Motley Fool Australia

Why ASX 200 tech shares are vital to manufacturers’ reshoring plans

woman using a laptop with a computer open with the outlook email page browser
Image source: Getty Images

S&P/ASX 200 Index (ASX: XJO) tech shares have garnered a lot of media and investor attention since the onset of the global pandemic.

And for good reason.

As Aussies transitioned to working, playing and shopping from home during viral lockdowns and social distancing, many of the ASX 200 companies providing these services saw their share prices surge.

But COVID-19 did more than roil up consumer and work habits.

Coming atop of trade conflicts with China, the pandemic also shone the spotlight on the growing deficiency in manufacturing capabilities on Australian soil.

Among other issues, the coronavirus saw supply chains disrupted as overseas manufacturing facilities were forced to shut down. Or when governments opted to supply their own citizens before greenlighting exports.

Australian manufacturers rush to reshore operations

Looking to avoid a repeat of these disruptions, or worse, it’s little wonder that fully 55% of Aussie manufacturers are planning to return their operations to Australia inside the next 3 years.

That’s according to the Australian Manufacturing Outlook survey, recently released by PROS Holdings, Inc, a software as a service solutions (SaaS) provider working to optimise shopping and selling experiences.

The survey, conducted by OnePoll in December, was put to 500 senior manufacturing employees across Australia.

Aside from revealing that 55% of respondents intend to reshore their manufacturing to domestic facilities, 22% said they had already reshored their operations.

And while a lack of skilled domestic workers is often touted in the media, the surveyed Aussie manufacturers largely disagreed. In fact, 78% said Australia has “the technology, people and economy to support the industry boom”.

On a regional level, respondents in Western Australia, Northern Territory and South Australia were the most likely to be planning a return of their manufacturing operations to home soil. Their focus is largely on “creating local jobs and growing priority sectors such as lithium batteries, defence and space”.

A potential fly in the ointment, though, is a lack of digital acumen.

According to PROS’ survey, 82% of Australian manufacturers said they are “underprepared to compete in a digital economy and believe they must fast-track eCommerce channels to overcome competition from imports and online sources”.

A crucial step to global competitiveness

Haley Glasgow is the APAC Head of Strategic Consulting and Alliances at PROS.

Addressing the manufacturing sector’s preparedness to bring back their operations to Australia, she said:

The economic recovery is well underway, but Australian manufacturers must equip themselves with eCommerce and dynamic pricing capabilities, otherwise we risk not only stalling the economic growth already achieved but missing the right moment in history to reclaim our manufacturing heritage.

Australia is incredibly well-placed to leverage smart technologies like artificial intelligence and digital selling channels to overcome the competition challenges from imports and online sources. But to reinvent themselves, investment must be made by the government, industry and companies themselves.

Glasgow added that by making the right tech investments, companies can “improve the buying experience, order accuracy and accelerate business growth as the economy recovers”.

“As Australian manufacturers seek to reshore,” she said, “it is vital they lead with a digital strategy and mindset if they are to achieve local and global competitiveness.”

Three leading ASX 200 tech shares

There is a growing range of high-growth ASX 200 tech shares for investors to research.

For the purposes of this article, we’ll look at three of these, which are directly involved in helping companies and investors navigate the digital economy.

First up, WiseTech Global Ltd (ASX: WTC). WiseTech provides cloud-based software solutions for the international and domestic logistics industries. WiseTech has a market cap of $10.1 billion and pays a small dividend of 0.14%, fully franked.

The WiseTech share price is up 99% over the past 12 months, compared to a gain of 27% on the ASX 200. So far in 2021, WiseTech shares are up just over 3%.

Next up is Computershare Ltd (ASX: CPU), the largest share registry business in the world. Computershare has a market cap of $7.9 billion and pays a dividend yield of 3.06%, fully franked.

The Computershare share price is up 34% over the past full year and has gained 4% so far in 2021.

Finally, we have Nextdc Ltd (ASX: NXT), which operates a network of data centres across Australia. NextDC has a market cap of $5.3 billion.

NextDC shares have gained 25% over the past 12 months. Year-to-date the NextDC share price is 6% lower.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

*Returns as of February 15th 2021

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of WiseTech Global. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Related Articles…