The fu­ture of man­u­fac­tur­ing

Time for change

DEMM Engineering & Manufacturing - - FRONT PAGE -

Man­u­fac­tur­ing has been turned on its head dur­ing the past 10 years. Com­pa­nies have re­sponded by send­ing work off­shore to cut costs, but a new re­port says talent-driven in­no­va­tion, rather than a fo­cus cut­ting costs, is the way for­ward.

Busi­ness ad­vi­sory firm Castalia has run the rule over the man­u­fac­tur­ing in­dus­try in New Zealand and says there has been a no­tice­able shift away from pure man­u­fac­tur­ing – it has been re­placed by out­sourc­ing and off shore pro­duc­tion.

On the upside, the re­port ‘New Zealand Man­u­fac­tur­ing Sec­tor: Its Dy­nam­ics and

Com­pet­i­tive­ness’ says high growth man­u­fac­tur­ing firms are cre­at­ing new busi­ness of­fer­ings that link prod­ucts and ser­vices to­gether.

Ex­am­ples given in­clude the in­creas­ing power for cus­tomi­sa­tion (of prod­ucts), a shift to­wards new prod­ucts and tech­nol­ogy, gen­er­at­ing cus­tomer de­mands for in­for­ma­tion, train­ing, help desks, and re­newed ef­forts to cap­ture dis­tant mar­kets through col­lab­o­ra­tions with lo­cal dis­trib­u­tors and ser­vices com­pa­nies.

“New Zealand man­u­fac­tur­ers now con­sider them­selves as not only specialist man­u­fac­tur­ers but also mar­keters, sell­ers and ser­vice providers,” says the re­port, which was funded by Man­u­fac­tur­ing NZ, a di­vi­sion of lobby group Busi­ness NZ.

The 114-page re­port also shows how man­u­fac­tur­ing in New Zealand has changed, from one of com­pa­nies hav­ing all the ser­vices, equip­ment and people it needs on the pay­roll, to one where firms use ex­ter­nal con­trac­tors for things such as IT, HR, ac­count­ing, and con­tract man­u­fac­tur­ing.

In essence, the trend ap­pears to show that some ‘man­u­fac­tur­ers' are lit­tle more than fa­cil­i­ta­tors, bring­ing people to­gether to ful­fil man­u­fac­tur­ing con­tracts.

The good news for the in­dus­try is that, ac­cord­ing to the re­port, rather than man­u­fac­tur­ing fac­ing an “ir­re­versible de­cline”, the sec­tor is a huge con­trib­u­tor to the New Zealand econ­omy.

The re­port's au­thors say: “The New Zealand man­u­fac­tur­ing sec­tor has con­tin­ued to main­tain a strong po­si­tion within the New Zealand econ­omy. De­spite a small de­cline in the sec­tor's mea­sured share of GDP since 2000.

“At the end of 2012 it re­mained the largest sec­tor of the econ­omy. Over the same pe­riod, the to­tal out­put of the man­u­fac­tur­ing sec­tor has in­creased – the real value of man­u­fac­tur­ing GDP grew at an an­nual aver­age rate of ap­prox­i­mately 0.75 per­cent, from $17.3bn to just over $19bn.”

It points to de­cline in the sec­tor be­ing a re­sult of busi­ness re­lated ser­vices, such as fi­nance, IT, le­gal or lo­gis­tics, af­fect­ing pro­duc­tion and em­ploy­ment within man­u­fac­tur­ing – ar­eas that saw an in­crease in out­sourc­ing.

World stage

Look­ing at the world man­u­fac­tur­ing stage, the re­port says the cur­rent con­tri­bu­tion of our man­u­fac­tur­ing sec­tor to the coun­try's GDP is sim­i­lar to lev­els in Europe and the United States.

“The New Zealand man­u­fac­tur­ing sec­tor is more im­por­tant to our econ­omy than man­u­fac­tur­ing is to many other OECD coun­tries, such as Aus­tralia,” says the re­port.

“On a global scale, the con­tri­bu­tion of the world's man­u­fac­tur­ing sec­tor to the world's GDP has risen since 2004 due to the growth in the Asian man­u­fac­tur­ing sec­tors.

“The man­u­fac­tur­ing sec­tor's share of the Asian re­gion's GDP jumped from 15 per­cent in 2004 to 21 per­cent to 2005, and to 24 per­cent by 2011. This is largely due to the surge in China's man­u­fac­tur­ing – in 2005 the sec­tor con­trib­uted to 32 per­cent of the Chi­nese GDP, in­creas­ing to 36 per­cent by 2011.”

The man­u­fac­tur­ing sec­tor re­mains one of the largest em­ploy­ers in New Zealand.

“By mid-2013, there were 191,000 man­u­fac­tur­ing jobs,” says the re­port. “Man­u­fac­tur­ing now ranks as the fourth largest em­ployer – the largest be­ing pro­fes­sional ser­vices, sci­en­tific, ad­min­is­tra­tive and sup­port ser­vices, which has in­creased its share in jobs from 11 per­cent in 2000 to 16 per­cent in 2013. Partly as a re­sult of man­u­fac­tur­ing jobs be­ing out­sourced.

An­other point the re­port makes is that man­u­fac­tur­ing is per­ceived as a low skilled job, some­thing that – says the re­port's au­thors – is not con­sis­tent with trends that show the sec­tor has a high de­mand for highly skilled and spe­cialised jobs.

“While the to­tal em­ploy­ment in the nar­rowly mea­sured man­u­fac­tur­ing sec­tor con­tin­ued to de­cline over the last decade, its to­tal out­put in­creased, re­sult­ing in higher man­u­fac­tur­ing GDP and higher wages per worker in the sec­tor,” says the re­port. “Across the econ­omy there has been a shift to­wards highly skilled jobs.”

Jobs

Ac­cord­ing to Stats NZ, there were around 750,000 people work­ing in high skilled man­u­fac­tur­ing jobs in 2009, by 2012 that fig­ure had risen to 815,000. On the other side of the coin, there were 395,000 low skilled work­ers em­ployed in 2009, but 360,000 in 2012.

Ac­cord­ing to the re­port, pay is on the up and up in the sec­tor too. Draw­ing on data from Stats NZ, its au­thors say aver­age wages in man­u­fac­tur­ing have risen from around $17 an hour in 2000 to $26 an hour in 2011 (lat­est data avail­able).

Ac­cord­ing to Stats NZ, people work­ing in the man­u­fac­tur­ing sec­tor earn more, on aver­age, than those work­ing in re­tail and tourism, but less than people work­ing in

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