
Weak Innovations that
CAPTURE value
Effectiveness Improving e.g. sell the right thing to the right person
by providing tailored and customer-focussed solutions
Weak
With more resources at their disposal it is not surprising larger rms are more readily building
new forms of innovation into their businesses however many SMEs are yet to adapt.
23

To overcome this, SMEs can align themselves with market-leading rms, known as lead
customers, to co-operatively develop new product and service solutions.
However, a major challenge for economies with a large proportion of SMEs, such as South
Australia, is the ability of rms to adopt new information about business models, innovation
strategies and technologies, known as absorptive capacity. The key to government improving
SMEs absorptive capacity, is to target efforts towards rms that want to grow and are committed
to exploring new strategies for their business. Research suggests approximately 15 per cent of
all rms fall into this category
24
, which in South Australia would amount to approximately 1,050
manufacturers that need to be identied.
Clusters and value chains
While clustering as an economic development tool has been widely used in other countries, it
has been less frequently applied in Australia. A cluster is a particularly powerful way for SMEs to
overcome disadvantage associated with small scale, and may be dened as a group of companies
including competing and non-competing rms, lead customers, researchers and service providers
working within a geographical location to develop products and services for an identied market.
SMEs that are part of a cluster or value chain are more likely to collaborate to innovate than
independent rms. The development of clusters that emphasise innovation and link to value chains
is a potentially important role for government.
Clusters work best when they are industry-led, although the role of government in facilitating
their establishment is widely recognised. There is also a role for government to identify value
chains that are strategically important to South Australia, where the focus is on the consumers,
their needs and wants, product and service differentiation and adding value to generate prot.
This is different to a supply chain, where the focus tends to be on the producer and reducing costs.
Mapping value chains that present economic opportunities for the state will also be critical for the
Manufacturing Strategy. Some of these are explored in the pages that follow.
23 OECD 2010, Getting a Head Start on Tomorrow.
24 Gran Roos, Manufacturing into the Future, 2011.
P 20
Economic opportunities
South Australia has many opportunities to build competitive advantage from our natural
resources, particularly in mining and agriculture, as well as in emerging industries.
Resources, manufacturing, services and technology
South Australia is on the cusp of a major resources sector expansion, with 19 major mines
approved, a further 30 or so in the approvals pipeline, and almost 100 exploration targets being
evaluated. Continued strong demand from new markets such as China and India is expected to
underpin this sector for many years to come.
The proposed expansion of BHP Billitons Olympic Dam mine should become a model for the future
engagement of miners, manufacturers and service providers to develop new capabilities, increase
local industry participation and leverage the benets across the economy.
South Australia has a broad range of manufacturing, services and technology capability to support
this expansion, including engineering design, project management and contracting, fabrication,
mine processing equipment, and through life support engineering activities. These capabilities
must be developed and deepened. However, this must be done against two key factors:
the resources boom drives up the exchange rate, helping to crowd out value-adding activities
such as manufacturing.
the resources sector is heavily internationalised, both in terms of ownership and supply chains,
and has strong propensity to import plant and equipment.
By itself, mining provides limited labour absorption, which will likely decline in future due to
technological advancement. A proactive approach to value-chain development is therefore needed
to ensure that the state captures long-term benets from the mining expansion.
Countries such as Finland, Canada, Norway and Chile furnish positive examples of partnership
between mining companies and jurisdictions to create local value chains.
These resource-rich jurisdictions have leveraged their resources to build internationally
competitive manufacturing and service clusters that in many cases now supply goods and services
to major projects around the world.
Clustering of several rms in complementary areas of activity and capability has been a key
feature of nations and regions that have successfully grown their resources and manufacturing
industries together. Firms in a successful cluster can benet from accelerated knowledge and
technology transfer and acquisition of key capabilities. Smaller companies can overcome their size
disadvantage through collaboration for major contracts, making them more competitive in bidding.
Their customers (which are predominantly miners) benet from having efcient and effective
suppliers at close proximity to their operation.
South Australia has recognised concentrations of excellence in applied research and education
related to the resources industry including, but not conned to, the Ian Wark Research Institute
(University of South Australia), Institute for Mineral and Energy Resources (University of Adelaide)
and the Co-operative Centre for Deep Exploration Technologies, as well as various high quality
graduate and post-graduate degree programs. Opportunities exist to add further expertise, such
as the Commonwealth Scientic and Industrial Research Organisation (CSIRO). These centres
of excellence produce knowledge workers for the resources expansion, provide a magnet for
investment in the industry and help industry optimise upstream and downstream value chain
opportunities from the resources sector.
An example of a mine value chain is presented in Figure 3. The prots of each part of the chain can
be viewed in isolation or collectively, to determine which areas of the chain are more valuable than
others, and so could form the basis of future competitive advantage for the state.
P 21
MANUFACTURING GREEN PAPER
SETTING DIRECTIONS FOR THE TRANSITION OF
MANUFACTURING IN SOUTH AUSTRALIA
Exploration
& Resource
Denition
Drilling equipment
& service, camps,
mobile power &
water, catering,
consumables &
earthmoving
Geological,
geochemical &
geophysical analysis
Venture nance/
capital raising
Venture/equity/
capital nancing
Resource/market
evaluation
Environmental eld
trials & assessment
activities
Hydrogeological
studies
Mine planning
Rehabilitation
Site preparation,
earthmoving, airstrip,
ofces, change rooms,
shaftsinking
(if underground),
power & water
systems
Mining equipment /
vehicles
Semi/permanent
accommodation
facilities
Specialised
mining and
earthmoving
equipment
Service &
maintenance
Grinding mills,
concentrate
tanks,
consumables &
maintenance
Refractory
items, ie
bricks, liners,
consumables,
clothing &
maintenance
Manufacture
cathode sheets,
chemicals,
wear products,
clothing &
consumables
Feasibility Mining &
Environmental
Approvals
Construction
Export
Processed and unprocessed metals
and minerals are exported
Rehabilitation
Final rehabilitation stage earthmoving,
decommissioning, removal & rehabilitation of site
Operational
Mining Mineral Processing
Concentrating Smelting Rening
Figure 3: Mining value chain
Typically, mining is conducted by open cut (from the surface) or underground via a shaft and tunnelling. There are however
other forms of mining such as in situ leaching, used predominantly in the uranium industry and bio-mining that are not
covered in the following value chain.
High-value manufacturing
As already noted, future manufacturing (beyond 2020) will move towards the high-value, science-
based, advanced manufacturing industries enabled by converging technologies in:
biotechnology using biological materials and processes to solve industrial and environmental
problems, leveraging the states existing strengths in medical biotechnology
nanotechnology an emerging area of capability working across chemistry, physics, biology and
materials science to manipulate molecular scale matter
ICT sensing, design and communications technologies with diverse manufacturing
applications including digital 3D printing and 3D software
cognitive science using new information about the human brain to transform industrial
processes and inuence human behaviour.
Other areas that DMITRE considers worth exploring include:
cleantech renewable energy, smart grids and demand management, low-carbon buildings,
water and environmental services
automotive lightweight vehicles and components, alternative fuels, vehicle electrication and
green production techniques
medical technologies assistive devices, instruments, lasers, implants, pharmaceuticals and
other high-value manufactured medical products
food and beverage manufacturing dietary and functional foods, premium branding, innovative
packaging
resources bio-mining, rare minerals, water and energy production, sensing and simulation.
P 22
Cleantech
Urbanisation and population growth in Asia represent a signicant opportunity for the
cleantech sector.
25
At the national level, the introduction of a carbon tax and emissions trading scheme will also
create signicant opportunities for the cleantech sector.
In South Australia, the expanding resources sector presents a major opportunity, with examples
including energy efcient housing, small-scale distributed energy generation, mini-smart grids,
energy-efcient mineral processing and resource recovery systems, water processing and storage
technologies.
The states already sizeable renewable energy generation capacity will create greater need for
utility-scale smart grids. There is also enormous potential in geothermal energy generation, as a
high proportion of the companies in this sector are South Australia-based.
DMITRE suggests there are strong capabilities in South Australia in electricity generation,
transmission and distribution; energy efciency; and water and environmental products and
services that will support the growth of this sector.
Tonsley Park
The redevelopment of the former Mitsubishi Motors manufacturing site at Tonsley Park in
southern Adelaide as a sustainable technologies precinct is a signicant opportunity to develop
a manufacturing cluster that will be a hub for the development of South Australias high-value,
advanced manufacturing capabilities and emerging technologies, including:
environmental and cleantech
automation and systems integration
defence composites
materials sciences and nanotechnology
renewable energy and energy efciency
health and medical sciences
medical and assistive devices
building technologies.
The Climate Group, a coalition of leading international businesses and sub-national governments
is working with agship urban precincts to test innovative policies, technologies and business
models. In its Adelaide Workshop Report, June 2011, the Climate Group identies that Tonsley Park
has a signicant opportunity to be a world-class centre for industry and design innovation of an
unprecedented scale in Australia.
The Tonsley Park Redevelopment will underpin industry development in high-value, advanced
manufacturing and services linked to opportunities in major mining, energy and resources
projects and strong growth in cleantech industries worldwide.
The site will act as a catalyst for developing and implementing cluster initiatives that promote
innovation and new technologies in resources and services technologies, renewable energy and
energy efciency and medical and assistive devices.
The Tonsley Park precinct will support industry and business-model innovation through design.
Tonsley Park will integrate industry with research, education and a residential community within
a high quality environment. Industry and research collaboration, testing and demonstration will
be key features of the precinct that is designed to attract and support highly skilled knowledge-
based workers.
25 Breakthrough Institute and Information Technology and Innovation Foundation, Rising Tigers, Sleeping Giants, December 2009.
P 23
MANUFACTURING GREEN PAPER
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MANUFACTURING IN SOUTH AUSTRALIA
Figure 4: Economic opportunities
Cleantech
Knowledge
intensive services
Resources,
manufacturing,
services &
technology
High-value
manufacturing
Innovation
Strategies
Technology
Design
Business model
Customer focus
Converging
Technology
Biotechnology
Nanotechnology
Cognitive science
ICT
Tonsley Park
Shape your future
What innovation strategies are most required to modernise manufacturing in South Australia
and how can government work with industry to deliver these?
How can government identify SMEs with the potential to develop their innovation capabilities?
How can government engage the private sector to map value chains so it can develop clusters?
These market development opportunities are interconnected as shown in Figure 4 below.
P 24
Vision for manufacturing in South Australia
All the research and advice received by the State Government conrms there are no short-term or
single-strategy solutions to modernise the states manufacturing sector.
As raised previously, the fundamental issue that needs to be resolved is the sustainability of
manufacturing in a high-wage, high-dollar South Australian economy. Manufacturing will gravitate
towards the science-based industries and manufacturers must become better at creating and
capturing value through innovation. These are long-term strategies that demand long term
commitments.
DMITREs vision for the future of manufacturing in South Australia is:
An advanced manufacturing sector that competes internationally through innovation and excellence
and through superior organisation and dynamic capability. Manufacturing will drive productivity
improvements across the whole economy through strategic leadership, a highly skilled workforce
and applying knowledge and cutting-edge technologies. Our industry participates in dynamic value
chains and clusters in our mining and resources, defence, and emerging high-value industries. Our
manufacturing sector underpins rising living standards across the community.
Priority areas for the government to achieve this vision include:
1 Smart decisions
Global technology, and business and consumer trends are shaping the future environment our
manufacturers face. Technologies such as biotechnology, embedded systems, 3D printing,
sensing and scanning, digital technologies, ICT and advanced materials will all change the way
manufacturing operates in the future.
Making smart decisions about where to invest resources is critical to the success of any rm, and
indeed for government in the development of industry policy. Government is uniquely positioned
to support companies, especially SMEs, in information collection and dissemination related to
manufacturing capabilities, value chains and technology trends.
Using lead customers in the public sector, the initial focus for an opportunity mapping project
could involve SA Water and SA Health determining advanced, high-value manufacturing
opportunities in the water and health sectors.
Capability and value-chain mapping could be undertaken simultaneously across a broader range
of rms in South Australia, while technology road mapping could be undertaken in partnership
with a research organisation with data about trends and technology made publicly available.
Professor Roos states, the lack of reliable data is presently a problem in South Australia.
26

Practitioners working in the eld endorse this nding and conrm that having such information
available would signicantly enhance our collective abilities to make wise and informed decisions
about where to invest to capture the many new opportunities emerging in South Australia.
SECTION 04 The way forward
26 Gran Roos, Manufacturing into the Future, 2011.
P 25
MANUFACTURING GREEN PAPER
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2 Smart opportunities
Global cluster strategies have proven successful in accelerating regional economic growth. They
promote collaboration, knowledge and technology transfers between stakeholders and enable our
smaller companies to be competitive in bidding for major projects.
Manufacturing in South Australia has a number of exciting opportunities and challenges such as
the growth of the resource sector, the need to diversify and transform the automotive sector, and
the creation of higher value by rejuvenating the food and beverages sector.
Linking rms together into clusters that bring together lead customers, SMEs and researchers to
promote collaboration, knowledge and technology transfer, can overcome barriers to growth often
associated with SMEs such as scale, absorptive capacity, failures in the market for information,
pathways to market, investment and technology trends.
For example, to grow mining and manufacturing together in an environment where supply chains
are typically dominated by multinational rms with global reach and scale, a resources cluster or
clusters could be established to promote procurement, innovation, pre-qualication training and
mentoring. Such an initiative could be modelled on the existing successful PACE Mining program
that was established to encourage exploration in the resources sector.
In an environment where the automotive sector is under considerable pressure, the retention of
strategic capabilities in the supply chain can be facilitated by the establishment of a dedicated
automotive cluster. This cluster would aim to make its advanced manufacturing capabilities
available to other markets beyond vehicle manufacturing such as resources, defence, medical
instruments or water technologies.
South Australia is internationally recognised as a global supplier of clean and green food and
beverages. There are many opportunities to create more value for South Australia, such as
adding value to existing products (e.g. wheat, wine, fruit) or creating new products, together with
becoming more sophisticated with our branding strategies. A cluster-based approach would
enable rejuvenation in this sector to become more advanced and high-value.
A new approach to industry participation is being developed by the government to provide full,
fair and reasonable opportunity for local suppliers to participate in major public or private sector
procurements. A revised Industry Participation Policy will increase the use of public and private
sector procurement to build local capabilities, which could be accessed by these clusters.
3 Smart rms
This paper has extensively canvassed the critical role of innovation as a business tool to improve
competitiveness. As an area of signicant market failure due to the high proportion of SMEs with
limited absorptive capacity, and the opportunity for the state to improve business competitiveness,
the government can promote the adoption of appropriate innovation strategies within forward-
thinking rms. This will create stronger rms with improved productivity and future growth
prospects, and a stronger state economy.
Areas of innovation that could be explored further, and in some cases could lead to new programs
for manufacturers, include technology, design and business models. Raising awareness of the
technology development capabilities of our local research organisations should be considered,
in addition to promoting engagement between the research sector and local manufacturers
to create new advanced and high-value products and services. A dedicated technology portal
that showcases the latest international technology trends that are relevant to South Australian
manufacturers could also be established.
Professor Roos highlighted that a number of OECD countries are moving towards the use of
government procurement as a smart way of stimulating innovation within local economies. In the
UK, for example, a Small Business Innovation and Research Fund within government provides
funds for rms to develop solutions to specic problems identied by the British Government,
where there is no off-the-shelf product or service. Such an approach could be valuable for South
Australia and should be investigated.
P 26
4 Smart people
Planning for and providing a skilled workforce is a major focus of the State Government, through
the six-year $194 million Skills for All reform. Combined with the existing Productivity Places
Program, the government will create 100,000 additional training places, many of which will be in
occupations related to advanced, high-value manufacturing. Developing strong skills in science,
technology, engineering and maths is another government priority in the Skills for All reform.
At the enterprise-management level, several studies have highlighted the potential to unlock
global leadership potential and entrepreneurship in Australian manufacturers. Offering research
students opportunities to develop their business and entrepreneurship skills could encourage
bright individuals to establish niche, high growth-potential start-ups in emerging market
areas. This may also assist in combating the brain drain phenomenon whereby highly qualied
graduates seek jobs overseas.
Similarly, there are strategic and long-lasting benets to be gained from enhancing the leadership
skills of those responsible for leading manufacturing rms in a global environment.
Have we got it right?
Does the vision characterise what is needed in the future for manufacturing to be successful?
Are these the right priorities for government action?
Do you believe the government has a role to lead or facilitate any of these activities?
Should government programs target growth oriented businesses?
P 27
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Metallurgical processing plant, Olympic Dam
P 28
The government and the community recognise there are major threats confronting manufacturing
in South Australia. At the same time, there are massive opportunities on our doorstep, including
building the mining value chain to supply advanced, high-value manufactured goods and services
locally, leveraging Tonsley Park to stimulate the development of emerging industries, building
on the states leadership in renewable energy deployment, and expanding our high-value
manufacturing capabilities in food, defence, automotive and process technology. These are
urgent and high-impact opportunities to put manufacturing and the state on the path to economic
prosperity.
However creating the future we all want cannot be done by government or industry alone. Rather,
the challenges must be accepted by industry, government and the community, and the solutions
found through all three working together.
As a Thinker in Residence, Professor Gran Roos informed government and the community of the
directions we need to take. The next step is ours.
Having asked the question
What will it take for manufacturing to survive and succeed in a high-wage, high exchange-rate
South Australian economy?
will the suggested approach in this Green Paper make a difference to manufacturing in South
Australia, and what more needs to be done?
Have your say
DMITRE is seeking industry feedback on the following key questions which are covered in this paper.
Visit www.dmitre.sa.gov.au/manufacturing to have your say.
1. What critical changes will ensure manufacturing is sustainable in a high-wage, high exchange-
rate economy?
2. Would the four priority areas for government action (smart decisions, smart opportunities,
smart rms, smart people) assist your business or industry to grow? And how?
3. What are the most promising future manufacturing opportunities for South Australia and what
key competencies do we need to develop?
4. Professor Gran Roos urged us to upgrade our knowledge of our states existing manufacturing
capabilities, value chains, new opportunities and technology trends. How can government and
industry work together to achieve this? What is the key information that could improve the way
you do business?
5. What innovation strategies are most required to modernise manufacturing and which would
most benet your business?
6. What skills and capabilities are going to be required to assist manufacturers to expand their
operations in the future?
SECTION 05 Conclusion
P 29
MANUFACTURING GREEN PAPER
SETTING DIRECTIONS FOR THE TRANSITION OF
MANUFACTURING IN SOUTH AUSTRALIA
P 30
Published March 2012.
No responsibility for any loss or damage caused by reliance on any of the information or advice provided by or on behalf
of the state of South Australia, or for any loss or damage arising from acts or omissions made, is accepted by the state
of South Australia, their ofcers, servants or agents. Produced by the South Australian Department for Manufacturing,
Innovation, Trade, Resources and Energy March 2012. Content correct at time of printing.
Contact
For more information visit:
www.dmitre.sa.gov.au/manufacturing
Department for Manufacturing,
Innovation, Trade, Resources and Energy
Level 9, The Conservatory
131-139 Grenfell Street
Adelaide 5000
South Australia
GPO Box 1264
Adelaide 5001
South Australia
Tel +61 8 8303 2261
Fax +61 8 8303 2509