Australia has one of the most volatile manufacturing sectors in the world. During economic upswings, the output in some manufacturing industries can soar up to 20% above trend. However, during a downturn it can shrink 20% below trend. These ups and downs are much more pronounced than in other leading manufacturing nations, including the United States, Germany and France.
How can companies survive in such a challenging environment?
The Advanced Manufacturing Growth Centre (AMGC) commissioned AlphaBeta and McKinsey to investigate the issue and find out what Australian manufacturing companies can do to become more resilient against cyclical swings. The final report “Building resilience in Australian manufacturing” was published today.
Based on an analysis of Australian manufacturing performance over the past 30 years, the report finds that some companies manage to outperform their industry and grow even during challenging times. For example, there are Australian dairy producers who continue to thrive even as overall revenues in the dairy industry slump. There are also Australian car parts manufacturers who remain highly profitable at a time where the overall automotive industry in Australia was forced to move much of its core production abroad.
The analysis shows that Australia’s most resilient manufacturing companies use three strategies to successfully shore up their business against volatility:
Superiority: offering technically superior products or services that are unique and highly valued irrespective of market conditions
Diversity: offering products and services that meet a range of consumer tastes across different segments and export markets, even during times of low overall demand
Flexibility: using an angle business structure to manage fluctuations in input costs and to shift to another industry in the event of a downturn
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