Manufacturing Sector R&D Tax Incentive Case Study
Apex, like many other Australian manufacturers, is struggling to maintain its competitiveness in the global market place. The Asia-Pacific region is spearheading global growth in chemical manufacturing, led by a rising demand for sophisticated raw materials and products among the region’s processors. Attracted by the region’s burgeoning market and low cost base, many Australian manufacturers are now looking to relocate their manufacturing operations to Asia.
In the face of this aggressive regional competition and offshoring, Apex determined that it needed to undertake a significant operational restructure. Rather than abandon manufacturing in Australia altogether, Apex decided rationalise its operations, closing the older and less efficient sites and consolidating its production in one or two “super sites”.
Naturally this rationalization presented a number of human resource challenges but it also raised significant technical issues associated with the transfer of product manufacture from disparate sites to one (or two) main sites. The issue stemmed from the fact that every site was different in terms of the nature and configuration of its production equipment which, in turn, informed critical process parameters such as the size of the reaction, heating and cooling regimes and materials handling. Changes in these parameters brought about by the relocation of the point of manufacture had the potential to flow through to undesirable changes in product quality and performance characteristics in the hands of the end-user.
Despite careful planning, Apex invariably found that in some cases it had to go back to formulation in order to achieve the same product quality as was being delivered prior to the relocation.
Apex was uncertain whether its endeavours in this regard would attract R&D tax entitlements, especially given that the products that had been successfully manufactured at other sites previously and were not “new”. Further, it was not transparent where the boundaries should be drawn between core and supporting R&D activities and the more commercially orientated activities that had to be undertaken as part of the wider organisational restructure.
