Oct 102015

Irish economist David McWilliams reflects on how a train ride between Boston and New York illustrates how a lack of investment in the US and over capitalisation in China has affected the global economy.

A lack of public investment is hurting the US in McWilliams view and that’s exacerbated by a reluctance of the private sector to commit to new productive assets and projects. Weak investment affects household wealth and savings, it also means the low interest rates are encouraging speculation rather than economic growth.

Meanwhile in China, the nation’s massive expansion has created a global glut in manufacturing capacity. That makes business even more reluctant to invest in plant and equipment while creating risks for the commodities based economies like Russia, Brazil and Australia that feed that machine.

One aspect that McWilliams overlooks is another shift in the global economy – the shift to smaller scale manufacturing and automation, “real investment tends to be in big machines that make big stuff,” he says.

That investment in big machines may not be the economic driver they were half a century ago as building and maintaining the machines themselves are no longer labour intensive. Furthermore, the manufacturing of tomorrow may well be much more distributed and on a local, smaller scale.

McWilliams’ points though are well made. We need to be looking at how to stimulate private investment in productive assets while looking at the public investments that will enhance our economies and improve our living standards.

Aug 312015
Fibre broadband rollout

How much does broadband really matter in developing a competitive and innovative modern economy? A corporate lunch with US software company NetApp last week illustrated that there’s more to creating a successful digital society than just rolling out fibre connections.

Rich Scurfield, NetApp’s Senior Vice President responsible for the Asia-Pacific was outlining the firm’s plans for the Australian market and how it fits into the broader jigsaw puzzle of economies across the region.

Like many companies in the China market NetApp is finding it hard with Scurfield describing the market as “chaotic”. This isn’t unusual for western technology companies and Apple is one of the few to have had substantial success.

Across the rest of East Asia, Scurfield sees them ranging as being mature, stable and settled in the cases of Japan, Singapore, Australia and New Zealand through to India where the opportunities and the challenges of connecting a billion people are immense.

Digital outliers

The interesting outlier is South Korea, one of the most connected nations in the world, where the promise of ubiquitous broadband isn’t delivering the expected economic benefits to the entire community.

In theory, South Korea should be seeing a boom in connected small businesses. As Scurfield says, “from a technology providers’ view this connectivity means you could do more things very differently because of the infrastructure that’s available.”

Global Innovation Rankings

Korea’s underperformance is illustrated by last year’s Global Innovation Index that saw South Korea coming in at 16th, just ahead of both Australia and New Zealand whose broadband rollouts are nowhere near as advanced as the ROK’s.

Making a close comparison of Australia and the Republic of Korea’s strengths in the WIPO innovation index, it’s clear the technology and engineering aspects are just part of a far more complex set of factors such as confidence in institutions, the ease of doing business and even freedom of the press.

Putting those factors together makes a country far more likely to encourage its population to start new innovative businesses that can compete globally. When you have a small group of chaebol dominating the private sector then it’s much harder for new entrants to enter the market – interestingly a private sector dominated by big conglomerates is a problem Australia shares.

Small business laggards

NetApp’s Scurfield flagged exactly this problem, “Korea is an interesting market in there’s about six companies that matter and from a competitive view those companies are extremely advanced, they have great technology and great people.”

“However what’s not happening across the rest of the country is this adoption isn’t bleeding into the broader community,” said Scurfield “Because of that I don’t see broadband connectivity as having a wide impact.”

That Korean small and medium businesses aren’t using broadband technologies to develop innovative new products and service in one of the most connected economies on earth raises a question about just how effective investment in infrastructure is when it’s faced with cultural barriers.

Certainly we should be keeping in mind that economic development, global competitiveness and the creation of industry hubs is as much a matter of people, national institutions and culture as it is of technology.

We shouldn’t lose sight of the importance of our people and institutions when evaluating the strengths and weaknesses of a nation in today’s connected world.

Aug 292015

The Obama Administration teams with Apple, HP, Boeing and others to develop a Silicon Valley based wearable tech hub with $170 million in funding reports Venture Beat.

Over $17o million will be invested by the US government and its private sector partners in hybrid flexible electronics manufacturing research that may well underpin the next generation of wearable and embeddable devices.

For the US, its success in the electronics industry is based upon its strong research sector. Making the investments today will help the nation compete as the technology landscape evolves.

Aug 252015

One of the things that strikes you when wandering around London’s Docklands district is the sheer amount of advertising for financial technology companies.

That London has established this position should surprise no-one, its civic and national leaders have been aggressive in maintaining the city’s position as technology has swept through the banking sector.

One of the notable things when interviewing the Chief Executive of London and Partners, Gordon Innes, two years ago was how engaged both the city’s business and political leaders were in the development of the town’s technology sector and the financial industry was a natural focus.

An example Innes gave of that engagement was the co-operation between the offices of the Prime Minister and the London Mayor where staffers meet on a monthly basis to agree on business and technology policy, which is then put into action by Westminster and the UK Parliament.

Poaching the Aussies

The benefits of that co-ordination and focus are global, with the London fintech sector attracting startups from as far as Australia.

Australia’s experience, or lack of it, in the fintech sector is notable. As the story linked above mentions, the UK Trade and Investment agency actively scouts out promising businesses while the local state and Federal equivalents sit on the sidelines (disclaimer: I worked for the New South Wales government on its digital economy strategy).

For Australia, the late entry into fintech doesn’t bode well. The country’s financial sector is overwhelmingly weighted towards domestic property speculation – a structural weakness seen as a strength by most Australians – and the country’s high costs make it tough for startups.

Defining a competitive advantage

High costs in themselves aren’t a barrier to a city’s success – London, New York and San Francisco themselves would be among the highest cost places to do business on the planet.

To justify those costs a city needs a competitive advantage and there’s little to suggest Sydney or Melbourne have anything compelling as a financial centre beyond a bloated domestic banking industry fixated on residential property.

Two of the arguments used to support Australia’s claims are it is on the doorstep of Asia and it is in the same timezone as the growing East Asian powerhouses.

Timezone myths

If timezones do matter in modern business, the sad truth for the Aussies is the powerhouses themselves – specifically Shanghai, Hong Kong and Singapore – are in roughly the same longitudes so any time differentials aren’t great.

Being on the doorstep of Asia is probably one of the greatest Australian myths of all – it’s actually quicker to fly from Beijing to London than it is to Sydney. London might be on the edge of Europe – one US entrepreneur once told me how they can get Spanish developers into the UK in an afternoon – and New York is the gateway to the United States however there’s little reason to go Down Under for any other reason than to visit Australia.

The power of history and focus

Comparing London to Sydney is useful though as it shows the power of history and trade routes. London became a global financial centre because it was the financial centre of a global empire just as New York is today and possibly Shanghai in the not too distant future.

For the Aussies, the trade routes aren’t so encouraging in indicating the country has a future as a financial sector. Even ignoring history, the commitments of governments and local corporations are at best half-hearted compared to their global competitors – as we see with London poaching Australian businesses.

One of the strengths in those global centres is a constant re-invention and the ability to adapt to changing circumstances – how China adapts to a rebalanced economy will define whether it remains a global economic power – and in the UK the government is looking at the next big things in biotech and the Internet of Things, two areas where it has strengths and can attract global investment and skills.

For countries and regions aspiring to be global players, they need not just to be playing to their own strengths but also to where the future lies and not be late entrants into the current investment fad.

Aug 212015
Sydney Lord Mayor Clover Moore presents the prize to the small businesss award winner

Yesterday I hosted the second day of the CPA Australia Technology, Accounting and Finance Forum that looked at how the accounting profession is being affected by the changing technology landscape.

There’s plenty to write about from the day and how the accounting profession is facing technological change which I’ll write up shortly but one theme from the day was striking – that older small businesses owners are struggling to deal with adopting new tech.

Gavan Ord, the CPA’s policy advisor warns older practitioners are opening themselves to disruption and  the Australian business community is in general is at risk as older proprietors aren’t investing or embracing technology at a rate comparable to their overseas competitors.

Older small business owners

That older skew in small business operators is clear, in 2012 The Australian Bureau of Statistics found 57% of the nation’s proprietors are aged over 45 as opposed to 35% of the general population.

Even more concerning is many of those small business owners expect to retire with a 2009 survey finding 81% were intending to retire within ten years – it would be interesting to see how those ambitions changed as the global financial crisis evolved.

A risk to the broader economy

This blog has flagged the risks of an aging small businesses community previously, but Gavan Ord’s point flags another risk – that older proprietors being reluctant to invest in new technology means a key segment of the Australian economy is unprepared for today’s wave of technological change.

A key message from the CPA forum was that the shift to cloud computing is radically changing the business world as sophisticated data management, analytic and automation tools become easily available. Companies, and nations, that don’t take advantage of modern business tools risk being left behind in the 21st Century.

Jul 292015

Payment service Stripe joins the unicorn club as credit card company Visa becomes the latest investor reports the Re/Code website.

Two years ago this site interviewed John Collison, one of the Irish twins who founded Stripe about their mission to bring the payments industry in the 21st Century.

With the Visa investment it now means two of the world’s three major credit card companies are investors in Stripe, the other being American Express, and this shows the incumbent players are acutely aware of the changes happening in the payments world.

That credit card companies are investing in the businesses that threaten to disrupt their industry indicates the incumbents’ savvy management; while there are cultural and ethical barriers in trying to undercut the existing profitable products, having a stake in the new competitors gives companies like Visa and AmEx to remain relevant in a post credit card world.

For Stripe, investment from what could have been their major competitors not only takes some of the pressure off the the business but also opens opportunities for technology sharing and access to bigger markets.

Probably the most important thing for Strip with the Amex and Visa investments is they legitimise the business and the entire payments startup sector. It’s an important vote of confidence in the technologies and market.

For the Collison twins it also helps build better businesses, as John told Decoding the New Economy two years ago, “if we just building a business to take transactions from PayPal and get them onto Stripe, that’s not that interesting. What is interesting is if we can create new types of transactions that would not have existed otherwise.”

“By providing better infrastructure for anyone to build a global business. That will change the kind of things people will build.”

Now more people will be looking at what they can build on these payment platforms.

Jul 182015

As the world worries about whether China is the next Japan, the Japanese themselves are getting on with life in a low growth economy.

One of the latest ideas is to convert disused golf courses into solar energy farms as manufacturing giant Kyocera proposes a solution to deal with the nation’s power shortage after the closure of the Fukushima power plants.

Japan’s golf course boom of the 1980s, which they exported around the world, was a classic case of overinvestment driven by easy money and lax lending standards. Something that China has certainly had in spades.

The aging nation isn’t doing a perfect job however with the Washington Post reporting that the country’s over 65s are convicted of more crimes than juveniles and the sad reason is seniors are shoplifting to survive.

One of the major mistakes made by Japanese governments through the 1990s was to pour money into corrupt civil projects to stimulate the economy. That money was largely wasted on bridges to nowhere and bullet trains to tiny towns which did little to add to the nation’s productivity or build a safety net for the aging population.

Japan may well be leading the way for other aging nations, we need to heed their mistakes before our societies follow them.