Paul Wallbank – Brilliant Communications

Tag: Japan

  • Why Australia needs foreign ownership

    Why Australia needs foreign ownership

    Such are the vagaries of radio that I’ve been asked to comment on ABC Radio South Australia about foreign ownership based on an article that was picked up by The Drum 14 months ago.

    That article was written shortly after Dick Smith came out grumbling about the prospect of Woolworths selling the electronics store chain named after him to foreign interests.

    My point at the time was that foreign owners would be preferable to some poorly managed, undercapitalised local buyer as the Australian retail industry – even in a declining market like consumer electronics – needs more innovation and original thinking.

    As it turned out, Dick Smith Electronics was sold to Anchorage Capital, a private equity turn around fund with an interesting portfolio of businesses.

    In the meantime, the argument about foreign ownership of property and businesses, particularly farms, has ratcheted up as opportunistic politicians and the shock jock peanut gallery that sets much of Australia’s media agenda have found a cheap, jingoistic issue to score points from.

    So why is foreign ownership of businesses like farms, mines and factories important for Australia?

    A fair price for hard work

    The main reason for supporting foreign buyers for Aussie businesses is it gives entrepreneurs a chance to get a fair price for their hard work.

    A farmer or factory owner who builds their business shouldn’t have to accept a lower price because Australians don’t want to pay for the asset.

    It’s not a matter of being able to pay Australians as have plenty of money to invest – a trillion dollars in superannuation funds and three billion dollars claimed for negative losses in 2009-10 show there’s plenty of money around – it’s just that Aussies don’t want to invest in farming, mining or other productive sectors.

    We’re already seeing this play out in the small business sector as baby boomer proprietors find they aren’t going to sell their ventures for what they need to fund their retirement.

    Access to capital

    Should the protectionists get their way then the businesses and farms will eventually be sold to undercapitalised Australian investors at knock down prices.

    This is the worse possible thing that could happen as not only do the entrepreneurs miss out, but also the factories and farms decline as they are starved of capital investment.

    Cubby Station

    A good example of both the lack of capital affecting investment and finding a fair price for ventures is Queensland’s Cubby Station.

    While I personally think Cubby Station is an example of the economic bastardry and environmental vandalism that are the hallmarks of the droolingly incompetent National Party and its corrupt cronies, the venture itself is a good example of why the agriculture sector needs foreign investment.

    Having been converted from cattle to cotton in the 1970s, Cubbie grew as successive owners acquired water licenses from surrounding properties.

    Eventually the company collapsed under the weight of its debts in 2009 and the property was allowed to run down by the administrators until it was bought by Chinese backed interests at the beginning of 2013.

    At the time of the acquisition, the company’s former chairman told The Australian,  “on reflection, I would go into those things with an even stronger balance sheet — in other words, with less gearing.”

    In other words, the company was under-capitalised.

    Competition concerns

    Another reason for encouraging foreign ownership is that Australia has become the Noah’s Ark of business with duopolies dominating most key sectors.

    Bringing in foreign owners at least offers the prospect of having alternatives to the comfortable two horse races that dominate most industries.

    The property market

    An aspect that has excited the peanut shock jocks has been the prospect of Chinese buyers purchasing all the country’s property.

    For those of us with memories longer than goldfish, today’s Chinese mania is almost identical to the Japanese buying frenzy of the late 1980s.

    Much of what we read about the Chinese buying homes is self serving tosh from property developers and real estate agents and what mania there is will peter out in a similar way to how the Japanese slowly withdrew.

    This isn’t to say there shouldn’t be concerns about foreign ownership – tax avoidance, loss of sovereignty and Australia’s small domestic market are all valid questions that should be raised about overseas buyers, but overall much of the hysteria about foreign ownership is misplaced.

    What Australians should be asking is why the locals aren’t investing in productive industries or buying mining and farming assets.

    The answer almost certainly is that we’d rather stick with the ‘safety’ of the ASX 200 or the residential property market.

    We’ve made our choices and we shouldn’t complain when Johnny Foreigner sees opportunities that beyond negative geared investment units or an tax advantaged superannuation fund.

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  • Australia in the Asian Century – Chapter Three: Australia in Asia

    Australia in the Asian Century – Chapter Three: Australia in Asia

    This post is one of the series of articles on the Australia in the Asian Century report. An initial overview of the report is at Australian Hubris in the Asian Century.

    The third Chapter of the Australia in the Asian Century report, “Australia in Asia” attempts to define the role the country currently plays in the region. In some ways this is the most constructive part of the paper in that it describes the lost opportunities of the last 25 years.

    Much of the early part of the chapter traces the development of Australia’s engagement with Asia after World War II; Chifley’s post war efforts with the United Nations, Menzies’ engagement with Japan, Whitlam’s going to China, Fraser’s opening to Vietnamese immigration and Hawke’s work on building the APEC agreement are all noted.

    Again are the major wars that also formed Australia’s current position in East Asia – World War II, the Malayan Emergency, the Korean and Vietnamese wars – are barely mentioned. This trivialises some of the major influences in today’s complex tapestry of relationships

    Of Australia’s closest Asian neighbour, the fall of Sukarno gets a brief nod but Suharto’s removal, the rise of Indonesian democracy and East Timor are all removed from the narrative. There is also no mention of other internal dislocations like the Cultural Revolution or the Indian Partition, all which still have echos today.

    In the introduction the Colombo Plan gets a mention and it’s worth reflecting upon its effects.

    When I worked in Bangkok in the early 1990s there were a number of business leaders who had been educated in Australia under Colombo Plan scholarships.

    That investment by Australia paid dividends through the 1980s and 90s as many of those scholarship students were ardent supporters of Australian businesses and government.

    One wonders how today’s students who’ve been treated as milk cows by Australian governments and “seats on bums” to education institutions will feel about the country when they enter business and political leadership positions over the next decade?

    The examples of Australian business engagement in Asia are interesting – Blundstone’s is a straight out manufacturing outsourcing story which doesn’t really describe anything not being done by thousands of other businesses while Tangalooma Island Resort is a light of hope in the distressed Australian tourism industry.

    A notable omission is how digital media, apps developers and service businesses are faring in Asia. There are many good case studies in those sectors but the writers seem to be, once again, fixated on the trade patterns of the 1980s and 90s rather than success stories in new fields and emerging technologies.

    Generally though the description of the Australian economy is again more of the same; a combination of self congratulations on having a government AAA credit rating, hubris over avoiding a GFC induced recession and stating how the services sector has risen to replace the manufacturing that’s been outsourced by companies like Blundstone.

    Overall Chapter Three of the Australia in the Asian Century report illustrates the opportunities missed in the last 25 years. Had this report been written twenty years ago it could have forecast a booming relationship in the services and advanced manufacturing sectors. It almost certainly would have included an observation that the days of the Australian economy depending upon minerals exports is over.

    What a difference a couple of decades make.

    The engagement of Australia with Asia concludes with a look at the changes to the nation’s immigration intakes and demographic composition. This point is, quite rightly, identified as an area of opportunity.

    Having Thai restaurants in every suburb and Indian doctors in most country town isn’t really taking advantage of the opportunities presented by having a diverse population and workforce. Chapter Four attempts to look at how these factors, and others, can help Australia’s engagement with the Asian economies.

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  • Australia in the Asian Century – Chapter One: The rise of Asia

    Australia in the Asian Century – Chapter One: The rise of Asia

    This post is one of the series of articles on the Australia in the Asian Century report. An initial overview of the report is at Australian Hubris in the Asian Century.

    “Just over two decades ago, the Australian Government commissioned a study of Australia and the Northeast Asian ascendancy” starts the opening of the Australia in the Asian Century report. That sentence describes how this paper is the latest of Australia’s earnest efforts to understand the region.

    The opening chapter of the report follows the sensible principle that to plan for the future we have to first understand the present so this section seeks to explain the development of various Asian economies and put those changes into an Australian perspective.

    Notable in the narrative is the North East Asian focus, while India gets a brief mention most of the story revolves around the development of China, Hong Kong, Japan and South Korea. Chart 1.2, “Asia’s economic dividend” gives the game away when all but one ‘Asian’ country listed is East Asian.

    Russia, along with most of South and Central Asia – not to mention other Asia countries like Iran, Turkey and the former Soviet Republics – rate no mention all.

    The narratives around the countries which are covered is also deficient – for instance the discussion on Japan’s, South Korea’s and Vietnam’s developments totally ignore post-war reconstruction efforts and their relations with the United States.

    China does get a more detailed examination rightly noting it was the country’s admission to the World Trade Organisation in 2001 that really set the economy’s export sector moving, however it skates over the massive dislocations and market reforms introduced in the 1980s which laid the foundations for China’s successful bid to join the WTO.

    More notably, the analysis overlooks – probably to avoid upsetting PRC diplomats and making life difficult in Canberra – the role of Taiwanese investment in China and Taiwan’s development itself.

    In a similar vein the scant discussion of India misses the role of Non-Resident Indians (NRIs) in the country’s economic development along with the concentration of power in the various industrial conglomerates like the Tata Group.

    Again, the same omission is made when discussing the South Korean Chaebols and Japanese Keiretsu. Given the investments made in Australia by all of these industrial conglomerates it’s curious they barely rate a mention in discussing Asia’s industrialisation process.

    The discussion on innovation in Chapter 1.3 is useful however it lacks substance in identifying exactly which sectors various Asian economies are specialising in and which industries are in decline as various countries move up the value chain.

    Singapore’s success in becoming East Asia’s hub for banking and corporate regional headquarters is a notable omission and again one has a suspicion this is because of ongoing Australian governments’ doomed ambitions to establish Sydney as a regional financial and business centre.

    Probably the most glaring omission in Chapter One though is the role of the United States. In tracking the rise of the Indian service sector or Chinese, Japanese and South Korean manufacturing the trade policies of the US cannot be ignored. And yet they largely are.

    That failure to acknowledge the US role means report overlooks the Clinton and Bush I Administrations’ forced opening East Asia’s largely closed economies which radically changed South Korea, Taiwan and Japan in the late 1980s and early 90s. Not to mention the critical role the US had during that period in allowing China and Vietnam to join the global trade networks.

    Chapter One of Australia in the Asian Century is an unsatisfactory introduction to the complexities of the Asian economies and one suspects is because of the compromises made to assuage the egos and groupthink of Canberra’s mandarins and politicians.

    Most importantly, it fails to put the last thirty years’ developments in Asia into an Australian context or perspective. In this respect, it’s a fitting start to a largely inadequate report.

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  • Enter the Dragon

    Enter the Dragon

    Once up a time our parents laughed at the tinny little Japanese cars – in the 1960s companies with silly names like Toyota and Mazda could never threaten world giants like Chrysler, Ford and General Motors.

    Within two decades the Japanese had moved their products up the value chain leaving their American and European competitors running scared while governments in western countries offered the new leaders of the manufacturing industries bribes to set up plants in their towns and states.

    It was always obvious China would follow the same course as the Japanese, particularly given the country’s position as the world’s cheap labor supplier had a time limit thanks to the demographic effects of the 1970s One Child Policy.

    So it’s no surprise that Alibaba, China’s biggest e-commerce service, has built its own mobile operating system to compete with Google’s Android.

    If Aliyun follows the Japanese development path, the first version is terrible but within five years – the development cycle of software is a lot quicker than that of cars – Alibaba will be a viable competitor to Google and Android.

    Chinese developers moving into the mobile market is terrible news for the also rans like Microsoft and Blackberry. As Apple dominate the premium mobile sector and Android the mass market, it’s very hard for those running third or lower to achieve the critical mass needed to be competitive. Aliyun makes it much harder for them to gain any traction in high growth developing markets.

    An interesting aspect of the Wall Street Journal’s story is how Aliyun is aimed at the domestic Chinese market for the moment. This is part of China’s economy moving away from being overly reliant on exports, having locally made products that meet the needs and aspirations of a growing domestic economy is an important part of this process.

    Exports though will remain an important part of the Chinese economy for most of this century and value added products like Aliyun will be important for China as the cheap labour advantage erodes over the next two decades.

    Businesses who think their markets are protected because their quality is better than their Chinese competitors may be in for a nasty shock, just like the 20th Century auto makers who dismissed the Japanese were in the 1970s.

    Whether Aliyun is successful or not, we’re once again seeing many of the facile assumptions about Chinese growth being tested as the country’s economy and society evolves.

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  • Six billion pairs of socks

    Six billion pairs of socks

    Ever since the days of Napoleon business people have lusted over the idea of selling into the Chinese market – the idea of a billion people clambering to buy just one widget each brings a gleam to the eyes of even jaded entrepreneurs.

    When Deng Xaioping opened the Chinese economy in the mid 1980s Australian brewers, Swiss watchmakers and German motor manufacturers rushed into the country believing that a billion liberated peasants would rush to buy expensive beer and watches.

    As it turned out, the real opportunities for foreigners were in the other direction. When China joined the World Trade Organisation in 2001 the boom that had already started in the Special Economic Zones along the southern Chinese coast spread across the Eastern provinces as manufacturing from Hong Kong, Japan and Taiwan to find cheaper labour.

    300km South-West of Shanghai the city of Datang became “sock town” where local companies manufactured a third of the world’s sock supply.

    Chinese sock manufacturers became so competitive that their Japanese counterparts were forced to move upmarket in an effort to secure a position in an industry awash with cheap products.

    Today the Chinese sock industry is looking sick as manufacturers go broke and inventories pile up reports The Observer.

    Excess capacity is a problem in many industries, particularly motor manufacturing where governments around the world have supported their local producers resulting in a glut of cars and trucks. Socks are no exception to the laws of supply and demand.

    The travails of China’s sock industry are a cautionary tale for those who project straight lines for Chinese growth.

    Facile assumptions that every man, woman and child on the planet needs to buy two pairs of socks a year, or that China will build millions of steel hungry apartments each year, is not economic analysis and any business built on such shaky beliefs is leaving itself vulnerable when things don’t work out.

    The same is true for nations. Hollow assumptions can put an entire economy on shaky ground. Just thinking that every Chinese family needs six pairs of socks doesn’t guarantee economic success.

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