TRANSCRIPT OF THE PRIME MINISTER, THE HON P. J. KEATING MP
LAUNCH OF THE AUSTRALIAN MANUFACTURING COUNCIL'S REPORT
4EMERGING EXPORTERS, HYATT HOTEL, CANBERRA, 1S JUNE 1993
E& OE PROOF COPY
my colleague Martin Ferguson, President of the ACTU and ladies and
gentlemen. This is a very impressive and I think seminal work. It is the first accurate snapshot
of what is happening within the smaller innovative exporting firms which
has been undertaken by the Australian Manufacturing Council, under the
leadership of John Prescott and with the help of McKinsey's. A process of
rigorous interview and evaluation of the various firms has been undertaken so
as to give a clear indication of the performance of these businesses and their
trends and the way they are operating and their motivations. Much of this is In
the report.
The important thing about it is I think for all of us who have beleved in an
international culture for Australia, for those who have thought competitiveness
was the key to international success, what the report shows is that the twin, if
you like, Incentives of the carrot and the stick the carrot being access to
export market development grant schemes, export access, NIES, Austrade,
better research and development, better tax concession has changed
attitudes, as has the stick of lower tariffs arnd the incentive to be
competitiveness and then once having become competitive, turn that
competitiveness to exports.
It Is again, a microcosm of what could be a very much larger picture of
Australian manufacturing, and supports the notion of an internationall
competitive economy with an open goods market where companies sort
themselves into competitive lots and where through, then, some inspiration In
leadership, the companies then go on and do things.
We are talking here of quite phenomenal growth but off a relatively small base
15 per cent growth in a year as John indicated, $ 8 billion of earnings to date
growing even at the same addition of the number of firms as the 700; that Is on
very conservative assumptions, growing to around $ 15.5 billion in five years
time. The very thing the country needs In the... that Is added value,
Innovation and tht focusing on the export markets, paitcularly at the Asia-
Pacific, One of the very clear things In the report Is that while these companies have
been successful, their character, their products and their history is often no
different than thousands of other companies that do not export at all and the
difference is only In attitudes, the difference is only In leadership. It Is not in the
products, It Is not in the research component, it Is not In the maturity of the
business, It is only in leadership and in attitudes which begs the question about
how we should try and motivate the other 90 per cent of similar existing
manufacturing firms to engage themselves In exports as well.
The survey shows that our firms can succeed and that three quarters of the
firms have only began exportng recently after an average of 27 years of
domestic production. Some are, as John Prescott said, some have been, to
coin an expression, born global; that is they have done nothing other than
export, they didn't have a domestic manufacturing history. But the average is
for three quarters is 27 years, they had 27 years of domestic production and so
therefore it is pretty obvious that many other firms could be exporting but are
niot, because they have not had the leadership or the Inspiration.
It Is surveys like this I think that do indicate, I mean a survey of this quality, that
does Indicate to many firms that they to can do the same thing and that the
focus on things such as best practice does lift the whole standard of Australian~
manufacturing. It changes the attitudes of Australians and Australian
businesses towards export and towards Asia and it does give us a real
opportunity to see the place mature as a modern manufacturing country, offsetting
that overwhelming dependence on commodities which we had through
most of the post-War years.
John made some Interesting points about the size of these firms. Many were
thought by the surveying firm McKinsey's to be too small to be successful as
manufacturing exporters, but they are. And one of the reasons that they are Is
of course, the shifts In communication technology. The fax machine has made
a very large difference to the way a small business can present itself abroad.
And of course the Governmen-t's changes there in telecommunications can only
further underpin the competitiveness of smaller companies and interfacing with
the world through these innovative technologies.
One of the other key points that emerges of the study Is the importance In
establishing distribution networlks in Asia. The likelihood of Asian firms
militantly marketing Australian goods is a very slim one and, while it happens in
places and certainly happens with the bulk traded commodities in some
respects, the establishment of distribution businesses in Asia Is one of the keys
to our future and we have to do what Japan did 20 years ago establish
distribution businesses even with clusters of firms operating In various areas, In
some places foreign access zones which are now available in Japan and in
China, where these countries actually want to see the development of non-
Indigenous distribution arrangements.
These are all things which the report points up, and It most particularly points
up the fact that the culture of internatlonallsatlon, the culture of lower tariffs and
competitiveness is the right culture of Australia in terms of developing our
manufacturing capacity, that added value and innovation will come from a
competitive country which has got all the other things running for it a proper
research and development focus, proper concessions for that in the tax system,
a competitive exchange rate, low inflation, all the big macro things which are
part and parcel of competitiveness, and then what blossoms are the companies
under the leadership of people who can see beyond the domestic market.
This Is a very Important study, it Is a high quality, comprehensive one, the
nature of the Interviews and the assessment of the motivation and the
leadership of these companies in doing what they have done, information
gleaned from the Interviews about the products and the way in which they have
performed and developed make It the most comprehensive study of Its kind and
therefore for the development of Australian manufacturing exports a seminal
work. So I congratulate the Australian Manufacturing Council. I congratulate those
people who have been associated with the work Elizabeth Brian and Bill
Mountsford and also McKnsey and Company who have undertaken the study
and have produced a work, the substance of which were it have been produced
any time in the first two or three decades after the War would have made this
an entirely different country.
0: Mr Keating, one of the problems which the report Identifies is the
problems which the companies have had in getting access to finance. It
has been an issue which the Government has raised quite recently in
testing Is the Government concerned about the banks unwillingness
to lend to business In general and what is it planning to do to try and
address this?
PM: I think the banks had In the first instance and they are now focussing
on the sort of customers that can bring value to the bank. And I think
therefore there will be the development of closer relationships with
banking between banks and smaller businesses, that the cash flows and
business opportunities of these businesses will be much more a focus of
their lending than their assets than has been the case in the past. So I
would not expect that we are about to see a revolution here, we will see
a balance between cash flow lending and assets and a willingness to
find new businesses to grow their to find new customers of quality.
This is going to take a further cultural change In Australian banking and
that is why the Government has in Its ' Investing in the Nation' program
talked about better Information coming to the Government at the
Reserve B~ ank about lending practices of banks and trying to given
instance specific Information about how particular banks are relating to
toe customers. I think the banks understand thIs Is a problem for the
whole country and that they want to change, but again for them the
change Is going to be a relatlvely slow one because they just don't have
that culture In their institutions and they have to acquire it.
0: Mr Prescott, why has this report ruled out the Impact of the recession,
the report says that import drive is not being driven by low domestic
demand, but surely local firms have been trying to find new markets as a
result of the greater demand in..
JP: I think the report shows that the" e firm have emerged through good
times and more difficult times and that just as many firms were
commencing to achieve this export status while the Australian economy
was expanding as there were when it was shrinking.
MF: The analysis shows that the firms we are talking about are firms that
have made a continuing commitment to an export culture. The research
goes back several years, it goe~ s back right through the 1980s, it shows
no significant difference in pattern as to the number of firms that
emerged in the early and middle part of that decade as has emerged in
the last couple of years.
0: Mr Prescott, how do we get the other 90 per cent of firms who haven't
got the message yet about exporting. Do you have any Ideas?
JP: One of the ideas, of course, Is this meeting. And of course the whole
Idea in producing the report was to try and get a quality piece of
research Into the market place to inspire debate about some of the
issues. This particular subject was first raised In the Manufacturing
Council's Global Challenge report and what we sought to do In the last
two or three years is to develop the various themes in the Global
Challenge report and In the last couple of years of have sought to
understand better what causes firms to export and this is we hope a
quality piece of research I think it is that will lift the standard of the
debate about these issues in this country and I hope it will be taken back
Into the industry organisations, Into the trade unions, Into work places,
onto the shop floor and disseminated and debated so that a much wider
cross section of opinion makers and movers and shakers in this
economy will be motivated to respond. In fact, In short we see the
performance of these 700 firms as quite inspirational.
Q: Mr Keating, is this report a vindication of your Government's policies?
Does it mean that you have finally arrived, that you have done
everything you need to do as a Government and it is over to business
from here on in?
j
PM.: I think it Is an Indication that the direction Is right. As I said this Is the, if
you like, we are noting the sucecss of these businesses, we are taking
Ie sns from them and they have been รต rowing rapily, the value of their
export merchandise has been growing rapidly. But fromn a relatively
small base which means we have to encourage more companes to do
more of the same, So the kinds of programs which have been there
tha Is beyond the big and impodrtat macro seltngs of the exchange
rate, inflation, interest rates, the key competitIveness issues beyond
tse to programs like export market develop grants, NIES, Austrade',
those sorts of things I think the reach of those programs will become
Important and the lessons of the success of these companies, as John
said, an inspirational lesson is the one we want to transmit to the other
manufacturers, domestic manufacturers who have not ad this stage
bothered with exports and I think it Is a valuable lesson in Indicating that
the directions are right and that where we to have chosen for instance to
have locked ourself behind a tariff wall and continued to subsidise
uncompetitive Industries while the competitive ones in commodities were
subject to lower and lower prices In world terms would have seen us
certainly in trading and current account terms in an Impossible position.
This change has been a very profound one and of course, naturally If it
continues the whole nature of Australia's merchandise exports will
change..
Q: Do you think that the Government has to do more? The report talks
about giving a hand up to exports, it refers to things like developing
systematIc cornpaiisons between Australia and East Asian trading
partners, In terms of competitiveness and so on. Do you see that the
Government needs to more to give a hand up to these potential exports,
P M: Well I think we are trying all the time, and a cut in the company rate to
33 per cent which Is largely the sort of area company rate program a
very rapid acceleration and depreciation. Two Investment allowances,
one for' projects over $ 50 million and one for all projects, these are very
much, I think, hands up to all Australian companies and then I suppose
we may specifically say they are, well, hands up more specifically In
areas such as export market development and NIES and Austrade and
what have you, and refining these programs, I mean over the years we
have sought during the ERC process of the Government to try and refine
these programs down so that they actually worked better each time and
I think taking the lessons of a study like this gives you a chance to refine
them further.
0: Mr Keating, the report talks about changes to the EMDG scheme and
also ITES, obviously they are going to cost money, will you adopt it in
the next Budget?
PM: Well again, as I said a moment ago these are things which we can
continue to refine and obviously some programs will have better access,
people have better access to them, understand them better and they will
be more beneficil to them then others, We try and work out what those
prorams are arnd to see how we cani Improve them and how we cant
make their reach more obvious and I think we will continue to do that
0: Prime Minister, if manufacturing exports reach the $ 15 billion, that would
slash the current account deficit and bring It down to a sustainable sort
of level, Is that the sort of macro effect that we can look forward to for
PM: It these categories of firms were producing another, say roughly 2 per
cent of GDP In exports, all things being equal, there would be no change
In the level of Imports and commodity prices being where they are, this
would more rapidly bring the current account back towards its debt
stabilisation point. But of course, as we know, nothing ever does stay
equal. So all you have got to do Is keep on trying and these firms could
mak e a very solid contribution, particularly when we have got low prices.
John ( Prescott) and I were having a talk before we came over here just
about the performance of BHP which is now exporting record volumes
just about acros-s all of its range of commoditiles, but at much lower
prices. This Is the thing, the world is largely in recession and prices are
low, therefore the thing to be doing is exporting more volume of the
things which we traditionally exported even at lower prices, and at the
same time try and export these higher value added areas where you cut
some of that difference away, which comes via the terms of trade.
0: A question from the floor, Prime Minister, do you have concerns about
one of the areas identified in the report is an impediment for exporters,
and that is financial Institutions that can't see their way into financing a
lot of these areas. And secondly, it does detect, or It does talk about
Australian concerns about businesses being subject to foreign
Investment and moving off shore, have you detected that sort of attitude
In Australians, and is that a problem for getting more and more of these
companies off the ground?
PM: Well I think it is always very hard to launch a new business at any stage.
They are as hard to launch today as they have ever been. But most of
these have got a history of domestic manufacture. I think one of the key
points of the report is that it is an attitudinal question, it is really a
leadership question. They have got the same products, they had the
same products and the same, if you like, competitiveness features and
the same opportunities, but some are doing it arnd some aren't. The
difference Is only leadership. Now, financing is part of this, of course,
and I was asked a question earlier about the banks, I don't think I can
add much more to what I said there. I think the banks recognise that
there Is a change going on here, but they have not been at the forefront
of the change and they are trying to catch up, and I think we have got to
give them marks for that.
Q: Prime Minister, does it concern you at all one of the findings of the
report, which Is that even If these companies go ofl exportng their heads
off the job growth out of thai Is very small, only I think about 33 000
people over five years. That's not going to knock much of a dent in the
unemployment problem we have got, is it?
PM: Well I don't think we are seeking to suggest that the growth of the-se
firms is going to solve the employment problem. The employment
problem, we are In a period of much higher productivity then we have
been, we have got a much more productive corporate sector then we
have had for years, and that means fewer people are employed in that
process. How do you get more people employed? Answer, produce
more product, I mean there is no substitute, I don't think, here for
growth. That's the key point.
0: Mr Prescott, what's your answer to the question on the banks, do you
havo a different answer to the Prime Minister?
A: No, I don't have a different answer to the Prime Minister, I would simply
add that In many cases we are not just looking for traditional bank
finance to support these firms, there are quite complex equity Issues that
are discussed in the report, and there are other concepts that need to be
further explored for various types of new funds to provide development
capital. There are no easy solutions to the finance one, but we are not
just looking only at the banks.
0: Mr Keating, are you concerned about the general investment
requirement, and particularly in the last week or so the alleged
uncertainty created by the Mabo issue?
PM: No. Look, the profit share in the economy Is now nearly back to the late
180s, it is already above the 1960s average, if my memory serves me
correctly. We have got a very competitive exchange rate, we have got
by our recent history very low inflation and low interest rates and all
these things, I think, mean that companies have been able to rebalance
their balance sheets, that they are In a position now to look around for
Investment opportunities in a way they were not, say, two years ago. I
think it has taken about two years longer then everybody thought to
change the nature of bal ance sheets and to remove some of the gearing
that existed Into bill the profits and the savings of companies back up.
Now, I think that is happening, I think companies are stripped down to
do things and I think they will do things, and particularly with the
Investment Incentives of these Investment allowances, they are time
specific. In other words, the projects only qualify if they are In there
within the time frame allowed under the Tax Act. So, this Is going to
bring a fair bit on by itself as well as the traditional things of housing et
cetera.
Q: Mr Griffiths, from the perspective of a ' V~ ctorian, we hear a lot of doom
and gloom about the States Mranufaturing, can you see mo* re promise
from this report for Victoria?
A: Well I think one of the lessons here is that Victoria Is as well
represented, and In many cases better represented then the national
whole, that is a function, of course, of the reliance of the Victorian
economy on the manufacturing sector, So, It is a good news story for
Australia generally, and I suppose in that context for Victoria specifically,
I would reiterate the sentIment that the Prime Minister and John Prescott
stated earlier, and that Is that in large measure success or otherwise is
determined by firm leadership, and a~ s I get around partlcular enterprises
In this country, you can work ot as you walk In through the front gate
and after two minutes of discussion with the leadership and the work
place whether these are can do companies or not. So, really the
message is, I think, all a-bout leadership.
Q: Mr Prescott, you in your speech ruled out any of the means ofmanufacturing
efforts, nevertheless . Qnaudible) talks about larger
companies helping smaller companies get But what do you say to that
approach and how do you foresee it coming about?
A: Well it is a very wide ranging question, of course. But what this report
talks about basically is three things. Firstly, how we build the more
pervasive export culture in this country. Secondly, how we remove
constraints to export success. And, thirdly, what are the key measures
that might enhance export competitive advantages. Now, each of those
three Issues goes much deeper and much more broadly across policy
making then just the idea of picking winners. But there are a number of
examples In the report that show what individual firms and groups of
firms can do to disseminate material. There are examples, for example,
of firms that set up to disseminate research information that, if you like,
provide a basis for bringing the providers of research to the knowledge
of people that might be seeking that research base or may be able to
take advantage of a particular piece of research. There are examples of
firms that by marketing information, technology can Improve the capacity
of other firms to remove a number of constraints and to find more
knowledge of the market place. Then there are other examples that go
more directly to the question of sharing information, sharing
management methods, there is a reference in the report to the
advantages of the best practice program where firms that have
succeeded in developing best practices can disseminate their methods
to other firms to the collective advantage. Their. methods, as distinct
from their own competitive edge. There is a whole host of things that
are brought out in the report where firms that get together can gain
advantage from one another.
0: Mr Keating, you talked earlier about the need for leadership and leaders
don't grow on trees, so how are you going to Increase the number of
psople who can come to ir-emdionai meAzet in peace and comfort
do you expect just to, for success to breed success, or a domino effect if
you like, or Is there something more specific in there too,
encouragement?
PM. Well I think the culture of the country has changed, I mean we are
putting nearly eight kids In ton now through secondary school, anid forty
per cent of those into university, the culture In terms of the private
research and development effort coming from companies spending more
of their own income on R& D, availing themselves of the Incentive of the
tax concession available, the co--operative research Institutions we now
have there, the CRCs, which I think Is a good and novel way of bringing
business, insfltutions, and research institutions arnd universities together:
this sort of change is, I think, demonstrating to many managers and
owners of businesses that develop an iniiative product and you can
basically draw some economic rent from it, and I think that is the lesson.
I think the launch of this particular report and the coverage of Its
contents is just another example of how we will get that Impression over.
Plus, the fact that we are very, very competitive. I mean there are very
few products now that we can't be competitive in an export markets.
This just makes an obvious point to somebody who is battling to either
keep a business together or to grow it, and as the best practice
programs and the rest start to prolife rate and move through the economy
the culture generally changes, and of course these are the companies
that are going to earn more. If they earn more and they become publicly
listed companies, they are going to have a higher premium on them.
Therefore the whole culture reinforces itself again.
0: Mr Ferguson, do you see a correlation between progress towards
enterprise bargaining correlation on the grim export culture of the
companies, is there any apparent correlation between those two things,
or are they
A: No, I think they are very much integrated. I think you will find that the
company Is adopting a leadership position on the industrial relations
front, also the company Is adopting a leadership position in respect to
your export. The reality of life is, when you talk about best practice you
are talking about an integrated approach looking at industrial relations,
the question of export culture, Investment in research and development,
they are all interrelated anid it is those companies that adopt that
leadership position that are going to lead this country in the future.
0: Mr Keating, how does the Government propose to respond to the
recommendations in the report today?
PM; Well I think that many of the features of the report already cover, not just
the macro-economic influences of policy, but also the specific programs9
we have there like EMDG... et cetera. But I think from our point of view
what Is interesting Is the quantifcation of the success of these firms,
peering behind their managements to find out what did motivate them
and how they have done it, which itself gives us clues about how we
ought to direct policy in the future. I think In terms of any of the specific
schemes we have, I would think, we will seek to take lessons from such
an exhaustive study and try and improve those. But I think perhaps
more then anything else it just underpins again what we have believed;
that is, that our future is as an exporter not just of our traditional things
but of the higher added value products, and that we can do it and the
difference is not about competitiveness or about the products or quality,
it is about really attitude and leadership and I think knowing that is a very
handy thing for the Government to know to devise further progress along
this path, and that might go to designing some of these schemes more
closely or improving them, but wil probably go to proselytising about the
prospects of added value arnd the likelihood of success.