Blundstone boots are now made in Asia.WHEN Blundstone shut its 137-year-old Hobart bootmaking factory in 2007 and moved production overseas, it was criticised by unions, politicians and the press.
Australian icons that head offshore are never popular, and this story was a gift to subeditors looking for puns. ”These boots were made for walking: Blundstone strides off to Asia,” The Age reported. ”Blunnies workers get the boot,” said The Australian.
Five years later, chief executive Steve Gunn says there is ”no way” the company could have survived the subsequent surge in the Australian dollar. ”We were struggling, really struggling hard,” Gunn says. ”We could have survived for a while but it would have been a downhill slide.” Now Blundstone is bucking the gloom engulfing many manufacturers.
Gunn says that while the Hobart plant was efficient, it struggled to meet the wave of overseas demand that comes in the northern winter, when people in those markets want boots. This constrained the company from expanding its exports.
Since then, with most production split between India and Thailand, it has nearly doubled exports. Last year was its most profitable year on record. The 300 factory jobs lost in Hobart are unlikely to return, but it still employs about 115 people in Australia in a gumboot factory and in white-collar jobs.
”We really should be looking at the fact that we’ve saved 100-plus jobs, rather than the fact that we’ve lost 300, and I realise that’s very hard for people to appreciate if they happen to be one of the 300,” Gunn says.
As manufacturers grapple with the high dollar, Blundstone’s experience is telling.
In contrast to previous criticism, the move offshore was this week hailed by former Treasury secretary Ken Henry as an example of an Australian company playing to the country’s strengths.
For companies to thrive during the Asia boom, which has brought the high dollar, Henry argued they needed to make the most of the ”competitive advantages” – such as our educated workforce and advanced technology.
”Instead of making the same products that we were making 140 years ago, that capacity can instead be used to make and do things that only we can do, or that Australia can do better than people in other countries,” he said.
Henry stressed that this was more than simply taking output from existing factories in Asia. It’s also about companies trying to integrate themselves more deeply in the region.
ResMed, medical product manufacturer, has also invested in factories in Singapore and Malaysia, in addition to its research and development work in Australia.
A UBS healthcare analyst, Andrew Goodsall, says this has given them lower costs and provided a handy shield against the high Australian dollar. Similarly to Blundstone, it also benefits from being far closer to markets in the northern hemisphere, with shorter shipment times. ”Because Singapore is so much closer to their market they save a week’s worth of working capital,” Goodsall says.
Vitamin company Blackmores has also pursued Asian operations for the past two decades, with profits doubling in the past three years.
Henry says its success was built on combining ”the Asian appetite for preventive medicine with Australia’s reputation for quality, safety, and strong regulation”.
Far from just defending offshoring as a cost-cutting strategy, Henry says these examples show how Australian companies can exploit the Asian century to their advantage.
But that’s not to say investing overseas is a silver bullet that can resolve the problems facing many manufacturers. Pacific Brands, the owner of Bonds, sparked a furore when it cut 1800 jobs and moved manufacturing to China in 2009, but the strategy has failed to revive the company’s fortunes. CEO Sue Morphet, the architect of the plan, was this week replaced by former Foster’s boss John Pollaers.
The company’s woes highlight that offshoring is far from a sure fix for struggling companies in the manufacturing industry – because they need many other core strengths, such as Blundstone’s iconic brand or Blackmores’ reputation.
The chief Australian economist at Bank of America Merrill Lynch, Saul Eslake, also stresses that while survival strategies built on Asian integration can help individual companies survive, they won’t stop the shrinking of manufacturing in this country.
Ultimately, Eslake says there’s no escaping the harsh arithmetic of the boom. For mining to radically expand its share of the economy, the relative share of other industries has to shrink. If the currency is indeed ”stronger for longer”, Eslake says this may mean more jobs in Australia are lost.
This story Administrator ready to work first appeared on Nanjing Night Net.