Will Australia’s manufacturing misery hurt SMEs? A SmartCompany Q&A

Warnings of thousands of job losses in Australia’s manufacturing sector have politicians scrambling to come up with ways to support jobs and economists scrambling to assess the impact on the Australian economy.

So far, the headline-grabbing job losses have been contained to the top end of town, with names like BlueScope Steel, OneSteel and GWA International among the manufacturers forced to cut back.

For SME entrepreneurs outside of the manufacturing sector, the direct impacts of these cuts are relatively limited. But could the manufacturing malaise eventually spread to the SME sector?

Time for a SmartCompany Q&A.

What’s the count on job losses so far?

BlueScope Steel cut 1,000 employees and 400 contractors yesterday, adding to 400 job cuts at OneSteel and 170 sackings at GWA International. That’s the manufacturing sector, but we’ve also seen Qantas (1,000 job cuts) and Westpac (100 job cuts) also slash jobs.

In fact, Westpac estimates 7,000 jobs have been cut since June which are yet to be reflected in official figures.

Right. So the numbers are mounting up pretty quickly. How bad could it get?

That’s the 64 thousand dollar question. Union boss Paul Howes says “thousands” more manufacturing jobs could go in the coming weeks, but putting a firm number on it is difficult.

Why is manufacturing being hit so hard?

Manufacturing has been hit hard in the last two decades by competition from countries with low labour costs, primarily China. But in the last 12 months, things have become even tougher. At the same time as exports have been hurt by slow global growth, interest rates in Australia have remained high and the commodity boom has helped push the Australian dollar through the roof. The rapid currency movement – 40% in the space of 12 months – has caught everyone by surprise.

Manufacturing is a big company game, isn’t it? Will SMEs be relatively shielded from these cuts?

SMEs are actually a big part of the Australian manufacturing sector, although they are typically not the high-growth SMEs that get the most attention. These businesses would have been feeling the impact of the high Australian dollar in the last 12-18 months and will be under the sort of pressure that BlueScope is feeling.

It’s also worth remembering where these job cuts are happening. In the case of BlueScope, around 600 jobs will be lost around the Wollongong region – this puts immediate pressure on SMEs in this region, who could find that customer confidence and spending is reduced.

And I guess SMEs everywhere could feel some pain if consumer confidence is dented by these job cuts?

Exactly. A big fall in employment will have worrying knock-on effects for consumer confidence, which we know is already very fragile. Nothing makes consumers retreat into their shells more than the idea that their jobs could be in danger, so a spate of big job losses will make them even more hesitant to spend.

Which sectors could be hardest hit?

In the short-term, we’re likely to see more pain for retailers, wholesalers and transport businesses, who are more leveraged to consumer confidence.

But in the longer-term, the decline of manufacturing in Australia will hit a wide variety of SMEs because manufacturing is just so ingrained in an economy. Manufacturers are customers, suppliers, drivers of research and development – SMEs should be studying where they connect with the industry and what might happen if those connections change.