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In Australia, manufacturing's not dead, just changing

Workers use magnifying glasses as they work on components at the Rode Microphone factory located in western Sydney August 15, 2013. REUTERS/
Workers use magnifying glasses as they work on components at the Rode Microphone factory located in western Sydney August 15, 2013. REUTERS/

By Jane Wardell

SYDNEY (Reuters) - At a bright, airy plant in the outer suburbs of Sydney, large automated machines hiss quietly as they create motherboards for stereo video microphones that will be shipped around the world.

A few miles down the road, the long arm of a robotic machine at Quickstep Holdings Ltd shapes a carbon fiber composite car panel for trials with automakers including Germany's Audi AG .

Quickstep and privately-held Rode Microphones are just two businesses that suggest reports of the death of Australian manufacturing - battling a strong local currency, rising costs and cheap imports - are exaggerated.

They are among a host of companies which have defied gloomy headlines sparked by Ford Motor Co's announcement it will close its Australian car plants from 2016, and by General Motors Co's threats to also close manufacturing operations unless it receives more government support.

Manufacturing as a proportion of GDP is declining in most advanced economies, reflecting the growing influence of services and information based industries. In Australia, it has fallen to around 7 percent - well below the 25 percent levels seen in the 1960s - while World Bank data show manufacturing accounts for 11-12 percent of GDP in the United States and Britain, and around 30 percent in China.

According to the Australian Industry Group, the sector remains a major employer, with 88,000 manufacturing businesses employing some 940,000 workers, far more than the mining industry, and not far short of levels seen five decades ago.

The sector is, however, going through a prolonged transition, from the big auto and white goods makers of the past into smaller niche and high-skilled manufacturers focused on supplying global markets.

"The future essentially belongs to a new class of micro-multinationals - SMEs that operate largely below the radar but which are proving very competitive and very resilient in global supply chains," said Roy Green, dean of business at the University of Technology in Sydney.


Rode manufactures more than 90 percent of the 36,000 microphones it sells every month at its factory in Silverwater, a mixed industrial, residential suburb in west Sydney. Peter Freedman, the company's founder and managing director, initially started production in China in the 1990s, lured by low costs, but he soon realized the benefits of manufacturing at home.

"I started doing a lot of stuff in China early on and I could see the writing on the wall," Freedman said. "Prices were going up and also the Chinese manufacturers themselves were watching what everybody was doing, and I was thinking: ‘man they're going to try to take my business.'"

Freedman instead invested heavily in Silverwater, steadily building up a state-of-the art factory that is a far cry from the traditional industrial sites such as those earmarked for closure by Ford and GM's Holden. He now exports his products, which range from lapel and smartphone microphones to industry standard camera mics, back to China and the rest of the world.

"I was in China three weeks ago and you see them operating quite old gear with three people on it, earning very little," Freedman said. "The technology is such a huge barrier to entry to take me on."

Quickstep, which makes advanced composites including parts for the F-35 Joint Strike Fighter and Lockheed Martin Corp's C-130J Hercules aircraft, is leading a project supported by a government grant and Audi to develop new ways to make composite automotive parts.

"This has the potential to provide a very substantial second growth front alongside our existing activities in the aerospace sector," said Quickstep managing director Philippe Odouard.

Even Ford, which has announced the closure of its two local auto plants in October 2016, has reinforced its commitment to its research and development in Australia, where it has spent A$1.9 billion on design and engineering over the past six years.


Perhaps Australia's biggest manufacturing success story is in the rapidly growing pharmaceuticals and biotech sector, where CSL Ltd , a blood products specialist, has grown from a A$300 million company when it listed in 1994 to be worth around A$20 billion.

The company, which books 90 percent of its revenue outside Australia is now the world's No.2 blood products maker, and last week reported a record $1.22 billion in annual profit.

CSL has just finished building a new plant in Victoria state that will begin production of Privigen, its intravenous immunoglobulin treatment, in 2016. The company, which currently makes Privigen in Switzerland, will export the product from its Broadmeadows site to the United States, Europe and Asia.

Shares in CSL have soared more than 1,400 percent since 1999, compared to a 61 percent gain on the ASX 200 <.AXJO>.


But Australia's shift to a high-tech manufacturing center faces headwinds, including a stubbornly high local currency that has traded at 30-year highs against the U.S. dollar over the past two years - though it has dropped back by around 10 percent since April.

A strong Australian dollar makes business tough for many small enterprises, although Rode's Freedman said watching the currency go to parity with the U.S. dollar and beyond also provided opportunities.

"We released new products based on new prices and I just said to the sales guys, 'you have to sell more'," he said. "It pushed us to be super-efficient, getting into lean manufacturing, buying better and just doing better quality."

Another major structural problem is Australia's weak record in producing enough home-grown scientists.

Australia's chief government scientist, Ian Chubb, noted in a recent speech that only around a fifth of Australian students graduated with science, technology, engineering and mathematics related degrees. That contrasted with around 64 percent in Japan, 52 percent in China and 41 percent in South Korea.

Asked what policy issues he'd like to see front and center for next month's general election, CSL Chief Executive Paul Perreault said "technical expertise in universities in Australia is something we continue to need to pay attention to."

Matt Barrie, the founder and CEO of rapidly growing recruitment site freelancer.com and an external lecturer at Sydney University's Department of Electrical and Information Engineering, says as many as 80 percent of students are from overseas.

"Some of them are great students, but they're not going to stay here, they're going to go home and build big technology companies in their own countries," he said.

(Additional reporting by James Grubel in Canberra; Editing by Ian Geoghegan)