The future of manufacturing

Time for change

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manufacturing industry in New Zealand and says there has been a noticeable shift away from pure manufacturing – it has been replaced by outsourcing and off shore production.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