Paul Wallbank – Brilliant Communications

Tag: Australia in the Asian Century

  • Australia’s grapes of wrath

    Australia’s grapes of wrath

    In a great post, The Wine Rules looks at what ails the Australian wine industry after the news of Cassella Wine’s problems.

    Three things jump out of Dudley Brown’s article – how industry bodies are generally ineffectual, the failure of 1980s conglomerate thinking and how fragile your position is when you sell on price.

    Selling on price

    It’s tough being the cheapest supplier, you constantly have to be on guard against lower cost suppliers coming onto the market and you can’t do your best work.

    Customers come to you not because you’re good, but because you’re cheap and will switch the moment someone beats you on price.

    Worse still, you’re exposed to external shocks like supply interruptions, technological change or currency movement.

    The latter is exactly what’s smashed Australia’s commodity wine sector.

    A similar thing happened to the Australian movie industry – at fifty US cents to the Aussie dollar filming The Matrix in Sydney was a bargain, at eighty producers competitiveness falls away and at parity filming down under makes no sense at all.

    Yet the movie industry persists in the model and still tries to compete in the zero-sum game of producer incentives which is possibly the most egregious example of corporate welfare on the planet.

    When you’re a high cost country then you have to sell high value products, something that’s lost on those who see Australia’s future as lying in digging stuff up or chopping it down to sell cheaply in bulk.

    Industry associations

    “It’s like a Labor party candidate pre-selection convention” says Brown in describing the lack of talent among the leadership of the Australian wine industry. To be fair, it’s little better in Liberal Party.

    There’s no surprise there’s an overlap between politics and industry associations, with no shortage of superannuated mediocre MPs supplementing their tragically inadequate lifetime pensions with a well paid job representing some hapless group of business people.

    Not that the professional business lobbyists are any better as they pop up on various industry boards and government panels doing little. The only positive thing is these roles keep such folk away from positions where they could destroy shareholder or taxpayer wealth.

    Basically, few Australian industry groups are worth spending time on and the wine industry is no exception.

    Australia conglomerate theory

    One of the conceits of 1980s Australia was the idea that local businesses had to dominate the domestic market in order to compete internationally.

    A succession of business leaders took gullible useful idiots like Paul Keating and Graheme Richardson, or the Liberal Party equivalents to lunch at Machiavelli’s or The Flower Drum, stroked their not insubstantial egos over a few bottles of top French wine and came away with a plan to merge entire industries, or unions, into one or two mega-operations.

    It ended in tears.

    The best example is the brewing industry, where the state based brewers were hoovered up in two massive conglomerates in 1980s. Thirty years later Australia’s brewing industry is almost foreign owned and has failed in every export venture it has attempted.

    Fosters Brewing Group was, ironically, one of the companies that managed to screw the Australian wine industry through poorly planned and executed conglomeration. Again every attempt at expanding overseas failed dismally.

    In many ways, the Australian wine industry represents the missed opportunities of the country’s lost generation as what should have been one of the nation’s leading sectors – that had a genuine shot at being world leader – became mired in managerialism, corporatism and cronyism.

    All isn’t lost for the nation’s vintners or any other Aussie industry, Dudley Brown describes how some individuals are committed to delivering great products to the world. There’s people like them in every sector.

    Hopefully we’ll be able to harness those talents and enthusiasm to build the industries, not just in wine, that will drive Australia in the Twenty-First Century.

    Picture courtesy of Krappweis on SXC.HU

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  • Australia and the Dutch Disease

    Australia and the Dutch Disease

    This week sees the launch of the annual G’Day USA festival where Australian exporters and various celebrities extol the virues of the country across the United States.

    One of Australia’s success stories of the last decade has been Yellowtail Wines which carved a niche for Australian wines in the US in the same way Jacob’s Creek did a decade earlier in the UK.

    Today the Australian Financial Review reports that Cassella Wines, the maker of Yellowtail, is in breach of its banking covenants due to the high Australian dollar.

    Cassella Wines is another victim of Australia’s Dutch Disease infection.

    Dutch Disease owes its name to the Netherlands’ gas boom of the 1960s. By the early 1970s the strong Guilder damaged the rest of the Dutch economy which didn’t profit from extracting natural gas.

    Having sleepwalked into the Dutch Disease, it’s fascinating how Australia’s electorate, policy makers and business leaders are in denial about the effects as successful exporters like Cassella Wines struggle with a high dollar and accelerating costs.

    When commodity prices and the dollar turn, and they always do, its going to be tough for the economy to adapt as much of the industry capacity that was competitive at lower rates won’t be available to take advantage of the lower costs and to pick up the slack from a declining mining sector.

    For Australian businesses, the onus is on managers and proprietors to protect their organisations from the short term effects of a high currency and the medium term effect of a falling dollar pushing up the input prices of imports.

    In other words, getting costs down without becoming too reliant on offshored labour or suppliers. The companies that manage this are going to be very strong after the initial adjustment, but it’s a tough management task.

    While that task can, and will be, done by smart and hardworking leaders no-one should expect any recognition of the scale of this task from governments, media or business organisations who seem to be in denial of reality.

    The Dutch and Australian flags image is courtesy of Emilev through SXC

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  • Proudly designed in Gyeonggi

    Proudly designed in Gyeonggi

    “Designed by Apple in California ” is the boast on the box of every new iPad or Macbook. That the slogan says ‘designed’ rather than ‘made’ says everything about how manufacturing has fled the United States.

    Last year the New York Times looked at Apple’s overseas manufacturing operations, pointing out that even if Apple wanted to make their product in the the US many of the necessary skills and infrastructure have been lost.

    Now the US is facing the problem that Asian countries are looking at moving up the intellectual property food chain and doing their own designs.

    In some ways this is expected as it’s exactly what Japan did with both the consumer electronics and car industries during the 1960s and 70s.

    The big difference is that Japanese manufacturers travelled to the US and Europe to study the design and manufacturing methods of the world’s leading companies. In the 1990s and 2000s, the world’s leading companies gave their future competitors the skills through outsourcing and offshoring.

    In the next decade we’ll see the latest consumer products coming with labels reading “Designed by Lenovo in Fujian” or “Developed by Samsung in Gyeonggi”.

    For western countries, the question is what do we want to be proudly be putting our names to?

    Image from Kristajo via SXC.HU

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  • Is Australia missing the Indonesian opportunity?

    Is Australia missing the Indonesian opportunity?

    Mary Meeker’s annual State of the Internet Report looks at the trends driving the online economy. One area that should be of concern is that Australian entrepreneurs are overlooking one of the world’s biggest growth markets that is sitting right on the nation’s doorstep.

    Early in Mary’s overview, on slides 5 and 7, she shows the growth of various markets. Indonesia is the second biggest growth market for internet users – 58% year on year to 55 million – and eighth in the world for smartphone growth with a 36% increase last year taking total users to 27 million.

    Given the penetration of both smartphones and the internet are low with only one quarter of Indonesians connected to the internet and less than one mobile phone in ten currently being a smartphone, there is massive potential for the savvy entrepreneur.

    While there’s a steady stream of stream of Australian app developers and entrepreneurs heading to Silicon Valley, London and a few to Singapore there’s very few looking to their biggest neighbour.

    This ignoring of Indonesia is one of the many omissions in the Australia in the Asian Century report; despite being one of Australia’s closest neighbours with the world’s fourth largest population and an economy growing at over 6% per year, both businesses and governments tend to overlook the nation.

    For Australia, the tragedy is that Indonesia has a lot offer businesses that do more than just dig up coal and iron ore.

    Perhaps now the mining boom is over, entrepreneurs and governments might start to take markets like Indonesia, and other South East Asian countries more seriously. It’s an omission that’s currently costing the country dearly.

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  • Newly normal in the English Midlands

    Newly normal in the English Midlands

    On their metal, a story from BBC Radio’s In Business program looked at how the English Midlands is dealing with the toughest economic conditions the beleaguered region has suffered for decades.

    Once the centre of the industrial revolution, The Midlands have had a tough time of the last fifty years as the region caught the brunt of Britain’s de-industrialisation and the loss of thousands of engineering jobs.

    Today, the surviving engineering companies are struggling to find new markets as orders from Europe dry up and many Midlands workers find they are confronting the ‘New Normal’.

    The ‘New Normal’ for British industry is described by Mark Smith, Regional Chairman, Price Waterhouse Coopers Birmingham who points out that UK industries have to sell to the fast growing economies.

    Interestingly this is similar, but very different in practice, to the Australian belief – where the Asian Century report sees Australia continuing being a price-taking quarry for Asia rather than selling much of real value – the Brits see some virtue in adding value to what they sell to Asia’s growing economies.

    The British experience though shows the realities of the ‘New Normal’ for Western economies – the cafe owner featured in story now offers no dish over £3 and the idea of overpriced five quid tapas are long gone. The customers can’t afford it.

    Part of this is because of the casualisation of the workforce as people find salaried jobs are no longer available and become freelancers or self-employed. One could argue this is the prime reason why unemployment hasn’t soared in the UK and US since the global financial crisis.

    That ‘new normal’ features the precariat – the modern army of informal white and blue collar workers who have more in common with their grandparents who worked for day wages at the docks and factories in the 1930s than their parents who had safe, stable jobs through the 1950s and 60s.

    For the precariat, the idea of sick leave, paid holidays or a stable career started to vanish after the 1970s oil shock and accelerated in the 1990s. The new normal is the old normal for them, there just happens to be more of them after the 2008 crash.

    With a workforce increasingly working for casual wages without security of income, the 1980s consumerist business model built around ever increasing consumption starts to look damaged.

    The same too applies to the banking industry which grew fat on providing the credit that unpinned the late 20th Century consumer binge.

    When the 2008 financial crisis signalled the end of the 20th Century credit binge, the banks were caught out. Which is why governments had to step in to help the financial system rebuild its reserves.

    The effects of that reserve building also affected businesses as bank credit dried up. Early in the BBC program Stuart Fell, the Chairman of Birmingham’s Metal Assemblies Ltd described how his bank decided to cut his line of credit from £800,000 to £300,000 which forced the management to find half a million pounds in a hurry.

    That experience has been repeated across the world as banks have used their government support and easy money policies to recapitalise their damaged accounts rather than lend money to entrepreneurial customers to build businesses.

    Businesses are now looking at other sources to find capital from organisations like the Black Country Reinvestment Society which is profiled in the story that raises money from local investors to provide small businesses with working capital.

    Communities helping themselves and each other is the real ‘New Normal’ – waiting for the banks to lend money or hoping that surplus obsessed governments will save businesses or provide adequate safety will only end in disappointment as the real austerity of our era starts to be felt.

    The New Normal is declining income for most people in the Western world and we need to think of how we can help our neighbours as most of us can be sure we’re going to need their help.

    Just as the English Midlands lead the world into the industrial revolution, it may be that the region is giving us a view of what much of the Western world will be like for the next fifty years.

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