Manufacturing Performance Through the Recession

MONASH UNIVERSITY FACULTY OF BUSINESS AND ECONOMICS MANUFACTURING PERFORMANCE THROUGH THE RECESSION Trevor Pratt and Amrik Sohal Moorabbin Project Working Paper 02/95 December 1995 The Department of Business Management was created in January 1995. It operates at the Caulfield (P.O. Box 197, Caulfield East, 3145; tel. 9903 2590), Clayton (Wellington Road, Clayton, 3168; tel. 9905 5406) and Peninsula (McMahons Road, Frankston, 3199; tel. 9904 4314) Campuses of Monash University. The Department includes the Graduate School of Government (tel. 9903 8754) and the National Key Centre in Industrial Relations (tel. 9903 8700) both located at Level 8, 30 Collins Street, Melbourne, 3000. The Department participates with the Department of Economics, the Faculty of Education and the Australian Council for Educational Research in the Centre for the Economics of Education and Training. The Executive Director currently is Associate Professor Gerald Burke, C/- Faculty of Education, Monash University, Clayton 3168 (tel. 9905 2865). The Graduate School of Government, the National Key Centre in Industrial Relations and the Monash - ACER Centre for the Economics of Education and Training all publish their own Working Paper series, in addition to those published by the Department. For further information, please contact the GSG, the NKCIR and the CEET directly. The views expressed in Departmental Working Papers are those of the author(s) and do not necessarily reflect the views of the Department of Business Management. Readers of the Working Papers are encouraged to contact the author(s) with comments, criticisms and suggestions. A list of the Department's Working Papers is provided inside the back cover. Further information and copies of the papers may be obtained by contacting the Secretary to the Head of the Department (P.O. Box 197, Caulfield East, 3145; tel. 9903 2673; fax. 9903 2718). THE MOORABBIN PROJECT FOREWORD Three decades of scholarly economic development research has had limited impact on economic development or the development of better professional practice in manufacturing in Australia. The working series of papers arising from the Moorabbin Project havp been prepared using the project results and insight into the day to day practical challenges faced by companies that deliver economic development at the local and regional level. In attempting to inform, stimulate and support professional practice in industry and at the risk of being judged less scholarly by academic peers, the series of Working Papers from the Moorabbin Project are different. Whilst the papers are practice oriented, they attempt to balance the narrative and scientific forms with some interpretations of impacts, influences and possible direction for action. Action that can be considered as a means of accelerating the growth and development of manufacturing companies to deliver the economic outcome that Australia needs over the next ten years. This first series of papers will cover five key issues arising from the data gathering (questionnaire survey and in-company interview) and analysis phase of the project. These include: No. 1 The Interaction of Government Planning and Regional Industry Development No. 2 Manufacturing Performance through 90/92 Recession and Onwards No. 3 Regional Industry Development Dynamics - Alive But Under Utilised! No. 4 Industry Development - Who is Leading Who? No. 5 Manufacturing Relationships with Finance A substantial amount of data has been gathered through postal questionnaires and in-company interviews. Each paper in addressing the specific issues draws upon the appropriate sections of the questionnaire in the context of the wider body of information available. Trevor Pratt is the Research Fellow in Manufacturing in the Department of Business Management at Monash University, Melbourne, Australia. Amrik Sohal is Professor and Director of the Quality Management Research Unit in the Department of Business Management at Monash University, Melbourne, Australia. The authors wish to acknowledge Philip Morris for its financial support of this industry research project. MANUFACTURING PERFORMANCE THROUGH THE RECESSION Abstract This paper reflects on the performance of companies in the Moorabbin region through the recession, current business projections and the needs of industry to support these projections. This data and information have been collected and determined from a survey and interviews involving ninety-two SME's in the Moorabbin Project - a regional industry development project. The interpretations of the results and findings indicate that companies did suffer in the recession but in general the companies that remain in the Moorabbin area did not experience any major down turn during the recession. This was not the picture expected at the start of the Moorabbin project but provide support to the theories of regional industry economic dynamics, (separate project paper on Regional Industry Economic Dynamics). The paper concludes with comment on potential impediments to company growth arising from the correlation of survey results and interview findings in the context of company performance analysis. INTRODUCTION The Moorabbin Project was an initiative arising out of the 1991-1992 recession in which the closure of companies in the Moorabbin area reached a level which was noticeable to the passerby. The project aims were to research the needs of manufacturing companies to develop, grow and cope with change through the 1990's and survive the next recession. The specific aims of this project are: > > > To raise the level of awareness and knowledge of industry's needs. To develop and deliver specific initiatives to satisfy the needs. To develop and implement specific models/strategies to enable the wider applications of the approach used in this project. The detailed project activities were structured into three phases: Phase 1: Understand the current status of manufacturing companies in the area. This comprises of three steps: i) allowing companies to nominate the level of involvement in the project ii) to carry out an industry wide survey of existing occupants (manufacturers and their support industries) in the Moorabbin area iii) in-company interviews with senior executives. Phase 2: Determine the needs of companies to grow over the next 2-5 years. This was carried out by means of in-company interviews with senior executives. Phase 3: Identify initiatives that might meet the needs of companies through group discussions and trial some of these as test cases through third party providers. The results of Phase 1 indicated a more positive status of industry than had been expected, with some 60% of companies not having experienced any overall downturn in annual results. This paper is being written at the end of the research phase and draws on both the in-company and interview research results in the areas of Company and Performance data as well as Business Growth data. The detailed research methodology is presented in Appendix A and an analysis of the general economic environment during the period 1989-1994 is included in Appendix B, Only a brief summary of the responses to the surveys is presented in the following section. INDUSTRY PROJECT RESPONSE The 92 companies responding positively to the initial request to participate, represented small, medium and large organisations, as shown in Table 1. Table 1 - Categorisation of Companies indicating Positive Involvement in the Project Classified by Company size Employee Nos. Percentage (n = 92) 0-5 18 5-10 16 10-20 20 20-50 27 50-100 11 100-200 4 Over 200 4 The sample of companies involved in the project have a higher proportion of SME's than the national average. Moorabbin industrial areas have a tendency to contain only small sized sites which promotes the smaller companies. The analysis presented in this paper is based on the 50 valid responses received from the Postal Questionnaire survey. The responding companies represent all sectors relating to manufacturing and manufacturing services (i.e. Tool suppliers, etc). Table 2 lists the predominant manufacturing sectors represented and the Key customer sectors supplied. Table 2 - Product, Manufacturing and Customer Sectors represented in the sample. Manufacturing Sector % Food Rubber & Plastic Electrical & Electronic Other Miscell. Machinery Apparel Others Product Proportion Customer Sectors % 12.8 12.8 12.8 10.6 8.5 8.5 34.0 100.0 Food 10.2 Electrical Other Miscell. Fabricated Metal 10.4 16.7 8.3 Others 56.4 100.0 Figure 1 shows the fifty respondents classified by number of employees. Three-quarters of the companies employ less than 50 people and only six percent of companies employed over 100 people. Figure 1 Survey Respondents Classified by Company Size a c » TJ C o Q. tf) <10 10<49 50-100 over 100 Number of Employees The lower than expected response from small companies (under ten employees) may be an indication of the recession effect but could also be indicative of the time available to managers of small companies to become involved in research activities. Figure 2 Survey Respondednts classified by Sales Turnover a c 0) •D C O a. M « DC 0<2 2<5 S<10 10<20 Over 20 Sales Turnover (Smllilon) Figure 2 shows the fifty respondents classified by sales turnover. Forty-two percent of companies had sales turnover less than $2million and 22% had sales turnover between $2-$5million. When compared with number of employees, these figures suggest a higher than optimum level of employment in many companies. Clearly the sample is a diverse group with an even more diverse customer base. This indicates companies in the region are generally independent operations rather than tied subcontract suppliers. As a result the companies can be expected to give a higher priority to marketing and export. The focus of this paper is on the impact of the recession on company performance and future expectations. Therefore, only the results appropriate to this subject are discussed below. SURVEY RESULTS In order to establish the status of existing industry in the Moorabbin area, data was collected in the questionnaire survey to define the scale of company operations and employment trends over the past five years and projected into the future. The key areas of interest are discussed under the following headings: (a) (b) (c) (d) (e) (0 Employment Trends Sales Turnover Trends and Profitability Level of Investment Influences on Growth Company Development Needs Causes for Relocation (a) Employment Trends (past and future) Respondents were asked to indicate whether there had been upward, downward or no change in employment levels over the last five years as well as their forecast for the next two years. Figure No. 3 Employment Trends c 41 •a c o Q. in !>> 3rd No Change Downward Trend Upward Trend No Change Last 5 Years Downward Trend Next 2 Years Through the recession period (ie. over the last five years), only 28% of surviving companies had reduced employment levels. However, as shown in Figure 3, 72% of companies expect to employ more people over the next 2 years. It is surprising that many of the companies in our survey either maintained their level of employment or increased it. This suggests that there has been business growth in the Moorabbin area despite the recession. Most companies see this growth continuing for at least two years into the future with their intention to increase employment levels. (b) Sales Turnover and Profitability Trends Figure 4 Sales Turnover and Profitability Trends 7) n (A •a o 3 a. ID 3 cr Upward Trend Upward Trend Last 5 Years No Change Downward Trend Next 2 years Figure 4 shows trends in sales turnover and profitability over the past five years as well as the forecast for the next two years. Nearly half of the responding companies increased sales turnover during the recession period and another 30 percent indicated that there had been no change in sales turnover over the same period. This confirms the strength of the companies in the Moorabbin area in relation to their ability to cope with the recession. At the time of the survey, most companies were overly optimistic about the future. 84 percent forecasted growth in sales revenue. It should be recognised that the media had been promoting a positive view of the economic environment and in many cases company performance in the year previous to survey (93/94) had delivered the first substantial profits for some time. The survey also captured an indication of sales growth in the two years following the recession (92/93 & 93/94) shown below. This shows a steady improvement in sales over the last 3 years but sales growth whilst continuing appears to be slowing down. Sales Growth Trend Company Response Year 27% 20% 17% 92/93 93/94 94/95 (projected) Negative or negligible sales growth Negative or negligible sales growth Negative or negligible sales growth In gathering profitability data, not only were companies asked to indicate overall changes in profltability but were also asked about the adequacy of current profits and the rate of growth of profits. Nearly half of the respondents (47 percent) indicated their level of profitability is inadequate. Figure 4 shows that although there is a substantial increase in the number of companies forecasting an increase in sales turnover, the relationship between sales trends and profit trends remains consistent, indicating a general strength of companies in the region. However, the profit growth figures shown below, show that the bubble of profit growth has broken with a turn around in the profit growth trend. Profit Grovfth 35% Negative or negligible profit growth 15% Negative or negligible profit growth 17% Negative or negligible profit growth 92/93 93/94 94/95 (projected) There could be several explanations for the turnaround in profit. It could be a production capacity issue and/or merely a pause after several years of business growth. (c) Level of Investment Figure 5 Levels of Investment m c a> -a c o Q. V) o a. % of Turnover invested 0 - 5% Over 15% S-1S% Last 5 years a Next 2 years Figure 5 shows that in overall terms, the level of investment might be considered low by world standards but with 30% of companies investing over 15% of turnover, this raises a series of questions about the low figures being quoted at the national level, unless as suspected the Moorabbin region is different to the rest of Australia. Figure 5 also shows that investment as a percentage of turnover is trending upwards across the board which augurs well for future business growth. (d) Influences on Growth (past 3 years) Figure 6 Priority Influences on Business Growth Subject Competitor collapse ^m Intro sales force ^g • • 14 1 • 18 • •22 Quality Jul Talte over competition ^g Other p g § • • 6 10 20 30 % of Respondents 40 SO 60 In an effort to provide some focus for the project's limited resources to influence company growth in the region, the survey asked companies to indicate up to three key influences on past growth of the company. Figure 6 places the key influences in two groups, with 50% of companies focussing on product development and market expansion whilst 29% of companies are pursuing new equipment, new technology and production expansion. In modem business development terms, whilst these predominantly SME companies are probably constrained by finance, this data clearly demonstrates that contrary to the Government and media promotion, industry managers have their eye on the ball when it comes to developing business even through the recession. (e) Company Development Needs (future) Subject Figure 7 Priority Development Needs More capital Investment More equity New equipment New technology New products More research More people Improve quality Lower production costs Expand markets Export development Take over competition 30 40 50 80 % of Respondents Again, to guide the efforts of the project, companies were asked to indicate their three top priority needs to grow their business over the next 2-5 years. Figure 7 shows as predicted that capital investment was number one priority. This supports a negative attitude to debt, the achilles heel of survival in recession. The high priority to future purchases of equipment suggests the Government and Bank projections of maximum investment in machinery occurring in 1994/95 may be premature for the largest sector of manufacturing SME's. A comparison of employee and turnover results suggests a higher than optimum employment level, it is interesting to see management placing the need for more people as high priority for growth at ranking 3. This suggests that contrary to recent reports and union rhetoric, SME's are pursuing the 10 principle of working smarter not harder. A potential future outcome could well be a flat productivity improvement assuming profitability can be improved by working smarter. Why is this happening? Probably because human nature is generally not comfortable retrenching people nor is it easy to introduce change which makes life harder for people you've known for some time. The low response to equity funding suggests the pressure on the government by financial institution to allow equity services is more about marketing for the banks than influencing industry growth. The low responses to research and takover as a need for development were expected to some extent. Research because of the impact of short term company vision necessary to maintain flexibility to survive recessions. The low response to Takover appears to be a reflection of the collaborative approach to business in the region where takeovers occur more as a result of misfortune of one party rather than the aggression of the other. (0 Causes For Relocation As a result of introducing the project to the region and presentation of the results to companies, it was revealed that 12% (98 companies) of the database could not be located. At first, this was seen as a clear indication of the level of demise of companies through the recession. Supplementary investigation research was: conducted independently of the project to gain a better understanding for the failure of the companies. Figure 8 Key Reasons For Company Relocation Moved for growth ^ ^ H | ^m^ ipany in take over ^ ^ H BP Moved to own E ^ S property BBBI B0 iP Not found ^ ^ H 20 30 40 50 60 % of Respondents 11 70 80 90 100 The results of this supplementary work were surprising. Figure 8 indicates that only 45% of the missing companies could not be found. Most of these were business name companies rather then Pty Ltd. Underlying the results in Figure 8 was also the fact that all companies moving for growth had less than 26 employees. In addition, 83% of companies involved in takeovers moved out of the region. INTERVIEW FINDINGS One of the key elements of the in-company interviews was to find out how the surviving companies had coped with the recession. There is little doubt that for a high proportion of owners/managers, the experience of the recession will be remembered for a long time. What was lying behind what appeared to be positive annual figures was a situation described on several occasions as a 2-3 month "black hole" in 1991/92. The companies faced with this situation were forced to work harder and make some tough decisions about some employees. In review, these were decisions that should have been taken many years earlier and people should have been retrenchment however, most managers do not like conducting this process. Our interview data indicates that before the end of 1991/92 financial year businesses had picked up in the region. Some of this related to competitor collapse in the "black hole", but probably only 10-15% of companies had experienced this. The informal regional networks between companies were given some credit for the rapid pick up in business and access to new markets. A high proportion of companies did not feel the recession at all. No clear pattern of answers was evident in the interview, but some diversity of market, long-term customer relations and long term contracts appeared as some of the bridges in the domestic market which contributed to survival of companies through the recession. In addition to these, many companies were in a strong financial position and in few cases some export activity bridged the gap. The very positive response to future expectations appeared to arise from several factors: • • Made hard decisions which delivered improvements in operations and company performance. Working harder during the recovery period which delivered the best profits for more than five years (remembering 47% of profits were deemed inadequate) • Working smarter has delivered new customers. • Development and modification of products to suit customer needs. INDUSTRIAL GROWTH IN MOORABBIN Much of the focus of the research was on the periods 1990-94 and 1995-97. Whilst the origin of the project was from a perception of noticeable closures of small and medium sized companies, the data from those companies that survived, demonstrates a surprising robustness in company performance terms. It is clear that many owner/managers have changed their attitudes to business quite dramatically as a result of the recession. This is best illustrated in the project by the positive commitment of companies to collaborate in the project. Three or four years ago this type of work would have been met with a retort "what would you know about my business". 12 It appears most SME's in the region have effectively returned to 1990 employment levels. Overall, the high un-employment levels in the region reflect more on closures due to free trade, for example the closure of Nissan, then on the recession. Clearly any new businesses located in the region will add to further employment opportunities. The strong position of industry in the Moorabbin area is indicative of wider regional economic dynamic strength. At the company level, this strength projects a solid growth in both sales and employment. The more fundamental driver of growth-investment, is also showing a rising trend from company expectations. The strength of business growth during and since the recession not surprisingly, was generated through product development and general market expansion. The next group of influences on business growth were new equipment, new technology and expanded production. These can be considered as industry support activities demonstrating the importance of such business for growth and employment. The projected activities in business growth have shifted the emphasis to new equipment and people which suggests higher productivity and perhaps quality targets as well as more employment requiring different skills. These are closely followed by new products and improved quality. These are clearly aimed at strengthening the competitiveness of company to expand existing markets, probably recognising the scope that now exists for import replacement. Export development is on the agenda for future development ahead of new technology The result of all this positive focus on development places the highest priority on capital investment. It is not inconceivable for the demand for funds to outstrip supply. The reason for this is that whilst profits are the best for years, much of these funds are required as merely catch up investment that should have been made over the last 5 years. In addition, the trauma of the recession, the age of owner/managers and the high profile being given to superannuation by Government is diverting a high proportion of profits into non-production long term assets. The long term assets are not being put at risk in mortgage situations as in the past, as a result collateral backing for production investment is also limited. The changing emphasis raises other issues when the actual subjects are considered separately. • New Equipment Australian equipment development skills have not been used or developed in their own right. The availability of skills and experience in modern computerised equipment is limited. Quality For the most part this is a people issue. A change in mind set is necessary to undertake different processes, and ways of managing with delegation of more personal responsibility. Export Australian companies that have exported for some time do it well but there are only a few of them. Export skills and experiences are very limited. New Technology Technology links to companies are poor due primarily to the tunnel vision of tertiary institutions. New Products R & D could still be defined as Reconnoitre and Duplicate since the level of real industry research investment is very low. 13 These areas of activity could be described as new age disciplines particularly when it is recognised that owner/managers for the most part finished their formal education 20 years ago and have been in business employing people ever since. CONCLUSIONS The ability of industry to continue the high growth that has occurred since the recession will be constrained by the supply of investment funds and the ability of people in companies to understand the new age disciplines, and follow "the how to" implement process successfully. The shortage of skills in these areas raise the risk of wasting time, effort and resources which in itself could set back development by five years. The Moorabbin project is directed at circumventing this risk by providing industry with the initiatives they believe they need to address these issues and grow the companies over the next 2-5 years. 14 Appendix A Methodology This Appendix describes the approach used for data gather and data analysis. These comprise Phase 1 of the project. The compilation of the industry data base and the data gathering tasks are described. Preliminary Planning To provide some dimension to project planning, the scope of industry in the Moorabbin area was defined by A.B.S. data. This shows that 41% of enterprises are involved in manufacturing and related activities. In this context companies that were manufacturers or direct suppliers to manufacturers were identified in February 1994 using four separate data bases. These were drawn together, compared and integrated. This was an attempt to eliminate the age of data and update problems of data bases in general. The recession activities of 1991/92 were expected to have a significant impact on these Moorabbin data bases. As a result of this work an industry listing of 805 companies was created. Phase 1 : Understanding the Current Status ofManufacturers The first step in this phase was to provide industry with the opportunity to register their interest and involvement in this project. Companies were asked to indicate their direct involvement in the following five activities: 1) 2) 3) 4) 5) Participation in postal questionnaires Participation in in-company interviews Participation in review and discussion of initiative options Trial implementation of initiatives Involvement in information and training seminars on new approaches in manufacturing. A letter of introduction and registration form was mailed to the 805 companies identified from the databases. One hundred and fifty companies responded, of which 92 were positive, indicating an interest and willingness to be involved in the project. It is worth noting that 98 companies could not be contacted, i.e. questionnaires were returned undelivered. This was either a reflection on the accuracy of the data bases or the level of company closures since the recession. Supplementary research was conducted to assess this issue. This involved 'detective' research to trace companies which were not being contacted through direct mail. The results of this work suggested a high proportion of companies were relocating rather than closing the business. Step One of Phase I was aimed at targeting the project effort at companies who were keen to be involved. Step two involved the development and administration of a questionnaire to the companies which responded positively to the initial invitation. The questionnaire comprised of eight sections: > Locational Details > Company Background 15 > > > > > > Operational Details Suppliers and Services acquired from outside Customer Details Competition Details Business Growth Opportunities Business Planning and Assessment Activities The questionnaire was sent undertake the questionnaire. to encourage companies to received, giving a response package. to 73 of the 92 companies which had registered positive interest to Considerable follow-up was conducted by telephone and company visits complete and return the questionnaire. Fifty valid responses were rate of 68 percent. The data was analysed using SPSS-X statistical Step three involved in-company interviews to provide a better understanding of the background to the answers given in the postal questionnaire and to begin the process of identifying the needs of companies in Phase 2 of the project. Sixty-five companies had initially registered to be involved in the in-company interviews, however 52 companies made themselves available for the detailed series of interviews. These interviews were conducted with the senior executives on a confidential basis to maximise the openness of discussion and the scope of background information that was likely to be obtained. This information was used to corroborate the data gathered from the postal questionnaire survey. Phase 2 - Establishing Industry Growth Needs The foundation for this phase was the series of in-company interviews held with executives and owner/managers. As many as three interviews were conducted with companies to ensure the company development needs expressed by the executives were logical and appropriate for the company. This was considered necessary to eliminate the erroneous wish list approach of unplanned reactive management. The data obtained from the interviews identified 24 areas of industry activity in which companies needed assistance to grow their business over the next 2-5 years. The Pareto rule was applied in which 9 subject areas meet the needs of 87% of the companies. The companies associated with these nine subjects were invited to participate in specific subject groups of collaborating companies. As a result the size of the nine groups ranged between 7-24 companies. Each of these groups were then given the associated interview data to review, discuss and identify in detail what specific initiatives might meet the needs of companies. These discussions were conducted during three, three hour meetings over two months. The resulting lists of initiatives provide the result of Phase 2, which forms the basis for the trial implementation of initiatives to be undertaken in Phase 3. 16 Appendix B General Economic Knvirnnment 1989/94 This section presents economic information for the period 1989-1994 to provide some understanding of the environment in which the companies operated. The short to medium term view that most companies take has developed an acute monitoring sensitivity to business outlooks by owner managers. So as a result industry decision makers begin to react to economic down turns 18 months or more before the rest of the community, politicians and the press realise what is happening. This was certainly the case for the 1991/92 recession. As early as May 1988 and certainly by March 1989, industry was changing its management in response to the perceived needs of the future. Interest rates in 1989 were 16% and rising; profits were being decimated. As shown in Figure 1, interest rates had fallen to 5% p.a. by 1993. In 1989 wages growth was 7% pa and rising with CPI. Both wages growth and CPI fell to around 2% p.a. as shown in Figure 2. Business investment in 8 months of 1989 moved from 14% growth to zero (see Figure 3). Figure 2 Figure 1 Nominal Wages Growth & CPI Domestic Interest Rates Per cent growth (4 qtrs) 1989 Per cent growtli (4 qtrs) 1991 -10 Year bond rate -Wages *90 Day biii rate •CPI 1989 1993 1991 1993 Financial years ending in June Financial years ending in June Source: NIEIR As the impact on business flowed through to its employees, consumer confidence crashed in 1990/91 from a growth rate of 4.5% to 0.5% and housing investment fell from 20% growth to minus 6% decline (see Figure 4). The impact of these factors on industry was to add collapsing sales on top of poor profitability. 17 Figure 4 Figure 3 Housing Investment Private Consumption Expenditure ir cent growth 4qtn 1989 1989 1991 1991 1993 Financial years ending in June Financial Years ending in June Source: NIEIR The data provided in this section illustrates by the steepness of graphs how quickly and deeply the 1991 economic environment hit industry. During the project interviews with senior executives several times the comment was made about a two month black hole where there were no sales in 1991/92. The reaction of industry was to rigorously cut costs, a process which began in 1990, and with no sales became the sole focus of management. The results appeared in the labour market with unemployment rising from 6% to 11% in two years (see figure 5) and investment declining from a rate of plus 10% to minus 20% over two years (see Figure 6). 18 Figure 6 Figure 5 Private Business Investment Labour Market per cent ('000) 10500 Per cent growth (4qtr») Financial years ending In June 6000 1989 1991 'Employment 1993 - Unemployment Financial years ending in June Source: NIEIR The rebound from the recession during 1992-1994 was enhanced by a number of factors:• • • Wages stagnated and even fell in real terms during 1991-1994 CPI collapsed because of reduced spending so prices had to fall to stimulate trade. The three year lead time to the recession in industry had used up all stocks so when spending grew production had to rise more quickly. The impact of these stimuli on a now lean industry accelerated profit growth in most companies with 1994 being identified in interviews as the best profit in 7 or 8 years. However, 47% of companies still see this level of profit as inadequate in the light of five years of traumatic hard work. This resurgence has led to a rebound in employment and in business investment, although the government's projections of business investment in 1994 in new machinery were premature for SME's. This is primarily because investment in 1993/94 is merely catch up investment that companies should have made in 1988/89 but put on hold. New technology and new capacity investments are more likely in 1995/96 although recent flattening out in demand is making the more cautious companies hold back investment again. In addition, survey data from the project is also indicating a rising interest in bricks and mortar investment which is diverting industry resources away from growth and development. This does not augur well for the overall performance of the Australian economy since it will be investments in equipment and people that will lift industry on to a more world competitive level. 19 Why is this investsment in equipment and people essential? Throughout the 1989-94 recession period the exchange rate (see Figure 7) and more importantly the Trade Weighted Index fell from 62 to 52 providing close to 20% increase in competitive pricing in the world market. The downside of this is that imports became more expensive which has the obvious balance of payments impact and is also increasing the cost of investment in leading world class equipment. Import replacement clearly has an opportunity with the 20% improvement in pricing. Figure 7 Exchange Rates us Cents 0.9S 0.85 0.75 0.65 0.55 1989 1991 1993 Financial Years ending in June Source NIEIR The timing of the current project (1994-97) is opportune with managers looking to build on the recovery and keen to address more appropriately issues that were put in stark relief in their companies through the recession. 20 Appendix C Structure of Industry in Moorabbin Moorabbin has lived up to its early land use planning aims of being a focus for industry for over 25 years. This primarily is due to its location in the City of Melbourne. In 1993 Moorabbin Council records indicated that in the industrial area there were 2,235 enterprises occupying some 572 hectares of industrial zoned land. The types of enterprise in this areas comprised:Manufacturing 41% Warehousing 28% Automotive & Related 16% Commercial/Retail 8% Other 7% The composition of the manufacturing companies in 1988/89 - (source ABS Manufacturing Victoria) was as below:MANUFACTURING INDUSTRY STRUCTURE 1988/89 - MOORABBIN REGION Industry Description Firms 1988/89 ASIC Code Employment 1988/89B 21 36 Feed, beverages and tobacco 2048 23 18 Textiles 699 24 36 Clothing and Footwear 875 25 Woods and Furniture 89 847 Papers, printing and publishing 95 26 2590 27 44 Chemicals, petrol and coal products 1196 28 Non-metallic minerals 18 292 29 Basic metal products 12 195 31 Fabricated metal products 129 2330 32 Transport equipment 49 3724 33 156 Other machinery & Equipment 3340 34 Miscellaneous 113 2818 Total Manufacturing 795 21754 Sourcs: ABS Manufacturing Victoria The project results suggest that employment levels have returned to 1989 levels or better and site vacancies have become negligible due to company growth. Whilst the number of companies is expected to be less in specific sections, (ASIC codes 24, 25, 26, 32 and 33) due to industry restructuring, the structure of industry is not expected to be significantly changed in the next five years. 21 DEPARTMENT OF BUSINESS MANAGEMENT WORKING PAPERS 1. Tharenou, P. 1995. "Organizational, Job and Personal Predictors of Employees' Participation in Training and Development". 2. Selby Smith, C and Corbett, D. 1995. "Parliamentary Committees, Public Servants and Due Process". 3. Vaughan, E. and Zhu, C.J., 1995. "Going Against Custom: On Re-Considering the Situation of Foreign Companies in China". 4. Roos, I.A.G. and Taber, R.L. 1995. "Some Thoughts on the Influence of Technology on Organisation Structure". 5. Blunsdon, B. 1995. "The Flexible Firm: A Multi-Dimensional Conceptualisation and Measurement Model". 6. McGuire, L. 1995. "Case Studies for Research — Story-Telling or Scientific Method?" 7. Reed, K. 1995. "Labour Market Information and the Employment Complex: Institutional Mechanisms for the Management of Risk and Trust". 8. Sohal, A.S. 1995. "Assessing AMT Implementations: An Empirical Field Study". 9. Perry, M., Sohal, A.S. and Samson, D. 1995. "Restructuring and Changing Manufacturing Practices in Australia". MOORABBIN PROJECT WORKING PAPERS 1. Pratt, T. and Sohal, A.S. 1995. "The Interaction of Land Use Planning and Regional Industry Development". 2. Pratt, T. and Sohal, A.S. 1995. "Manufacturing Performance Through the Recession" 22