What manufacturers should do about the high AUD

You're in a high wage country, your currency appreciates quickly and factories in China use fast learning, high volumes and an incredibly cheap supply base to kill your margins.

What to do?

Well,  GrowthPath's founder, Tim Richardson, can tell you what he did when both faced with this situation in Germany and France a few years ago.

1. You need to quickly work out where you have a genuine competitive advantage (for FMCG firms facing the private label push by Coles and Woolworths, watch out: your brand may not be worth as much as you hoped. See Lion cries over spilt milk)

2. Any competitive strategy based on having the advantage of scale or size is over. (this is actually good for small manufacturers, because they're used to being small. For Australian businesses that thought they could acquire and grow to get a dominant size, it's time for a rethink).

3. You are guaranteed one major competitive advantage: you are geographically close to your customers (assuming that the high AUD has made you focus locally).

(2) is a reality check. Australian manufacturers will never, even again have any chance of competing on volume. Manufacturing strategies based on high utilisation, high production runs and low variation are not the way forward. Experience tells me that the best firms can delay the inevitable for quite a while, but all they can do is delay.

(1) should lead to outsourcing and restructuring. It's important to stop bleeding. If you outsource products you are being killed on, at least you keep customers.Sourcing is complex and manufacturers are good at it, so this is a chance to build some added value.

(3) is the key. Become metaphorically closer to customers, not just geographically closer. Focus on become responsive to opportunities. Be the first to quote.

You'll need to have good cash cost models which cope with the new complexity you're going to use to differentiate. That is, you need to quickly quote a wide range of product and packaging options. You need to make flexibilty and speed of response a *profitable* point of difference.

Increase the complexity of your product offer and gear up for a more complex, lower volume business. Do customer focused innovation, which is often cheaper than technological innovations.

This quick sketch is how Philips Lighting turned around two product groups from loss makers to stars. Some of what we did was smart and analytical, but a lot of what happened was because we made ourselves the fastest to react and the most flexible in supply. Then things happened that neither Philips or competitors saw coming, but Philips was the clear winner. This experience was very influential in our development of GrowthPath's Opportunity-based growth. 

You can learn more about Opportunity-based Growth on the GrowthPath website.