Innovative small and medium-sized manufacturers producing high value products and services must be the backbone of the South Australian economy, a CEDA forum in Adelaide has been told.

Minister for Manufacturing, Innovation and Trade, Tom Kenyon said South Australia could not afford to let obstacles such as a high currency, high wages and a developed regulatory sector stand in the way of growing its manufacturing base - just as German firms had not.

Sectors such as the modelling and simulation industry, in which South Australia was building an international reputation, has the potential to underpin other sectors such as defence, agriculture, manufacturing, transport, aerospace and electronics, Mr Kenyon said.

But the State's manufacturing sector, dominated by small to medium enterprises (SMEs), would need to forge greater links with universities to engage in research and development (R&D), he said.

"The link between industry, universities and technical training is absolutely critical. German companies regularly approach and work with universities to solve specific problems," he said.

Speakers from industry and academic leaders in Australian manufacturing, including Adelaide's former Thinker in Residence, Professor Göran Roos, told the forum that innovation in products and processes would be critical to the success of South Australia's manufacturing sector.

The forum heard:

• South Australian manufacturing companies must develop niche, high quality products and services that compete on value for money rather than cost;
• Workforce flexibility is needed to enable manufacturers to become more responsive to the market;
• Incentive schemes, such as profit shares, should be introduced to foster greater passion in the workforce.;
• Governments must foster collaboration between SMEs and promote innovative clusters where like-minded entrepreneurs can generate new ideas; and
• Companies should seek to improve processes and streamline the value chain before investing in capital.

"The most important innovation is about changing work practices - about the way we look at the world," Professor Roos said.

While speakers acknowledged that Australian manufacturing was facing a tough operating environment, the forum heard that its demise has been overstated.

"Manufacturing is well and alive - it just doesn't look that way," Professor Roos said.

While traditional measures showed a decline in manufacturing and a rise in services, these measures overlooked the fact that service delivery had become a core business of manufacturing companies, he said.

Many of the new service sector jobs were created in manufacturing companies, he said.

Companies usually had to complement products with services if they were to appropriate the value associated with their innovation, he said.

"Product becomes a very small component of what you offer and you can charge a lot," he said.

We want to see more firms in this State that are based in sophisticated innovation- that link global supply chains which keep them competitive, he said.

Programs such as the Innovation Voucher Scheme and the Medical Device Partnership Program, which provide a single entry point for businesses seeking to work with universities, were beginning to promote collaboration between industry and universities, the forum heard.

However, Fielders Australia, CEO, Chris Stathy said more needs to be done to make companies aware of the opportunities to tap into global supply chains.

"There are lots of opportunities for SMEs if we can only get them to realise what they are," he said.

"The problem to me is that they don't know what they don't know. If we could create awareness there is significant upside to do more with what we've already got."