Tag: economy

Are IT workers the new loom weavers?

Transition changes hit the technology industries once again, and many aren’t happy.

“There are IT workers who can’t put food on their table,” complained an industry representative at an outsourcing conference.

It’s true – there are hundreds of once well paid project managers, technicians and support staff staff who can’t get work in their industry as some tasks go offshore and others are supplanted by new technologies.

None of this is new, we only have to think back to the heady days of the Dot Com boom when any punk with a basic knowledge of HTML could pull down six figures a year.

Just like the loom weavers of the 17th Century who became the Luddites, the HTML coders of 1998 and the project managers of 2008 have had a short period of affluence before been overtaken by change.

It’s something that today’s hot shot coders should keep in mind, bubbles burst and technology changes.

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Redefining affluence

Are we at the end of the Western world’s era of great prosperity

Finance writer Scott Pape always has an interesting perspective in his regular columns.

This week he talks about Melissa a mother of three who lives in the US state of Georgia who also happens to be Scott’s virtual PA.

Scott hires Melissa because she’s cheap; far cheaper than her competitors in Australia.

For the $8 an hour she earns, she gets no sick pay, no health insurance and no retirement benefits. Unless Melissa has a well paid partner and her work for Scott is just a sideline to help pay the bills, she will work until she drops.

This is the new reality for those in America, Spain, the UK and most of the West. It’s slowly becoming the reality in Australia as well despite the current hubris about the Down Under Economic Miracle.

Melissa’s job as a secretary or PA was safe and comfortable twenty years ago. Today – just like auto workers, shop assistants, accountants and even lawyers – secretaries are having to trade their secure jobs for precarious, and reduced, incomes in the globalised and casualised marketplace.

Scott makes perfectly valid points that individual drive and determination will be important in the globalised economy, but nothing changes the fact that Melissa and millions like her – including ourselves – will not have the living standards of her parents.

While we can talk about billions of Indians and Chinese improving their standard of living the new globalised world, we shouldn’t forget for a moment that living standards are declining for the most of developed world’s middle and working classes.

This decline isn’t totally due to globalisation and was probably going to happen regardless of the rise of China. The West’s prosperity was built upon the post World War II reconstruction and the credit booms of the 1980s and 2000s. Eventually the money – or the credit – had to run out.

How we as a society deal with this will define our nations and communities over the next fifty years. Our governments, business leaders and media commentators are ill prepared for the effects even if they recognise the problem.

Those most deeply affected are the businesses based on the twentieth century model of ever increasing prosperity. As our retailers are finding, this model is running out of steam.

While some expect the newly affluent Chinese and Indians to save their well padded hides, most will find Asian consumption patterns in the 21st Century will be different to US auto workers of the 1950s or English real estate agents of the 1980s.

Even financial planners like Scott are going to find things different – many financial planners thought they could get rich just skimming commissions off their clients’ portfolios which grew with the ever climbing stock and property markets. That model dropped dead in September 2008.

For those of us born and raised during the Western world’s era of great prosperity, we’re going to find we have to work a lot harder and not take affluence for granted.

Melissa and her eight dollar an hour secretarial service is the future and it’s probably Scott’s, yours and mine as well.

Some may say that’s a pessimistic view of the world, but a leaner, harder economy may be the best thing could happen for us as individuals and a society.

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Darling Harbour and the peak of consumerism

Sydney’s old docks reflect the changing economy

Sydney’s Darling Harbour was one the centre of the nation’s mercantile economy, from across the country millions of tons of grain, wheat, sugar and other commodities were loaded onto ships and exported to the empire.

Eventually Darling Harbour fell into disuse, the docks became containerised, bulk goods moved to specifically designed loaders and the new breed of cargo ships were often too big to fit under the Sydney Harbour Bridge.

What really sealed Darling Harbour’s fate was Australia moved from being a largely export based agricultural export economy to a service based consumerist economy.

Today Darling Harbour illustrates that change, the docks have become expensive restaurants, hotels and shopping centres. The notorious “hungry mile” of docks is being converted into “Barangaroo” complex of office blocks, apartments and possibly even a casino for “high roller” Chinese gamblers.

Even the cruise liners are going. The 1980s vision of Darling Harbour as a temple to consumerism and property speculation is complete. In this way, Darling Harbour has become a picture of the Australian economy.

Just as Australia’s mercantile era peaked just before The Great Depression of the 1930s – the depression of the 1890s was actually far harder on Australia, particularly Melbourne and Victoria – the consumerist era finished with the Global Financial Crisis of 2008.

It will be interesting to see how Darling Harbour evolves over the next hundred years.

For a glimpse of the final days of the old Darling Harbour, Island Shunters an ABC documentary from 1977 showed the working lives of railway workers in the goods yards on the Western side of the docks. Today those railyards are the Australian office of Google and Fairfax’s headquarters.

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Disrupting the markets

Mary Meeker’s All Things D tech industry presentation raises some fascinating points.

Generally it’s not a good idea to have nearly a hundred slides in a presentation, but Mary Meeker’s overviews of the tech industry are so rich in data it’s impossible not to spend a weekend looking over the entire sldieshow.

Last week Mary gave her presentation at the All Things Digital conference and as usual she identified a range of trends and issues in the technology industries.

Smartphone upsides

Still the early days of smartphone adoption, with 6 billion mobile phone subscriptions worldwide but only 954 million smartphones activated.

This adoption is driving mobile revenues with income growing at 153% per year. Although as she shows later, this is not necessarily good news for everybody.

Print media’s continued decline

A constant in Mary’s presentations over recent years the key slide in has been ad spend versus usage across various mediums.

In this year’s version we still print still vastly over represented with 25% of US advertising while TV remains static, although Henry Blodget at Business Insider thinks the tipping point might be arriving for broadcasters.

Online’s thin returns

One of the things that really jumps out is how thin onlie revenues really are. In annual terms services like Pandora and Zynga are making between 6 and 25 dollars per active user over a year.

These tiny revenues indicate the problem content creators have in making money on the web, after the gatekeepers like Pandora or Spotify have taken their cut, there isn’t much left to go around.

Facebook and Google are also encountering problems as users move to mobile where revenues are even smaller than those from desktop users. This is constraining both services’ earnings growth.

Disrupting markets and governments

Mary’s presentation goes on to look at the disruption web and mobile technologies are bringing to various markets – it’s a good overview of whats changing right now and the products driving the changes.

It’s not just markets that are being disrupted with Mary also looking the US’s budget position and entitlement culture. This in itself is a massive driver of change which will have a deep effect on our lives regardless of where we live.

Are we in a bubble?

Mary finishes up with a look at whether we’re in a tech bubble or not.

Her view is that we are and we aren’t – there are silly valuations of companies in the private market however the poor performance of tech stocks on the stock market indicate the public aren’t being fooled.

One telling statistic is the only 2% of companies have accounted for nearly all the wealth creation of the 1,720 US tech IPOs between 1980 and 2002. There’s little to indicate much has changed in the decade since.

The optimism in funding new businesses is based in the disruption they are bringing to markets and industries – you only need one eBay or Google in your portfolio and you’re a legend, if not filthy rich.

Both the economic and technological changes are disrupting our own businesses and this is why its worth reading and understanding Mary Meeker’s presentations if only to be prepared for the inevitable changes.

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Falling Dominos, Fading Businesses

The effects of business failure can be great and personal.

“When the tide goes out, we find out who’s naked” goes the saying – nowhere is this more true than in the engineering and construction industries.

One of the hallmarks of an economy that has passed its peak is the systemic failure of contracting companies.

During a boom, or a steady growth phase of an economy, contracting companies see cashflows increase as more projects come online.

That growth affects contractors in a number of ways – they start getting used to fatter margins and management starts to believe in their own invulnerability.

Blue sky seems to stretch on forever and massive growth rates seem guaranteed far into the future.

As the market matures the sky starts to turn grey as more contractors start fighting for lucrative jobs seeing cost estimates being fudged and dodgy deals done to win jobs.

Those dodgy contracts eventually come in at a loss and management starts desperately winning more projects to cover the losses on earlier work.

And so a spiral begins.

To make matters worse, the more aggressive contractors start buying out smaller competitors.

Often those competitors have similar bad projects on their books and their impressive growth rates are based upon winning jobs they should never have tendered for.

Eventually the spiral ends when the market stalls and there aren’t enough new projects available for the loss making contractors to cover the accumulated losses. Then the failures begin.

Collapses of the Hasties Group, Reed, St Hilliers and other construction and engineering contractors are classic examples of this cycle.

While shareholders and management carry some of the burden, the real pain of failure is felt by the armies of sub-contractors – largely small, family owned businesses – these companies employ.

Most of these subcontractors will not get paid for their outstanding invoices, forcing all of them to cut back their own employment and spending. For some, they will be forced into liquidation as they can’t pay their own bills.

For the families that own those small businesses the financial and emotional pain is real and immediate. Spending stops, debts go unpaid and relationships fail.

In some cases that small bankrupt plumber, bricklayer or concreter finds the stresses of failure too great and a family loses their breadwinner.

This multiplier effect of business failures and redundancies is one of the reasons the real economy is in a much tighter position than Australia’s political, business and media elites can bear to admit.

Another saying is “a recession is when your neighbour loses their job, a depression is when you lose yours.” For most families, the economy has been in recession for three years as they’ve seen friends and relatives accept reduced hours or have contracts terminated.

Much of the commentary about Australians being irrationally pessimistic misses this aspect of our economy. It’s amusing when the smug comments come from financial and economic journalists who don’t seem to have noticed the difficulties their own industry going through.

There’s a lot of naked people treading water at the moment and the tide is heading out. The question for all of is where the deep water is and where the hell did we leave our speedos.

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Could Australia follow the Greek path?

Is Australia really different from Greece?

Business Spectator’s Robert Gottliebsen today describes how Australia has caught the Greek disease of low productivity and an overvalued currency.

This is interesting as just last week Robert was bleating on behalf of Australia’s middle class welfare state.

Australia’s productivity has stagnated over the last 15 years, but unlike Greece the ten years before that was a period of massive reform to both employment practices and government spending.

The structure of the Australian economy is very different, not least in its openness, to that of Greece.

What’s more Australia has a floating currency which will eventually correct itself unlike the Euro that Greece finds itself trapped in.

That’s not to say Australians won’t be hurt when that currency correction happens. The failure of the nation’s political, business and media elites in failing to recognise and plan for this is an indictment on all of them – including Robert Gottliebsen.

Australia’s real similarity with Greece is the entitlement culture that both nations have developed.

Over those last 15 years of poor productivity growth, Australia has seen a massive explosion of middle class welfare under the Howard Liberal government which has been institutionalised by the subsequent Rudd and Gillard Labor governments.

Today middle class Australians believe they have a right to generous government benefits subsidising their superannuation, school fees and self funded retirements.

For all the sneering of Australian triumphalists about Greek hairdressers getting lavish government benefits, Australia isn’t far behind Greece in believing these entitlements are a birthright.

A middle class entitlement culture is the real similarity between Australia and Greece. It’s unsustainable in every country that harbours these illusions.

Unlike Greece, Australia doesn’t have sugar daddies in Brussels, Paris and Berlin desperate to prop up the illusion of the European Union. Australia is own its own when the consequences of magic pudding economics become apparent.

Australia’s day of reckoning may arrive much quicker than that of Greece. Then we’ll see the test of how Australians and their politicians are different from our Greek friends.

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Customer service gods

After years of neglect, customer service now matters again.

“Treat your customer service people like gods,” says online business advisor Todd Alexander.

One of the conceits of the 1980s business model was that customer service, like training and capital investment, is an expense that should be driven down at all costs.

In corporations, government departments and politics those who dealt directly with the customers, taxpayers or voters were seen to be the low level, low status employees who could be outsourced at the first possible opportunity.

That was great when markets were growing and there was an abundance of low hanging fruit to be plucked from the marketplace.

Now that customers are cash strapped and margins are falling, keeping customers happy becomes more important.

A statistic often quoted is that acquiring a new customer costs five times more than keeping an existing one, that difference may be exaggerated but it’s not far from the truth.

Those departing customers can do great damage to the business as well.

In the 1980s customers had little recourse apart from taking their business elsewhere. Often they didn’t have that choice in sectors where duopolies reign.

Now customers can vent their frustrations to the world on the web or through social media and there’s no hiding from the loss of reputation.

What’s more, many of the businesses that relied upon picking the low hanging fruit of a growing economy, high immigration or increasing consumer debt to find more customers through the last thirty years now find the rules of changed.

Customer service now matters.

Any management that considers customer service to be low status is a dinosaur and will soon be following them.

It’s a good time to be disrupting comfortable business models.

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