The electronics industry has taken its time to learn a lesson that other industries grasped quickly. At long last, it has realised that you can't assume Government automatically understands what you do. Rather, you need to explain it in a way so the politicians firmly understand exactly how the sector contributes to Australia's economy.
In the past the problem has been that "electronics" was (and often still is) categorised as a subset of information technology (IT) - an overly simplistic view that tends to veil its contribution to the Australian GDP.
The South Australian (SA) electronics industry, however, perfectly demonstrates how to band together to extract maximum government support. It works on the principle of "clustering"--locating complementary companies together--a strategy developed by the Electronics Industry Association of Australia (EIAA), the SA Government and the industry itself.
"When dealing with government, we get them to think of 'electronics' as the hardware, and 'IT' as the software sold on a CD-ROM, for example," explains EIAA executive director Jason Kuchel. "Because of the current status of the electronics industry in South Australia, and the projects we're trying to get off the ground, it's important the government understands what the electronics industry has to offer SA in its own right."
The Australian Government passed a vote of confidence in South Australia as early as 1940, with the establishment of a munitions manufacturing facility in the northern Adelaide suburb of Salisbury.
After World War II, the proximity of the site to a major population base made it ideal as the HQ for the Long Range Weapons Establishment (LRWE), which was formed in 1947 to provide scientific and technical support to the then new Woomera rocket testing range under the Joint Project agreement with the UK.
Around the same time, a large portion of the Salisbury area was converted into an airfield that became RAAF Base Edinburgh.
Over the next 33 years, until the Joint Project ended in 1980, work shifted from research into guided weapons to the multi-national European Launcher Development Organisation, NASA space programs, development and launching of Australia's first satellite in 1967 and then to upper atmospheric research programs.
Now under the Defence Science and Technology Organisation (DSTO) banner, the facility is the headquarters of the Electronics and Surveillance Research Laboratory (ESRL), one of the largest electronics R&D facilities in Australia.
The Salisbury facility enjoyed a $52 million upgrade in late 1997, integrating 1,300 ESRL researchers and staff from geographically dispersed labs across the previous 13,000-hectare site down to a more tightly integrated 280-hectare facility.
ESRL is responsible for technology areas including radar, communications, information technology, optoelectronics, electronic warfare, command and control, and land operations.
DSTO continues to be a cornerstone of Adelaide's electronics industry as the organisation indirectly responsible for many electronics companies in the SA cluster, according to Tekelek managing director David Suter.
"The DSTO is an enormous resource that has resulted in a large pool of people either creating their own defence spin-offs or branching out … with their own ideas," Suter says. "Tekelek [itself] didn't come out of the DSTO but out of another large company in Adelaide, which is the way a lot of companies here are formed.
"[In addition] you get a range of start-ups who understand how the bigger companies operate because they were once a part of them, which means they work together well," Suter adds.
Kuchel agrees that clustering has been a natural consequence for SA. "Adelaide is one of those cities where everyone knows each other, which isn't the case with capital cities in other states," he says. "For people in a whole range of industries in SA to cluster together under various associations has really been a case of natural progression."
Putting clusters on the map
A key part of the South Australian industry's success has been the strategic five-year plan developed between the EIAA and the SA Government. The plan outlines at least three "flagship initiatives" designed to address weaknesses in government policies addressing the electronics industry.
The first of these called for the establishment of an Industry Leaders Forum (ILF) to create awareness in state government and other industries of the importance of electronics to state growth and the need for focused action.
The second called for an Industry Growth and Development Fund to finance some of the priority actions listed in the strategic plan, while the third sought the formation of an Industry Skills Initiative designed to address the continued skills shortages in the electronics and manufacturing industries.
"There's a lot more to be gained from the cluster mapping we've done here by building on our strengths and identifying weaknesses," Kuchel explains. "Industry is often hungry to take up some of [the challenges], it just needs to be pointed in the right direction because the [opportunities] aren't always easy to identify.
"I think identifying those same strengths and weaknesses through cluster mapping is important for any industry grouping in every state," Kuchel continues.
An example is SA's strength in RF engineering; in contrast, compliance testing remains a gap in industry coverage.
The EIAA is also looking to attract new businesses to the cluster through the development of a marketing plan, which should be complete by the end the financial year.
"Attracting new businesses to the hub is something that needs to be explored further in our marketing plan, albeit that a number of businesses have already seen the potential and depth of the industry here and expressed interest in partnering or co-locating with such a vibrant industry," Kuchel explains.
"The marketing plan will target a number of segments including the community, potential employees, the Government and users of products developed in SA. [It will also] ensure that our communications reflect the industry's key strengths."
Increased attraction to SA could also come from additional co-operation with a number of venture capitalists.
"With the aid of private sector funding, the SA government established Playford Capital - essentially a glorified business angel organisation," Kuchel says. "Playford identifies and provides funding at the start-up level and then seeks VC support for a project once it reaches an expansion stage.
"It also usually retains some of the first-round funding so they can put some additional funds in at that time themselves," Kuchel adds.
The EIAA is also working with Technology Venture Partners, who will give a presentation at the upcoming Technology Futures Conference to be held in Adelaide on May 15-16 this year.
"Technology Futures is built on the success of two state conferences and has developed into the first national electronics industry conference in the memory of those people involved… and we've got some people with long memories," Kuchel says. "We see it as an opportunity for companies to network at a national level while providing them with information on present and future technologies as well as commercialisation information such as product stewardship and appropriate capital raising."
On to a winner
SA's electronics cluster works. With consistent growth of around 20 percent per year, the industry has moved from a revenue base of $310 million in 1991 to well over $3 billion today, which is impressive by anyone's standards.
The cluster also represents a "who's who" of the industry, from high-end manufacturers such as radio communications developer Codan, BAE Systems and Advanced Rapid Robotic Manufacturing, to SMEs such as Tytronics, Tekelek, VoiceTronix and Quest Retail Technology.
A brief survey reveals the strength of the cluster environment, with most businesses on a clear path to offshore expansion on the back of bullish sales in both the local and overseas markets.
"We've been growing continuously for the last four years and are currently completely refurbishing our factory at a cost in excess of $1 million," says Stephen Thornton, Tytronics' engineering manager. "The products we make are mainly appliance-type controls such as gas ignition controls for cooking, 100 percent of which are exported to the United States."
Computer telephony developer VoiceTronix shares a parallel story, albeit somewhat reversed. "While we do 95 percent of our total business in exports, we'd like to do a little more in Australia if we could find a local distributor," the company's CEO David Rowe says. "At this point we're interested in talking to people who might be interested in distributing our products."
With growth of 100 percent per year, Rowe says the company believes "we can better exploit the local market but need to work with someone experienced in computer telephony" to achieve that. "We'd also like to sustain our current growth rate of 100 percent per year for the next few years," Rowe adds.
Export results play a major role in the success of the cluster, especially in maintaining optimism in an industry that has generally been depressed. "One interesting thing with exporting is there's seasonal variations and they tend to occur at different times in different parts of the world, so when one market is down, the other is up," Rowe continues. "There's a lot of doom and gloom in overseas markets but we continue to experience strong growth in them, so it's possible to have a 'dotcom-proof' technology business even in today's climate."
"We have a major focus on building the US market over the next 12 months from the current 10 percent of total exports," Tekelek's David Suter adds. "Will it outstrip local sales? More than likely it will [happen] within the next couple of years."
Purchase clusters the next step
SA's viability as a cluster environment is enhanced by its market characteristics.
"The general consensus is that overheads are very low compared to other areas of Australia and certainly overseas," Quest Retail Technology manager Tim Stollznow explains. "And by that I don't just mean product cost but also regulatory requirements, and the cost of good facilities close to the airport and city." explains.
"Even when there are skills shortages elsewhere, there's enough business in Adelaide to generate turnover of technically qualified people," Tytronics' Stephen Thornton adds. "The problem for Tytronics is that we need to globally competitive for the products we make as we sell into a world market. That doesn't mean just cost of labour and suchlike, it's also about your buying power."
Thornton said Tytronics is currently looking to set up purchasing programs with similar manufacturers in Adelaide, but had so far enjoyed little success.
"We've had initial conversations and registrations of interest but haven't got very far down the track with it," Thornton explains. "It's important to our future so we're hoping the EIAA will be able to help us with it."
While the company sources smaller parts and plastic housings from Australian manufacturers and suppliers, it purchases the majority of components from overseas.
"[If we] buy $6 million worth of components for the year then that's not bad for us and makes us one of the larger component buyers in SA," Thorton continues. "But to achieve really good pricing we'd like to see volumes in excess of $20 million, which would give us some real advantages in bringing component prices down."
The establishment of purchasing programs could also prevent Australia from being frozen out during periods of component shortages, such as those experienced here a couple of years ago.
"Australia suffered a little bit more in terms of component shortages because [the attitude was] there wasn't much to go around so why bother sending it to Australia?" says Thornton. "[It illustrates the] need to make the Australian market big enough so that it can't just be ignored, and that's a case of forming purchasing power clusters that will add to our market value."
Further information EIAA (08) 8308 9155, Tytronics (08) 8268 5400, Tekelek (08) 8234 3011, Codan (08) 8305 0392, VoiceTronix (08) 8415 5106, Quest Retail Technology (08) 8234 2311.