EMBARGOED UNTIL DELIVERY CHECK AGAINST DELIVERY

"TECHNOLOGY AND THE FUTURE OF MANUFACTURING" SPEECH BY SENATOR THE HON JOHN N BUTTON  fMINISTER'FOR^iEuSTRY^TEGHNOLOGYrANDrCOMMERCEÂ·

TO THE

QUEENSLAND UNIVERSITY OF TECHNOLOGY  DEPARTMENT OF MANUFACTURING AND COMMERCE BREAKFAST

The central theme of my remarks here today will deal with the role  of technology in economic growth;

- however it would be remiss of me if I didn't say something  about current economic growth first.

Yesterday, I had the uneviable duty of being the sole target of a  number of questions from the Opposition in Parliament on whether  we are in a recession;

- the simple answer was 'Yes!'.

Why has this recession become necessary? - It is the unavoidable  outcome of an apparently intransigent trade deficit;

- there is no short term solution to this problem.

The longer term solution will need to concentrate on both building  the supply side capacity of the economy through continued  investment while maintaining firm control over domestic  consumption;

- that is, Governments of whatever colour will need to work  hard to guarantee a net export contribution to growth through  the 1990s.

A casual reading of the recent crop of company Annual Reports  indicates that the smarter companies have anticipated that these  economic constraints will be around for some time;

- and are focusing their growth strategies on export markets  with that reality in mind.

These strategies have many elements (management, marketing,  product development, etc) - most of them come down to increasing  investment in either physical or human capital;

- the role of technology is critical in this regard.

If any doubt remains as to the central place of technology in  economic growth, recent Japanese investment data should settle the  issue once and for all.

30 NOVEMBER 1990  BRISBANE

COMMONWEALTH PARLIAMENTARY LIBRARY  MICAH

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In a survey of 50 of Japan's top manufacturers,  the Japanese  National Institute of Science and Technology Policy has shown that  in each year from 1985 to 1987, more money was spent on R&D than  on capital investment.  *

By 1987, the R&D figure for these firms was nearly fifty per cent  more than the capital expenditure figure.

We have known for a long time, of course, that the strongest  growth in world trade has been in high value-added goods and  services, and particularly in technology intensive industries.

Getting into those industries may take some initial legging up on  lower technology industries, and the particular relevance of this  to the Australian situation is something I shall touch on again  shortly.

But I shall first take stock of where our policies and the  initiatives of Australian business itself have taken us in terms  of technology and innovation.

The record is impressive.

In the 1980s, business expenditure almost doubled its real value  in absolute terms.

the number of patent applications by Australians overseas grew  from 2,000 in 1978 to 14,000 by 1988.

This remarkable growth in Australian investment in R&D and in the  international marketing of it has doubtless taken a hiccup in the  current economic downturn.

But while business investment has suffered, it appears to be  continuing to grow in real terms. Manufacturing exports have also  continued to grow.

We must also factor in existing commitments to expansion in  technology based exports.

Partnership firms are committed to R&D totalling $180 million per  year, and $3 billion of exports by 1995 - from a base of $300  million of exports in 1985-86.

The Factor f program will be yielding similar results in the  pharmaceuticals field.

The dramatic growth in R&D for export purposes is not confined to  the foreign firms under the influence on them of Government  procurement policies.

The greater part of new investment in R&D has been made by  indigenous firms.

Impressive as the resurgence in R&D has been, however, there is no  room for complacency.

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The base we started from at the beginning of the decade was  appallingly low.

And while manufacturing exports are growing, in the high  technology groups, out experts are only around ten percent of out  imports.

Compounding the problem is that countries starting with virtually  no science and technology infrastructure are now catching and  passing us.

Taiwan has already almost equalled Australia in the proportion of  GDP spent on R&D. Singapore is roughly level with us in private  sector expenditure.

It is even more salutary if we examine the actual uptake of this  new technology in production processes.

The Peat Marwick survey 'Manufacturing Trends 1990' reveals that  while Computer Aided Design is now used by almost half of  Australia's medium to large firms, no advanced production process  technologies are used by nearly a third of medium firms and 65% of

small firms.

Amongst larger firms, there is an acceptance of the advantages of  advanced manufacturing technology. .  Over 50% of them expect major  benefits through reduced inventories, reduced overheads and  increased labour productivity.

There is more evidence that we aren't doing as much as we should.  The World Economic Forum, in its World Competitiveness Report for  1990, ranked Australia third in our propensity to invest in  machinery and equipment, but only tenth in our use of industrial  robots, and eleventh in the effectiveness of our use of

information technology.

Even more worrying, we ranked nineteenth in the preparedness of  our workforce to accept labour-saving technology.

On this last point, however, I am encouraged by the ACTU including  amongst its 16 Objectives for Industry Development the uptake and  diffusion of advanced manufacturing technology.

I am encouraged, too, by what I see as a general shift in  Australian business culture towards increasing acceptance of the  importance of technology in the modern commercial world.

Australia has produced leading products in niche areas which,  though small in terms of our overall trade, do prove that  Australia can compete on the basis of innovation and quality.

One such niche has been the scientific and medical equipment  industry.

This industry is highly international in nature, and has a world  market of around $200 billion, expected to expand to $300 billion  by 1996-97.

The success and subsequent move off-shore of the pacemaker  manufacturer Nucleus is well known.

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Varian-Techtron is the world's second largest manufacturer of  atomic absorbtion spectrophotometers, with 20% of the market.

Another firm which has achieved international success has been  IEI.

IEI's fire detector systems are now being used by Boeing, IBM and  GM in the USA, Fujitsu, Sanyo and Honda in Japan, and by both  British and Dutch Telecom.

I cite the scientific and medical sector only as a cameo to assert  faith in the technical and marketing competence of Australian  industry, and, conversely, dispel the myth that we can not play in  the technology based game.

I could cite other examples, in membrane technology, information  technology, even select market segments of small ship-building.

Yet if we have proven we can play in the main game, why do our  collective efforts remain so small.

Our manufacturing exports, though small in comparison with  commodity exports, remain evenly divided between simply and  elaborately transformed manufactures, or ETMs.

Our export profile simply reflects our industrial profile, which  is one characterised by competitiveness at the general level only  in resource processing.

Our industry shows a marked lack of specialisation and does not  have the critical mass needed for leading edge enterprises.

This is partially the legacy of decades of protectionism. Industry policy concentrated on maintaining a broad based  manufacturing sector, which in our small economy meant low levels  of specialisation.

The dominance of low value added agriculture and mining exports  also kept pressure off the manufacturing sector.

An industry structure geared towards low value-added has only  limited scope for deploying technology, and an industry  ill-disposed to strategic innovation will not move effectively up  the value-added scale.

The nub of the matter is whether as a nation we can decide on what  our industrial future should look like, and act on this vision.

The implicit thesis on this subject in the Australian  Manufacturing Council Report, "The Global Challenge," was that we  should act to maximise investment and competitiveness in resource  processing as a locomotive of short to medium term industrial

growth, while continuing to lay patient seeds in our high value  added sector. Indeed, the AMC's prescriptions for that sector  were largely consistent with our existing suite of policies.

I don't intend commenting here on what will be the subject of my  forthcoming general statement on industry policy.

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However, I do wish to flag the need for us as a nation to clarify  our priorities for our industrial future - because we are not  moving fast enough to stake a competitive future in real wealth  earning industries in our current mode.

Why this is critical to technology is that the well recognised  problem with technology in Australia for many years now has lain  in the lack of demand, not in the supply.

Our industry structure as whole is not oriented towards technology  based competitiveness.

I have no doubt that the pressures of declining tariffs,  deregulation of the economy - especially finance and services -  and major reforms in workplace relations, will all act to  encourage rapid restructuring.

They already are.

But a decisive shift to competitiveness in high valued industries  will require more than this, more than price and efficiency parity  with our trading competitors - if we, indeed, can achieve this.

It will require clarity as to where our best competencies and  opportunities lie, and an intimate knowledge of our best-potential  markets.

Such recent initiatives as the Cooperative Research Centres will  work best in an environment where industry can clearly define its  strategic opportunities, and they will serve least well in an  environment marked by lack of specialisation and disaggregation of

effort.

While it is clear that our industry's capacity to restructure  towards innovation-based competitiveness is limited, I would hope  that we can keep the object of rapid progression in clear focus,  and to be assiduous in developing the opportunities already before  us.

An innovation-based industry is characterised by strong and  purposeful linkages between leading edge users and suppliers, and  vigorous competition amongst the suppliers themselves.

Leading edge users demand state of the art in both innovation and  quality. The competitive pressures on them force innovation and  quality upon their suppliers.

Conversely suppliers depend on leading edge users for assured  custom, market endorsement and linkages into other markets.

Relationships of this kind are not absent in Australia - Telecom  and its supplier firms is a good example.

But their potential has been largely ignored to date, particularly  as it exists between our more competitive resource and service  sectors on the one hand, and potential supplier industries in  manufacturing.

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Yet such relationships are clearly necessary for building areas of  specialisation, generating a critical mass around them, to achieve  a significant shift in our industrial profile.

The list of potential areas for this sort of activity, popularly  referred to as "clustering," has been well rehearsed, and includes  health and medical equipment for the health sector, information  technology for the financial "services sector, monitoring and  processing equipment for the mining sector, processing equipment

for the food industries, telecommunications equipment for that  sector, and so on.

An important issue in how well we exploit our technology  infrastructure for the 90s will lie in how well we can start to  mobilise some of these potential clusters.

The Multi Function Polis is one way we can mobilise these  clusters. Though it is now to be located a long away from here,  the idea seems to be finding its way into a number of new  developments. Paradoxically there will be one MFP and many MFPs.

It is this approach that is the key to the future. In the past,  Australia has been the lucky country. Argentina and Australia  both earned their wealth from primary industry, having some of the  highest standards of living in the world.

Australia was lucky enough to be able to turn enough of this  wealth to manufacturing to stay in touch with the rest of the  world. Argentina did not and is now out of the race.

But if Australain manufacturers continue to rely on luck, not  logic, to stay in business, we will go the way of Argentina. By  harnessing the power of technology, by investing in the new work  practices that must accompany it, by committing to new ways, the  manufacturing sector will survive.

