Manufacturers' Monthly July 2013 Leaders Summit

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How Australian manufacturers can benefit from the Asian Century Proudly sponsored by

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northern neighbour is providing a whole new, untapped market for Australian manufacturers.

Editor Col Latimer’s address to the summit on the state of the industry

34 How Futuris drove into Asia

Despite the mining boom grabbing the headlines and the public’s attention, manufacturing has continued to support our nation’s consistent growth.

32 The view from the Leaders’ Summit What needs to be done to take advantage of our position in Asia, and how can policy affect change for the industry. The industry speaks.

33 Indonesia opportunities Despite being overlooked in the growth of Asia, our manmonthly.com.au

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30 Manufacturers’ Monthly’s NMW Leaders’ Summit opening address 31 Manufacturing: The silent workhorse of the Australian economy

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The first hand account of how manufacturing can get it right in entering Asia, and the need for thorough planning, patience, and the right strategy.

36 Austrade’s Asian transformation With Asia posing an opportunity as well as a threat to Australian manufacturers, how can your business avoid the pitfalls encountered in the region.

38 From building and shipping to global supply chains No manufacturer can enter Asia alone. EFIC’s Robert Dravers used the Leaders’ Summit to explain how to win and finance export opportunities overseas when the private market fails to provide.

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Manufacturers’ Monthly NMW Leaders’ Summit Opening Address As part of National Manufacturing Week, Manufacturers’ Monthly hosted the Leaders’ Summit where manufacturers and the industry gathered to discuss what’s really happening in the industry. Below is the opening address by Manufacturers’ Monthly editor Cole Latimer.

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elcome Ladies and Gentlemen to Manufacturers’ Monthly’s Leaders’ Summit, where we will discuss the state of Australian manufacturing in the Asian century, what we can do to take advantage of this new market, and what it means for our future.

Firstly I’d like thank our speakers at the event, from Futuris Automotive Mark de Wit and Dexter Clark, from EFIC Robert Dravers, and from Austrade we have Phil Bourke.

Hopefully today we can all come away with a better understanding of our position in this current market, as we experience the massive global shift towards Asia.

As manufacturers in Australia we also need to shift our perception of how and where we operate.

Australia is part of Asia.

This is now a fact.

We can no longer view ourselves as a nation apart – a piece of the West in the East, and in turn we need to embrace our role in the growing Asian sphere of influence; as we can all agree that this is the Asian century.

The rise of the Asian Tigers in the 90s, followed by the unstoppable growth of China that has now slowed but in turn aided the rise of its South East Asian neighbours, has cemented this.

Previously Australia has attempted to compete against manufacturing nations such as China or Japan.

But with the high Australian dollar, the high cost of labour, and increasing energy costs going head to head with these low cost nations - despite our manufacturing excellence and capabilities means we may have to either lower our quality (which we can’t do) or we have to think smarter.

So how does an Australian manufacturer work smarter?

We trade on lower costs offshore, while we utilise our reputation.

However we have to be careful not to trade our reputation.

Australia is known across Asia as a nation of high quality products, our food, beverages, pharmaceutical products, and proficiency in design set us apart.

If a product is known as an Australian product then it is held in high esteem in Asia; the end users know that their product is made to the highest standards.

We can utilise this reputation to gain a greater foothold in Asia, to use what is now the largest 30 JULY 2013 Manufacturers’ Monthly

growing middle class in the world – these people want the top quality products and equipment that their newly found money can buy, and Australia is in a unique position to provide this.

This new demand is essentially an untapped market that we as Australians can enter, riding on the back of our already high reputation.

On top of this is our capacity for additive manufacturing, taking a fairly basic product and providing additional manufacturing, processing.

We have the capability to turn good products into great products.

But how else can Australians develop this position in the Asian economic sphere?

Offshoring – possibly.

Recognising where new opportunties lie, in

terms of cheaper manufacturing, free trade agreements, and manufacturing locations that open up markets that would simply be unobtainable by manufacturing solely in Australia.

For instance, Australian automotive components manufacturers are looking to new opportunities in Thailand, as there exists a free trade agreement with one of the world’s largest car manufacturers – Japan.

This means that their components are able to go straight into Japanese built cars that are later exported back in to Australia, essentially coming full circle from Australian design, Thai built, added to Japanese cars, and ending up on Australian roads.

Realising that Australia is part of a wider economic sphere that now allows us to play within that market as never before is something that our manufacturing space needs to do.

However this does not mean that we should echo the US where all manufacturing is shipped offshore, only to create such an economic blackhole where it eventually becomes cheaper to manufacture in the US again, thanks to generous subsidies and overwhelming governmental support.

We have to be careful that all of our manufacturing and in turn our experience and unique skills are all exported as well, essentially causing a brain drain and removing all our manufacturing capabilities.

Australia can not leave itself vulnerable by moving our entire industry offshore.

There are so many opportunities available, but we mustn’t ignore what it means for Australia.

We can continue to manufacture in Australia, and use Asia as a new market for our goods, providing the high end, quality manufacturing that these nations just can’t provide or assure without Australian input.

However we won’t be able to do it without government support.

A government that looks at the rising energy costs, addresses the carbon tax, and provides the kind of backing the industry needs, as well as, dare I say it, continued subsidising.

We are here to discuss the potential, the possibilities, what it means for manufacturing, and how we can do it.

Because we need to embrace the Asian century, before it leaves us behind. manmonthly.com.au

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Manufacturing – “the silent workhorse of the Australian economy” Following is a statement given by Manufacturing Australia’s chairman, Sue Morphet in Canberra on March 18.

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anufacturing is the silent workhorse of the Australian economy.

Through job creation, import replacement and maximising the value of our natural resources, manufacturing delivers tremendous benefits to the nation.

Our sector employs almost 1 million Australians, contributes more than $160 billion into other sectors of the economy and creates an additional 2 to 5 jobs outside the sector for every job within it.

I strongly believe that there is a positive future for this sector and I want to help ensure that we have the right type of manufacturing in Australia: manufacturing that takes advantage of our natural competitive advantages to create stable, rewarding employment not just in our cities, but also throughout rural, regional and outer-suburban Australia.

Manufacturing Australia is here today to release its policy

manifesto, Australia’s Manufacturing Advantage, which advocates for three key areas of reform that we believe help Australian manufacturers to compete in this global sector.

Certainly we face formidable challenges: among them the high Aussie dollar, high input costs, increased imports, which are sometimes “dumped” in Australia, the cost of running and constructing manufacturing plants in Australia and excessive or inconsistent regulation.

But we also have significant advantages, and manufacturing flourishes in those countries that identify and exploit their natural advantages. For some nations that advantage is cheap labour.

For others, like Australia, those advantages include our abundant energy resources, our highly skilled workforce, our ties with Asia, our capacity for innovation and research and our stable governance.

Through smart policy and strategic

Manufacturing can flourish in the right circumstances. manmonthly.com.au

Manufacturing Australia’s chairman, Sue Morphet. investments, our sector can in the next decade directly and indirectly create 100,000 new jobs and drive a manufacturing resurgence throughout rural, regional and outersuburban Australia.

So to our three priority areas of reform: First, we must better capitalise on Australia’s energy advantage.

Australia is an energy and resources superpower, but currently our domestic energy policies largely fail to capitalise on our energy advantage. The most important way we can do that is by creating a domestic gas market that enables value-adding manufacturing alongside gas exports.

Secondly, we must restore fair trading conditions. Great improvements have been made to Australia’s anti-dumping regime in the past 18 months, but more needs to be done. Mismanagement of open trade can easily lead to unintended consequences such as dumping and exclusion of domestic manufacturers from domestic markets. Through changes to coastal shipping regulations, further anti-dumping reforms and stronger industry participation schemes, we can ensure

we are competing on a level playing field with our overseas competitors.

Finally, we need to invest for manufacturing growth. It’s time for governments and communities alike to get over the perception that manufacturing in Australia is a “sunset” industry, because it’s not. Advanced economies around the world are growing their manufacturing capacity through deliberate, smart investments in the sector. In Australia that means investment in infrastructure, better industry links for R&D, industry linked training, increasing the flexibility of our manufacturing workplaces and strengthening regulations that stimulate demand.

With the right policies, and the right investments, manufacturing can and will continue to flourish throughout the boom and bust cycles of other industries. These policies, which we have provided to members of the Federal Government this morning, and will provide to the Federal Opposition this afternoon, can help to achieve that.

This statement has been republished here with permission.

Image: Manufacturing Australia website Manufacturers’ Monthly JULY 2013 31

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The view from the Leaders’ Summit What might need to be done to take full advantage of Australia’s position in the Asian Century? To do nothing could be to miss out, so what policy areas need attention? We opened up the floor at the Leaders’ Summit and a few themes emerged. By Brent Balinski.

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nsurprisingly, the conversation at the Summit swung towards a few key areas of concern for Australia’s manufacturers, such as strategic investment, free trade and, of course, energy policy.

“I think as a manufacturing community we have to stand up and say ‘governments are making strategic choices where they spend taxpayers’ money; we give $1.7 billion generally to industry in R&D tax concessions,’” suggested Bruce Grey, the managing director of the Advanced Manufacturing Cooperative Research Council.

Both sides of politics support targeted investment, though with a few differences, for example the Coalition’s pledge – if it wins office in September – to take $500 million out of the assistance currently on offer to automotive makers up to 2015.

And then there’s the federal government’s Plan For Australian Jobs suite of policies, budgeted at $1 bn, which the opposition is critical of. It will be funded by taking money usually tied up in the R&D tax concession for companies with revenues greater than $20 billion a year (estimated to include 15-20 firms).

Both sides of politics have their own ideas of what makes for effective targeted investment. It’s a question of what is seen as providing the best bang for the taxpayers’ buck.

“We also give $1.4 billion to National Health and Medical Research Council, for example, and $800 million to the Australian Research Council. I don’t know how many billions to the car industry. But is this spending leveraging our export capabilities?” asked Grey at the summit, suggesting we might also look to Asia, specifically Taiwan.

“If you look at Taiwan, that’s a good example.

The Taiwanese have a population similar to Australia, in a country smaller than half the size of Tasmania, and last year they exported $320 billion, and we export $280 billion, and we’ve had the resources boom on.”

Other countries provide incentives for manufacturers. Notably, Dexter Clarke, head of corporate affairs at Futuris and a presenter at the Summit, mentioned the tax break given to automotive firms opening plants in Thailand.

“It’s an amazing advantage [in Thailand] Tax-free for eight years,” said Clarke.

“But there are conditions. It is based around the investment you make as well and it’s not just a free grab.”

A major issue for the industry is the affordability and availability of energy. The 32 JULY 2013 Manufacturers’ Monthly

Technology and free trade were a couple of topics of interest. massive investment in east coast gas development is for LNG that will be exported to Asia, where, due to the lack of gas availability in countries such as Japan, it can be sold for prices higher than it could in Australia.

Many high-profile manufacturers have spoken about the situation, which – according to research commissioned by the Plastics and Chemicals Industry Association (PACIA) forfeits $21 in potential value-add for every $1 exported – is frustrating to those struggling to secure long-term contracts to run their factories.

The keynote speaker at the Endeavour Awards dinner the day after the summit, Sue Morphet of Manufacturing Australia, warned of dire consequences for industrial users if action is not taken. Later she put the cost of inaction at 200,000 jobs.

Another critic of Australia’s gas policy settings, Dow Chemical CEO Andrew Liveris, said “the sky is the limit” for Dow’s investment if Australia made its energy policy more favourable to industrial users.

Ian Harrison of Australian Made mentioned the disincentive to invest in major projects in Australia created by the cost of gas. “You look where the energy prices are going and think ‘this is crazy?” said Harrison.

“Why would I invest – or if you’re a shareholder you would say ‘why are you investing my money in this environment when there is so much uncertainty about the cost structure beyond which you can control?’

“I don’t know why you want to export your gas

from the Eastern Seaboard. The Western Seaboard, sure, but why don’t you make that available, thinking of your own energy, to your manufacturing base. So you can say we’re going to enjoy – in the secondary rather than the primary industry – some of the benefits of what’s around here.”

The Asian Century has created challenges as well as opportunities for Australian manufacturers. The demand from Asia – and the resulting lack of access for local users – for the country’s natural gas is one of the most notable.

“You’ve got to become a bit more strategic about how you develop the economy – and that’s what scares me,” said Harrison. “You’ve got all that stuff on the Eastern Seaboard and you’re going to ship it forever to China or Japan and they’re subsidising their manufacturers and you wonder why you’re going backwards.”

As well as concerns about where investment is best aimed and energy prices, another theme when the floor was opened up was free trade.

“It goes back to the point about being strategic,” said Grey.

“The Americans targeted the industry in terms of manufacturing many years ago, and they started with pick-up trucks, and you had all the three major Japanese auto makers making pick-up trucks in Thailand, and we negotiated a free-trade agreement.

“And you look at the tariffs on pick-up trucks in the US, that bastion of free trade, and they have a 25 per cent tariff on pick-up trucks, which is what they make the most of. On everything else it’s five.” manmonthly.com.au

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Indonesian opportunities Indonesia is often overlooked in conversations on the Asian Century. Though there are difficulties (and misconceptions) involved in trading with our northern neighbour, there are also great opportunities for advanced manufacturers. By Brent Balinski.

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hough China usually dominates dinner party talk when guests start to wax lyrical about demographic shifts that will favour our exporters (and which are expected to bring some two billion people to live in Asian cities by 2025) Indonesia is also a market where demand is on the way up for manufacturers.

Figures from the Department of Foreign Affairs and Trade for 2011-12 show low unemployment (6.6 per cent), strong GDP and import growth (6.5 per cent and 30.3 per cent respectively), and the “lowest volatility in economic growth compared to OECD and BRIC countries” all point to a market in a position of strength. It’s our 11th-biggest export destination, and took in $5.3 billion worth of Aussie products in 2011-12, but, with a little help, advanced manufacturers could be doing much better in Indonesia.

“We’ve got strong, established positions in things like mining, mining equipment technology and services, and agribusiness in Indonesia,” Kym Hewett, senior

trade commissioner in Jakarta, told Manufacturers’ Monthly.

“Where the unfulfilled potential resides is in the consumption sector.

So at the moment consumption accounts for something like 60 per cent of GDP in Indonesia and more than 60 per cent of growth, and it’s the area of the economy that’s prospering.”

Although 250 Australian companies are already doing business in the world’s third-most populous democracy, but getting established there can have its difficulties.

“There are initial challenges that make it difficult, firstly, the playing field tends to strongly favour local players, so there’s a fact of life that Indonesia has a strong protectionist sentiment and inclination,” explained Hewett.

“But if you can work your way through those and become established in the market, then I would describe the competitive environment as pretty favourable or benign.”

As well as this, bureaucracy is complex and multi-layered in

Next stop Jakarta. manmonthly.com.au

Austrade says there will be huge Indonesian transport growth.

Indonesia, and gaining approval for importing can be complicated.

Besides having to convince local buyers and bureaucrats, widespread corruption is another issue that doesn’t make trade any easier.

Transparency International accorded Indonesia a score of 32 out 100 at the end of last year, with 0 being “highly corrupt” and 100 being “very clean”. And stories like one earlier this year of Indoguna Utama (which ships beef for a number of Australian exporters) directors being caught trying to offload a car boot full of cash to an Indonesian MP to get around import quotas do little to boost the country’s image.

Hewett said that there’s increasing awareness of the problem, and “you need patience and principles to navigate your way through that.”

Austrade has identified automotive and aerospace as two manufacturing sub-sectors that are positioned to do well out of Indonesia’s growth story.

“Automotive is one of the booming sectors in Indonesia at the moment. Indonesia is set to become the the biggest automotive market in ASEAN,” said Hewett.

Last year the Australian

Automotive Aftermarket Association pointed out the huge opportunities available to auto parts makers, for example in in-car entertainment, wheels, oil and other products.

Their research predicted that the country’s car sales are to increase by up to 50 per in the next half a decade. Four-wheel drives and SUVs are categories tipped for especially strong growth.

Increasingly affluent populations need transport, of course, and Indonesia’s airline grew by 20 per cent last year, according to an Austrade briefing held in March.

Accordingly, opportunities for “MRO [maintenance repair and overhaul]; aircraft components, pilot training and simulation; electronic systems – on ground traffic control, radar, sonar and systems integration” are also increasing sharply, according to the same presentation.

“The Indonesian fleet is growing very strongly, and there’s extensive development in their air force underway,” said Hewett.

“There’s a big opportunity there.

And also for any of the technology and services that go into modern airport, an area, again, where we have a lot of capability.”

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How Futuris drove into Asia The Asian Century is nothing new for the Automotive sector. Auto parts maker Futuris is a case study in how one Australian company got it right, through planning, patience and the right strategy.

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uturis Automotive creates automotive interior solutions and components, including steering and pedal systems and airbag modules. It is the biggest automotive manufacturer in Australia, with revenues of about $400 million, and its major customers globally include GM, Ford, Toyota, Chery and Tesla.

Futuris began its move into the Asian Century in 2004, which certainly didn’t make it a pioneer, but seems prescient when comparing Australian car production numbers then and now.

“Back in 2004 there were four Australian vehicle manufacturers making 420,000 cars a year,” Dexter Clarke, the company’s director of corporate affairs, told the Manufacturers’ Monthly Leaders’ Summit in May. “Today there are three left and one is on the bones of its bum in Ford, making only 20,000 cars a year.

And overall 230,000 cars are made in Australia a year, a reduction of 45 per cent.”

Things in the Australian automotive industry haven’t gotten better since the May event, held during National Manufacturing Week. Later that month, Ford announced that it would cease manufacturing in Australia in October 2016, news that didn’t surprise anybody who follows the industry, though highlighted how important the need to operate globally has become.

“Global supply chains were developing and moving into Asia,” explained Clarke of the situation in 2004. “So if you wanted to play in a global supply chain you had to be a part of it.”

Seeing the way things were trending, Futuris, a maker of products including car interior parts (seating is their main product), decided to become a part of those global supply chains.

The Asian Century is not something new for Futuris – it’s “at

34 JULY 2013 Manufacturers’ Monthly

230,000 cars are still manufactured a year in Australia. least” two decades old – but it is critical all the same. In 2004, it was “maybe 10 or 15 years in play” for some automotive companies, said Clarke.

Futuris, who employed 1,200 employees and operated only in Australia at the time, began with research and planning their strategy. There were visits to 180 vehicle producers and suppliers to understand who the competition was. They decided to enter into a joint venture with Chery, which was a smaller player, producing about 70,000 vehicles at the time.

“We developed a strategy not to compete with our bigger global competitors for the top vehicle producers – Shanghai GM, SAIC, the big joint venture businesses in China,” explained Clarke.

The company entered a joint

venture (70 per cent) with Chery (20) and the city of Wuhu (10).

Partnering with a “Rising Tiger” car-maker instead of a bigger company assisted in Futuris being underestimated.

“We were able to draw on excellent support from bodies like Austrade and others in the private sector,” said Clarke. “And as an Australian company we were flying under the radar. We were not seen as a threat entering Asia by our global competitors, who once described us as a fly they could squash whenever they liked.”

Futuris was also able to go the extra mile, setting up their first Chinese factory in a prefecture that wasn’t established as a massive industrial hub.

Wuhu, in the Anhui province, is about 350 km inland from Shanghai.

The company gained a competitive advantage by looking as far to set up their factory.

Chery now makes 773,000 vehicles a year, so Futuris was able to serve its Asian Century “apprenticeship”, as they put it, with a success story, before forming alliances with JAC and Brilliance, and are about to open their first 100 per cent-owned factory in Wuxi.

Building on its apprenticeship, Futuris opened a factory in Rayong, on Thailand’s eastern seaboard. As with its experience in China, it was careful to get to know the market and who the potential customers were before doing business.

However, in Thailand they were able to capitalise on existing relationships when setting up.

“All of the seating competitors, all of the interior component manmonthly.com.au

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competitors, we knew who the customers were there – they were people we were used to: GM, Ford, Suzuki,” he said.

“Not like China where you were exposed to Chery, JAC, Great Wall and 180 people you’ve never heard of.

“The head of purchasing in Thailand in the region is an ex-Ford Australia employee. We know him.

It makes the conversation very, very easy. And they will look after you as an Australian company.”

A number of articles have been written about Futuris’s successful move into Thailand, outgrowing its factory, opening one next door and outgrowing it, and aiming to open a new factory by the end of next year to keep up with demand.

The potential to grow in Thailand is large for those in the automotive sector, with the country expected to be producing three million cars by 2016.

However, like every other market, Clarke stresses that it’s very different in terms of scale, margins and many other regards to China.

Like Futuris did, it’s essential to put in research time before entering any new market. And, as Futuris and many other companies have learned, there will be disappointments.

Nearly every agreement reached in their original JV was broken, said Clarke, and many of the anecdotal horror stories he’d heard turned out to be true. Non-compete clauses, guaranteed margins and intellectual property were not honoured. But also to be considered is the cost of doing nothing.

“If you want to give up, you can

GM is a customer of Futuris. walk away and that’s the easiest thing to do, or you can work through all your issues and eventually be successful,” said Clarke.

Futuris, owned by agribusiness company Elders, has been up for sale since August last year. Despite the success stories, there have been difficulties, such as a $166.5 million write-down for the company in Elders’ half-year results last month.

The Ford decision to cease making cars in Australia in 2016 is of massive concern for the parts maker, and it has been reported that Ford Australia makes up about

Some of the audience at the Leaders’ Summit. manmonthly.com.au

25 per cent of Futuris’ s global sales. As highlighted earlier, the company has been spending the last decade adapting to the weakening Australian car industry.

And that brings us back to weighing up the cost of doing nothing in terms of the Asian Century, which is not something on the horizon, but already here.

“The last point I want to make is we are not the only country trying to benefit from the Asian Century,” Clarke said.

“Everybody else is there. When you are competing for business in

Asia, you are not competing against the little factory run by a mum and pop down the street, kicking chickens out of the way as you walk through the front gate anymore.

“You are competing against the biggest multinationals in the world.

They are all there and they are all hungry. And they have all the resources at hand too, to exploit that. So you have to be innovative, you have to be different, you have to be prepared to go the extra mile and outsmart them: something that Australians are very, very good at doing in business on a global scale.”

The Asian Century is not something new for Futuris.

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Austrade’s Asian transformation Asia poses both a threat and significant opportunity to Australian manufacturers, Austrade’s Phillip Bourke told the Manufacturers’ Monthly Leaders’ Summit. By Alex Heber.

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y 2025, it is estimated there will be 2 billion people living in urban areas, or about 50 per cent of global population, and about 50 per cent of the world’s urban population will be living in Asia.

“Asia will become the centre of consumption, with a rising middle class,” Austrade trade adviser, services and manufacturing opportunities, Phillip Bourke said.

Addressing the Leaders’ Summit in Melbourne, he explained that urbanisation and increasing wealth are set to transform Asia.

“We will see changes in their desires for mobility, health, food, leisure, infrastructure and education,” Bourke said.

Currently Asia is the centre for low-cost production, and offshoring of Australian manufacturing activities is a fact of life, but Bourke explained Australia still has a valuable place hold in the sector.

“We still have a place in terms of value add technology, design some of the higher end stuff we can still manufacturer in Australia and still have a niche there to supply,” he stated.

Bourke said that although Australia’s relationship with Asia as a trade partner has “waxed and waned over the years,” it has

Asia offers opportunity for Australian manufacturers. experienced spectacular growth.

“At Federation Asian trade with Australia was less than 10 per cent of our total trade; now it’s about 70 per cent and Asian countries make up eight of our top ten major trading partners,” he said.

With the launch of the Labor Government’s Asian Century Whitepaper in October, innovation in advanced manufacturing, and a transformation of organisations like Austrade, Australia is in the right place at the right time, moving from the tyranny of distance to the power of proximity.

“Within Austrade, we’ve responded to this in the past couple of years with a significant

Austrade identifies business opportunities.

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reorganisation of our resources, both offshore and onshore,” Bourke explained.

“Austrade is a global operation with about 1000 people; around half of which are based overseas.

“In Asia we have 44 officers in 15 countries; we have 11 officers in China and 11 in India,” he said.

Recently Austrade has also opened offices in Mongolia and Western China to support mining, manufacturing and other penetration opportunities into those growth areas.

Bourke said the organisation has undergone internal reorganisation to identify and address specific regional themes for Australian

manufacturers, outlining Singapore as an aviation and aerospace hub; as well as Singapore, Malaysia, and India for defence projects.

The organisation has also identified a strong need for health and aged care infrastructure, products and services in the Chinese and Malaysian markets.

Austrade is now geared up to assist Aussie manufacturers looking to jump into Asia, offering both onshore and offshore initiatives, including networking events such as tradeshows and conferences, and its Export Markets Development Scheme.

The organisation also has a network of business development managers who identify business opportunities for particular products or services and distribute the potential market play through Austrade’s database to facilitate exporting.

For manufacturers looking to offshore opportunities, Austrade also conducts market research, introduces companies to specific markets, and builds relationships between exporters and clients.

“When wheeling and dealing with Asian markets, relationships are all important, you can’t just expect to go there once and think everything will roll out,” Bourke said.

“Asia is not one market it’s many markets, and they’re all different.”

Austrade offers onshore and offshore initiatives. manmonthly.com.au

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We’re with you for the long haul Supporting Australian manufacturers expanding into Asia EFIC has been backing Australian exporters for more than 50 years and is proud to support Australian manufacturers as they expand into Asia.

As the Australian Government’s export credit agency, we can assist Australian-based manufacturers to win and finance export opportunities when the private market faces constraints.

As an example, tool grinder manufacturer ANCA needed working capital assistance to facilitate a new supply contract with a Chinese global organisation headquartered in Hong Kong.

Due to the high value of the export contract, ANCA sought the assistance of EFIC to secure finance.

EFIC provided ANCA’s bank, HSBC, with a $4 million Export Working Capital Guarantee (EWCG) to help fund the supply and purchase agreement. An EWCG supports working capital needs for one or more contracts and can help a company’s export growth.

Overcoming financial barriers for exporters

Visit www.efic.gov.au/asia-manufacturing

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From building and shipping to global supply chains EFIC can assist Australian-based manufacturers to win and finance export opportunities when the private market can’t. Robert Dravers, the organisation’s director of SME and mid-market was on hand at the Leaders’ Summit to outline EFIC’s operations.

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he way Australian businesses have changed has in turn changed EFIC, which helps many of them expand into Asia.

Under a couple of different guises, the Export Finance and Insurance Corporation has been aiming to help Australian businesses do business abroad (and at home).

Like the businesses under its jurisdiction, EFIC has changed with the times, and the times are dominated by SMEs looking to be part of the Asian Century.

“Integrating into Asia as Futuris is doing is surely the way to go,” explained Robert Dravers, the organisation’s director of SME and mid-market. “And EFIC, I’m pleased to say, is moving in that direction as well.”

“About two years ago, we started to support SMEs onshore, so not just exporters, which is what you’d expect us to do, because we are the EFIC. But we’re supporting people onshore who are supplying an exporter or an export project.”

With SMEs involved in international supply chains – especially in the case of some of Australia’s successful “micromultinational” firms – EFIC changed what it does to be of service to these SMEs. “And we moved into this onshore space because these massive resource projects we’ve seen of late in the oil and gas sector and the coal and iron ore and the like, they create very large supply opportunities for SMEs.” Now in its sixth decade, EFIC (formerly EPIC – Export Payments Insurance Corporation) had its remit broadened in 2011 under the Federal Government’s Trade Policy Statement to recognise the global supply chains that Australian manufacturers and other businesses are a part of.

Australian businesses have moved

38 JULY 2013 Manufacturers’ Monthly

EFIC helps you do business abroad. from a strictly build and ship model, said Dravers.

“Very recently with the government’s allowance we have been able to support companies who are internationalising, that is to say offshoring or setting up business operations overseas,” explained Dravers.

“So it’s in recognition that this is the way of the world now, this is happening, Futuris has made it happen and we want to support the Futurises of the future,” said Dravers.

“An SME company looking to set up in somewhere, usually in Asia – it may be China, it may be in Thailand – they are often going

to be challenged to get the funding they need from their bank. Because the assets that they have are going to be building and the bank is asked to fund are overseas, there are jurisdictional issues around for the bank around taking security, registering security in those markets and or taking control of those secured assets.

“Often the supply is going to be constrained, and that’s why there is a role for EFIC to play to support SMEs in internationalising their operations, whether they be for supplying into a regional or a global supply chain in the way that Futuris is or building a factory or a distribution centre in order to supply

their finished product, it doesn’t matter.”

This shift follows stories in recent years of successful Australian manufacturers often being of a “micro-multinational” orientation, for example in the case of ANCA, the Manufacturers’ Monthly Endeavour Awards winner for Exporter and Overall Manufacturer of The Year.

ANCA is an Australian company that supplies its high-end cutting tool technology to a number of international companies, and has been able to expand into Thailand and Taiwan. It’s headquarters and innovation muscle are in Australia, but from Thailand, they are able manmonthly.com.au

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to take advantage of a free trade agreement between that Thailand and China, from where the company has seen increasing demand in the last year (see Endeavour Awards profiles, Manufacturers’ Monthly June).

As Swee Mak from the CSIRO’s Future Manufacturing Flagship and others have noted, Australia’s manufacturing environment is a unique one, with a preponderance of specialised, nimble, internationalised companies, and no really huge industrial firms. There is no Australian manufacturing company that comes anywhere near Bosch or Siemens, for example, in terms of scale.

“We have our own unique manufacturing DNA, made up of tens of thousands of SMEs,” noted Mak last year.

“This is very different to some other industrialised countries, where there are many more large scale manufacturing enterprises.

Australian SMEs often find it difficult to embrace industrial automation because of cost and the risk of disruption to their production.”

Credit is often constrained to SMEs, with banks sometimes reluctant to fork out a loan that a promising Australian business looking to deal overseas might deserve.

“Because either the SMEs trading with a company overseas and there’s assets going overseas and uncertainty with payments from foreign companies and the like or it’s more simply a case of an SME not having physical assets to secure

Technology – the way of the future. more loan funds from the bank,” said Dravers.

There are conditions to what EFIC will support, of course.

Industry figures at the Leaders’ Summit. manmonthly.com.au

Companies considering expanding their operations overseas must be SMEs, defined as having less than $100 million turnover or under 100

employees. Also, EFIC must be convinced of an economic benefit being returned to Australia when overseas investment is being supported.

“We will be looking at issues around what income is coming into Australia in terms of payment from anything from IP to management fees, future dividends and so forth,” said Dravers.

He added that EFIC would not assist Australian companies looking to set up facilities overseas so they can fire their Australian workers.

For Australian micromultinationals, sometimes a little assistance is needed to get into a global supply chain that they would potentially serve well. And for both EFIC and the manufacturers it assists financially, things are changing, and the Asian Century has a lot to do with it.

“Clearly the way the world is moving, away from the traditional definition of manufacturing – of changing raw materials into a finished product – into manufacturers who are part of a supply chain,” said Dravers.

“And as we’ve heard from Dexter Clarke [Futuris’s representative at the Leaders’ Summit], very often you need to be close to your buyers in order to service them best and also lower your cost of getting your goods to them and ensuring that they get there on time.

“EFIC is now able to support companies that are setting up in Asia and elsewhere, and that we think is a very positive new direction for us to take.”

Business opportunities need to be facilitated.

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That wraps up the Leaders’ Summit for 2013. Manufacturers’ Monthly would like to thank our sponsors, EFIC, those who attended the event and everyone else who is playing a part in manufacturing in the Asian Century. See you next year....