Minister for industry and innovation, Christopher Pyne, believes the nation must push resources from sectors in decline to growth industries.
In one of his first speeches in his new job as Industry, Innovation and Science Minister, Mr Pyne highlights the challenges and opportunities for the manufacturing sector.
"It's essential to play to our competitive strengths and facilitate the flow of resources from declining to growing sectors," he told an advanced manufacturing conference in Melbourne on Wednesday.
The economy was in transition due to the investment phase of the resources boom winding down and commodity prices softening, he said.
"We need to create a new legacy," he told the Australian Technology Network (ATN) Advanced Manufacturing Industry and Collaboration Forum hosted by university RMIT.
The focus must be on innovation activities like research and development, which Mr Pyne believes Australian businesses are not investing enough in.
"Australia is poor at commercialising and patenting its research," he added.
"It's not enough to be globally competitive in research if that research is not connected with the rest of the economy that funds the research."
Business must collaborate to access the latest technology.
"Diffusing advanced manufacturing technologies across our traditional manufacturing sector could be game-changing in terms of our global competitiveness," he said.
Mr Pyne used the example of Global Kinetics Corporation's KinetiGraph, a wrist watch that monitors movement data to help doctors diagnose and treat motion disorders.
The watch is approved for sale in the United States, European Union and Asia, and is manufactured in Australia.
The minister also spruiked the government's industry innovation and competitiveness agenda, which includes $255 million for five industry growth centres.
One centre aims to link Australian manufacturers with global companies and supply chains and develop future employment opportunities.
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