Lilliput Inc.

Australia’s bigger companies, with a few exceptions such as BHP, Rio and News Corporation, are awful at globalisation. This is becoming obvious with the Australian dollar at such high levels. Global companies adapt to high currencies by relocating production elsewhere, acquiring offshore, manipulating their cross border value chains. That way they can at least respond, often they can profit. But Australia’s cosseted cartels have never understood this game. The occasional attempts to internationalise, such as the banks, are usually ill fated, offshore nibbles. But the real challenge, which is to manage across borders, is far beyond their management skills. Australians love to say they punch above their weight, but in this contest most of our bigger companies don’t even know where the ring is.

A report by Macquarie traces the cost of this ignorance. It suggests that those companies at least wrestling with globalisation and its demand for world class specialisation are showing better signs of coping. There are three types here: global, international and domestic. The miners are mostly international, and are under pressure. The domestically focused players are struggling. But global players like Amcor, Resmed, CSL, Computershare are adapting better:

Companies with significant non Australian markets and international operations in the main presented a view of strong recoveries, with top lines growing and still low cost pressures, especially wages. Where there were concerns expressed, these tended to centre on operations exposed to stronger commodity prices. The major problem for these companies is the AUD translation in prospect.

The picture in Australia, however, was extremely mixed. The resources outlook (volume in particular) remains strong. The challenges for resource companies is how to manage the long list of capacity expansions, while trying to control rampant cost inflation in an environment of severe skills shortages and government inaction on this front.

This is a frustration for virtually all stocks exposed to the mining sector, including engineers and contractors, with skills shortages and associated labour costs increasing as education and required skill levels increase. Several stocks across a range of industries are outsourcing manufacturing offshore (UGL, FWD, OSH, etc) in order to deal with rising domestic labour costs. For several stocks, even offshore labour costs, particularly in China, are increasing (albeit from a lower base). This has driven further expansion into other markets, including Thailand, Vietnam, India and Bangladesh.

 Hence, for domestic Australia, the picture is one of weak top-line growth and an associated sustained earnings slowdown in the consumer and manufacturing spaces. The consumer is reticent and saving, with little sign of any change. Manufacturers are in the middle of a perfect storm from the strong AUD, flat to declining demand, wage growth of 4%+ and cost increases in commodity and utility costs. For some, further capacity shutdowns seem inevitable.

 Stocks with strong business models and dominant positions within specific markets or market niches are the exception to this trend, driving growth through incumbency, continued R&D and technological advances and significant barriers to entry.

Amcor, which combines a domestic cartel with the pursuit of a global niche, is especially singled out:

With these themes in mind, AMC impressed with its clarity of strategy both from the point of view of both the positioning of its product and the rationalisation gains from recently well-timed acquisitions. Again, like many stocks presenting at the conference, the overseas operations stood out for their strong momentum, including those in Europe, the US and Asia. By contrast, Australia was the laggard with an overvalued AUD and cost increases, especially for vulnerable customers.

The lesson is clear. It is time corporate Australia stopped congratulating itself for being lucky enough to have massive domestic markets shares and instead started to address the real challenges of globalisation. After all, the domestic stock market, which is two fifths owned by foreigners, is already globalised. Some humility and a willingness to learn would not go astray. The challenge is to be the best in the world at something you do, not just good at milking market dominance.


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  1. Racism and insularity is rampant in all parts of the Australian labour market. A colleague of mine came over from the UK with 10 years of accounting experience to be told that as he wasn’t CPA/CA qualified (his was the English equivalent of the CA). A year later and experienced in the Australian market (albeit at a much more junior level than the UK) he was ready to try again, this time for leadership positions (he had 3 years leadership experience). He was told that he didn’t have Australian leadership skills and that his UK experience wasn’t relevant to Australia !?!?

    My experience was similar, 2 years of working in Ireland for Microsoft (European employer of choice), was meet with comments like “You seem really well skilled and I’d love to place you, but you really need experience at a company like Telstra”

    • Small Australia

      Your anecdotes are interesting. However I disagree with the accusations of racism. One thing I have noticed living in 4 different continents mixing with expats is that wherever the immigrant moves into a society the locals are considered “fat lazy and dumb” and that the immigrant is “needed”. I am certain Australia is no different.

      Here is my anecdote- when I returned to Australia from the UK in 2003 as an Accountant (with 10 years experience) – I was told “we have all these excellent English and Irish candidates who have worked at Lazards in more prestigious banks and roles”. I replied that as I was an Australian on a 2 year visa I couldn’t get the good experience and now I am being pushed aside in my own country. They didn’t care.

      I have found in Australia that whereas in the 80s and before your foreign experience was looked upon as superior to the locals ( cultural cringe), this dried up with cheap international travel as the Aussie realised his work ethic and initiative was in fact superior to workers in many other developed countries.

      Lastly in Australia there is no supposed “skills shortage” etc. This is rubbish put about by vested interests like the Labour Party and big business who want cheaper wages. They would rather import than train the locals. The fact is the employers can choose people who have experience in their industry even though I agree these skills are transferable as there is an oversupply of skilled labour. These arguments have been used against me in the past as well.

      I would conclude that you have been duped in the immigration game but also the biggest loser is the Australian who could have had these position in lieu of someone from overseas and who cannot just easily leave the country.

    • It cuts both ways 1eyedJ – my experience overseas (USA and UK) is you have to be prepared to take a cut in pay and prestige to climb the ladder again. Most jobs are gained through personal networks and a new immigrant doesn’t have that advantage. That leaves an over-reliance on recruitment agents who IMHO are worse than real estate agents.

  2. Australia is realistically nothing more than a colonial quarry thanks to globalisation. Rather than refining the resources we dig out of the ground – we offshore it for others to benefit which is classic British mercantilism. For example, if we were to refine bauxite into aluminium, there would be a 10-fold increase in the value of the final product and the creation of an additional industry in Australia.

    These foreign investors who have controlling interests in our local mining industry, have also significant interests abroad in the countries that receive and refine our resources. Why? More profit – because of cheaper labour.

    • And then one doesn’t need to wonder why we never seem to have enough ports or rail infrastructure to cope with any commodities boom…..Reason being value add is absent and more and more volumes need to be shipped to capture the upside potential in price (irrespective of marginal or parabolic increase)

  3. Australia has become the world’s quarry thanks to the opening up of our economy and its the best thing that has ever happened to this country. Anyone that has studyed trade economics will know that countries produce more of whatever they have a competitive advantage in, however in the case of Natural Resources this negates the need to become competitive as the resource is not mobile. AKA we recieve higher incomes but miss out on the value add or manufacting job, which are low paid and no Australian would want to do. Its true that we are the beneficiary of Asia’s Mercantilist policies, I’ll highlight ‘benefit’ as mercantalism only hurts countries that are competing to sell the same products. Which Australia is not. A country like the US however is.

    Oh and Australia is a world leader is producing Alumina and Aluminum for export.. go the the ABS data.

    Additionally its crazy to think that we could value add to anything dug out of the north west of the country. I’ve lived up there and there not enough people to build the mines, let alone work in processing and maintainance. It would be impossible to start a significant value add in North West WA, unless we sent all the ore to perth.

    Besides, dont we call have decent well paid jobs and living standards comparable to the best in the world.