The Great Australian Move To Onshore Manufacturing

Integra Systems inducted into the Victorian Manufacturing Hall of Fame 2022

There are many unknowns as we slowly emerge from what many people hope is the worst of the coronavirus pandemic. As well as COVID, we’ve seen an unwelcome increase in the number of ‘once in a generation’ events such as catastrophic bushfires, flooding and a whole range of other natural disasters worldwide that can be directly attributed to the creeping effects of climate change. 

Part of the human and social toll of these disasters is the impact on Australia’s businesses. While COVID has already played havoc with global supply chains, war in the Ukraine has led to a shortage of essential goods and services, spiking inflation in a number of major economies and laying the groundwork for even greater uncertainty about the Australian economy in the coming years. 

Furthermore, the events over the last decade have forced Australian manufacturers to reconsider their position on outsourcing manufacturing overseas. Once seen as a means for short-term gain, supply chain breakdowns and a greater consumer focus on sustainability is prompting a re-think about the so-called benefits of off-shore manufacturing. 

Erika Hughes, Commercial Director of Melbourne-based manufacturing enterprise Integra Systems, believes the time is right for a re-think and re-investment in Australian manufacturing. And she’s seeing an increasing number of local manufacturers put their money where their mouths are.

In acknowledging how difficult it has been recently for all Australians from all walks of life, Erika offers a different way for Australian manufacturers to view the events of the past decade, carefully describing this time as a “perfect on-shoring storm” when it comes to acknowledging the many advantages that bringing manufacturing back within our sovereign capability offers.  

“COVID showed people what it's like to have to bite the bullet,” she explains. “And, as the war between Russia and Ukraine only increases, and the difficulty in getting overseas-manufactured products onto our wharves and wheels-down on our airport runways continues, it’s given an already resilient manufacturing sector the confidence to double-down.” 

“The sentiment now is, let's continue to bite the bullet and take away our reliance on these countries that don't think the same way as us, just because it might have been lucrative to manufacture offshore at the time," she adds. 

While going offshore was broadly considered the more cost-effective alternative for a few decades, rising standards of living in developing nations and the ripple-effect of economic shifts across the world means that going overseas doesn’t necessarily equate to low-cost anymore. Additionally, the uncertainty around availability has fulfillment implications that can ultimately outweigh any perceived cost-savings. 

"I think, with the advent of COVID and a lot of our offshoring in the southeast Asia region, many people are now trying to find local manufacturers here in Australia, or they're trying to bring their manufacturing back to Australia,” says Erika. “People need the certainty that they’re going to be able to get product when they need it, and the alternative leads to fragile supply chains that can result in loss of customers, which can really hurt a business. You don’t want to be sweating it out, just hoping that your supply chain delivers and having to make excuses to your customers.”

As she explains, offshore manufacturing has traditionally supported government policy and facilitated our participation in important free-trade agreements. Offshoring also presented local manufacturers with some very important short-term gains.

“Offshoring became easy because China was easy to do business with,” says Erika. “But that ease of doing business offshore has declined with supply chain vulnerability. It’s stimulated growth here because we now understand the weaknesses – the instability – that going offshore can inflict on us. Australian manufacturing provides a stronger base from which people can depend [on].”

Erika is seeing first-hand an increasing number of manufacturers exploring the capacity to source the components or ingredients they need, not to mention the necessary expertise, right here in our own backyard. 

“In global terms, we’re small but, in actual fact, Australia is such a big country that we have enough of everything we need here to survive and to prosper,” she says. “We’re seeing a shift in people's thinking. There’s an understanding now that finding, and developing, and strengthening supply chains within our local market is not only the right thing to do but it is a sustainable thing to do from a business point-of-view but also from an environmental, economic and future-focused point-of-view. We can cut down on carbon emissions and create more innovative ways of manufacturing that are less disposable. For instance, at Integra, we have this digital licensing arrangement with a manufacturer in The Netherlands, so we manufacture their product here to remove the need for international shipping. We also flat-pack wherever possible so we can move more around Australia with less negative impact.”

"Unlike Europe and other manufacturers that are in some of the smaller countries, the beauty about Australian manufacturing is we have land,” Erika continues. “We have the land and the natural resources to scale up, and we have the agriculture to support the food supply. In Melbourne's north, there’s the food manufacturing belt. We've had the heavy fabrication belt out there in the east and in the southeast, but the north is building up a strong food manufacturing presence. A lot of that's got to do with the drive for people wanting local produce."

While this all sounds sensational on paper, Erika readily admits the reality of fully realising such a change requires drive and vision. 

“It's not going to happen quickly because the barriers to entry in bringing manufacturing back to Australia means a pivot in capital expenditure," she acknowledges. “But, in many ways, it’s the long-term solution we need to save costs in the future. Hopefully, the government's in a position to help support this new movement. If you think about it, those already embedded in domestic manufacturing are going to prosper even further, and that's going to help everybody because it'll help with jobs, it'll help with skilling — re-skilling, upskilling."

In navigating these transitional hurdles, positives emerge. Erika passionately argues that, with labour costs rising in every territory across the world, Australia’s focus on quality and on digitising manufacturing workspaces is a powerful offset. 

“A lot of the major countries that we outsource to don't have the kind of governance that we have here in Australia, and eventually they'll have to comply, which increases overhead making their own costs go up,” she outlines. “We've seen that in China, and it'll happen wherever you end up going offshore – you're going to see labour cost increase.”

However, Erika strongly believes that, here in Australia, if we can continue to foster a strong manufacturing base with strong governance and compliance, and if we can channel our labour towards higher value processing and production processes such as digitisation and deploying progressive sustainability concepts within a circular economy, then we will start seeing a long-term gain.

"It's not a quick fix and it's not a quick solution,” she emphasises. “But, in terms of longevity and sustainability, Australians will only benefit from bringing manufacturing onshore down the track. It’s a win-win situation.”