Australia’s declining terms of trade, associated with the commodity prices slowdown, have refocused attention on future sources of growth and competitiveness. Without diminishing the role of internationally traded services in compensating for mining sector volatility, the opportunity for knowledge-based manufacturing to create high skill, high productivity industries has yet to be realised in Australia. Innovation and technological change have shifted the emphasis, particularly in high cost economies, from low cost mass production to smart specialisation by ‘micro-multinationals’ in global markets and value chains. With only 2% of the world’s R&D, Australia cannot be excellent at everything, but it has become clear that new business models, data analytics and design-led innovation are key to building enterprise ‘absorptive capacity’ and competitive advantage in the non-mining trade exposed areas of the economy. This has implications for the way we design our national innovation system, including essential linkages with research and education.