Tag: Australia

Downward trends and demographics mark the end of consumerism

The age of ever expanding consumer spending is over, we have to start thinking of different ways

One of the features of the late Twentieth Century economy was how consumer spending came to dominate the economy – as manufacturing moved offshore, mines closed down and agriculture became largely automated, many developed nations’ growth came from retail spending.

Today’s release of retail spending figures by the Australian Bureau of statistics shows how that economic model too has come to an end. A post on the Macrobusiness blog illustrates the steady, structural decline of retail spending in Australia.

ScreenHunter_10 Aug. 05 11.36

Since 2000, the rate of growth has been declining, only low interest rate policies over the last two years has kept retail sales at a steady level.

Those businesses whose business models are built on the assumption of high growth rates have a big problem – its no coincidence it’s the department and clothing stores are among the loudest complainers about taxes, labour costs and rents as they see their sales and profits shrinking.

Basically the Twentieth Century era of consumption has come to an end as households have maxed out their credit cards. Now that many of those households are now older, they simply don’t need to spend as much anyway.

With the demographic, economic and cultural changes now happening in society it’s a bad time to be planning on massive expansions in household spending and debt as we say in most western countries from the 1960s onward.

It’s time to think different, and be a lot smarter about getting consumers to buy your products. The era of the 72-month interest free deal is over.

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Is Australia falling behind on the internet of everything?

Australian businesses are falling behind the rest of the world in using the Internet of machines says Cisco

Last Friday Cisco Systems presented their Internet of Everything index in Sydney looking at how connected machines are changing business and society.

Cisco Australia CEO Ken Boal gave the company’s vision of how a connected society might work in the near future with alarm clocks synchronising with calendars, traffic lights adapting to weather and road conditions while the local coffee shop has your favourite brew waiting for as the barista knows exactly when you will arrive.

While that vision is somewhat spooky, Boal had some important points for business, primarily that in Cisco’s view there is $14 trillion dollars in value to be realised from utilising the internet of machines.

Much of that value is “being left on the table” in Boal’s words with nearly 50% of businesses not taking advantage of the new technologies.

Boal was particularly worried about Australian businesses with Cisco lumping the country into ‘beginner’ status in adopting internet of everything technologies along with Mexico and Russia, with all three lagging far behind Germany, Japan and France.

cisco-country-capabilities-internet-of-everything

In Boal’s view, Australian management’s failure is due to “the focus on streamlining costs has come at the cost of innovation.”

This something worth thinking about; in a business environment where most industries only have two dominant players and the corporate mindset is focused on maximising profits and staying a percentage point or two ahead of the other incumbent, being an innovator itsn’t a priority – it might even be a disadvantage.

For Australian business, and society, that complacency is a threat which leaves the nation exposed to the massive changes our world is undergoing.

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Dealing with the digital investor

The Telstra Digital Investor report shows the problem facing the financial services industry and many other sectors in dealing with connected consumers.

Telstra’s Digital Investor report released earlier this week looked at the generational changes for the financial planning industry and the effects of technology on delivering advice and services.

At the core of the report is the projection that by 2030, 70 per cent of Australia’s financial assets will be held by the digitally savvy Generations X and Y and the advice industry is doing little to cater for this group”s media and reading habits.

This is barely surprising, financial planners are one of these fields subject to arcane rules and regulations which make practitioners extremely conservative about innovation or changing work habits, even when the new tools don’t breach any laws.

One of the nagging questions though with the report is the underlying assumptions on wealth generation over the next twenty years. Will it really follow the same pattern as we’ve seen for the last few decades?

As the Stanford Graduate School of Management notes in its dissection of the Forbes richest 400 Americans, the path to wealth is changing.

“Three of the 10 wealthiest people in the United States – Bill Gates, Larry Ellison, and Michael Bloomberg – built their fortunes on information technology that barely existed in the 1980s,” says the author Joshua Rauth.

It may well be that the financial planning industry’s core assumptions, of a large, stable middle class workforce steadily squirreling away a nest egg is going to be challenged in an economy undergoing massive change.

Another generational aspect in the Digital Investor report is the handing down of family owned enterprises. The paper quotes social analyst Mark McCrindle saying “Succession planning is already a key issue (for SMEs) – yet by 2020 40% (145, 786) of today’s managers in family and small businesses will have reached retirement age. We are heading towards the biggest leadership succession ever.”

As this blog has described before, many of the current generation of small business owners will never pass their operation on. Their barber shops, car dealerships and factories will retire or die with the proprietor as Gen X and Y entrepreneurs can’t afford to buy the business and the owner can’t afford to retire.

The investment climate of the next quarter century will be very different from the last fifty years as will the business models and the paths to wealth. It’s something that shouldn’t be understated when considering how Generation X and Y will manage their finances.

Despite the weaknesses, the Telstra Digital Investor report is an interesting insight into how one industry is failing to identify and act upon the fundamental changes that are happening in its marketplace.

The financial planning industry isn’t the only sector challenged though and that makes the report good reading for any business trying to understand how marketplaces are changing.

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Why Australia is losing the digital race

Despite the best intentions of government, Australia is falling behind in the digital economy. What can the nation’s political leaders do?

This story originally appeared in Business Spectator on 17 June 2013
At the beginning of this century, Melbourne hosted a meeting of the World Economic Forum. Among the visiting luminaries was Microsoft founder Bill Gates who laid out his vision for governments in the digital economy.

“The Government itself needs to become a model user of information technology,” Gates said at the time.

“Literally seeing government work with its citizens, with its businesses will change how we do our taxes, licences, registrations, all these things, on a basis where you don’t have to know the organisation of government and its various departments, you don’t have to stand in line, you don’t have to work with paperwork.”

Last month in Brisbane, the Federal government re-released their Digital Economy Strategy with the ambitious goal to make Australia a “leading digital economy by 2020”. A key part of the strategy is for the government to allow citizens to “fully complete priority services online”.

Thirteen years after Bill Gates articulated the need for governments to move services online – and he was by no means the first person to do so – the Federal government has posted a target to partly achieve this by the end of the decade.

It’s hard to see how achieving such a belated objective will put Australia in a position of leadership in a rapidly changing world, although this is a direct consequence of deliberate decisions made by the nation’s leaders, and society, over the last thirty years.

Thirty years ago the debate on Australia’s position in the global economy resulted in the Hawke government’s Clever Country policies. In many ways, today’s Digital Economy Strategy is an echo of the Labor’s halcyon days under Paul Keating.

Keeping things in perspective

In Sydney on the day before re-releasing the strategy, Minister Conroy channelled Paul Keating in talking about the J-Curve of technology adoption at a lunchtime panel with the Australia Israeli Chamber of Commerce.

Preceding Senator Conroy’s panel was Anna-Maria Arabia, general manager of the Questacon National Science and Technology Centre in Canberra, who described her trip to Israel to look at how the nation that derives 40 per cent of its export incomes from high tech industries is nurturing its technology sector.

Arabia was accompanying Federal minister Bill Shorten and she described a meeting with the chief scientist of the Israeli Ministry of the Economy, Avi Hasson, where Shorten asked him about the success rate of Israeli government research and development projects.

Hasson’s reply was very different to the risk averse response often heard from Australian bureaucrats, ministers and business leaders.

“Had I been told that we enjoyed an 80 per cent success rate I would have concluded the government was investing in the wrong projects,” Hasson is quoted as saying. “Such a success rate would have meant we were investing in low risk projects and, quite frankly, the private sector could have taken care of that.”

The risk-reward equation

In Australia, there is no such vision or appetite for risk. At best the Federal government has announced another review of tax rules and industry support programs while the opposition is vague on its plans to support innovation and R&D should it occupy the Treasury benches later in the year.

While it’s easy – and fair – to criticise both sides of politics, the business sector is equally negligent with its reluctance to invest in research and development while claiming R&D tax credits for projects that are closer to capital improvements rather than real innovation.

Two weeks ago the ABC Business Insiders program had featured an interview between Business Spectator’s Alan Kohler, Dow Chemical CEO Andrew Liveris and Australian Business Council chief Tony Shepherd where they discussed Australia’s role in the modern global economy.

Australian born Liveris, who is also chairman of the US Business Council and sits on the Obama’s board of innovation, said Australia needs a vision building on the country’s strengths.

At present he warns the country is in a state of rigor mortis having “lost the will to innovate.”

Thinking beyond mining

When Gates visited Australia in 2000, he warned that the nation needed to think beyond mining and agriculture and secure a place in the high tech economy.

That warning was disregarded and Australia as a nation made the decision to focus on domestic consumption driven by rising property prices and mining exports.

Reserve Bank of Australia governor Glenn Stevens summed up that national decision in a speech made to the Australian Industry Group in 2010 where he dismissed Bill Gates’ warning about ignoring high tech industries at the beginning at the decade.

“Ten years on, though, it does not seem to have been to Australia’s disadvantage not to have built a massive IT production sector,” Stevens sneered. “On the contrary, the terms of trade are at a 60-year high, the currency just about equals its American counterpart in value and we face an investment build-up in the resources sector that is already larger than that seen in the late 1960s and that will very likely get larger yet.”

Stevens’ speech illustrates the Australia we have today – high-tech industries along with the research, development and innovation are something other countries do.

The vision for Australia being a global leader in the digital economy by 2020 is a laudable and equal to any of the noble objectives proposed in the Gonski education review or the Asian Century report.

Unfortunately to achieve those aims, and to overcome the deliberate national decisions we’ve made over the last thirty years, it’s going to take more than the modest and belated objectives of last week’s re-released Digital Economy Strategy.

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Australia’s small business crisis

A survey on Australian family owned businesses raises some disturbing questions about the nation’s economy.

The 2013 MGI Australian Family and Private Business Survey is a disturbing document describing a sector that’s aging, pessimistic and struggling with change. It bodes poorly for what should be the powerhouse of the nation’s economy.

Having been conducted over nineteen years, the MGI survey is a very good snapshot of how the sector has evolved over the last two decades and it’s notable how owners are older and not optimistic about their prospects of selling their businesses.

Another key aspect is the changed focus of Australian family businesses; in 2003 forty percent were in manufacturing, this year its half that which probably tracks the decline of the nation’s manufacturing industries.

Most striking though is the aging of the small business community with one in three proprietors being in the 60 to 69 year old bracket, up from one in five just 3 years ago.

snapshot-of-australian-businessesThat the average age of Australian small business owners is increasing shouldn’t be surprising given the nation’s increasing obsession with property. As home prices become more expensive, it becomes more difficult for younger people to pay off their mortgages or risk their equity on building a business.

Probably the most heart breaking comment from the report is that over half of Australia’s small business owners don’t see an immediate prospect of retiring and nearly two thirds don’t see any chance of an early exit.

58% of family business owner-managers see themselves working in the business beyond 65 years of age, with 65% indicating that their businesses are NOT exit or succession ready.

Part of the reason most Australian family businesses aren’t succession ready is that Generation X and Y buyers crippled by big mortgages simply can’t afford to pay what the older Baby Boomer and Lucky Generation proprietors need to retire upon.

It’s hard not to think that the grand 1980s corporatist vision of Bob Hawke and Paul Keating – that most Australians will work for one of two big corporations while being members of one of two big trade unions – has largely come true.

For Australia though this is not a good thing as the wealth of those corporations, along with that of the nation’s households, is largely tied into the domestic property market.

A discussion on the Macrobusiness website about New Zealand’s property obsession has a graph which illustrates both the Kiwi and Australian economies’ dependence upon house prices.

Housing-Wealth-to-disposable-incomeHousehold-Financial-Wealth-to-disposable-income

Those financial assets in the second graph include the value of businesses, and that statistic staying largely flat while housing wealth has gone up fifty percent over the last fifteen years illustrates how dependent the Aussie economy has become upon property speculation.

Property speculation can be fun, particularly when you’re watching people bash down walls on the latest reality TV home improvement show, but it isn’t the basis for a strong economy.

That Australia’s small business sector is aging and increasingly shifting to low value adding service industries is something that should be discussed more as the nation considers what its global role will be in the 21st Century.

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Australia’s startup challenge

Creating a startup culture in Australia is tough when the nation is addicted to property speculation.

While I’ve been using CNet’s story on Kansas City’s startup community to compare Google’s Fiber project with the Australian National Broadband Network, the US article touches on something far more fundamental about Australia’s ability to build new businesses and industries.

The fundamental problem is property prices.

In Kansas City, local entrepreneurs wanting to set up a startup house can afford to take a chance.

The house is the pet project of Web designer and Kansas City local Ben Barreth, who did the insane last fall and cashed in his savings and liquidated his retirement account to put a down payment on a $48,000 house in the city’s Startup Village. Why? Barreth, a husband and father of two small children, wanted to be among the first to buy a house in a Google Fiber neighborhood.

$48,000 for a house is unthinkable in Australia. Even if we disregard Sydney and Melbourne, regional centres are vastly more expensive than their US counterparts. Geelong in Victoria for instance has an average house value of $390,000 while in Wagga Wagga in the New South Wales Riverina district houses sell for a median of over $300,000.

This pattern is true across almost all of populated Australia – it is very, very difficult to find a property under $250,000 and there are few, if any, regions in the country where a house can be bought for less than five times the average local income.

Expensive property comes at a price, it discourages people from starting businesses as the risk of being left out of the property market is so high. Leith van Onselen, co-founder of the Macrobusiness blog, made a very good point about this effect on his decision to set up a business.

Indeed, the main reason why I took the risk of leaving Goldman Sachs to concentrate on MacroBusiness full-time (a start-up business) is that I had all but paid-off my house and was in the fortunate position not to be saddled with onerous mortgage repayments. Had I a large mortgage, like many Australians, there is no way that I would have left a high paying, relatively steady job, to work on a business where pay is much lower and irregular, and where the outcome is unknown.

Leith was commenting on an article in the Sydney Morning Herald reporting the risks to Australian business should property prices fall.  In this respect, Australia has managed to paint itself into an economic corner.

The Sydney Morning Herald article illustrates Australia’s predicament – Michael Pascoe (the ‘Pascometer’) reported how Reserve Bank bureaucrat Chris Aylmer had warned of the dangers of falling property prices.

With most Australian businesses dependent on bank finance guaranteed by their proprietor’s home equity, falling property prices would see a nasty economic spiral as lines of credit were called in, forcing companies to slash expenses, including wages, which in turn would drive further real estate falls.

Property also makes up the bulk of Australians’ retirement savings, so a fall in property prices would smash consumer confidence.

It’s no surprise that in the face of a recession or economic shock the first thing Australian governments do is prop up the property market.

Another damaging effect of high property prices is that it turns the country conservative. This graph from Business Spectator’s Philip Soos does much to explain why Australians turned insular in the late 1990s.

Soos-graph-australian-property-prices

Having a population locked into paying their mortgages guarantees a conservative, risk adverse culture and that’s exactly what Australia has achieved over the last fifteen years – much of the opening up from the 1970s through to 1990s has been undone as the country looks inward at protecting its housing prices and bank repayments.

That safe, insular society has its attractions. However if you want to build an entrepreneurial culture, it’s safe to say you can’t get there from here.

While it’s not impossible to build a startup nation in a society addicted to property speculation,  it won’t be easy either.

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Telling the broadband story – the government makes its case

The minister’s office replies to my NBN criticisms and illustrates how the broadband story isn’t being told

Further to yesterday’s post about NBNCo’s inability to tell a story, I received a polite message from the long suffering staff at the Minister’s office that pointed me to some of the resources that NBNCo and the Department of  Broadband, Communications and Digital economy have posted.

Here’s the list of case studies and videos;

http://www.nbn.gov.au/nbn-advertising/nbn-case-studies/

http://www.nbnco.com.au/nbn-for-business/case-studies.html

http://www.nbn.gov.au/case-study/noella-babui-business/

http://www.nbn.gov.au/case-study/seren-trump-small-home-based-business-owner/

All of these case studies are nice, but they illustrate the problem – they’re nice, standard government issue media releases. The original CNet story that triggered yesterday’s story tells real stories that are more than just sanitised government PR.

It also begs the question of where the hell are all these people successfully using the NBN when I ask around about them?

What’s even more frustrating is the Sydney Morning Herald seems to get spoon fed these type of stories.

The really irritating thing with stories like yesterday’s SMH piece is that it’s intended to promote the Digital Rural Futures Conference on the future of farming being held by the University of New England.

Now this is something I’d would have gone to had I known about it and I’d have paid my own fares and accommodation. Yet the first I know about this conference is an article on a Saturday four days out from the event. That’s not what you’d call good PR.

The poor public relations strategies of the Digital Rural Futures Conference is a symptom of the National Broadband’s Network’s proponents’ inability to get their message out the wider public.

When we look back at the debacle that was the debate about Australia’s role in the 21st Century, it’s hard not to think the failure to articulate the importance of modernising the nation’s communications systems will be one of the key studies in how we blew it.

Despite the best efforts of a few switched on people in Senator Conroy’s office, a lot more effort is needed to make the case for a national broadband and national investment in today’s technologies which are going to define the future.

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