Comments

David Thompson Posted:
So very, very true. It beggars belief that we consider ourselves to be a developed nation when so much of our economy is based on selling milk powder or logs. BTW, I own a Plinius amplifier (my second) that drives a set of Theophany speakers.
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David Thompson Posted:
A robust but sobering report. It concerns me that confidence is rising, yet sales and exports are down and "manufacturers and exporters are still lagging behind other sectors". Surely we should wait until we're earning more money before we start spending more?
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siemens Posted:
Yes true! The only thing that will never die in this world is the nature and its science behind it. Great post.
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Kieran Ormandy Posted:
Thanks for the question Steven, Germany has seen increases in manufacturing employment since 2009, and Switzerland has had stable manufacturing employment between 2006 – 2011, even in the face of ongoing Euro-zone issues. Korea has seen increases in manufacturing employment since 2008 and Israel experienced large increases since 1998, while being stable over the last 4 years. Singapore has had increases in manufacturing employment over the last two years. These countries all value their manufacturing sectors and work to protect them, this is reflected in the above numbers and their performance through the GFC. Note data around the above examples was sourced from OECD labour market stats.
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John Walley Posted:
Point one: you should have no doubt what our Association says publically represent the views of our members. Point two: we don’t knee jerk responses, if you trace back our comments around NZPower you will see them link all the way back to our research in 2004 and 2005. All that material is fully linked from our comments above. Point three: you will note our comments on major users, sadly the same advantage does not accrue to smaller industrial users. The perverse incentives of the LRMC approach in all this are well known. Point four: the NZMEA is not like any other Association in New Zealand we admit only manufacturers and exporters into membership, and our public expressions are the views of that restricted membership.
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3/8/15

Defining High-Tech Manufacturing - Does it Matter?


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I recently spent time in Wellington, meeting members and officials from the Ministry of Business, Innovation and Employment (MBIE) and Callaghan Innovation. It was interesting to discuss MBIE’s recent Sector Reports, and to see how government defines and views manufacturing, in particular high-tech manufacturing. There are still misconceptions on what manufacturing is, and what should be considered high or medium-technology manufacturing.

 High-tech manufacturing is often touted by government as an important source of growth and innovation for our country. But it does not capture all the high value-added activity happening across manufacturing businesses, and focusing only on what is defined as high-tech can lead to missing and undervaluing all the innovation and growth that is created in other parts of the sector, just because they do not fit a specific definition.

The definition used for high-tech manufacturing in the Sector Reports covers those manufacturers who spend greater than 8% of revenue on research and development (R&D). By this definition, the high tech sub-sectors of manufacturing are: pharmaceuticals, aircraft manufacturing, professional and scientific equipment manufacturing and computer and electronic manufacturing.

Medium-tech manufacturing is defined by R&D expenditure of between 2% and 8% of revenues, and sub-sectors listed as medium tech are: Chemical manufacturing, transport equipment manufacturing and machinery and equipment manufacturing. It is important to note that these definitions have been created by the OECD and are used so to allow international comparison.

One issue is that any definition based on R&D expenditure relies on such expenditure being captured reliably by the accounting practices used by the companies in question. We know that this is often not the case, as doing so introduces additional complexity in accounting methods without any immediate benefit to the firm. Moreover, accepted definitions of ‘R&D expenditure’ in accounting fall well short of capturing all the innovation investment made in business process and business model / market innovation by many companies.

Thus the definition of high-tech manufacturing used by government does not fit the reality of manufacturing in New Zealand well – there are many businesses that should be considered high-tech due to their complex and innovative processes and products, but are not captured as such by the current definition.

This focus on a narrow definition of high tech can often lead us to the wrong conclusions - a lot of the most effective innovation happens in the manufacturing sub sectors currently defined as medium-tech, with some of the biggest positive flow on effects to the rest of our economy. Flow on benefits to the rest of our economy must be a key consideration for what we value as important, helping us make the most efficient use of resources to create wealth. Manufacturing generally does this very well: for every $1 of value added in manufacturing, $1.4 of additional value is created elsewhere in the economy, and every job in manufacturing generates between two and three jobs in the rest of the economy.

We encourage our members, however, to move to a more systematic view and treatment of innovation in their business. Currently we still see a fair bit of intuitive and owner-driven innovation.

As businesses grow, and to help them to grow, analysing, documenting and accounting for innovation activity separate from the production process will not only make it easier for companies to apply for government innovation grants, but more importantly, undertaking innovation in a more systemic and planned way can both keep track of and make the most of R&D expenditure helping to improve the effectiveness of a businesses innovation efforts. We can’t improve what we don’t measure, and separately capturing both the cost of and the return on specific innovation activities is one of the paths to a more profitable business.

While politicians like to mention innovation, high-tech manufacturing and growth in our economy in the same breath because it sounds sexy and intuitively right, the reality is just a little bit more complex, as is often the case. Having said that, moving from intuitive to systematic innovation is something you can do to create more wealth in and from your business.
 



tags: dieter adam, callaghan, callaghan innovation, high tech, medium tech, manufacturing

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