Before the dawn

We may be about to face the fate of becoming part of the food chain rather than the value chain – but hold on. COLIN BENJAMIN

By Colin Benjamin

We are about to see the dawn of a new era of economic growth for medium and larger local enterprises that have established a beachhead in the global market.

Technology, tourism and trade relationships for entrepreneurs willing to build on cultural and community of interest links with high speed broadband networks will expand very rapidly.

Just before the dawn, however, things are going to look very black indeed.

The credit crunch will get tougher, the RBA will have a nightmare time dealing with oil at $US120 or more feeding into the cost of living at the same time as the rising price of commodities contributes increasing financial pressures on sections of the domestic housing and labour markets.

Rio Tinto’s chief executive of iron ore Sam Walsh dismisses the idea that the resources boom will end any time soon. “The fundamentals of modern life need iron ore. Cars, trucks, building, construction, houses, bridges, shipbuilding,” he says, underlining his point by adding that Australian iron ore helped build Beijing’s Olympic stadium.

In the near term, China will help underwrite Australian prosperity. Further out, Australia is well situated to remain one of the developed world’s chief beneficiaries of Chinese growth that, though its speed will vary, could last for decades to come.

A Hong Kong subsidiary of China’s State Administration of Foreign Exchange, which manages the bulk of Beijing’s $1650 billion (£833 billion, €1058 billion) in foreign exchange reserves, recently bought stakes in three of Australia’s largest banks.

Some analysts think it is only a matter of time before there is a Chinese bid for an Australian bank as well as for a large resource project.

In the longer term, the rapid growth in profitability of American company off-shore investments are going to enable a rapid increase in their global developments at a time when the BRIC economies are capturing a greater share of global trade.

Australia has the advantage of a wide range of both cultural links and a large number of foreign students who can provide the multi-lingual and family networks that can open the doors to these new market opportunities.

The resources boom is making Australia a haven for funds as the RBA continues to fight the inflationary impact of north and south Asian development and the continued flow-on of the speculation in oil prices, especially gasoline in the states.

For medium to large Australian entrepreneurs, the key questions remain the same: How to find the right business partners for market entry into these emerging giants without facing the fate of becoming part of the food chain of these countries rather than the value chain.

A second important question is how to shift from a north-south focus to a truly global orientation.

Amy Auster, head of ANZ international economics at Australia and New Zealand Banking Group, told the Financial Times in early April, this new set of opportunities is critical. “I think the decoupling [from the rest of the developed world] story misses the point,” she says. “We are in a globalised world, which is necessarily ‘coupled’. The issue is the depth and length of the slowdown in the G7 [industrialised nations, and how] this will affect Asia.”

She points out that most of Australia’s coal exports go to Japan and South Korea, two countries that are vulnerable to a US downturn. “The credit crunch is impacting Australia significantly because of higher funding costs,” she says, adding that Australia is still running a massive current account deficit, despite favourable terms of trade from the rise in resource prices.

Dr Colin Benjamin is Entrepreneurship and Strategic Thinking Consultant at Marshall Place Associates, which offers a range of strategic thinking tools that open up possibilities for individuals and organisations committed to applying the processes of innovation, creativity and entrepreneurship. Contact: CEO Dr Jane Shelton.

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