A call-out to South Australia's SMEs: where has your mojo gone?

Where in the world are South Australia’s SMEs?  We’ve lost our inspiration, innovation, productivity and competiveness.  In essence, the mojo we once had as a State.  So what’s to be done?

There is cautious but authoritative optimism for the world economy in 2014 that may help boost SA’s economic growth, currently expected to be weak and according to Deloitte Access Economics, settling at only about half the national average for the foreseeable future.

Approaching the half way mark of this financial year, SMEs’ expectations were recorded by the Sensis business index at the highest level since August 2010. That would be a lift of 33% in 12 months.  But, since December, a Business SA Survey of Business Expectations shows that in fact they have dropped back 20% and that SA has the weakest performing economy of the mainland States.

While this sounds pretty grim, “Can Do Better” would, nonetheless, be a fair comment on SA’s report card.

A national advisory firm declares that Australia’s SMEs, looking to grow this year, must have innovation as their major focus.  Fortunately, SA businesses have a formidable history as world class innovators.

Then there is the Australian Bureau of Statistics (ABS) reporting that, since the global financial crisis (GFC), SA’s then existing 146,823 businesses have, at 63.1%, the second highest survival rate of any State – only 0.8% less than that of Tasmania.  Similarly, for businesses created post GFC, SA again has the second best survival rate of any State – 52% compared with Tasmania’s at 54 2%.

Given that clearly SA has so much going for it - including businesses which both pre and post GFC are surpassed for flexibility and survival capacity by so very few in Australia – what is it then that has diluted last year’s momentum of positive expectations?   What needs to be done to rid SA of its persistent economic malaise?

Competitiveness lacking

Our national share of the economy was 7.3% in 1990. It is now 6.3%. Over this period corresponding figures for employment went from 8.3% down to 7%, population from 8.4% to 7%, and health and social security 9.3% to 7.6% (despite SA having the oldest population of the mainland States). Similarly, SA’s share of the professional, scientific and technical services sector (a prime source of innovation) has dropped from 6.6% to 4.9%, and for manufacturing the figures are 8.3% to 7.5%. Indeed, we have performed at a worse level in manufacturing than Australia generally for the past 23 years.

But guess what?  The only SA economic area that has increased relative to Australia as a whole (which includes the public service in the ACT) is our State’s public administration/safety sector (up from 6.4% to 7%). It is in this sector alone that we out-perform the rest of Australia.

In 1990 SA’s share of private investment in Australia was 7%.  It’s now down to 5%.  Economic growth is stimulated by investment, and so long as SA’s economy is structured to support public spending and deter private investment to a greater extent than other States, our economy must continue to lag behind Australia’s as a whole.

And, again, it is because of our lack of competitiveness that SA exports are only 14% of the State’s economy compared with 20% for the nation’s economy as a whole. Exports are static, according to 88.9% of respondents to a recent ABS survey.

But gloom is not doom

The ABS’s current key economic indicators show the SA economy to be lack lustre, characterised by marginal gains in sales of goods and services but yoked to high costs of doing business.

Thus, 67.8% of businesses will not be taking on employees in the March quarter, 16.5% will cut jobs and 81% expect the rate of unemployment to increase during this quarter.

Three major threats to the economy in the next four years are tending to intensify the gloom – Holden’s exit, the pending “infrastructure cliff” in 2016, and the so-called “valley of death” for defence projects between 2017 and 2020.

But Deloitte Access Economics not only argues that the impact of Holden’s departure is “often exaggerated” and SA’s economy “is larger and more resilient than many realise”, but also points out that “while projected growth is weak, it’s not negative”.

Deloitte indicates agriculture and education as possible new growth industries for SA and says that the stalled Olympic Dam expansion “must go ahead at some stage”, adding, “this is a world class asset and demand for its potential production will continue to rise over time”.

It also notes that “initial exploration in the Arcaringa Basin suggests there may be enormous shale gas opportunity in the area surrounding Coober Pedy”.

So what’s to be done?

Whatever else the State Government does – with the Budget deep in the red – it seems to us the focus should be on finding low cost ways to deliver boosts to productivity.

The Government’s focus on WorkCover reform is an example of its realisation that in fact the employment rate can be increased without costing taxpayers a cent.

So what about the Master Builders’ Association - with its members claiming they are being choked by red tape and recently detailing mind-boggling examples of artificial costs for which there is no discernible need. Surely these costs can and should go.

SA’s most resilient businesses are in healthcare and social assistance, agriculture, forestry and fishing, retail hiring and real estate – all backed by world class technology.

Adelaide’s Rising Sun Pictures has a growing global clientele of film companies for which it provides computer-generated effects. Simon Hackett, who has just sold Internode to iiNet for $105m, is now teaming with fellow internet multimillionaire Ross Williams and Swedish-born Adelaide author Anna Solding in a new venture. They’re launching Midnight Sun to exploit opportunities of new technology that will meet demand from readers for multi-platform and multi-format books that are transforming the industry.

SA Business’s Chief Executive, Nigel McBride, says SA’s economic revival should and can be led by export industries such as food production combined with food and beverage manufacturing, all of which rely on access to efficient freight routes linked to strategically located ports. “We must also continue to develop our education and tourism industries, both major service exports for the State.”

As our international reputation continues to grow, and he believes it will, Mr McBride sees the urgent need to reform migration policy so that preferred migration status “allows for the best and brightest to come to work in SA”.

Of New York is said that if you can make it there you can make it anywhere, and in an odd coincidence, that’s also what is said about SA. For, as the evidence shows, we have a collection of SMEs among the most resilient and best survivors in the nation.

So there’s no doubt that given a break or two by governments (that have nothing to do with financial handouts, but everything to do with taxation and regulatory reforms) that South Australia can indeed do better, and build a critical mass of SMEs sufficient to ensure the State’s economic future.

To join or start the discussion, simply click on the word comment below and tell us what you think.

Your guest blog today was written by Mr Peter Macks of Macks Advisory.

Based in Adelaide, Macks Advisory is a boutique advisory firm specialising in Corporate Advisory, Restructure & Turnaround and both Corporate & Personal Insolvency.

Their focus is on dealing with companies and individuals in financial stress, turning them around where possible and working closely with stakeholders to maximise returns or minimise losses.

Don't hesitate to contact Macks Advisory if you have questions or would like advice, remembering of course that the initial enquiry does not cost and is obligation free.  Their aim is to enable people in difficult financial circumstances, whether corporate or personal to make informed decisions.

Peter Macks, Principal
Macks Advisory, Level 11, 99 Gawler Place Adelaide.
Telephone 08 8231 3323 or email us at info@macksadvisory.com.au

www.macksadvisory.com.au

It's true. People who grow food are starving.

Many of the farmers that grow the cheap food we throw in the bin every day can no longer feed themselves.

If the world already produces enough food to feed 12 billion people, why do we keep hearing about food security and not food waste?

In my last blog I proposed that to better-understand and find opportunity in the globalised food system, food waste was the elephant in the room.

Does this mean that the issue of food security does not exist?

Unfortunately, food security is a very real issue in many parts of the world.  Shamefully, food security is now an issue in the many regions that were once happily feeding themselves.

 

But if we are overproducing food how is it so?

For centuries subsistence farming has held-together rural communities in many third-world countries.  As the commoditisation of food has diminished the quality and availability of existing arable land, vast areas of native vegetation have been cleared to provide new land to grow crops.  To achieve this, those in control of the global food system have broken-down the subsistence farming model with the lure that poor rural communities can become rich.

Many of the crops grown are for export.  These are crops that can’t be eaten until they are processed or refined somewhere else e.g. coffee.  Basically a cheap way of growing food for someone else that can pay a higher price for it.

In many rural communities mono-crop farming has gone horribly wrong.  The local people no longer have neither their own food supply nor can they afford to buy food, because the cost of modern farming has sent them broke.  And to top it all off, they can’t return to their traditional ways because the ecology of their native land has been destroyed.  They are trapped in a vicious cycle of clearing more land.

Clearly, the issues of food security and food waste are unsustainable in today’s global food system.

Why am I picking on this?  It’s not why you think.

Consumer tipping point

If you are involved in agribusiness and food, then the topics of food security and food waste are a lesson in what it means to be consumer-centric.

Why is this important?

There is a HUGE groundswell movement by consumers who are demanding to understand the global food system.  We are on the verge of a tipping point whereby consumers will have a better understanding of the global food industry, than many of the operators in it.

This is significant because consumers will be making purchasing decisions based on their understanding.  So when they buy their food they will be seeking-out messages that demonstrate you understand to.

Do you truly understand what it is going on in your industry?  You need to understand the food system so that you know how to look for and identify the next market opportunity.

If you don’t understand what is happening in the food industry, you will not give-off the right messages and your products will not sell.

The non-price characteristics of food and food experience are the fastest growing phenomenon in food.  It provides small to medium operators an incredible niche opportunity to different themselves by projecting the right messages in the areas of:

•          Sustainability
•          Ecologically sound
•          Land clearing
•          Water usage
•          Food waste
•          Organic
•          Non GM
•          And so on.

There is more than enough room in all this to really build-up the intrinsic value of your products in the minds of consumers.

The higher the intrinsic value, the more money you make.

The Great Global Food Waste Scandal.

If the world already produces enough food to feed 12 billion people, why do we keep hearing about food security and not food waste?

Instead of hearing a story about the need for food security, we should be hearing a story about the need to reduce food waste.

Did you know that about a third of all food produced is thrown away at some stage.  In fact, in some sectors up to 40% of food produced is thrown away before it even gets to the first stage of processing.

The answer is because the global food system is now controlled by a powerful few that are in the business of selling, not reducing.

These organisations have been grooming us to be consumers of processed foods, and have been grooming farmers as consumers of inputs.  In many instances it is the same company in the business of both.

Positioning yourself in the middle of the food supply chain is precarious but highly profitable.  Like any supply chain, it is precarious in the sense that if consumers can get closer to the origin of their food, then mid-market participants would be out of business.

Consequently, they have been aggressively establishing their position, consolidating and defending it.

But to keep making loads of money, two things need to keep happening:

-                        -  Farmers need to keep overproducing,

-                      -  And we need to keep overeating.

Reducing global food waste is the elephant in the room, because less waste means food would be cheaper, healthier, more accessible, less repeat-purchase of processed food products by consumers and less inputs used by farmers.

This great presentation really sets the scene:

High-levels of food waste actually keep the global food system inelastic enough for a powerful few to make a huge amount of money.

This also means there is no buffer for production shocks such as drought, which means they make even more money during times of adversity.

For these companies it is vital that a third of the world’s food is wasted.

I think consumers understand the issue of food waste very easily and are suspicious of the food security and productivity argument e.g. GM crops.  Consequently, food waste is a story not often told.

This presents some awesome marketing opportunities for savvy food producers.  If you’re food waste responsible, let’s tell consumers the story.

 

It won’t be long before messages about responsible food waste are on the front of food labels at the behest of consumers.

As much as consumers can be sold a story by the powerful few, so can our farmers of the world.  In my next blog I’ll talk about the story farmers have been sold and how many of them can now no longer feed their own families.

To join in simply click on the word COMMENTS below.

Adelaide. Breathe. What the bloody hell is that?

One of THE most expensive mistakes in marketing is to make yourself feel good and not your customers.  It’s the oldest trap in the book.

And someone spending your money to scratch your ego is the oldest trick in the book.

Sometimes I get so frustrated when I see this happening I’m lost for words.  Especially when I know someone has kissed goodbye to a lot of money.

In particular I’ve been tracking the new cryptic campaigns about South Australia, because they are linked to promoting our regions, agriculture and food.  As I said, I’m mostly lost for words.

Quite frankly, the fact that some of these creations have won awards within their own art fraternity means diddly-squat to the client (or taxpayer) that paid for it and wants results.

So I asked local advertising guru Karen Zaskolny of www.copywithcream.com.au to take a look at the situation.  Karen is a straight-shooter with the ‘street cred’ to back it up.

Enjoy.

Wanky commercials that nobody gets.

There seem to be a few ads around lately that are so out-there, nobody has a clue what’s going on. Self-indulgent, arty ads that I think don’t work. Like the new ad for Adelaide. Maybe it’s a case of The Emperor’s Clothes, where you have to be really clever to get it. I obviously failed this IQ test. Do you pass? Here it is.

But who is this ad made for?

Are we making ads to make ourselves feel better because we have an identity crisis in Adelaide? Or are we really making something for the Eastern states? According to the article in Travel Weekly, our Premier said “It will get people talking about and travelling to Adelaide to find out for themselves what it is that is changing here.”

I hate to burst Jay’s bubble but according to market research conducted recently in the Eastern states, people’s response to Adelaide was actually ‘nothing’ – not negative or positive, just neutral. They really don’t care. And I’m not sure this ad will make them change their minds. They definitely won’t jump on a plane on the off-chance. Personally, I’m into recycling, so I reckon we could re-edit the previous ad for Adelaide, which at least showcased our festivals. Here’s the link for that one. 

http://youtu.be/QgjpVQZ4Xxc#aid=P8viDeo9RRQ

The ad is made by the same mob as did the Barossa ad a short while back. I’m sure you’ve seen it but if you haven’t, here’s the link.

http://youtu.be/MoMp-V_CRdc#aid=P8viDeo9RRQ

‘So where the bloody hell are you?’
The new Adelaide ad not only makes me think ‘What the bloody hell is going on?’ it also makes me think ‘Where the bloody hell are you?’ because the ad makes you wait till the end — a minute and a half! — before telling you that you are actually in Adelaide.

Speaking of the famous ‘Where the bloody hell are you?’ Lara Bingle ad, that’s another one that missed the mark. Why? Because that tagline was clearly written for Australians. In fact, if the ad had been designed for Australians who’d moved overseas as part of the big brain-drain and wouldn’t come home, it mighta worked bonza. If you can’t remember the ad (and I’d be surprised) here it is.

It’s all a bit like the upside down ads in the paper

Years ago, I used to work at The Advertiser Newspaper, where part of my job seemed to be to try and stop clients doing stupid things. There was always the client that insisted on putting their ad in the paper upside down, thinking they were really clever. They wouldn’t believe us when we told them that sorry, nobody is going to put in the extra work needed to turn the paper round and read your ad — they’re busy flicking through to the Sports section. In much the same way, nobody is going to care about sitting through an ad that looks like 10 different movie trailers. In fact, the only place you’d sit through the ad is at the movies, because you are forced to. No remote.

Testing, testing…
It was also while I worked at the paper that I learnt a really good lesson. Just because I get the ad, doesn’t mean everybody else will. So I came up with a test. I’d come up with the ad concept, do a visual and then show the creative team. But they were creative. They weren’t the man in the street. The man in the street was the rep. Which was the real test. So even when I got a ‘yes’ from the creatives, I wouldn’t assume I could go with it.

Because creatives are not the man in the street
So, off I’d trot to the sales department and show the reps, one by one. If 9 out of 10 got it immediately, I’d present it to the client. But if half of them said “Sorry, I don’t get it…” I’d go back to the drawing board. It didn’t matter that I was ‘only’ working on $50 ads, not $500,000 TVCs, the principle was the same — no matter how much I love what I come up with, it’s important to make sure the target audience gets it. Otherwise, I’m just being self-indulgent.

Who is the target audience, anyway?
The question I always, always, always ask a new client, very early on, is — ‘Who exactly is your target audience?’ And I keep asking until I either get a clear answer from them or they let me help them find the answer. Only then will I start the process of trying to come up with ideas and direction for their advertising and communications.

The Kangaroo Island ad
The Kangaroo Island ad is also arty but at least it shows a family (who I assume is the target audience?) holidaying there and doing stuff together. It’s been well over 30 years since I visited Kangaroo Island but I can immediately recognise some of the touristy places in the commercial, so I think it portrays it fairly accurately for an arty ad. Here it is.

Why does the Eyre Peninsula ad feature 2 young women?

I wouldn’t have thought this was the target audience. But at least they show them doing things you can do on Eyre Peninsula. (Which they are promoting as a little bit scary.) They also set the scene at the very beginning of the ad by spelling out, on the screen, in words, Eyre Peninsula. Perhaps the target audience is young men? Who would never admit they’re scared of anything but who might well be enticed to go to the Eyre Peninsula because they think there are cute young girls holidaying over there? Maybe the idea was like getting the girls into the nightclubs with cheap drinks because the boys will follow? I have no idea. But here’s the link.

http://youtu.be/N0E0bQEuQow#aid=P8viDeo9RRQ

But it all kinda reminds me of Melbourne
Looking at all these ads together kinda reminds me of that old TV commercial for Melbourne. Remember? The one with the girl with the ball of string? Personally, I really liked it, even though it took me three viewings to get it. (Another epic fail in the old IQ test, clearly.) But did it work? I have no idea. Here it is.

Art for art’s sake

I hate bad ads that yell at you and/or treat you like you are an idiot. But I’m also not a fan of arty ads that appear to be have been made by frustrated film directors who’ve been given a big bag of money and a very long leash. Surely there’s a middle ground.

To start or join the discussion, simply click on COMMENTS below.

Australian agri-food producers are behaving more and more like miners.

This week, when most of us sit down with a glass of Christmas cheer to reflect on the year just finishing and speculate about the one ahead, we’d be feeling much better about life than the last few Christmases.  However, unlike those in the sector who’ll be checking off the year’s wins, my reflections are likely to be laced by a sense of frustration and lost opportunity, despite all the hype about the rosy future of agrifood. 

For a start, the Gillard government tried its hardest to kill us all off. The National Food Plan and Asian Century papers were big on philosophy but totally lacking in pragmatic policy direction. The mishandling of the live cattle trade did serious long-term damage and offended a strategically important customer. The carbon tax and the pro-union attitude of that government put the nail in the coffin of our few surviving food manufacturers, most of who were already in the intensive care ward.  At risk of sounding like the Christmas Grinch, I don’t feel that confident that the Abbott Government will do much better. It seems that the agrarian socialists are running the show.

Any thinking person looking at the Australian agrifood sector from afar must be totally confused by the Graincorp/ADM debacle and the hysteria around the Warrnambool Butter and Cheese takeover. It shows that the most vociferous defenders of the farming sector are either extremely xenophobic or extremely naïve. Effectively they are willfully destroying the sector that they claim to be so passionate about protecting.

The reality is that most industries within the Australian agrifood sector are in a critical situation. Many food processors have moved off shore or closed down and others are seriously questioning their future in this country.   SPC is contemplating closing its Goulburn Valley facilities with a loss of 2000 direct jobs. The impacts of such closures are not just economic; the social consequences for regional communities are more devastating.

There is no doubt about the growth prospects for agrifood in the Asian region. The demographic data forecasting the rising Asian middle class is conclusive.  But the tired old proposition that Australia will become the “food bowl to Asia” or leaders in a “dining boom” as advocated by the many agrifood think tanks, is still a bit hard to swallow, even in the current environment.

The reason it is unrealistic is that much of the growing global demand for food is at the highly contested and competitive, low end of the market.   Australia sells undifferentiated commodities at world parity prices, with all the volatility that comes from being a global commodity trader. If Australia is to truly cash in on the Asian opportunity, it needs to target the high-end, premium food segments by developing differentiated products built around the brand values of provenance and safety.

But the reality is that in this space, Australia is hopelessly uncompetitive and poorly skilled. With a weighted average labour cost of $55 per hour for a factory worker compared with $18 in New Zealand and $4 in China, we are not in the game, even when the $AUD is around $US 80 cents. Our factories are old and inefficient, our energy and water costs have risen sharply and the cost of compliance with complex, government-imposed red tape is crippling. The road, rail and port infrastructure greatly adds to cost; the majority of secondary roads don’t have legal B Double access.  Furthermore, our capabilities in marketing, supply chain development and export market development are poor.

If Australia is to be a global player in food we need a massive investment in infrastructure, new plant and equipment and technology. This capital must come from overseas investors because the industry doesn’t have the money and Australian retail investors are gun-shy about agrifood, seeing it as too volatile and risky (no wonder when it is so poorly managed and government policy is so unstable).

We need active investors who can bring more than capital alone. We need their global supply chain and cultural connections and market knowledge. Passive superannuation fund and short-term equity players are not the answer.

Politicians need to let global agrifood world know that we are open for business. The starting point is some sensible, coherent policy that should include:

·         A pro-foreign investment policy (with adequate safe guards).

·         A flexible work force policy that recognizes the 24/7 and seasonal nature of perishable agrifood products.

·         Accelerated depreciation and incentives to invest in automation and technology.

·         Government investment in infrastructure, roads, rail, ports, electricity, gas, water and waste water recycling, bio-digester technology and co-generation.

·         Cutting government red tape

·         Taxation incentives for mum and dad investors (although it was poorly managed the much maligned MIS did create world class, globally competitive and sustainable businesses).

·         Promoting agrifood as an up and coming career opportunity for young talented people.

·         Fewer expensive trade missions and more export capability building.

The alternative is for Australian agrifood to go the same way as Australian mining i.e. large, listed companies ripping huge volumes of low value commodities out of the ground for short term gain, letting other countries extract the value from the supply chain.  It seems that the miners and agriculturalists have more in common than they think.

About the author

Dr David McKinna is Principal and Director of global strategy consultancy McKINNA et al in Melbourne.  David’s commercial ‘street smarts’ belies his academic background.  Over 30 years of global consulting has given him deep insight into how markets work.  In particular, David has been the quiet achiever behind some of Australia’s most successful strategy break-throughs in the food sector.  His experience and expertise in agrifood spans paddock to plate.  David’s ‘tell-it-like-it-is’ style makes him a sought after speaker, writer and social commentator.  David was also a founder of the David Syme Business School at Monash University.

E: david@mckinna.com.au

W: www.mckinna.com.au

M: 0418 332 488

T: 03 9696 1966