Submission to VCEC
INQUIRY INTO A MORE COMPETITIVE VICTORIAN
MANUFACTURING INDUSTRY
Geelong Manufacturing Council
May 2011
Geelong Manufacturing Council
P.O. Box 638
GEELONG 3220
Ph 5223 2999
Email: gmc@tpg.com.au
Contact:
David Peart
Executive Officer
Geelong Manufacturing Council
P.O. Box 638
Geelong Victoria 3220
Tel 03 5223 2999
Email:gmc@tpg.com.au
1. Background to Submission by Geelong Manufacturing Council
The Geelong Manufacturing Council welcomes the opportunity to present a response
to this Inquiry in relation to ‘A More Competitive Victorian Manufacturing Industry’.
In Geelong, manufacturing is by far the largest generator of economic output
representing over 40% of the total regional output. The future of manufacturing is
closely tied to the economic health of the region and therefore ranks as a very
important consideration for the regional economy.
When the multiplier effect is taken into account, the manufacturing industry in Geelong
accounts for up to half of the region’s economy and employment. It follows that any
negative impacts on manufacturing are felt across a large section of the economy and
community.
Geelong is a major regional population and business centre, as home to over 290,000
people, it is Victoria’s largest regional centre. The City’s existing competitive strengths
include a diverse range of manufacturing activities, research and development,
education and training, biotechnology, transport, tourism and health.
The key manufacturing sectors in the region are automotive and components, textiles,
metals, food, cement, timber, engineering and chemicals and petroleum. Currently, by
our estimates, the region has around 14,000 people employed in the manufacturing
sector across some 500 companies. An example of the diverse range of industry
located in Geelong includes the fact that Geelong is home to Victoria’s only cement
manufacturer and Australia’s only paper felt manufacturer (a key supplier to the papermaking sector).
Manufacturing in Victoria (and Geelong) has recently dealt with a number of complex
challenges, which have tested the resilience of the industry. These challenges include
those presented by the global financial crisis, on top of the existing challenges such as
the emergence of global supply chains with its impact on prices and margins, and the
recent proposed implementation of a Carbon Tax.
Manufacturing is also a major generator of research and development activity and a
number of organisations are working to grow this important work in the Geelong
region. This includes the Geelong Technology Precinct at Deakin University and The
Gordon (TAFE Institute).
The Geelong region has seen the recent loss of industries via closures and downsizing
and this has had a significant adverse impact on the regional community when the
impacts of the flow on effects are taken into account. Some of these companies have
moved operations offshore.
The key driver for companies who have moved offshore has historically been the cost
of labour compared to lower cost countries, however this is only one of the set of
factors which are considered. Issues such as market access are increasingly relevant
as the Australian market becomes more accessible to a wider range of competitive
countries. Unfortunately, trade opportunities do not flow the other way. Lack of market
access is an important factor which could influence industry to consider locating
offshore to secure better market access.
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2. The Geelong Manufacturing Council
The Geelong Manufacturing Council (GMC) was established in 1998 by the Australian
Industry Group and the Geelong Development Board to assist and promote the
region’s manufacturing industry.
The GMC’s vision is “Geelong as an internationally competitive manufacturing centre
in the 21st century”, and this will be achieved through facilitation and support for
manufacturing by developing and sharing sustainable best practice, encouraging the
growth of technologically advanced manufacturing and promoting a favourable
environment for manufacturing in Geelong.
The Geelong Manufacturing Council facilitates a number of networks and industry
groups with similar objectives to the GMC and is a non-political, not for profit group,
largely funded by industry. The GMC is also a partner organisation with Enterprise
Connect, the flagship Commonwealth Program. The GMC, both directly and through
its sub committees has a significant proportion of the largest 100 manufacturers as
members, which represents over 10,000 of the 14,000 manufacturing employees
across the region. In 2010/11, over 150 manufacturing companies participated in a
program or activity conducted by the GMC.
3. Regional Importance of Manufacturing
Geelong has traditionally been a manufacturing region. In the 1970’s over 30% of the
workforce were employed in this sector. Since this time, increased levels of
international competition as a result of tariff reductions has gradually led this to drop to
below 20%. Firms have pursued technology and increases in capital intensity, in an
effort to compete.
Economic analysis indicates that 43% of regional output is derived from the
manufacturing sector. It follows from these figures that the health of the manufacturing
sector is vital for ongoing stability of the region’s economic and social foundations.
The strong recent appreciation of the Australian dollar has added competitive pressure
to manufacturing and led to a severe deterioration in the competitiveness of
manufacturing in Victoria. This underlines the importance of the recommendations of
this Inquiry being implemented to help redress the loss of competitiveness in the areas
it can influence.
Geelong is a region where its people and industries contribute to Australia’s GDP
more so than any other region of its size in the country. Geelong industry produces a
range of very important products including: motor vehicles, engines and other
components, automotive and technical textiles; carpet; carpet wool fibre processing;
chickens, aluminium, petroleum, polypropylene and a wide range of timber,
engineered products, food and consumer goods.
Geelong is also pursuing an agenda to build its automotive capabilities and develop a
centre of excellence in aspects of automotive design, education, research and
manufacturing. Recent major investments have included Australian Future Fibres
Research and Innovation Centre (AFFRIC). This Centre is a collaboration between
Deakin University, CSIRO and the Victorian Centre for Advanced Materials
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Manufacturing (VCAMM). The total project ($102m) which will include an industrial
scale carbon fibre plant and create hundreds of jobs and opportunities for the region.
Ford Motor Company of Australia, Research and Development Centre ($27m), which
now employs over 400 people and ACART (a joint venture between Ford Motor Co
and The University of Melbourne) which has seen major investments ($29m) in
emissions and testing laboratories at the Ford You Yangs Proving Ground.
The Gordon (TAFE) has invested heavily in training facilities to support manufacturing
in the Geelong region while Deakin University has been successful in developing
major industry partnerships across a number of areas of manufacturing research and
product development.
The Geelong Innovation and Investment Fund was established in 2007 in response to
the then planned Ford engine plant closure. The GIIF has assisted some 22 projects
and over 1000 jobs generating over $100m in private investment in the region, with the
bulk of projects in the manufacturing sector. The success of the GIIF leads us to
strongly support the establishment of an ongoing investment fund for the Geelong
region. We propose that this be supported by a combination of local stakeholders as
well as state and federal government. Discussions with key bodies in Geelong indicate
substantive support for such as fund and a willingness to provide financial and
administrative support.
4. Geelong Manufacturing Council programs in partnership with State and
Federal Government to support and assist manufacturing
In recent years, the Geelong Manufacturing Council has been active in partnering with
a range of government programs to assist regional industry. Activities have included
being a partner organisation with Enterprise Connect delivering manufacturing
reviews. Enterprise Connect, is a $251 million Australian Government initiative
designed to boost productivity, improve innovation and increase the competitiveness
of Australian small and medium sized enterprises (SMEs). The success of this
program and the willingness of industry to undertake the program has been a strong
indicator of a renewed desire to improve productivity and sustainability from industry.
A major industry based regional cluster program recently established with the support
of Local, Victorian and Commonwealth Government is the Engineering Network
Geelong (ENG). The Cluster has the objective of bringing further work to Geelong
through collaboration and networking activities. ENG currently has 50 members and is
achieving results by bringing together the considerable range of engineering expertise
and capabilities from across the region. ENG is marketed across the country and
allows the regions engineering companies to diversify and develop new markets either
individually or as part of a group.
A major innovation program is to be commenced by the GMC in conjunction with
Deakin University, supported by the Victorian Government will be commenced on 1st
July, 2011. The program will assist to increase innovation adoption in the region by
increasing the level of innovation in industry through greater university and researcher
collaboration with industry. We believe that this program has the potential to
significantly increase the level of innovation in the region and have positive impacts on
economic growth in the region.
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Sustainability initiatives with Sustainability Victoria, aimed at improving productivity
and efficiency, reducing waste and energy use have also been implemented in recent
years. In 2011, a series of sustainability initiatives will commence with a sustainable
industry program supported by the Commonwealth Government through its Enterprise
Connect Workshops and Industry Intelligence and Networking (WIIN) Program.
Further activities are planned, subject to funding support, to increase the focus on
sustainability and carbon reduction activities.
Programs to encourage lean manufacturing delivered in partnership with the Victorian
and Commonwealth Government’s have also had a positive impact on regional
industry. We are committed to keep assisting with offering these programs and where
possible seeking to extend the availability of these programs for regional industry.
Overall, while there are currently a range of positive program responses by State and
Federal Government to encouraging innovation, particularly among the small to
medium sized sector and programs for several targeted sectors, more can be done to
encourage innovation.
For example, there is an opportunity to promote aluminium recycling in our region.
The CO2 benefits of recycling aluminium are very significant, because it uses 95%
less energy to recycle the metal than producing virgin aluminium. It is imperative the
Victorian government supports and promotes the value of diverting aluminium waste
from landfill. There is significant opportunity to leverage life cycle capabilities in carbon
constrained economy and the GMC supports Alcoa’s belief that recycling and recovery
of embodied energy should be strongly encouraged.
5. Response to the Terms of Reference
GMC members were consulted with respect to the terms of reference for this inquiry.
The following is an aggregated response obtained from a range of discussions.
 The changing nature of Victorian manufacturing.
A wide proportion of Geelong region industries are linked to global supply chains. As
protection and tariffs are now low for Australia, industries operate already in a very
competitive environment. Any increases in cost bases in excess of the CPI will
threaten the industrial base of the region and therefore the regional economy. To
ensure that industry is not burdened with costs which make them uncompetitive, The
Essential Services Commission (which is charged with regulating costs of services)
should continue to monitor these costs and ensure that costs increases do not exceed
the consumer price index.
The impending introduction of a Carbon Tax will also bring additional costs to our
region’s manufacturers. Under carbon pricing, coal-fired power station operators will
experience significantly increased costs which they will pass onto power purchasers.
For the largest users of electricity (aluminium smelters are by far the largest) this
represents a very significant additional cost that could prematurely close some
Australian smelters. Smelters in Victoria are particularly at risk due to the Electricity
Allocation Factor (EAF). Alcoa of Australia operates a smelter at Point Henry,
Geelong.
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As part of the Freight Futures Strategy, it has been announced that a Freight
Infrastructure Charge would be introduced at the Port of Melbourne. The charge,
expected to be around $180 per truck, will apply to trucks accessing the two main
international container terminals at Swanson Dock to pick up and deliver containers.
This will hurt our international competitiveness

The costs to the Victorian economy of the manufacturing sector
continuing to decline relative to the growth of other sectors, including
services.
As manufacturing in the region accounts for 43% of output (source REMPLAN) any
reduction in manufacturing activity and employment will be acutely felt across the
regional community. For every one manufacturing job lost the multiplier impact points
to another 3-5 jobs which will be eventually lost across the regional economy in the
supply chain, support and ancillary services. We believe that this high multiplier impact
justifies strong support for the retention of manufacturing activities, in general but
especially at this time where the high dollar is undermining manufacturing
competitiveness.
 The key drivers of future growth in Victorian manufacturing.
While the high Australian dollar relative the US dollar is currently threatening the
growth prospects for the industry, costs such as infrastructure provision, services, and
taxation of all forms are also relevant. An up to date analysis of these costs for
industry in Victoria compared with our major trading partners and other low cost
locations would assist to identify areas of uncompetitivenes and indicate possible
pressure for companies considering locating offshore. This benchmarking information
may already be available to identify these issues.
For this reason we are urging the Victorian Government to do what it can to identify
cost impediments and barriers to investment in Victoria (including information obtained
in this current review) with a view to examining ways to reduce any areas of
disadvantage with respect to any new or existing investment proposals.
If manufacturing is to grow and prosper the following will be required:
Access to:
-competitively priced services
-skills development, retention and training in relevant areas
-innovation services and expertise priced at competitive rates
-best practice exemplars and case studies
-investment capital confident in the future of manufacturing in Victoria
and a clear state strategy and strong policy response for industry development
Infrastructure projects such as improvements to rail access to the Port of Geelong are
sought to maximise the potential of the port. This has been the subject of previous
submissions to government but has not been able to be fully completed, leading to lost
opportunities for the Port.
To cater for future investment, significant improvement in services infrastructure is vital
and this specifically relates to the Heales Rd Industrial Area on Geelong’s northern
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edge, (Geelong Ring Road Employment Precinct) this has also been the subject of
other submissions to government.

The challenges and opportunities for building a competitive
manufacturing sector in rural and regional Victoria, and whether a
differential approach to supporting manufacturing is warranted in rural
and regional locations.
We firmly believe that a differentiated approach works best for the Geelong region. An
example of this is contained in some of the clusters which have been developed in the
Geelong region. We have found a strong response from clusters which focus on
industry sectors such as Engineering, and general areas such as Innovation and Lean.
Industry has shown a strong response to these initiatives being pursued on a regional
level, measured by attendance, networking and collaborative activities. Before the
ENG was established, many engineering companies based in the Geelong region had
never actively collaborated with other companies, presumably because of the level of
competition and a lack of awareness of other firms capabilities. In its first year of
operation ENG has exceeded expectations in respect of the number of companies
involved and contracts tendered for and successfully won by regional companies.
The challenges of growing in a regional area have never been greater. Access to
capital for small companies remains an issue and can impede business growth and
may be a reason for a lack of succession planning among SME’s to be now stifling
growth.
Access to a skilled and professional quality workforce has emerged as a constraining
factor in some sectors of manufacturing. The talent drain for head office locations may
further exacerbate this in a regional location.
We are concerned that the mining boom is already impacting on the manufacturing
sector. The skills bases of manufacturing and engineering sectors are highly sought
after. Mining companies are already undertaking or planning fly in fly out (FIFO)
operations from the region. This has the real potential to further drain the skills pool of
the region. This problem will adversely impact across Victoria and it would be helpful if
retention strategies were developed and actively implemented.

Principles to support the development of policy for manufacturing sector
and the Government’s ongoing review of current programs of financial
assistance to industry.
Industries operate in global marketplaces and the best companies have well defined
strategies for growth across regions. This will be best achieved when they clearly
know and understand government’s strategic intent for that particular industry and
industry in general. Government policy sends a signal to industry domestically and
worldwide and is critical to growth opportunities being identified.
A strong plan and vision for manufacturing development and appropriate policies and
commitment to achieve the vision are key requirements for government policy. This
includes an understanding of the strategic nature of certain industries such as the
automotive and aerospace sectors. Once many of these sectors decide to move
offshore they will be unlikely to ever return. We also argue that existing industries have
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proven their resilience and competitive ability and should be given every
encouragement. Defending current industry should be a central policy position.

Actions to improve competitiveness, productivity, investment, jobs and
export growth in the manufacturing sector that the Victorian Government
can take consistent with these principles.
Manufacturing is a critical economic driver for the state and needs to be given strong
direction and security to allow for the long term investment decisions, which dominate
expensive capital intensive industry. Promotion and implementation of relevant
strategies to support manufacturing is always important.
Recent efforts to promote programs such as the Competitive Business Fund is
commendable and an excellent way to promote supportive programs. Industry seeks
to gain support to continue to invest to improve their competitiveness and
sustainability. In this funds’ case we would argue that the total amount of the fund is
insufficient to allow for the strongest response from industry. If the current round of the
fund is found to be oversubscribed we would encourage the consideration of additional
resources to be put into such a fund to fully capitalise on opportunities for investment
and employment creation.
The establishment of an ongoing Investment Fund for Geelong
In 2007, the Geelong Investment and Innovation Fund was established by the
Australian and Victorian Governments, together with Ford Australia following Ford's
proposed restructure of its manufacturing operations in Geelong.
The Fund has assisted industry development in the Geelong region by providing
grants to support new investment that will create sustainable jobs. These projects
have the potential to significantly stimulate the regional economy and create
employment.
The experience to date is that while restructuring of manufacturing will continue, it will
be necessary to provide assistance to promote new investment in manufacturing and
encourage advanced manufacturing.
An ongoing investment fund focusing on attracting new investment into manufacturing
and advanced manufacturing would, on a regional basis, assist to support jobs and
investment. Other measures will be required to assist existing companies that do not
qualify for investment fund assistance.
We believe that an ongoing regional fund will deliver a strong response and support
from industry based on recent history. Industry has called for a fund which directly
supports existing jobs in addition encouraging to new jobs. We believe that industry
will strongly reinvest, if given a degree of encouragement of the nature proposed in
this submission.
We strongly support the recommendation that the Victorian Government in
collaboration with regional stakeholders support the establishment of a Regional
Innovation and Investment Fund for the Geelong Region.
Activities to improve the perception of industry are critical for the continued
sustainability and growth of the manufacturing sector. Programs in the past, such as
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Careers in Manufacturing, have proved to be valuable contributors to this effort.
Getting the message to schools in regional areas remains important and may have lost
focus in recent years.
Alcoa, in conjunction with the Geelong Regional Vocational Education Council and the
Geelong Manufacturing Council, has run the Future Leaders of Industry scholarships
program since 2006 which annually engages 20 secondary school students to promote
careers in the manufacturing sector through a structured 6 month program. The basis
of this program could be used in other regional areas - government funding could
enhance and grow the reach of this program,
 Potential strategies to strengthen Victorian manufacturing.
A strong Victorian manufacturing strategy will provide industry with the required
certainty to allow it to consider further investment in the State. It will also positively
influence a range of other responses from government when the policy settings are
fully supportive of manufacturing. If the strategy framework is well developed, so that it
provides existing industry with strong encouragement to invest this can also be
expected to have a positive impact on investment from outside the region.

Unnecessary regulatory burdens imposed on manufacturing activity and
investment beyond those under review by the Council of Australian
Governments or those already identified in past VCEC reviews.
The State Government of Victorian is encouraged to review the many regulatory
burdens imposed on industry by government. An example is the reporting of
environmental indicators which has become more onerous in recent years with a
range of State and Federal measurements. This is an area where regulatory burdens
could be reduced, and allowing industry an opportunity to focus on implementation
rather than reporting. This area could be further explored as this inquiry continues.

The impact of the Victorian Government’s procurement policy on the
development of the manufacturing sector, and the extent to which local
content requirements can stimulate growth and innovation.
Government procurement to the extent it is focused on locally made goods can benefit
industry. Purchasing policies across a range of areas can be of significant positive to
Victorian industry. We believe that Victorian Government purchasing policy should
recognise and actively support the purchase of Victorian made products.
Local content is fundamental but regularly overlooked. We are alarmed and concerned
at the amount of overseas components being imported to supply the Macarthur Wind
Farm, which is presently under construction in South Western Victoria. If our
understanding is correct then much more must clearly be done to increase local
content in these large infrastructure projects.
6. Concluding comments
Industry can be mobile domestically and internationally. Information with respect to
services costs, incentives and other assistance provided by governments can regularly
be well known within the industry. This information is continually taken into account by
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industry when considering locational decisions. Indeed, there is strong evidence that
lower cost countries actively seek investment from Australian companies. Other
important factors considered by industry include:
 Cost and supply of labour
 Cost of infrastructure, services and taxation
 Access to export markets
 Government incentives/assistance compared to other locations
 Strength of government industry policy.
A strong understanding of our relative position in respect to these criteria is an
important step in ensuring Victoria remains a competitive location for manufacturing
investment. This will also highlight areas where improvement needs to be focused.
During the past four years we estimate that some 1000 jobs have been lost from
manufacturing in Geelong, resulting in a direct impact of between $50m and $100m
lost from the economy, largely made up of wages and contractor payments. This
serves to illustrate the competitive nature of industry and need to develop a strong
strategic and policy response as outlined in this submission.
The comments provided in this submission are done so in a constructive manner and
on the basis of the scope of the inquiry. We look forward to further responding to the
draft report in due course.
In summary, we strongly support the Government’s rationale for developing a new
approach to manufacturing based on getting the basics right, backing local innovation
and creating more local jobs. The GMC is keen to contribute to the further
development of manufacturing and is prepared to be part of ongoing dialogue and
activities.
Please advise if you require clarification or elaboration of any of the issues raised
above.
Yours Sincerely
David Sykes
Chairman
Geelong Manufacturing Council
5 May 2011
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