Transition: ‘Industrial-Age’ manufacturing to our logical future: ‘Knowledge-Age’ industry

The Industrial Revolution (~1760 -1830) was a critically important period   of transition from the making of goods, typically by hand, in the home or in small workshops, to high volume manufacture of standardised products, typically in large factories with rows of steam or water powered machines. 

A central characteristic of ‘Industrial-Age’ manufacturing persists today in large factories using machines to produce standardised goods in high volumes. However, ‘Knowledge-Age’ manufacturing and particularly in Adelaide’s integrated electronic design and manufacturing industry differs sharply from Industrial-Age manufacturing.

Adelaide’s Knowledge-Age electronics businesses are typically small/medium size, locally-owned firms that design and build relatively small volumes of complex, high-technology, customisable, intellectual property-based electronic products and systems, typically incorporating their own protected in-house R&D. Their customers are in the aerospace, agritech, biotech, defence, healthtech, environment, information technology, telecommunications and related sectors, nationally with exports to more than 130 other countries.

Adelaide’s Knowledge-Age electronics firms invest an average of 6% of their annual revenue in R&D and many of these firms exceed 10% of revenue in R&D investment. Across all Australian manufacturing industry, investment in R&D (2021-2022) remains stubbornly below 1% of revenue. 

Knowledge-Age electronic products with their superior or unique performance sell at a high premium over their production costs. This price premium is a direct return on the high levels of intellectual property generated from their strong in-house R&D investment. 

Annual productivity of Adelaide’s electronic industry is very high at $360,000 revenue per employee, which is three times higher than the productivity of all other South Australian, manufacturing industry – much of which is based on traditional Industrial-Age products and processes. High productivity is a factor in all Knowledge-Age industries, including: aerospace, biotechnology, environment and information technology.

The controlled intellectual property generated by its strong R&D investment is a major sustainable economic advantage of the Knowledge-Age, Adelaide electronic industry. Sustainability of this industry is further underpinned by the technical complexity of its products that are difficult to copy, while small production volumes make copying uneconomic. 

However, during the Industrial Revolution the designs of products, processes and machines were widely copied as industry information circulated, (Smith,1776:59) in op0/’trade-related business aggregations (Smith,1776:125), named ‘Industrial Districts’ (Marshall, 1890). 

From its origin in the pedal-wireless era (1920’s) Adelaide’s electronic design and manufacturing industry has grown steadily and since the 1950’s has benefitted from a gradual flow of talented and well-trained engineers and technical staff from the Defence Science and Technology Organisation (DSTO), now Defence Science and Technology Group (DSTG). 

Over these decades the Adelaide electronic industry has evolved through endogenous self-organisation into an interconnected and collaborative ‘industry cluster’ , defined as:  “Clusters are geographic concentrations of interconnected companies, specialized suppliers, service providers, firms in related industries, and associated institutions (e.g. universities, standards agencies, trade associations) in a particular field that compete but “also cooperate.” (Porter,1998). Firms in the Adelaide electronics cluster have developed their capability in selected areas of technology and over time, their level of specialisation increases and deepens their capability. Many of these cluster firms also contract critical development work with local cluster firms that have developed high levels of complimentary expertise. Collaboration of firms in the cluster has matured over time and has now reached high levels of firm-to-firm interdependence. “Endogenous clusters become established over decades, each with a set of tacitly agreed, self-regulating norms, yet during the early years of their existence these clusters are often not recognised by governments or communities (Levi, 1980).

Research conducted in selected global regions with concentrations of high-technology (non-consumer) electronic design and manufacturing, has measured the levels of firm-to-firm interdependence. Research regions included Adelaide, Cambridge UK, Austin TX, Christchurch NZ, and Silicon Valley CA (during the 1950’s -1990’s). These small regions, like Adelaide are also remote from major national populations. The confluence of small population and relative remoteness was found to be critical in the development of collaboration and interdependence between firms and individuals in these electronics clusters.

The research found that in all of these small and close-knit electronic communities – as in Adelaide – inter-personal and inter-firm collaboration has often grown from prior school, university, professional or personal relationships. Through these relationships a mutual understanding of a participant’s capability and reliability leads to inter-personal and firm-to-firm trust and on to valuable collaboration. In all of the small regions, this close collaboration has led to high measured levels of firm-to-firm interdependence, the ultimate measure of the quality and strength of industry clusters. 

Interviewees at Adelaide-based electronics companies when asked about the value of inter-firm and inter-personal collaboration, typically responded that the Adelaide electronics industry “ . . . has always been this way” showing little understanding of the real value of their collaborative relationships within the cluster.

This research collected data from 297 structured interviews with owners and managers of electronics design and manufacturing companies plus university, government and industry bodies in twenty cities in eight countries. The research also found low levels of inter-firm collaboration and significant competitive sensitivity and concern with owners and managers of electronics design and manufacturing firms in larger cities, including Boston, Dublin, Melbourne, Singapore and Sydney.

The research found no formal rules or membership obligations in these clusters, but a strong tacit understanding of the value of these interdependent relationships was recorded. There was also a clear understanding by participants of the need to “play by the rules” (Perry, 2005), and especially in small and relatively isolated communities e.g. Adelaide, Austin, Cambridge and Christchurch where good news (and bad) can travel fast and wide. A strong negative feedback element! 

That clusters are nor easily identified and valued is clear from the following quote on the development of the electronics and biotech clusters in Cambridge UK – known as the ‘Cambridge Phenomenon’:  “Endogenous clusters become established over decades, each with a set of tacitly agreed, self-regulating norms, yet during the early years of their existence these clusters are often not recognised by governments or communities”. (Levi, 1980)  These words are highly relevant to the Adelaide electronic cluster: 

This cluster with its ~300 companies and ~11,000 well-trained and well-paid staff is not well-understood or recognised by our governments or community. This industry is now overshadowed by government promotion of space, artificial intelligence, machine learning, quantum, cyber and other emerging sectors – all of which are highly dependent on electronics, but electronics is not a government priority!

The following quote is highly relevant to the Adelaide electronics cluster:  

“Competitive advantage lies increasingly in local things – knowledge, relationships, and motivation – that distant rivals cannot replicate” (Porter, 1998). 

References:

Marshall, A. (1890) Industry and Trade, London, 1919 edition, The Macmillan Company

Levi, P. (1980) Flourishing in the Cambridge Parkland, London, Financial Times, 18-11-1980.

Perry, M. (2005) Business Clusters: An International Perspective, Abingdon, Oxford, Routledge.

Porter, M. (1998) Clusters and the New Economics of Competition, HBR  Nov-Dec, pp. 77-90

Smith, A. (1776) The Wealth of Nations,  Oxford, 1998 edition, Oxford University Press. 

By:  EIDA Editor