National METS Survey 2015 Results: New Realities, Bigger Horizons
There is no doubt that times are tough for those who supply to the mining industry. With a focus on reducing costs and lack of investment capital, miners are holding their purse strings tight, which is causing suppliers to re-think their priorities and re-shape how they do business.
In a recent survey of the Australian Mining Equipment, Technology and Services (METS) sector, 60% of companies surveyed reported they are very or extremely concerned with the mining downturn. Concern was consistently high across companies in all states, with the highest percentage of companies being very or extremely concerned in Western Australia (66%) and Queensland (66%), Australia’s 2 largest mining states.
Conducted by Austmine, the peak industry body representing the Australian METS sector, and funded by the Australian Federal Government’s Department of Industry and Science, the survey was the second major national survey of its kind undertaken, the first one being conducted some 2 years ago. The 2013 survey reflected a very buoyant sector coming off the back of record high commodity prices and a decade long mining boom. Most companies at the time, reported double digit revenue and employment growth, with the ability to find and retain skilled staff being the number one challenge for many.
Two years later, the story is quite different. The impact of the mining downturn in Australia has been overwhelmingly negative for Australian METS. So much so that 79% reported a decrease in revenue, 61% reported a decrease in profitability, 59% reported a decrease in customers and projects and 52% reported a decrease in employees. On average, the decrease in revenue reported was 31%. Unsurprisingly, the number one challenge for the sector, with 66% of companies selecting it, was the downturn in the mining industry.
Impact/s of the Mining Downturn
Note key: Blue = negative impact; green = positive impact
Base: Total Sample (n=432)
Q20. What impact/s has the mining downturn had on your company?
“These results are not surprising,” said Christine Gibbs Stewart, CEO of Austmine. “We know that it is a difficult period for the METS sector and one reason for conducting this year’s survey was to obtain a good understanding of what impact the mining downturn was having. We know in talking to our members that there have been large reductions in staff numbers and business closures, and the larger the company, the more dramatic the impact has been.
“Despite the expected cyclical nature of the mining industry, many firms have commented the downturn seems to be deeper than before and cost structures fostered in the boom times cannot now be supported. This is reflected in the survey as 46% percent of businesses reported that the cost of doing business in Australia was a key challenge, making it number 2 on the challenges list.
“Companies, however, have not been blindsided and in 2013 the storm clouds of the mining downturn were recognized as gathering. This means that companies have been preparing for some time, and the survey has helped us gain insights into the strategies that companies are adopting and to identify where the bright spots are.
The good news is that the sector as a whole is very resilient, agile and forward thinking and that plenty of opportunities exist, despite the downturn.”
Customer is King
For Australian METS, the focus is squarely on the customer. When asked about key strategies that have been adopted, or are in the pipeline, to combat the mining downturn, the number one response from 56% of companies was to refocus on the customer relationship.
As a mining country, Australian METS have benefited from the opportunity to work closely with their customers. 67% of companies reported that they work directly with mining companies. This has allowed Australian METS to develop a deep domain knowledge and form relationships that sit at the core of a company’s competitive advantage. This is indeed acknowledged, with 55% of those surveyed reporting that the relationship with customers is their key competitive advantage.
This direct coupling has become a source of innovation which, in turn, has been leveraged to produce highly unique, customer-focused solutions and has helped Australian METS to grow and gain a reputation globally as good problem solvers. The survey confirmed the importance of this, with 88% of survey respondents reporting that pro-active problems solving was the key to winning new business.
Diversified Business Models
Australian METS work across several minerals, stages of the mining lifecycle and indeed have transferred their skills to other industries. In fact, 79% are engaged in activities outside the mining sector, with 64% supplying to oil & gas, giving Australian METS a wider resources remit.
44% of companies reported that they were exploring or moving into other industries to combat the mining downturn, and 55% of companies saw expanding into new market segments and industries as a key opportunity for the future. Of those companies that were diversifying into other industries, 68% said they were exploring opportunities in oil & gas, 41% in infrastructure, and 30% in renewable energy or products.
Base: Total Sample (n=432) Base: Expanding into new markets/industries (n=236)
Q42. What are currently the three biggest opportunities for your company?
Innovation is the lifeblood of Australian METS. The survey explored drivers of innovation, with 63% of companies reporting that innovation was core to their business strategy. This encompassed external, customer-focused product, process or service innovation. Staying ahead of the competition and customers' problem solving were also key innovation drivers.
Base: Total Sample (n=432)
Q37.What are the main drivers of innovation in your company?
Launching a new product or service for 37% of companies was a key strategy to combating the mining downturn, and equally 37% of companies saw this as a key opportunity for future growth. The survey found, in fact, that 81% of companies launched new products or services every few years, or even more frequently.
Of the companies surveyed, 78% reported expenditure on R&D in financial year 2014. While the average spend was almost 50% lower than reported in the 2013 survey (covering the financial year 2012), the percentage of those involved in R&D increased from 50% to 78%. Total R&D expenditure reported by the companies surveyed in FY14 was $1.18bn.
The survey also explored barriers to innovation, and 37% of companies said a major barrier was the was the conservative nature of the mining companies. Linked to that, 36% of respondents felt the procurement practices of target customers was a key barrier to innovation.
Barriers to innovation
Base: Total Sample (n=432)
Q38. What are your major barriers to realising a commercial return from your innovations, new products or services?
Collaboration is the key
Australian METS are highly collaborative, but more work needs to be done to foster collaboration across the entire value chain. It is certainly seen as an opportunity for the sector, however, as increased collaboration with others in the supply chain was seen by 32% of respondents as a way to combat the downturn.
39% of companies actually reported that they collaborate with other organizations on R&D. 62% of these collaborate with other suppliers, 45% collaborate with mining companies, and 42% collaborate with universities. Other collaboration partners include government entities, CRCs, and public and private research organisations.
It is interesting to note that 45% of firms collaborate internationally.
Want to learn more about improving collaboration? Join us for a free live webinar on 8th October on Collaboration in the Mining and METS sectors.
Base: Involved in collaborative R&D Projects (n=169)
Q36 With which types of organisations does your company collaborate?
Australian METS are a global success story and the envy of many industries for their penetration into value chains worldwide and a reputation for problem solving and best practice.
METS companies are globally focused, with 66% reporting that they export. This is an increase from the 2013 survey number, which recorded 55% of firms exported. Firms in Queensland and Western Australia tend to be more export focused, while firms in South Australia tend to be less so.
The Australian METS' export footprint reaches every corner of the global. With a focus on the Asia-Pacific, key export regions included South East Asia and South and North America. Indonesia, New Zealand, USA, Chile and the Philippines were seen as the top export markets by a high percentage of firms exporting there.
Of those companies exporting, 52% had offices or operations offshore signaling a committed and sophisticated approach to growing their international business. Almost half, or 46%, have offices in the United States. Canada, Chile, the United Kingdom and South Africa are also key locations for offices or operations.
Markets of future growth include Indonesia, the United States, New Zealand, PNG and Canada, reflecting the current METS export footprint and leveraging an already established expertise and reputation. Of those companies that are not currently exporting, 16% plan to export in the next 1-2 years.
METS companies have a core competency in minerals and mining and the sector encompasses companies that are very diverse and range from high-tech start-ups to well-known multi-nationals. While large companies may headline the sector, the backbone and majority of METS companies are highly innovative, entrepreneurial SMEs that are often world-leaders in their particular niche.
The survey also found that innovative manufacturers still form the backbone of the Australian METS sector with 32% of respondents involved in advanced manufacturing.
Breaking this down further, the top 5 services provided of those surveyed, include equipment maintenance and repair (23%), mine maintenance (16%), underground mining equipment and services (15%), project management and consultancy (15%) and conveyors, components and accessories. (15%) All of this is underpinned by a focus on business, operations and productivity improvement, all key to solving the challenges faced by today’s mining companies.
Top 10 Services Provided
Base: Total Sample (n=432)
Q15. How would you describe the equipment, technology or services your company provides?
“We are pretty proud of our METS sector in Australia and rightfully so. It is a globally focused, highly innovative, world leading sector,” said Chris Gibbs Stewart, CEO of Austmine. “The Australian Federal Government has recognised the importance of METS and this year the METS Growth Centre will be launched which will provide a platform for collaboration and bring together industry leaders to solve the big issues which the industry is facing. This will be a very important initiative as Austmine believes that and that collaboration is the key – both from a strategic and tactical point of view. A close working relationship and open dialogue between miners and suppliers is needed to not only look at today’s issues, but to look further down the road and really understand where we will be in 10 or 20 years’ time.
“Without a doubt miners are facing unprecedented challenges, and now more than ever the METS sector is critical to the on-going sustainability of mining."
The full survey results will be available in August 2015 and in the same month we have a live webinar focused on Combating the Downturn Strategies, which you can register for online now.