Category: economy

  • I don’t get it

    I don’t get it

    “I don’t get Twitter or Facebook” says the talkback radio caller, “why would you want to tell the world what you’re having for dinner?”

    Once upon a time people didn’t get the motor car. There were many good reasons not to – compared to a horse a steam or petrol driven vehicle was expensive, unreliable and restricted in where it could go.

    The motor car ended up defining the 20th Century.

    Those who didn’t get it – like the stage coach lines and later the railway companies – eventually faded into irrelevance.

    Something we should remember though is that many of the entrepreneurs in the early days of the motor car who did “get it” went broke. As did those in earlier times building railways and canals.

    “Getting it” is one thing, but it doesn’t guarantee it will make you rich or guarantee your business’ survival.

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  • Super connecting cities

    Super connecting cities

    I’m chairing a panel this week in Newcastle for the New Lunaticks on How Cities can Become Super Connected where we’ll look at how a city can develop its broadband infrastructure and how the local economy can grow in a global, connected marketplace.

    The challenge for a city like Newcastle is great as in many ways the city’s economy is a microcosm of Australia’s – a massive restructure of the local economy over the last forty years has left the region with a consumer driven suburban society and the massive coal resources of the region have made the city the biggest coal exporting port on the planet.

    Much of the wealth flowing out of the port to India and China isn’t being distributed into the city and the Newcastle central business district is suffering from years of underinvestment and neglect by the business community and governments of all levels.

    So the rollout of the National Broadband Network offers an opportunity for the city and the local economy to reposition itself. The question on the panel is how?

    Waiting for Godot

    The first aspect is that waiting for a government agency or telephone company to come to town is risky; recent history shows Newcastle gets no favours from state or Federal governments so expecting the region to be a priority for the National Broadband Network is unrealistic.

    Indeed this has proved the case so far with no planned rollout locations for the NBN announced in the Hunter region to date.

    At present higher speed Internet access comes through ADSL over the telephone lines and Telstra’s 4G mobile network in the downtown part of the city.

    So it’s up to the community to create the conditions and demand for faster broadband.

    Building the infrastructure

    One way to make Newcastle more attractive to the providers of high speed internet is to make the supporting infrastructure easy to access. The local council can work on this by making streets, building and underground services like conduits accessible and available.

    Part of encouraging investment in the local telecoms infrastructure includes an attitude from council that doesn’t put unnecessary barriers in the way of developments.

    This isn’t to say local residents’ views should be over-ridden; if a city is going to be successful then it need the support of the residents.

    Who funds the network?

    While the city waits for the NBN or expanded 4G services to arrive, what happens in the interim? Should local and state governments build a temporary Wi-Fi network to cover the Central Business District?

    If so, why just the CBD? Why not key industrial, commercial and shopping centres in the suburbs? Over the last forty years, Newcastle residents have shown they prefer to work and shop outside the city centre.

    Of course the biggest question is who is going to pay for such an interim network. Putting the load on already stretched local governments guarantees the project will be strapped for capital.

    Open data, open processes

    An area where local governments can encourage growth is by being open and innovative themselves.

    By making data available they encourage local developer communities and attract entrepreneurs who see a welcoming environment.

    More importantly, having open procurement and recruitment processes that encourage local business to apply for government work and suggest innovative ways to work is one way industries in the region can be encouraged.

    Connecting communities

    Even with the best infrastructure you’re not going to build a vibrant economy without the community working together.

    If we look at successful industry clusters such as Silicon Valley or the Pearl River Delta today, or historical successes like Birmingham in the 18th Century, we see industries built around a small core of determined entrepreneurs utilising local resources.

    For Birmingham this was access to coal, iron ore, skilled labour and waterways to ship the products out. Silicon Valley’s role developed because of its access to high technology defense spending, good quality education facilities, a highly educated workforce and a free wheeling capital market.

    Cities like Newcastle have to identify what the local economy’s strengths are and how these can built upon. It needs government, business and educational groups to be co-operating.

    A liveable city

    The key to all successful cities is making them attractive to entrepreneurial, skilled and younger workers. In some respects Newcastle has aspects that can attract these groups.

    For Newcastle, and other centres, the challenge is to use their advantages to attract the human talent that will build the networks that matter.

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  • Should we be subsidising industries?

    Should we be subsidising industries?

    The 2012 UK “austerity” budget has one bright side with big tax breaks of the games and television industries.

    Meanwhile down under, the Australian government is about to announce more massive subsidies to the local motor industry.

    While protecting jobs and trying to help struggling industries is admirable, we should ask if the cost to the taxpayer and economy is worthwhile.

    Squeaky wheels

    “The industry has lobbied for such changes for several years” says the BBC report on the UK budget and this is one of the problems with industry specific support; that it’s the ones who complain the loudest who get the assistance.

    Often the companies and industries lobbying for subsidies spend too much management time and resources duchessing ministers, public servants and key media “opinion makers” than actually listening to their customers.

    The fact they have staff dedicated to lobbying efforts in itself shows where their investment priorities lie. It isn’t in building better products or delivering what their customers want.

    Missing voices

    It’s often lamented that the high growth and small business communities don’t receive support, this is because they are running and building their businesses rather than shmoozing journalists, public servants and politicians.

    Industry support programs often end up helping established insiders or those with a talent for filling in government grant applications rather than those who genuinely need help.

    The Australian film industry is a good example of this where talented film makers struggle to attract funding from government agencies while a generation of well connected, experienced form fillers keep churning out subsidised movies that no-one wants to see.

    Behind the times

    One of the problems with government picking industry winners is they are often well behind the times with support going to mature or fading industries; both the Australian and UK announcements illustrate this.

    The UK games announcement is at least ten years behind the times; strategic investment in the games and TV industry a decade or two ago may have been a wise move, today it’s just supporting another mature sector that is struggling to adjust.

    At least though the UK’s policies are somewhere near the 21st Century, the massive Australian support for the failed motor industry shows Canberra’s politicians are mired in an era somewhere Henry and Edsel Ford.

    It’s worth noting one of the first moves of the incoming Australian Labor government in 2007 was to axe the Commercial Ready program that was designed to help commercialise new technologies and innovations yet motor industry support dwarf any savings from abandoning this scheme.

    The investment problem

    In most countries the real problem to building jobs and industries is investment. Both the UK and Australia illustrate this with their domestic investment being largely directed at the housing industries.

    The two countries have taxation and social security policies that favour over-investment in property. In Australia the problem is exacerbated by a retirement saving scheme that directs domestic savings to index hugging fund managers.

    Australia’s sinking of money into an industry that have been struggling for nearly forty years and currently suffering massive worldwide oversupply is one of many damning indictments on the country’s political classes squandering of the current resources boom.

    Making things worse, massive subsidies to uncompetitive industries already distorts a twisted economy.

    Real economic reform that encourages investment in research, development, training, innovation and entrepreneurs is tough and means losses for many in those vocal, dying industries.

    For the average politician a feel good announcement giving a bucket of money to a noisy group is a much better short term investment.

    The challenge, and opportunity, in the democratic world is to make the politicians aware that the economy has moved on from the times of John Major in Britain or Bob Menzies in Australia.

    It may well be that industries do need, and deserve, government support although we need far more scrutiny and justification from our political leader of why certain groups get help while others do without.

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  • Insanely profitable

    Insanely profitable

    Apple’s announcement that they will start paying dividends to shareholders changes a number of things in Apple’s business model and those of many other businesses.

    The sheer size of Apple’s cash reserves also illustrate how profitable the outsourced manufacturing model is as well the contradictary nature of special pleading by affluent corporations.

    Moving a cash mountain

    Not only is Apple’s business insanely profitable, but sales are growing exponentially. In the company’s conference call, CEO Tim Cook reported that 37 million iPhones sold last quarter and 55 million iPads sold in the last two years.

    Apple’s CFO Peter Oppenheimer pointed out the company’s cash reserves increased $31 billion in 2011 and 2012 is on track for a similar result in 2012, leaving them plenty of money for investment along with a “warchest for strategic opportunities”.

    Paying a dividend

    The reluctance to pay dividends has been a feature of the US corporate for the last few decades and Apple are certainly not alone in not distributing their profits to shareholders.

    Companies like Microsoft, Google and Oracle -even Yahoo! once upon a time – have been just as profitable as Apple and their efforts to shrink their cash mountains has had some perverse effect.

    Many of these companies have squandered suprpluses on poorly thoughtout and badly executed buyouts of smaller businesses, this urge to avoid returning money to owner has been one of the drivers of the Silicon Valley VC Greater Fool model.

    Another result of fat profits is the rise of flabby, overstaffed management ranks at some of these companies. Although this certainly isn’t the case at Apple where Steve Jobs ran a very lean machine.

    The retail model

    Unlike their major tech competitors Apple is a manufacturing and retail business as well. In 2012, 40 new stores are planned around the world.

    This vertical control of their markets, from the beginings of the supply chain  to “owning” the end customer is anathema to modern MBA thinking and probably the area that gives them the greatest competitive advantage over their hardware competitors.

    Justifying Mike Daisy

    In some ways this announcement justfies Mike Dasy’s discredited criticisms about Apple’s Chinese suppliers.

    The reason for manufacturing these goods in places like China, India or Vietnam is the vastly cheaper cost of doing business, not just in labour rates but in reduced environmental and safety standards.

    Plenty of brand name clothing, footware and fashion accessory companies make similar massive profits to Apple with their ten, twenty and sometimes hundred fold markups on their products.

    Repatriating profits

    One of the big changes of Apple repatriating money is that is undercuts the special pleading by these extremely profitable companies that they should have a US tax holiday so they can repatriate their riches.

    It’s now clear these companies can easily afford to pay the taxes of their home countries and it’s time they started to, along with returning dividends to their shareholders.

    Once again Apple have changed the way others do business, how these changes affect the way we invest and governments treat companies is going to be one of the most interesting developments over the next decade.

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  • Book review: Getting Results from Crowds

    Book review: Getting Results from Crowds

    One of the consequences of the Internet becoming accessible to the most of the world’s population is the rise of crowdsourcing.

    Crowdsourcing, the concept of tapping the wisdom or skills of large groups of people, changes the economics of many industries.

    Getting Results From Crowds by Ross Dawson and Steve Bynghall look at how crowdsourcing works and the strategies for those who want to use crowdsourcing services and those providing them.

    An important part of the book for those new to the concept to crowdsourcing are the comprehensive definitions of exactly what it is, the benefits, the ethics and situations where it may not work.

    In examining the pitfalls, Dawson and Bynghall make Getting Results From Crowds a valuable guide that gives a realistic view for managers, business owners, entrepreneurs and activists to evaluate where crowdsourcing works best.

    A refreshing point with the book is that it doesn’t fixate on price; much of what has been written about crowdsourcing has focused on “free” services where organisations call groups together to contribute their time.

    While there have been some notable successes in this – Wikipedia and the Guardian newspaper’s corralling its readers to evaluate the UK Parliamentary expenses scandal are two – Ross and Steve point out in their Key Principles of outsourcing that cost should not be the driving factor;

    The initial attraction to crowdsourcing for many businesspeople is the potential reduce costs. While this is a valid objective, minimizing fees paid rarely leads to optimal outcomes.

    Where the guide does miss the mark is the sheer scope of what the authors try to cover and many of concepts discussed don’t sit under the crowdsourcing definition but are more akin to outsourcing, or as one of the new buzzwords calls it, cloudsourcing.

    Many of the concepts discussed in the book are more about using crowds to tender for a project such as service marketplaces like O-Desk and Freelancer.

    One of the problems with outsourcing is that many businesses and government organisations don’t have the skills required to specify, select and manage outsourced staff. Ross and Steve identify this and devote most of the book to the challenges of managed outsourced and crowsourced projects.

    Getting Results from Crowds is an important book for those wanting harness the global workforce effectively for their organisation and business.

    If you’re considering using crowdsourcing or outsourcing platforms, Getting Results From Crowds is a good starting place for understanding how to use these tools.

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