Geopolitics and doing business in Hong Kong and China.
I attended the Australian Chamber of Commerce and Industry’s Business Leaders Summit at Parliament House in Canberra this week and the hot topic was how to maintain the continuing record of growth into twenty nine plus years for Australia.
Clearly, politicians are concerned, although they placed an emphasis on the positive news on current growth statistics and stable employment. The general mood in the audience, however, is that the things are not looking great. While the consensus seems to be that a recession isn’t imminent the economy does seem to be flat-lining somewhat.
Josh Frydenberg raised concern around low productivity growth and the need to improve this if wage growth is to be achieved, while Michaelia Cash emphasised the government’s focus on helping sole traders and micro businesses to take on their first employee. Clearly, the government sees continuing growth coming from the small to medium business. Simon Birmingham at the pre-summit cocktail event focused on how well international trade is developing and that the success in increasing trade agreements underpins much of the potential growth that is available to the economy.
A lively discussion followed Frydenberg’s speech with economists from EY and Royal Bank of Canada pushing back on the position of the government representative that business underinvestment is a key cause of lack lustre economic performance. There is no doubt that business could do more, but they made the point that government currently has the greater capacity to invest given the reduction in debt, and that with low cost of borrowing greater investment in infrastructure projects should occur as these have direct knock on effect on employment. The consensus seemed to be that government should do more.
I think that the neo-liberal fixation on balanced budgets is becoming a drag on the economy as the idea that the national economy is like a household budget is far too simplistic a view and can lead to sub-optimal decisions. When the private sector is not investing, the government needs to do so. This investment on productive infrastructure should be recognised as ‘good’ spending and not confused with spending on consumption that can so often be wasteful. Government needs to manage the deficit but has to understand where the money is going, not just that it is going.
The risks to the economy are clear. One of my favourite indicators of economic stress is the number of retail and commercial units for let. When I travel down Military Road on Sydney’s lower north shore, I have noted more than thirty retail shops to let and this number has been increasing over the last six months. There is some turnover, but I get the sense that the clearance rate is declining. The retail sector is well known to be having a difficult time, but it does suggest wider economic stress if only to the extent that there are less people working in these stores and less spending occurring.
The government clearly recognises this and with their initiatives to reduce regulation and red tape – whether they can achieve this or not is open to discussion. There is no doubt that the regulatory environment in Australia is becoming burdensome with the over extended ‘health and safety’ culture a major feature of the business context. Not to say you should not have these, but it does seem to be the case that it is easier for state and federal government to introduce a new regulation when something goes amiss than to consider a more holistic approach to both the occurrence and wider impact of the matter being controlled.
Australian export surplus is a great benefit to the country, but much of this is commodity based and focused primarily on one market, China. Smaller business find trying to grow into overseas markets a challenge. I was talking to a business owner with an excellent product but who was exasperated with the failure of overseas agents and distributors to do much for them. When I suggested whether they should consider investing in an overseas market, or recruit an export manager to focus on this, they just said that that would be too expensive. The point is that if an overseas market is good enough to enter then the exporter needs to organise themselves both structurally and financially to capitalise on this.
There seems to me, as a general observation, to be a sort of ‘cargo-cult’ mentality in Australia that unless you get some form of state or federal grant then it is not worth considering investing in a new market. What is needed is a proper analysis and preparation of an export business plan that demonstrates what resources are needed to achieve a positive marketing outcome. Just selling to a market means that the full opportunity might be missed and could actually demonstrate a lack of confidence in the exercise. I’ve spoken with business people overseas who have complained at the lack of market commitment that comes from Australian suppliers. We’re missing a trick here, I believe.
Sunrise’s David Koch facilitated an excellent Summit session on the opportunity for small and medium sized business to leverage digital media effectively and how Australian businesses are already successfully growing their business – from lavender farms in Tasmania to teddy bear manufacture in Brisbane. He lamented what he saw as the ‘glass half empty’ tendency in Australia. He might be right about that and when combined with the country’s regulatory environment does nothing to help the growth of the economy.
Good plans that make sense can usually get support from investors, and sometimes banks. SME’s are not well supported by the big four banks, despite their advertising campaigns. But the need to invest in a proper strategy and plan, including internal capability development, is an essential step. Business needs to be prepared to invest in the overseas market properly and if they are eligible for a grant that should be seen as an extra benefit and not the focus of the planning process.
The government is encouraging vocational skills development and plans to reduce red tape, and has recognised the beneficial effect of infrastructure investment. I hope that these policy initiatives are successful. But, if Australia is to grow, private business needs to start looking seriously at how to enter new markets. There is a significant amount of surplus cash sloshing around the world that is looking for opportunities that provide a better return than current bond rates. Solid business propositions that see overseas markets as the way to grow their businesses must form part of an ambitious strategy for growth. Entering any new market is a challenge, but proper analysis and planning is required if the full benefit is to be achieved. Now’s the time to start: be bold, be brave but be prepared.