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.

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.

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.

Consider the Risks before developing your future International Manufacturing Strategy

Manufacturing is complicated, make sure all your manufacturing cogs are lined up to maximise the returns

Australian manufacturers are facing high costs of production, and a high A$ beyond parity with the US$, which has resulted in a loss of competitiveness in international markets. If Australian manufacturers are to survive then the need to address these cost of production and regain the international markets. It is not in Australia’s long term Interest to have the manufacturing sector just get up and leave, as companies have developed years of knowledge and expertise, and in many cases have created substantial intellectual property invested in manufacturing in Australia. Manufacturers planning for the future need to consider how to effectively manage the international markets in which they will manufacture, and addressing the cost pressures and protecting intellectual property will be fundamental to developing a sustainable and effective international manufacturing strategy.

 Australia can no longer compete in low cost manufacturing with other countries in our region such as China due to our comparative high costs of production. As a consequence many Australian manufacturers have looked to China as the answer to cost of production issues, and moved manufacturing to China in recent years. This can be a great way to lower production costs, and many Australian companies have managed their Chinese operations successfully, however there are some downside risks to manufacturing in China. It is important to consider that the cost of production in China has been rising consistently over the last few years, with labour costs rising in excess of 10% a year for the past couple of years. To add to these cost pressures is the gradual appreciation of the Chinese RMB, which is making Chinese made products more expensive. These cost pressure, alone, suggest that China may not be the medium to long-term answer for absolute low cost manufacturing. Additionally another risk to manage is a loss of your intellectual property, which could result in either a competitor product entering the market, or a direct replica of your product which may erode brand confidence.  Can you be certain that your product designs won’t reappear around the corner for a fraction of the price? I know of many manufacturers who have been confronted with this very issue. Be careful.

Investing in Advanced manufacturing may allow your company to maintain its competitive advantage

One way of managing this risk is through maintaining the advanced manufacturing phase of production in Australia. In order to make Advanced Manufacturing work it is important to undertake Bulk manufacturing abroad while at the same time protecting your intellectual property. Assembling the bulk components, and installing the high technology components of the product in SA will go a long way towards protecting the most important assets Australian manufacturers possess: Intellectual Property. This can be a complicated task, particularly in relation to Australia’s geographic proximity to the low cost manufacturing centres in Asia. If manufacturing is undertaken in China it is important to consider the logistics time to freight components from China to Australia. It can take up to 5 weeks to get products from manufacturing facilities in China to the warehouse in Australia. Can your business cope with that time delay? In order to make Advanced Manufacturing work for Australian companies it is important to undertake bulk manufacturing of components in geographic locations that do not pose a substantial time disadvantage. 

The growing costs of production in China in recent years, and the need to protect intellectual property mean that manufacturers need to look beyond a reliance on the China solution if they are to find sustainable low cost manufacturing to compliment the advanced manufacturing in Australia.  I would advocate a look at other markets in South East Asia to undertake bulk manufacturing, and reduce the freight time.  The advantage South East Asia possesses is that the freight transport corridor stops in Singapore on the way to and from Australia. The closer the manufacturing centre to Singapore the faster it can be on a ship heading to Australia, where advanced manufacturing can then be undertaken.  Australian companies planning their international manufacturing strategy must plan for an Advanced Manufacturing future if it is to manage the intellectual property risks, while it is important to look north and consider the bulk manufacturing opportunities on Australia’s relatively closer northern doorstep.

Addressing Australia’s Reactive Asian Engagement Strategy

Australian needs to proactively and strategically engage with Asia, not watch passively and reactively.

I had the opportunity last week to attend a business community consultation session with the Department of Foreign Affairs and Trade and the message I delivered to them was that Australia’s foreign policy position is fundamentally wrong. Australian governments in the recent past have adopted a reactive strategic approach to international trade and engagement with Asia, and ‘we’ run the risk of missing the major opportunities that will arise through greater integration and engagement with Asia in the 21st Century. There are a number of examples that I can draw upon to emphasise this reactive policy position, and many of these policy positions are driven by domestic political imperatives, that have little use to an Australian economy that operates in a global trading and information system.

The current challenge posed to the manufacturing sector in Australia has been a long time coming, and we have had ample opportunity to address the productivity, skills and technology gap over many years. Unfortunately, the rising Australian Dollar has created an uncompetitive environment for Australian manufacturers and they will need to adapt quickly to this new environment, or disappear completely.  Politicians on all sides seem to fail to understand this new global paradigm we exist in, and so we still see the usual responses of cash handouts, to maintain the existing jobs in bulk manufacturing. There is no linkage of these grants to high technology and research and development. This must change if Australian manufacturing is to be maintained. Australia’s manufacturing future if we are to have one must be in high technology and advanced manufacturing, and we only have to look to Germany to see the template for success. If we do not engineer political policy to allow for this manufacturing transition to occur quickly many companies will cease to exist and, Australian manufacturing will come to an end.

Another example of the reactive policy thinking is through the constant debate about overseas investment in Australian resources. This is primarily a concern based on future needs, and at the moment Asian investors from China, India and other parts of Asia are placing a pricing premium on Australian resource investments.  The resources and profits generated from these investments are primarily repatriated to the home country markets in Asia, and there is rightly a concern that Australia is selling our resources for too low a price. Australian investors are choosing not to compete, and subsequently they are missing out. However, our International perspective appears to be stuck in a bubble where we see every action in isolation as if we are not operating in a global trading environment.  

Australian governments should be encouraging Australian companies to be increasing their investment exposure in Asia, to compete, and to help hedge against costs that have been affecting the viability of wholly Australian operated ventures.  An approach that seeks to encourage outward trade and investment from Australia will have multiple positive effects for the Australian economy. If we look to the manufacturing sector, there is an opportunity for these businesses to transition their operations to high end and advanced manufacturing in Australia, while offshoring the bulk and low tech component manufacturing to nearby Asian markets. This will allow increased investment in technology rich manufacturing helping to build our advanced manufacturing competitive advantage. Equally we need to remember that just as our political class and media lament the repatriation of profits back to home countries in Asia, we have this same opportunity. Australian owned investments in Asia, will allow for repatriation of profits back to Australia. A case in point would be a company such as BHP Billiton, which is utilising its vast profits collected from around the world into developing the large Olympic dam mine expansion.

So my message to the Australian Government is to take a proactive policy approach to Asia, and create an environment where Australian companies are encouraged to engage, interact and invest in Asia. Our future depends upon this investment.

Rediscovering Business Opportunities of Yesteryear in Asia: How the Economic Success in China is Connected to Indonesia

Jakarta is a thriving business environment, not the dysfunctional city perceived by many western business leaders

Tales of woe, corruption, graft, terrorism and political instability are commonly heard when Indonesia is mentioned as a destination of business opportunity for western business leaders. This is a perception that has its foundations in the dark days of the East Asian Financial Crisis (EAFC) in 1997/98/99 that catapulted Indonesia from one of the most promising emerging economies into a basket case economy.  Times have changed however, and the opportunities that once existed in the Indonesian economy have returned. No longer is Indonesia burdened with the financial difficulties and structural change brought on by the financial collapse. Gone are the Suharto days of graft and  corrupt payments being required at every corner to achieve positive business outcomes. Stability has returned to the political system, and Indonesia has emerged from the EAFC as a beacon of strength and success of a parliamentary and presidential democracy in a predominantly Muslim country. If it was not for a quirk of history, it could have been Indonesia that was the Asian success story, instead of the might of China as we know today.

It is often forgotten, conveniently so in many cases, that in the mid 1990’s it was not China that was talked about as the must invest in economy in Asia, but more so;  Indonesia. China was still emerging from economic and political isolation, and there were recent memories amongst business and political leaders of the Tiananmen Square crackdown. China was perceived as a risky place to do business, although many global business leaders could see the opportunities over the horizon. Stories abounded of the imminent collapse and chaos that would befall China, and its communist system, just as the political and economic system had collapsed in Russia a few years earlier. There were equal concerns of how China might behave in a global trading system, and whether they would play ball with the existing traditions and treaties. China in the 1990’s was certainly not a member of the global trading community or signatory to any international trade treaties such as GATT, or the later WTO. China was an enigma, trapped by its recent political and economic history.

President Suharto lead Indonesia through a period of sustained economic growth and political stability from the 1970's through to late 1990's

Indonesia on the other hand was all that China was not. Indonesia, had achieved strong and consistent economic growth of between 4-8% year on year for a large part of the previous 30 years. The political system although not perfect in Western eyes, and certainly not a democracy, was a stable and friendly government for western political and business leaders. Corruption was present, and bribes needed to be paid, but in most cases it was a known quantity, and people knew who to pay, and how much was required in order to get the required outcome. Corruption was effectively regulated under the Suharto regime. Business leaders, although not comfortable with corruption, at least had a level of certainty that was not present when considering other emerging markets in Asia. In the mid 1990’s as is the case now, Indonesia was a vastly populated  country, that was largely untapped, with unlimited potential. Only China and India, had greater populations in Asia, and they were inhibited by the abovementioned issues in China, and India had only just emerged from international isolation in 1991. Indonesia was a signatory of GATT and then WTO, and was therefore a longstanding member of the global trading community. All this meant that any international company looking to invest in Asia, were seriously considering investments in Indonesia. If it wasn’t for a quirk of history: the EAFC and  associated political turmoil, Indonesia, would be much further developed than it is today.

The EAFC meant that planned investments in Indonesia were frozen and subsequently withdrawn in many cases, and in 2003 when China entered the WTO, many western countries moved their Asian investments to China.  It is true that Indonesia has experienced great challenges in the recent past that have presented tangible and intangible barriers to entry and operation in the market, however, the opportunities for  western business are greater now than at any time in the past. Indonesia has now once more re-discovered much of the economic and political stability of its past, and is seeking global partners to engage in business.

The question now for business leaders in Australia is: Will your company take the opportunities available in Indonesia? or will you miss out on the next big thing in Asia?

Protect Your Manufacturing Heritage By Moving To An Advanced Manufacturing Model

Mitsubishi closed their manufacturing plant in South Australia due to the comparative high costs of production, it is time to rethink bulk manufacturing in Australia

The South Australian economy for many years had a strong manufacturing sector, such as the automotive manufacturers GM Holden and component manufacturers in the North of Adelaide and the now closed Mitsubishi and component manufacturers in the South. Automotive manufacturing is not the only manufacturing sector in SA, however the economic and market forces that contributed to Mitsubishi leaving SA, and Holden downsizing production provides a lesson for other smaller manufacturers. Right now SA manufacturers are faced with high costs of production, and a high A$ which is near parity with the US$, which subsequently pushes up the price of Australian Products abroad. For many international markets Australian made products are just too expensive at the current A$ level, and are no longer competitive. If manufacturers are to survive in South Australia then the need to address these cost of production and regain the international markets.

So what can SA manufacturers do to address this potential loss of International markets?

It is not in SA’s Interest to have the manufacturing sector just get up and leave, as we have built up years of knowledge and expertise, and in many cases companies have substantial intellectual property invested in manufacturing in South Australia. The time is upon SA business to look to the future and effectively plan for the next 10 years where an A$ has been forecast to be high. Manufacturers must address these cost pressures through rationalising their manufacturing while at the same time protecting their well invested intellectual property.

But how can manufacturers do this?

The South Australian government has identified this challenge of a loss of competitiveness in recent years and is now encouraging “Advanced Manufacturing” in SA, where cost is not the primary factor, but instead just one of the important factors along with quality, and Research and Development. Australia can no longer compete in low cost manufacturing with other countries in our region such as China due to our comparative high costs of production. Advanced Manufacturing works when Bulk manufacturing is undertaken abroad, to keep costs down, and then the final high technology manufacturing is completed at home. This allows a company to maintain cost advantages through the overseas manufacturing while at the same time protecting your intellectual property. Assembling the bulk components, and installing the high technology components of the product in your home market will go a long way towards protecting the most important assets manufacturers possess: Intellectual Property. This can be a complicated task, particularly with if your home manufacturing base is located well away from the low cost manufacturing centres in East Asia.

Manufacturing in China can be achieved at a fraction of the cost to bulk manufacture in Australia

In order to make Advanced Manufacturing work it is important to undertake bulk manufacturing of components in geographic locations that do not pose a substantial time disadvantage. With the growing costs of production in China in recent years SA manufacturers need to look beyond a reliance on the China solution if they are to find sustainable low cost manufacturing to compliment the advanced manufacturing in Adelaide. I would advocate a look at other markets in South East Asia to undertake bulk manufacturing, and cut the transport time. The Advantage South East Asia possesses is that the freight transport corridor stops in Singapore on the way to and from Australia. The closer the manufacturing centre to Singapore the quicker it can be on a ship heading to Australia, where advanced manufacturing can then be undertaken.  

The ASEAN Free Trade Area means that South Australian companies now have greater access to South East Asian markets such as Indonesia, Malaysia, Thailand and Vietnam. To plan for the Advanced Manufacturing future it is important to look north, but consider the opportunities on Australia’s northern doorstep.

The Politics of Travel Warnings

The recent unfortunate shootings/terrorist attacks in New Delhi in the lead up to the 2010 Commonwealth Games have highlighted for me the problem with travel warnings, and in particular travel warnings from the Australian government.  As a business traveller or a tourist it is important to be abreast of the latest travel advice but how much faith do you put into the one liner warnings?

probably the safest place to be in India...inside the Taj Mahal complex

The travel warning for India has just been raised to “High Degree of Caution” which is one notch down from “Reconsider your need to Travel”. India is split into different regions in the travel advisory, with Jammu and Kashmir those politically disputed regions near Pakistan are classed as “Do not Travel”; which is probably fair enough.  The other major region that is discussed is the Northeast region of Assam, Nagaland, Tripura and Manipur, which has been classed as reconsider your need to travel. I had the good experience of travelling to India in December 2008 and January 2009, not long after the Mumbai Terrorist attacks.  Delhi was on high alert, with metal detectors in metro stations, hotels and tourist sites, however I must admit that I couldn’t work out how the machines were working…it appeared as though only those people who didn’t beep when they went through the metal detectors were frisked. Was this some sort of weird reverse psychology? Either way it didn’t fill me with that much confidence. The Gun pits outside the Taj Mahal with soldiers sporting colonial era Lee Enfield Rifles didn’t do much for confidence either! I am hoping that the commonwealth games have brought with it increased funding for Metal detector training and new automatic rifles……Exercising a High degree of caution is indeed good advice!

Inside the Forbidden City where security is very tight

Other countries such as China for example have their own regional tensions in “far away” provinces like Tibet and Xinjiang, where rioting and some “terrorist” attacks have occurred in the recent past.  But with the exception for these two provinces in China which are classed as “High Degree of Caution”, China is more broadly classed as “Exercise Caution” which I would say is fair. The United Kingdom is also a major trading partner with Australia and is destination to 100,000 of Australian tourists every year, and the threat level in the UK is the same as China: “Exercise Caution”.  I would also remind the reader that throughout the 1980’s and 90’s there were Irish terrorist attacks that occurred in the UK, while in the past 5 years there has been two attacks on the London Underground network, and an attack on an airport in Scotland. In addition to this there have been multiple “anti-terrorist” arrests to break up suspected Terror cells. 

Why is this terrorist attack information on China and the UK important?

Is Indonesia that much more dangerous than India and China?

Let’s look at the case of Indonesia. Indonesia which also includes Bali, and is one of the major travel destinations for Australian tourists each year and it is rated as “Reconsider your need to Travel”.  The reasons given for this is that there have been large scale terrorist attacks in the past that have killed westerners. There has also been the recent bombing of the Ritz-Carlton hotel in Jakarta in July 2009, which killed some Australian Business people, and a shooting of a mine contractor in West Papua. Now these events are all very important, and need to be taken into consideration. The report for Indonesia mentions intelligence suggesting likelihood of further attacks, but can we take these too seriously? The problem with Indonesia and the travel warning is that it has been stuck at “Reconsider the need to Travel” for the best part of a decade.  In the recent past there has been more chance of been arrested for drug smuggling in Indonesia then being involved in a terrorist action. So can we and should we take these Travel warning seriously?

Well, it is hard to argue that they should be ignored. Safety should always come first, but when we compare the travel advisories of the UK, China, India and Indonesia then it is hard to think that there is not some political motivation that is colouring the travel advisory.  The travel advisory for India is particularly confusing when compared to Indonesia, with Terrorist attacks more frequent and more recent than those that have occurred in Indonesia in the past 3 years. 

What impact do these travel advisories have on International Business?

Rightly or wrongly these advisories impact business quite a lot. Some business people will have risk mitigation processes that will forbid or provide restrictions on travel to countries with high travel warnings.  It will also naturally affect a business decision about the viability and safety of a given project in a country/market with a high warning. And additionally it appears to prove an impediment to State Governments in Australia providing useful advice to businesses wanting to invest in a High Warning market such as Indonesia.

So next time you need to travel abroad, remember to check the travel advisory, but consider all the information at your disposal before you decide whether it is safe to travel. Personally, I find it hard to see how Indonesia is rated as “reconsider your need to travel” and I hope that this rating will be reconsidered again; exercising a high degree of caution is where I believe Indonesia should really be rated on the travel advisory. Let’s encourage out government to institute a fair warning system that both tourists and business can rely upon for accurate and up to date travel advice.

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