Tag: Australia

Can Huawei come in from the cold?

Can the Chinese communications technology vendor come in from the cold?

Last Friday the Parliamentary Joint Committee on the National Broadband Committee met in Sydney, I’ll have a story on this in tomorrow’s Business Spectator.

An interesting exchange during the meeting was  between the committee’s chair Rob Oakeshott and Mike Quigley, the CEO of NBNCo.

Rob Oakeshott: “You have advice that either as a department or a statutory body that says there are certain companies that should not be involved with the National Broadband Network build? If so, is that advice still in place?”

Mike Quigley: “Well chair, we work very closely with the appropriate government agencies in this area, obviously there are things we can and things we can’t say, but we have a very close working relationship with those entities and we obviously take their advice on things we should and shouldn’t do.”

“Their advice is still in place and we’re following it.”

I’m going to be in Melbourne tomorrow attending the Australian Davos Committee’s China Forum where, among other luminaries, the Prime Minister and various key people in the Australian-Chinese relationship will be talking.

The company in question is Chinese communications vendor Huawei and their banning from Australian contracts adds an interesting dimension to the discussion on trade relations between the two countries.

Australia has followed the US lead in blocking the Chinese communication hardware company from key contracts like the NBN on security grounds and it’s hard to see how this doesn’t test the patience of the PRC.

We’ll see how this issue plays out as it’s one that seems to be largely overlooked when we discuss trade ties and relationships with Chinese companies.

Similar posts:

Why Australia needs foreign ownership

Foreign investment is making up for the lack of Australian interest in local assets.

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.

Similar posts:

Australia’s economic Hari-Kari

As the cheap credit era comes to an end, the Australian economy acts as if the party is never going to end.

“The Golden Era of Credit is Now Over” writes Maximillian Walsh in the Australian Financial Review today.

Max’s story relies mainly on the April edition of Bill Goss’ monthly newsletter where the founder of investment firm PIMCO writes about the talents of today’s market wizards;

All of us, even the old guys like Buffett, Soros, Fuss, yeah – me too, have cut our teeth during perhaps a most advantageous period of time, the most attractive epoch, that an investor could experience.

The credit boom of the last fifty years created many winners – investment bankers, property owners and those who sell things funded by easy finance.

One of the best examples of a fortune made through easy credit is Australia’s Gerry Harvey. Here’s one of Gerry’s ads from 1979.

Hurry into Norman Ross. You can use Bankcard or our easy credit system. You can even use cash!

Three years later Gerry was sacked from the business he founded and he set up Harvey Norman, promising John Walton and Alan Bond “I’m going to beat you.” By the end of the 1980s he had.

Gerry’s success is built on easy credit and the rise of the consumerist economy. From the hire purchase plans of the 1960s, the introduction of credit cards in the 1970s and the banking deregulations of the 1980s, Gerry was able to sell goods to eager consumers who could worry about paying later.

In the 1990s and 2000s a happy coincidence of easy credit and cheap Asian manufacturing – note the prices of electrical goods in that 1979 commercial – saw businesses like Harvey Norman grow exponentially.

Mao promised the Chinese a chicken in every pot, Gerry delivered a plasma TV in every Australian bedroom.

Today, as Bill Goss says, the credit party is over. Last drinks were called with the failure of Lehman Brothers on September 16th, 2008.

However this hasn’t stopped the Aussie economy, as the Sydney Morning Herald reports today Sales growth cheers Gerry Harvey.

In the same edition the SMH reports the government science organisation, the CSIRO, is cutting hundreds of staff. Notable in that article is a comment from the organisation’s CEO;

Dr Clark said more than 2000 companies collaborated with CSIRO but that industries were reducing the amount spent on research.

So at a time when the Australian economy is struggling with the effects of a high currency and exhibiting all the symptoms of the Dutch Disease, consumers are spending more on TVs and sofas while business cuts investment in research and development.

Karl Marx famously predicted that the last capitalist will be hanged with the rope they sold, Australians have a bunch of Harvey Norman branded credit cards for their financial seppuku.

Similar posts:

is G’day China a good idea?

Can the proposed China Week be successful in promoting Australian business and trade?

Yesterday’s announcement by the Prime Minister’s  of an Australia Week in China may prove far more successful than the G’day USA events the idea is based upon.

G’day USA has been run for a decade and showcases Australia’s attractions, skills and businesses at events in Los Angeles and New York.

It’s been moderately successful but an emphasis on movie stars appearing at black tie Hollywood events illustrates Australian governments’ disproportionate focus in throwing money at US movie producers.

If China Week follows the US example we can expect private, exclusive dinners where Twiggy Forrest, Clive Palmer and the BHP board entertain Chinese plutocrats over bowls of shark fin soup and braised tigers’ testicles.

Should China Week follow that model then it will probably share G’day USA’s middling successes.

The opportunity to do it differently though is great as the Chinese-Australian relationship is far younger and hasn’t been locked into Crocodile Dundee type stereotypes on both sides.

As the Chinese economy matures and evolves, there’s an opportunity for Australian businesses and industries which haven’t been available for exporters to the US.

Done properly, G’day China could help the profile of Australian businesses in many sectors, particularly in those affected by the great Chinese rebalancing.

Let’s hope they do it properly.

Image of the Chinese embassy in Canberra, Australia from Alpha on Wikimedia

Similar posts:

Australia and the Chinese Mexican stand off

As China rebalances its economy, a new wave of change is about to sweep global trade.

Twenty years ago visitors to Sanya on the south coast of China’s Hainan Island could find themselves staying at the town’s infectious diseases clinic, converted into a backpackers hostel by a group of enterprising doctors.

The Prime Ministers and Presidents attending of Boao Asia Forum this week won’t get the privilege of staying at the infectious diseases hospital as Sanya’s hotel industry has boomed, bust and boomed again following the island being declared a tourism zone in 1999.

Instead, their focus is on the pecking order of nations and for the Australians the news is not good. As the Australian Financial Review reports, the Aussies have been seated well below the salt by their Chinese hosts.

On the Boao list, Australia is outranked by Brunei, Kazakhstan, Myanmar, Zambia, Mexico, and Cambodia – even New Zealand Prime Minister John Key gets higher billing.

Central and South East Asian countries make sense as countries like Myanmar and Kazakhstan are China’s  neighbours with strong trade ties.

That the Kiwis have been given priority over the Aussies by the Chinese government is not surprising in light of this.

An unspoken aspect for the Australian attendees to the Baoa conference is how long Canberra’s political classes can continue their forelock tugging fealty to the US without offending the nation’s most important trading partner.

Mexico’s entry on that list could be one of the most important with consequences for Australia and the world.

During the 1992 US Presidential campaign candidate Ross Perot coined the phrase “the great sucking sound” in his opposition to the North American Free Trade Agreement and the risk of losing jobs to lower cost Mexico.

As it turned out, the giant sucking sound was China – it turned out China’s admission into the World Trade Organisation had far greater consequences for the United States and Mexico than NAFTA.

Mexican manufacturing was one of the greatest victims of China’s rise as US companies found it easier to subcontract work to Chinese factories rather than setup their own plants in Mexico.

Now China is finding its own costs creeping up and labor shortages developing and Mexico is attractive once again. The Chinese and Mexican governments have been working on their relationships for some time.

As manufacturing moves out of China, the shifts in world trade we’ve seen in the last two decades are going to be repeated, this time with Chinese moving up the value chain the lower level work moving to Mexico and other nations.

The leaders at the Baoa conference have their work cut out for them in dealing with another decade of global change.

Similar posts:

Are Australians too risk adverse for startups?

Does a culture of property speculation hinder new businesses and startups?

Last week I had coffee with Clive Mayhew who chairs the board of Sky Software, a Geelong based student management cloud service.

Clive covered a lot of interesting aspects about Sky’s business; including the opportunities for regional startups, government support and his experiences in Silicon Valley during the dot com boom. All of which I’ll write up in more detail soon.

One notable point Clive raised was how he struggles to get Australian staff to take equity in the business – people want cash, not shares.

The question Clive raises is why and that question is worth exploring in more depth.

My feeling is that it’s a cultural thing related to property – four generations of Australians have been bought up believing housing is the safest way and surest way to build wealth.

As a consequence young Australians are steered into getting a ‘safe’ job and plunging as much money into accumulating property equity as early as possible. Just as mum and granddad did.

Even those who don’t want to play the property game are affected as property speculation pushes up prices and rents; the landlord or bank won’t accept startup stock to pay the bills so employees need cold, hard cash to keep a roof over their heads.

The other angle is tax and social security policies, through the 1970s and 80s various business figures used share option schemes to minimise their taxes and successive Australian governments have passed laws making it harder for businesses to offer these incentives.

Interestingly this not only affects the Silicon Valley tech startup business model but also hurts the aspirations of Australia’s political classes to establish the country, or at least Sydney, as a global financial centre.

Putting aside the fantasies of Australia’s suburban apparatchiks – which if successful would see the country being more like Iceland or Cyprus than Wall Street or the City Of London – it’s clear that the existing government and community attitudes toward risk are reducing the diversity of the nation’s economy.

That the bulk of the nation’s mining and agricultural investment, let along startup funds, comes from offshore despite the trillion dollars in compulsory domestic superannuation savings is a stark example of risk aversion at all levels of Aussie society, government and business.

For those Australian entrepreneurs prepared to take risks, the risk adverse nature of most people becomes an opportunity as it means there’s local markets which aren’t being filled.

The problem for those local entrepreneurs is accessing capital and that remains the biggest barrier for all small Australian businesses.

How this works out in the next few decades will be interesting, it’s hard not to think though that Australians are going to have to be weaned off their property addiction – whether this takes a harsh recession, retired baby boomers selling down their holdings or government action remains to be seen.

In the meantime, don’t base your business plan on staff taking equity as part of their employment package.

Similar posts:

A question of relevance – why the PM welcomes bloggers

The Prime Minister’s courting of bloggers in the run up to the Australian Federal election later this year shows how credibility and relevance are most important asset of any media outlet

The Prime Minister’s courting of bloggers in the run up to the Australian Federal election later this year shows how credibility and relevance are most important assets for any media outlet.

Late last year the Prime Minister invited bloggers to Kirribilli House for lunch then to dinner during her Rooty Hill adventure a few weeks ago.

The press gallery grumbled and wrote patronising articles about North Shore mummy bloggers but failed to recognise the real threat to the established media outlets – these writers are more relevant to people’s lives than the machinations of ‘anonymous political sources’, sports stars or Hollywood celebrities.

Now the Prime Minister is giving one on one exclusive interviews to some of those bloggers, something that will irritate the nation’s political journalists even further.

Old media’s loss of relevance

The press galleries’ problem though is relevance, which lies at the heart of any successful media outlet.

In 1831 when The Sydney Herald’s first edition was published, the front page was made up of advertisements and shipping notices as it was with all newspapers of the time.

That was relevant to the readers, they paid 7d – not an insubstantial amount in 1831 – to find out the latest in shipping movements, real estate sales and livestock prices which were essential to life and business in the colony.

It wasn’t until 1944 that the now Sydney Morning Herald moved news to the front page, the London Times held out until 1966. What was now relevant to readers were photos and wire stories from around the world.

Papers continued to do well despite the introduction of radio in the 1930s and TV in the 1950s because they were continued to be relevant to their readers. If you were looking a job, a house or where to take your mum for her 60th birthday then the local newspaper was the place to look.

The shift to sensationalism

In the 1980s all the media – newspapers, TV and radio stations – started a shift to sensationalism and infotainment and steadily all became less relevant to the populations they served.

At the time media outlets got away with it as there was no-where else for people to get news. If you didn’t like stories about Princess Di’s wedding dress then you had to curl up in the corner with a good book.

Then the web came along.

All of a sudden engaged readers could get relevant information from all over the world.

With social media and blogs, reporting Kim Kardishian’s latest wardrobe malfunction raised a ‘so what’ from an audience that learned about it two days ago on TMZ, the Huffington Post or Facebook.

Making matters much, much worse were the advertising rivers of gold moved to specialist websites and Google.

Newspaper executives found their revenues were evaporating and they worked their way deeper into the quicksand by cutting costs in the areas where their editorial strengths lay, making them even less relevant to the readerships they want to serve.

Relevant lifestyles

Today the mummy bloggers – along with the food bloggers, travel bloggers and political bloggers – are attracting  audiences with relevant, useful content that the audience can engage with.

Last week’s embarrassing circus in Canberra was an example of how irrelevant the media, and much of politics, has become to the average Australian.

Indeed it’s interesting to contrast the self important Canberra press gallery pushing non-stories while fawning over their discredited ‘anonymous party sources’ with the genuinely questioning tone of the some of the bloggers.

So the mainstream, established media can kiss the mummy bloggers’ backsides; if they can’t find relevance in today’s society then they may as well shut up shop.

For politicians relevance is important too – political parties that pitch themselves to 19th Century class struggles or 1980s corporatist ideologies are as irrelevant to today’s society as the Soviet Communist Party.

It would serve the Prime Minister and her staff well to listen closely to what the mummy bloggers and their readers are saying.

Similar posts: