Despite the demise of several high profile multi-nationals, manufacturing is not a dying industry in Australia. In fact, provided we focus on the right type of manufacturing and the right type of support, it will continue to be a significant contributor to our economy.

However, for this to happen Australia's mindset about manufacturing must change. Australia cannot compete with low cost, high volume production. Our future is not in assembly production lines. It must be in advanced manufacturing and its related services.

While many associate advanced manufacturing with niche products such as biopharmaceuticals or defence technology, that is only one part of the picture.

The high-cost advanced economies that have had the most success in advanced manufacturing, such as Germany, Sweden and Switzerland, are those that recognise that it is not just about products - advanced manufacturing includes the full suite of activities from concept, research and development (R&D) and design stage all the way through to post-sales services. It is about adding value to the production line.

CEDA's research released this week has examined how Australia can transition from traditional manufacturing to advanced manufacturing and shows that knowledge-intensive manufacturing services such as R&D, after sales maintenance for high tech products and the development of customised solutions for specific consumers are where our future lies.

In reality this transition to advanced manufacturing will most likely mean less overall jobs in manufacturing (although this has been the trend for some time now anyway). However, the jobs will be higher skill, higher paying and therefore make a bigger contribution to the economy.

If we are to make this transition successfully, and there are already some success stories, then governments must be careful about how they support the manufacturing sector.

Cuts to funding that drive R&D and innovation, such as those mooted with respect to CSIRO, are potentially biting the hand that will feed our economy in the future.

Governments need to get smarter about how they support manufacturing and at the same time change the handout culture that has permeated parts of the industry.

Government public procurement contracts is a great example. Support should be prioritised for tenders that include Australian made new-to-world technology to drive innovation rather than accepting off-the-shelf products. This could range from new technology for road surfaces to healthcare equipment for our hospitals.

Additionally universities should be given incentives for research that reaches commercialisation to help forge stronger collaborations with industry, in the same way academics are rewarded for their work being published in peer reviewed journals.

We also need to see further industry collaboration, even among competitors, through research cooperatives, a model that has proven successful in agriculture.

By cultivating new technology domestically it means better technology and infrastructure for Australians but also means we can then export and market this technology overseas.

Just as importantly it will drive a cultural shift.

Successive governments have put their hand in their pocket every time an industry has faced difficulty, contributing to the current handout culture. While the tougher economic conditions have seen that tap run dry of late from some sources, if this is to change dramatically then governments need to drive a culture of innovation that will help deliver productive and sustainable industries.

With Federal and State Budgets set to be delivered in coming weeks it is important that governments take a long term view of what our future industries will be when deciding how to balance the books.

We need to find a new manufacturing sweet spot and advanced manufacturing is without a doubt where our focus should be. We just need rebrand how Australians view manufacturing and get the support right.

Download report - Advanced Manufacturing: Beyond the production line (pdf)

Read CEDA's advanced manufacturing media release

This opinion piece was published by Business Spectator.