Will Gillard’s industry plan help SMEs?

feature-gillard-work-200Getting local industry – especially smaller players – ready for the big league is no small task.

One of the reasons our companies miss out on so much work is due to capacity and quality. My own discussions with procurement managers from major resources firms and their prime contractors suggest that it is not always cost that drives their purchasing offshore.

These major resource projects are operating at world’s best practice. The project owners and prime contractors have rigorous quality standards that must be met before a supplier can bid for this work. To be pre-qualified for a supplier list requires a firm to meet substantial benchmarks of performance across quality, capacity, financial and health and safety areas. This is a necessary price of entry into the big league, but it can be a daunting hurdle for small firms.

Clustering for innovation

The government’s Jobs Plan proposes investing over $500 million into the creation of 10 Industry Innovation Precincts to help develop the capacity of local firms. This idea builds on the concepts of industry clustering that have formed the basis of some successful international models. It is part of what forms a National Innovation System.

While such innovation clusters can be successful, they require a long-term outlook and cannot be expected to change our industrial base quickly. South Korea has made successful use of this industrial clustering and innovation precinct model to help transform its economy from the ruins of the Korean War. Yet this was a 60-year journey and was facilitated by the presence of major corporations such as Samsung, Hyundai and LG, plus a government that was prepared to take a strong leadership role.

Lifting our global innovation performance

Australia’s performance on the Global Innovation Index (GII) published in 2012 suggests that we ranked 23rd overall. Key areas of weakness were the way in which our business community invests in R&D and whether it generates valuable intellectual property or relies on overseas imports. Here, we ranked 61st and it can only be wondered what our ranking will be if our major corporations are denied any R&D tax concessions, as proposed by the government.

The GII study also highlighted weaknesses in how we formed clusters and strategic linkages between our universities and industry. There was a poor ranking in our funding of universities and the number of science and engineering graduates we produce from them. Worker productivity was also an area of concern.

Although the idea of clustering manufacturing and related firms into special precincts has merit at a conceptual level, the challenge will be to successfully implement such schemes. Here there needs to be a well-considered role for universities and other research organisations, to cost-effectively work with industry. This is not easily achieved when dealing with SMEs who, by their nature, lack the time and resources to engage in long-term fundamental research projects.

There must also be a clear role for major “focal firms” that can help to anchor the supply chain network and assist the smaller firms to engage with international markets. We don’t have Korea’s Samsung, LG or Hyundai to help lead the way. Further, if our major global corporations are resources firms that no longer get a tax break for investing in R&D, will we see such engagement from the big end of town?

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