A Critical Review of the Hartley Review of SA Government International Investment Attraction Strategy

Austrade Logo and branding “Australia Unlimited” really captures the folly of South Australia adopting an AUSTRADE strategy for international promotion. The logo is about all of Australia not SA. South Australia runs the risk of being left behind if an Austrade strategy is activated in isolation.

The Hartley Review of the South Australian Government international office strategy has made recommendations that the State Government outsource the role of investment attraction in international markets to AUSTRADE. Recently however AUSTRADE has released a review of their own operations and come to some important conclusions on their future strategy. This new AUSTRADE strategy discusses the need to promote Investment in a Generic manner, How is this going to be in the best interests of SA? and if investors are identified, how will the SA government be placed to facilitate the next phase, if there are no representation on the ground in these home markets?  The AUSTRADE focus is on federal objectives, and most companies that are requiring the assistance form AUSTRADE are from the Eastern Seaboard, how will the competing interests from SA be managed if this proposal is activated? The objectives available in the 2011 AUSTRADE review suggest that the new leaner AUSTRADE model that is focused upon Asia and emerging economies.  The use of AUSTRADE to promote SA companies and industries in key markets can be compromised in certain industry sectors, due to perceived conflicts of interest. One core example would be in the defence industry, AUSTRADE are compromised in their support of defence contractors due to their perceived geopolitical conflict of interest. The State Government would be better placed to facilitate introductions and assist local companies as they are not the procurers of defence materials themselves. This is just one example where an AUSTRADE representative strategy would be seriously compromised.

In relation to the Investment focus of AUSTRADE the 2011 review recommends:

Investment activity will be focused in markets where there are sources of investible funds, predominantly established markets, but increasingly, growth and emerging economies. However, a sharper focus for investment activity is also required.

Generic promotion of Australia’s attractiveness as a destination for foreign direct investment in target markets will remain a core element of the investment program.

  • Proactive investment attraction priorities will be determined through structured consultation across Government.
  • The facilitation of investors who have made a decision to consider Australia, requires close cooperation across levels of government and Austrade’s role will be concentrated in the delivery of targeted information and navigation through the Australian policy and regulatory landscape. A key goal for Austrade will be the delivery of strong investment leads to states, territories and other providers for facilitation activity, at the earliest opportunity.

Qingdao is a city of immense potential to South Australia and we are currently not leveraging our strong connections in this city to achieve the best outcomes for South Australian companies.

The recommendations to close the current offices in each of the emerging markets is poorly conceived, the arguments put forward in the review that SA needs to withdraw from these markets will affect our image in these markets in a negative manner. SA already invests less than the other states in Australia on their international strategy, and this could well be the reason that we have not achieved the outcome that the State Government would seek. I find it strange that a proposal to close everything other than the Jinan Office should be made, based on the available evidence. If anything the office in Jinan should be moved to Qingdao in Shandong, China’s third largest port city, and which has a longstanding trade relationship with SA through agricultural exports.

The proposal to move away from trade and inwards towards investment is a short-sighted and backward move, that is more in keeping with the strategies of emerging and developing economies, not mature economies such as South Australia. Pursuing this strategy in a global market, where the investors have choice, not only amongst Australia, but more broadly across Asia, Africa, the Americas and Europe, suggests that SA will be lost to the world. What benchmarking has the SA government done for our Investment potential against similar key investor markets? The Hartley Review ignores the South Australian geographic isolation from the western world, and with the macro economic factors currently leaving Australia as a poor investment location for industry and manufacturing, it is unlikely that substantial inward investment would come into the state for anything other than mining. In recent weeks the folly of the expected Mining investment boom is becoming evident, and there may not be the appetite to invest in SA, given the current macroeconomic issues and policy positions in Australia, and South Australia.

Indonesia provides a large opportunity for South Australia in trade and investment, yet the South Australian government has failed to grasp the opportunities presented.

The Investment strategy proposed will consign large components of the South Australian economy to waste, including our leading export sectors of agriculture, and education. Given the current state of the manufacturing industry in SA, how will this review address the needs of the manufacturing sector transition to advanced manufacturing? The Hartley Review does not provide any tangible way of addressing this issue, and how better use may have been made of the international offices to help our manufacturers rationalise their operations more effectively. An example SA can aspire to is Germany, which has moved its bulk manufacturing industry to an advanced manufacturing sector, through taking advantage of their international networks in Eastern Europe, and Asia. There is nowhere in this report which raises this as a value adding proposition to our current overseas offices.  An Investment Strategy which seeks to pitch SA directly against our emerging economy neighbours such as Indonesia, PNG and Burma in regards to mining investment is short-sighted, and compromised in my opinion, particularly if there is no complimentary engagement to assist our neighbours achieve economic goals, through economic partnerships and bi-lateral investment. The economic principle of comparative advantage has been ignored in this recommendation.

The recommendation that the service sector be employed in those circumstances where the “representative” title was not critical for obtaining access to investment targets ignores the cultural factors that are common to most other countries in Asia, that being the respect for status and hierarchy. In Asia particularly the title is critical, this review is culturally ignorant of these factors, and could position South Australia at the back of the queue for a generation, should a short term and reactive cost cutting measure be enacted.  Overall, the Hartley review is a dangerous document, which would fundamentally damage the South Australian Brand overseas in our key emerging markets. At a time when there is a debate about the recognition and identification of Brand SA, it is amazing that there is a parallel discussion about the removal of our international trade offices. Once a company/or government withdraws from a market, there is tangible loss of brand equity, political and social capital, and network connectedness. Such a change in direction would seriously damage South Australia’s long term trade and investment engagement in global markets, and consign us to a small corner at the bottom of Australia.

Comment on the Hartley Review of South Australia’s Overseas Representation

The proposal to close the South Australian Government Trade offices is flawed, and fails to understand the complicated needs of local SME’s in finding trade and investment opportunities in new Asian markets.

The Hartley Review of South Australian International offices unfortunately fails to adequately address the needs of South Australia in promotion of trade and investment throughout a global network. There seem to have been some fundamental errors in recommendations which have the potential to greatly impact on the ability for SA to effectively develop trade and investment for the South Australian economy into the future. I therefore would advocate a reconsideration of the approach recommended in the Hartley Review as if it is implemented it will have a serious detrimental effect upon the SA economy to engage in global markets, compete for effective investment in a global environment, and will disadvantage SA industry when they are desperately needing government assistance to transition to succeed in the “new economy”. The report does not identify which markets should be a priority based on trade, investment or the KPI’s of the existing international offices. This is a concern as it does not present an cognisant argument as to why particular markets should be retained or discarded.

Santos is a great South Australian success story, and has successfully entered the Indonesian market. This is not the only SA company to have succeeded in this emerging market, and it wont be the last.

There is also no mention of other markets around the world that SA currently does not have a market presence, which suggests the intent of the report was always to downsize, rather that objectively review the international office strategy. There is absolutely no mention of Indonesia anywhere in the Hartley Review, despite Indonesia being Australia’s closest neighbour, our favourite tourist destination. Indonesia is the world’s 4th Largest country by population, is rapidly expanding, and has a consistent positive growth rate commensurate with China and India in excess of 6%. Indonesian is also actively being approached by major SA companies as a target market from companies such as SANTOS, and HillGrove. Yet there is zero mention of this market in the review. This is also despite our state neighbours in WA expanding their representation in Indonesia to Two representatives, and Victoria recentlyt engaging an Indonesian Representative in the past 6 months. These examples seem to be at odds with the findings and recommendations of the Hartley Review.

The recommendation to partner with AUSTRADE is a strange proposal due to the 2011 AUSTRADE review mentioned in the Hartley Review, does not mention the promotion and embedding of State representatives in their operations, but does instead discuss the need to focus solely upon “Internationally Ready Firms” and states:

Succeeding in Asian markets is no easy objective, and for a state government it takes perseverance and patience to succeed. It is not about getting by on a wing and a prayer, but more to do with lighting many candles so that the investors can see the way to the South Australian economy.

Because Austrade’s greatest value lies in international markets, Austrade services will be more clearly directed to those companies ready to tackle international business opportunities. Where companies are not ready for export, Austrade will make referrals to alternative enterprise development programs (government or private sector).”

This may pose some challenges for many SA companies in developing their market preparedness for international markets, and more so there is an expressed expectation from AUSTRADE that these services will be provided by state governments. The Hartley review fails to review the current international strategy objectively, and ignores the market potential of South Australia’s large Asian neighbours. If South Australia is to succeed in these global markets and adequately compete against companies from around Australia and the globe there is a need to expand our involvement in international markets, and not withdraw from these markets. The future of the South Australian economy depends upon the export and trade success of our companies, and we must ensure that we provide the necessary tools to help our SA based companies to succeed in the global market. In the next article I will outline how the Hartley review has failed to adequately address the opportunity to attract investment on a global stage.

Australia: we need to reassess our manufacturing needs

Australia needs to accept the challenges of the Advanced manufacturing future

Australia and the traditional manufacturing states of South Australia, Victoria and New South Wales have struggled in recent years to help their traditional economic drivers transition to a new comparative and competitive advantage. In Australia we are still under the “illusion” that we can compete broadly as a manufacturing centre with the rest of the world. This illusion is unachievable due a variety of factors, and there are some key community expectations which mean maintaining our manufacturing heritage as it was in the 1970’s, 80’s or 1990’s is just not possible. The goal of maintaining this bulk manufacturing base is not compatible with our Australian standards of living and expectations. In Australia we have mortgages, rent payments, spending and consuming expectations which mean that any reduction in our labour costs will come at a substantial societal cost to the broader Australian community. Australia can compete on a global scale if we increase productivity. This would require increased output compared to cost of labour. We can achieve this in a couple of ways in Australia. The first is if we lower the minimum wage to levels like the US – $5 per hour for example, this would allow our productivity to increase to a comparable level to our competitor manufacturers in North and South America, although still putting us at a disadvantage compared with our regional neighbors in Asia. The alternative would be to reduce our workforce numbers through increased investment in automative manufacturing. These two options would neccessarily result in reduction in the manufacturing workforce, and more than likely see adverse reactions from Unions, not to mention the political difficulties associated with these moves. There is also a significant cost expenditure associated with the up-tooling of the manufacturing facilities for bulk manufacturing. Australian manufacturers do however need to address the reduction in productivity on the global platform, and corporate boards, management teams, and state and federal governments should be seeking to help their home grown manufacturers rationalize their investments, operations and manufacturing into areas where we in Australia can maintain our competitive advantage.

Low cost manufacturing from Asia has meant that it is no longer cost effective to manufacture in Australia in bulk products. We must transition to a high technology, advanced manufacturing future.

An alternative option for Australian manufacturers to address the issues of reduced manufacturing productivity and cost effectiveness should be to strategically manufacture in Advanced High technology sectors. Australian state and federal governments should bite the bullet and help our manufacturers rationalize their bulk manufacturing to our Asian neighbors in a manner that allows us to focus on the advanced value adding and R&D components of Manufacturing. Outsourcing and relocating bulk manufacturing will lower our cost burden in Australia, and allow Australian manufacturers to remain competitive on a global scale. It has the added benefit of helping these same manufacturers to rationalize their operations so that they have control over the intellectual property and R&D components of there businesses. This is the realistic path to maintaining a sustainable manufacturing industry in Australia. Our friends in Asia should be seen as our partners not our foes when it comes to our manufacturing future.

The main issue we have across Australia at the moment is that our political leaders at both a state and federal level are risk adverse and in the main lack the leadership and strength of conviction required to help our economies transition to a new advanced manufacturing and sustainable level. The sooner we realise this the sooner our Australian economy, and manufacturing industry will become a strength once more.

The Indonesian Wine Market: Exploring Wine Export Opportunities Beyond China

There is an emerging export opportunity in Indonesia for Australian Premium Wine.

The Australian wine industry was for many years concerned about export markets eroding in the traditional wine markets in Europe and North America, particularly as a combination of rising Australian Dollar, Increased competition from other “New World” wines from South Africa, South America and North America started to compete at the lower price point with which Australian wines had been successfully marketed in the UK and Europe.  This challenge for shelf space, market share and profits was further impacted by the growth in grape output, and consolidation of wine companies in Australia through companies such as Treasury Wines (Formerly Southcorp, and Fosters) and Constellation Wines which standardised the Australian wine industry, and helping to entrench Australian wine industry perception of international export markets as low-end consumers. This industry perception and attitude was a short-sighted and a recipe for disaster. Something had to change, to snap the thinking of the Australian Wine industry.

The Indonesian Wine Market is open for business. Ignore this market to your detriment. The time is ripe for a new investigation of the wine export opportunities in Indonesia

In recent years there has been an explosion of wine sales/exports/ and investments in China. There is undoubtedly a great opportunity in China as the 1.3 billion people start to develop a taste for wine. This is not to say however that wine is saleable to all of the 1.3 billion people, as the favoured alcoholic drinks are still beer and spirits ( rice and barley wine drinks such as MaoTai, Beiju etc). Wine consumption is rising, and taping into the 5% of the population that currently drink wine is a boon for the Australian wine industry, and many successful Australian wineries are now exporting good and profitable volumes into China. There is of course a growing Chinese Wine industry, which is increasing in quality and exposure throughout China. This will likely become a competitive force in the future, for which Australian Wine Companies will need to strategically prepare. So what alternatives are out there in Asia?

There are obvious opportunities throughout South East Asia, in markets such as Vietnam, Thailand, and Singapore. These markets are in the main receptive to wine, and Australian Wine companies should be looking to export into these markets. However there is another market that Australian and other Western Wine companies overlook – Indonesia. There is  broad perception that Indonesia as a predominantly Muslim country holds no opportunities for Australian wine. This is a short-sighted view in my opinion and Wine Companies need to broaden their perspective.

A Wine Store in Jakarta is not uncommon, and increasingly provide premium wine to a rapidly developing domestic wine market.

Indonesia is a challenging place to sell wine, not least because of the Muslim cultural influence. There is however, a large opportunity emerging in Indonesia for wine sales in the right market segment. Opportunities in bulk wine and low-cost wine sales to Indonesia are non-existent. These price points do not work politically for Indonesia. This is not the same for premium wine  sales, for the US$15-50 price point on an Australian wine shelf . In Indonesia these wines would be sold at an added premium of between $40-150. People pay for these wines, and they are consumed by the emergent middle class in cities like Jakarta, and are sought after in restaurants and Hotels across Indonesia. It must be remembered that Indonesia is a moderate Muslim country, and there is no ban on alcohol sales. There is however some restrictions on the number of importers allowed to bring in wine. My main message here is that, Indonesia is a market of opportunity for the Australian wine industry, and it should not be ignored out of hand.

If your company is looking to tap into the increasing demand for wine in the Indonesian market, please feel free to send me an email (nathan@asiaaustralis.com), and we can have a chat about how AsiaAustralis can assist your company meet the needs of the Indonesian market. Alternatively come along to the Australia Indonesia Business Council Business Forum – “Identifying opportunities for primary industries in the Indonesian market”  in Adelaide on Friday 30th March, to learn more about the opportunities for food exporters in Indonesia.

Asia: More than the Sum of its Chinese Parts

There is more to Asia than China - To succeed in the Asian Century it will be important to look beyond the Forbidden City.

Too often in Australia we think and talk of Asia as being China. Government strategies, political rhetoric, journalistic commentaries, and in many cases business strategies look to China as the be all of Asia. This is a simplistic and dangerous view to hold. China undoubtedly is a thriving and impressive market with somewhere around 1.3 billion people, including over 250 million in the middle class. It is the world’s largest country by population and will soon overtake the US as the world’s largest economy. China is a vast country stretching from the pacific coast in the East to Central Asia in the West, Russia and Mongolia to the North and India and the Himalayas to the South. Mega cities are abundant seeking to buy and sell all the worlds fare, while the resource potential is emerging anew with exploration and exploitation of rare earth minerals, and shale oil and gas reserves. China is clearly a behemoth, and it is important for any business and sovereign western government to plot a clear strategy for engagement with China. Asia however is more than just the sum of its Chinese parts.

Unfortunately I hear and see too often “Asia” being used as a proxy descriptor for “China”, which it clearly is not. We must remember that Asia is a vast continent which includes South Asia: Pakistan, India, Bangladesh (1 . 5 billion), Central Asia: Uzbekistan, Kazakhstan, Tajikistan, Kirgizstan, Iran etc (500million), and South East Asia: Indonesia, Vietnam, Thailand, Malaysia etc (600million). The rest of Asia dwarfs the population and labour resource potential of China. Asia makes up around half the world’s population. It is important to place this scale of opportunity into perspective.  The trade opportunities in these other Asian markets are equally impressive. Central Asia and Indonesian have abundant oil and gas resources, while in many countries there are rare earth minerals amongst other mineral resources readily sought on global exchanges. Indonesian for example is now the world’s largest exporter of Coal.

We should remember also that in addition to China, India and Indonesia make up three of the four most populous countries in the world…..and two of these markets are democracies ( India 1 billion, and Indonesia 250 million). The population size of other countries in Asia provides a renewed opportunity for manufacturing in the region from a non-Chinese market. The labour supply in Asian Countries such as Indonesia and India provide an opportunity for international manufacturers to tap into location benefits that can arise from proximity to sales markets and global supply chains.  The market opportunities in Asia are indeed more than just China and many successful companies are developing strategies to tap into these emerging market opportunities. So when you next hear a politician, businessman, journalist or man on the street talk of Asia….ask them which part? If businesses are to truly succeed in the Asian century they will need to actively build a strategy that goes beyond solely a China Strategy, as Asia is a big place, and increasingly likely to be the economic super region of the future.

f you would like to meet with me to discuss how I can help you and your organisation achieve success in the broader Asian markets, or you would like to discuss new opportunities emerging in the near future, please send me an email (nathan@asiaaustralis.com). Alternatively check-out my LinkedIn Profile and the website of my company AsiaAustralis.

First Signs of a Global Economic Orientation Towards Asia

Are we witnessing the re-emergence of Asia as the centre of world commerce again? has the thaw begun?

In the past couple of weeks there has been some interesting developments emerging from China, and increasingly interesting reactions from share market investors. The first development has been the announcement that China  has reset growth targets to 7.5%, which has been accompanied by investor concern around the world. The second major development has been the announcement that China has become a net importer for the first time in many years. This development too has led to falls in the share market and currencies such as the Australian Dollar, which is now seen as somewhat of a proxy for Chinese economic success. The reaction of the share market to each of these developments has been perhaps one-dimensional and not thought out or considered.

So what can we read into these developments?

Well firstly, these announcements do have a lot to do with the global economy and both developments are linked. Economic growth in both North America and Europe has been low, and there has been a parallel fall in demand for Chinese exports. This does not necessarily mean there is a fall in export growth from China, as there was still growth of exports in the last reporting period (17%), it was just that import growth well exceeded exports (35+%). This led to a net import position.  Chinese exports are still in demand, but the growth phase may now have slowed.  This slow down has been replicated in the new growth figures announced.  It appears the market is unhappy with the lower growth targets, after nearly a decade of growth above 10%. Any follower of economic commentary on China over the past five years will remember the often stated concerns about China overheating due to unsustainable growth targets.  These commentators suggested a target approaching 8% was much more sustainable in the long-term. So the growth target announced in China is still in this acceptable band. In my view the markets and China watchers should be rejoicing the sustained levels of growth in China and it’s resolute strength in withstanding the economic crisis in North America and Europe.

The Chinese middle class is emerging and they are increasingly seeking premium products. This presents a great opportunity for those international businesses with a capacity to supply

The effect of these developments on geopolitics is probably mostly related to the relative  value of the Yuan (RMB), which many western politicians particularly in the US have criticised for being undervalued. The trade deficit just posted demonstrates to the Chinese that the currency positioning is about correct (despite a small depreciation in the Yuan against the $US in recent days). I would expect the Yuan to remain around this level for the foreseeable future and not appreciate further against the $US in the manner that we have seen in the past 5 years (which has been around 30%).

So What does this mean for the everyday business engaging with the Chinese market?

Well I would suggest it is not bad at all. Chinese government forecasts are moving towards an inward and domestic focus. The  incoming Chinese leadership will most seek to expand the domestic economy and lift more people out of poverty and into the middle class. This will have a positive effect upon most businesses in countries such as Australia and the US. The emerging middle class will have a greater capacity to purchase foreign products, particularly in premium segments. This is all part of the global transition to the Asian Century, where a structural change is occurring in the global economy. The years to come will see China become a net consumer of products and services from the west. So if your business is geared towards selling value added products, then the Chinese market could well be the place to market your products in the years (or months) to come. If you are seeking to source low-cost labour for manufacturing….well I would be seeking other markets in the region. The Asian Century is here to stay and the rules of engagement are changing. These recent developments in China may well be the first signs of the global economic transition towards Asia.

The Path to Success in the Asian Century is more than just a China Strategy

Premier Weatherill identified the importance of Asia to South Australia, and identified a number of markets throughout Asia.

On Thursday I attended the Australian British Chamber of Commerce Luncheon: Succeeding in the Asian Century. It was an opportunity to hear from South Australian Premier Mr Jay Weatherill and the British High Commissioner to Australia Mr Paul Madden About their visions of the current and future trading, business and Investment opportunities in Asia. Both speakers were engaging and spoke of both the long held cultural values and business links between South Australia and Britain, and how there were opportunities for collaboration and partnership between British companies and South Australian companies to take advantage of the Asian Century. There was however a striking difference in the outlook of the two speakers.

The South Australian Premier perhaps constrained by domestic political considerations had a conservative outlook with regards to Asia. He spoke of the need to increase the export growth to Asia, and made particular mention of opportunities in China. South Australian export growth had grown by a larger percentage over the past 12 months than the other Australian states. The specific industry sectors that lead the export growth were described as the Wine and agricultural exports, and of course the future mining boom which will undoubtedly lead to further export growth in the decade to come. There was however a limited future vision of Asian expansion and future business engagement. Indeed the British High Commissioner perhaps provided a greater insight into the logical future movements into Asia.

The British High Commissioner spoke of his time as High Commissioner to Singapore, and of the enduring British legacy in the Asian region. But perhaps the surest insight into South Australia, and Australia’s future business outlook was contained in an answer to an audience question. The luncheon was attended by just short of 100 business leaders. One businessman asked of the speakers, why there seemed to be no strategic focus upon Australia’s largest, closest Neighbour – Indonesia. Unfortunately the Premier was unable to discuss a specific trade focus upon this country, other than to remind the audience that Indonesia was an important regional market. The High Commissioner, however spoke of the important business links between Indonesia and the rest of South East Asia, and how British business had entered Indonesia through their exposure to the Singaporean and Malaysian markets. He spoke of the obvious geographic proximity to Australia, and the undoubted market and population size (upwards of 250 million people) which should prove attractive for Australian and indeed South Australian business.

The luncheon provided a good opportunity to hear of the opportunities in Asia, and the success that was already occurring with Australian exporters in the region. The great pity of the luncheon was that it took a British Diplomat whom has a home market the other side of the world to truly identify the opportunities that exist right across the Torres Strait and Timor Sea in Indonesia. Let’s hope the Premier is able to grasp the market opportunity that exists in South East Asia and specifically Indonesia to help South Australian Companies succeed in this Asian Century.

If your company is looking to tap into the increasing demand for food in the Indonesian market, please feel free to send me an email (nathan@asiaaustralis.com), and we can have a chat about how AsiaAustralis can assist your company meet the needs of the Indonesian market. Alternatively come along to the Australia Indonesia Business Council Business Forum – “Identifying opportunities for primary industries in the Indonesian market”  in Adelaide on Friday 30th March, click the link to register and for more information.

%d bloggers like this: