Jun 21 2016
Australia’s manufacturing division has struggled over the past five years as declining prices brought about by increasing import penetration have negatively influenced revenue. Competition from overseas producers has been amplified by amendments to the Customs Tariff Act 1995, which have reduced duty rates on many manufactured goods produced offshore from 10% to 5% from January 2015. The cut and sewn textile product manufacturing industry’s poor performance over the past five years mirrors the general state of the Australian Manufacturing division. However, some industries have managed to post positive results over the period. For example, medical and surgical equipment manufacturers have maintained stable growth over the past five years.
The diverging fortunes of these manufacturing industries can be explained by the extent of government assistance each has received. Medical and surgical equipment producers receive direct assistance via initiatives like the R&D tax incentive, which significantly reduces industry operating costs and enhances players’ competitiveness (particularly in international markets). Operators also benefit from public funding allocated to Australia’s healthcare system for the purchase of medical and surgical equipment. Meanwhile, cut and sewn textile product manufacturers have suffered a decline in industry protection as the Federal Government has pursued free trade policies, reducing tariffs and excise duty rates imposed on competing imports. As a result, medical and surgical equipment manufacturing has performed better than textile manufacturing industries.
Several major textile manufacturing companies have increased their offshoring, further contributing to the downward trend in industry revenue. Given the strong homogeneity among cut and sewn textile products, operators are highly susceptible to competition from goods manufactured offshore. The depreciation of the Australian dollar from 2013-14 onwards has done little to mitigate import penetration in the industry. Competing imports are expected to account for over half of domestic demand in 2015-16, contributing to strong industry declines over the past five years.
The medical and surgical equipment manufacturing industry is also subject to a high degree of import penetration, with imports satisfying 85.5% of domestic demand. However, domestic manufacturers are able to produce technologically advanced equipment, supplies and appliances that are highly sought after overseas. These trends tend to protect the manufacturing of medical goods from being offshored to South-East Asia. Exports are expected to account for 72.6% of industry revenue over 2015-16, contributing to strong revenue growth over the five years through 2015-16.
The performance of medical and surgical equipment manufacturers is expected to improve over the next five years. Changes in population demographics, exchange rates, demand from hospitals and government funding for healthcare services are all set to boost industry revenue over the period. Export revenue is likely to stay strong over the next five years as the Australian dollar remains comparatively weak over most of the period. Despite the weak Australian dollar, the effects of lower tariffs and rising output from China and India are projected to increase textile import penetration over the next five years and hamper industry exports. The future of cut and sewn textile product manufacturing will depend on several factors, including global textile production trends, domestic consumption, household discretionary income and new product developments. Local textile manufacturers will need to focus on niche, higher value-added and export-oriented textile products to remain competitive over the longer term.