Deep tech scale-ups produce highly engineered products with multiple levels of complex configurations, systems and sub-assemblies.
One piece of equipment might have up to 1 million components, take several hundred steps to assemble, and require regular adjustment from multiple specialist engineers.
In fact, the production line itself is often highly specialised and may even be as patent-protected as the final product.
Offshoring requires relocating the entire plant overseas at great cost, unlike software production which can be (and often is) easily offshored. This makes deep tech manufacturing facilities incredibly “sticky” to Australia.
2. One becomes many
Deep tech scale-ups create a spillover effect in the form of dozens, if not hundreds, of opportunities upstream and downstream in their own supply chains.
For example, when Queensland’s Gilmour Space Technologies launches into space, chief executive and founder Adam Gilmour says it takes about 300 manufacturing suppliers from Australia with it.
Battery manufacturing company Gelion, a resident at deep tech incubator Cicada, just partnered with a local lead-acid battery manufacturer to launch a production facility for its sustainable zinc-bromide batteries using existing lead-acid processes, creating production efficiencies for both.
3. Constant reinvestment builds sticky assets
Once a deep tech company reaches more than 500 R&D and production staff, it is deeply incentivised to continuously reinvest into its specialised facilities, real estate for production continuity, surrounding infrastructure, supporting supply chain, and highly specialised team.
It will also reinvest on average 15 to 20 per cent of its revenue back into R&D for the life of the company.
As an example, Cicada resident and biotech company SpeeDx constantly reinvests into R&D capabilities (team, infrastructure, experiments), industry-based PhD students (talent and research), and research collaborations with universities through multiple grant schemes.
Once the ball starts rolling, it snowballs.
These scale-ups act as magnets for talent in roles such as senior production engineers, who can then train hundreds of staff beneath them. This is a strategy that some of Australia’s largest medical devices companies, such as Cochlear, credit for their size and success.
Each new anchor point and extra dollar of investment makes the company even stickier to Australia, while significantly improving the assets on the company’s (and Australia’s) balance sheet.
4. Complex products guard against major events
The complex products produced by deep tech manufacturing scale-ups open up diverse export markets.
They also guard against major economic shifts that would otherwise dramatically increase a country’s reliance on a small number of industries, or temporarily wipe out some.
When the pandemic struck, the deep tech scale-ups within Cicada did not suddenly find themselves laying people off, they expanded product lines, hired staff and found new markets.
The problems they are solving – climate change, an ageing population, energy security – did not disappear just because a virus arrived.
In fact, many built new technology to “save the world” from COVID-19, proving their imperviousness to major events.
5. IP equals higher pay
Research by IP Australia recently found that SMEs that own IP rights – as all deep tech scale-ups do – are more likely to experience high sustained growth, employ 3.5 times more people, and pay a higher median wage.
They are also more likely to provide a pathway for new STEM (science, technology, engineering and mathematics) graduates, reinvest in continued R&D, and collaborate across sectors with other SMEs.
6. It’s worked before
Perhaps the best reason for investing as a nation into complex deep tech manufacturing scale-ups is that we have overseas proof that it works.
Germany’s “Mittelstand” – small and mid-size companies – are manufacturing and technology businesses that have endured multiple economic cycles, possess between 70 and 90 per cent share of their respective global markets, and account for the bulk of Germany’s considerable trade surplus.
The Harvard Business Review describes them as “true superstars” that “have a talent for export and a command of their markets that belie their small size and low profile”, while Forbes says “many of these firms have all the ingredients for breakout success”.
It is not inconceivable that Australia creates its own version of these robust, job-creating, high-employing companies too.
