Ongoing market volatility will drive more than half of Australian businesses to bring overseas manufacturing jobs back into the country in high volumes, a new industry survey has found, as COVID-19 disruptions continue to push business leaders to reconsider their business resilience strategies.

Fully 55 per cent of 500 surveyed senior manufacturing executives expect to bring manufacturing operations back to Australia by 2023 and 22 per cent have already done so, according to the Australian Manufacturing Outlook study conducted by AI-based pricing firm PROS.

By that point, the respondents indicated, some 48 per cent of the country’s overall manufacturing will have returned to Australia – with Western Australia, the Northern Territory, and South Australia flagged as particularly resurgent given their capabilities in areas such as lithium batteries, defence and space technology.

Yet many Australian companies still lack the supporting digital infrastructure necessary to participate in dynamic, price-driven international markets – with 82 per cent of respondents still lacking the necessary e-commerce systems and just 9 per cent having “market-aware, dynamic pricing strategies”.

Such systems will be crucial as the Commonwealth Government’s Modern Manufacturing Strategy progresses a decade-long roadmap that also prioritises investment in resources technology, critical minerals processing, food and beverage, medical products, and recycling and clean energy.

Bodies such as WA’s Future Battery Industries CRC and the South Australian Space Industry Centre are already working to identify and capitalise upon potential R&D and manufacturing opportunities in new-technology areas.

An ongoing Productivity Commission review has been examining Australia’s supply chain vulnerabilities and the potential for opportunities to work around them, with submissions now being accepted on an imports-related report and a further exports-related report due in May.

“The Australian economy greatly benefits from the international trade facilitated by global supply chains, through the provision of critical goods and our specialisation in export markets,” Treasurer Josh Frydenberg said in launching the review, “and it is timely to assess our role in and exposure to global supply chains.”

Developing local capabilities

Despite the obvious emotional appeal, Australian companies manufacturing offshore can face very real challenges in bringing production back onshore.

Lack of local skills and equipment mean many industry sectors require substantial investment before they can even think about bringing manufacturing back onshore.

This was made clear by revelations that Australian vaccine manufacturer CSL doesn’t currently have the capabilities to make Pfizer’s coronavirus vaccine here, even though it has been able to manufacture the Oxford-AstraZeneca vaccine at scale – putting Australia at the mercy of global supply chains whose members have many competing priorities.

Although 78 per cent of respondents to the PROS survey believe Australia has the technology, people and economic strength to support an “agile manufacturing base”, many industry sectors, bringing manufacturing back to Australia will require an attendant investment in new manufacturing technologies.

Government support for this investment has come through allocations such as the $1.3b Modern Manufacturing Initiative, $107.2m Supply Chain Resilience Initiative, and $52.8m Manufacturing Modernisation Fund, the second round of which was launched in January and supports both small-scale technology and efficiency investments as well as “transformative investments in technologies and processes.”

Yet while those funds focus on improving capabilities and capacity in the government’s six priority areas, the Productivity Commission report cautioned that government-backed onshoring isn’t always the best option.

Just two per cent of imported products “are from a single, concentrated source and are used in essential industries”, Commissioner Catherine de Fontenay said in releasing its interim report, noting that governments “can help provide the information firms need to manage the risk in their supply chains… [but] most risks are best managed by individual firms.”

“A policy of replacing imports with domestic production will generally be a very high cost option,” de Fontenay added, warning that “subsidising domestic manufacturing could not achieve efficient scale in many of the products we are talking about – and it could crowd out actions that firms would otherwise take to manage their own risks.”