Author: yinghui

Market watchers are set to focus on Beijing this week as China’s communist party elite convene for their fifth plenary session, a four day policy-setting meeting that is widely expected to chart the course for the country’s economic growth from 2016 through to 2020.

The plenum takes place against the backdrop of slowing economic growth and rising internal debt as well as stock market volatility. “China has challenges but the leadership seems to be well aware of the challenges. The recent financial volatility must not deter what needs to happen to build a sustainable China,” Liang Du, director and co-head of Asset Allocation at Prescient Investment Management, said via email.

At the same time, Matthew Birtch, a Strategic Management Lecturer at the University of Pretoria’s Gordon Institute of Business Science, said the meeting is very important as it is “Another stop on the path to greater economic growth for the economy”. But Martyn Davies, managing director of Emerging Markets and Africa at Deloitte Frontier Advisory, cautioned against reading too much into the discussions, “There’s an over-emphasis, outside China, on the importance of the plans… The world is looking to China for guidance and they need to set a positive tone,” he said.

Still, investors will pay particular attention to the country’s economic growth rate targets for the next five years. As part of its last five-year plan, China set out to deliver GDP growth of about 7% through to 2015. And even in the face of trying global economic conditions, the country’s official growth statistics have consistently come in around the 7% mark, which has raised some eyebrows. Speaking to Mineweb from Cape Town, Davies implied it is an open secret that the growth figures that China publishes are different to its actual growth figures. In terms of economics, Birtch said there are many issues with the way in which GDP is measured and that it is likely China reports a ‘ballpark figure’.

Should the country lower its growth target to below 7%, it will do so for the first time since the late 1970s. According to JP Morgan, China’s commitment to doubling GDP from 2010 to 2020 requires an annual growth rate of 6.5% over the next five years.

Commodity markets have already been riled over concerns of slowing growth in China, the world’s second largest economy and largest consumer of raw materials, so actual lower growth targets set by the country’s government are likely to further impact commodity prices.

“We expect commodity demand to remain challenged by China’s moves to rebalance away from construction/investment-driven growth and toward consumption growth. This has exposed serious overcapacity in the sector, particularly in early-cycle commodities – steel, cement and coal,” JP Morgan said in a note.

“Most people knew that this was a super-cycle and that it would end,” Birtch said by telephone. According to him, some commodity-based companies made huge judgement errors by putting all their emphasis and focus on China instead of hedging themselves outside the country. But he said commodity prices will pick up as China has merely hit a plateau in terms of infrastructure growth, “There’s still a huge amount of infrastructure that is needed and there are still huge rural populations that they want to urbanise”. He expects this infrastructure plateau to last for a minimum of 10 to 15 years.

Meanwhile Liang Du said the rebalancing of the economy will lead to the normalisation of the Chinese market and be more market driven. “Although growth may be temporarily slower, it will result in a far more sustainable future for China as a whole,” he said. Davies added that the size of China’s economy is far more important than the rate at which the country grows, saying we shouldn’t “sweat the decimal points.”

With Asia proving a booming market for Australian products, local businesses have the chance to expand with a great online strategy
As SMEs get savvy with online retail, they need to think without borders. No longer are customers, staff or suppliers around the corner – they could be all over the world.
South East Asia is proving a developing market for Australian small businesses, as Frank Granziera, of Olive Oil Skin Care Co has experienced. The Olive Oil Skin Care Co launched in 2012, with its online store offering a range of soaps, body washes, candles and balms.
“We find that [international customers] buy our products at local stores [when visiting Australia] and when they go back overseas, they keep in contact through our website,” Granziera says.
“When we started, we were getting enquiries once a month. But now it’s two or three a day, asking us to send our products overseas.”
Sell with strategy

Selling products to international visitors is one thing – but making major inroads into a new market is another. If you’re looking at expanding into the South East Asian market, you need to have the right connections and platform to sell your products on, says Granziera.
“The most important thing with South East Asia is that it’s not what you know, it’s who you know,” Granziera says.
“There are some great trade seminars about selling in South East Asia,” he says. “Go to them and make connections.”
He says it helps to understand all the touch points in the selling process.
“It’s important to network with people across all facets of the process – from suppliers, to distributors to agents – you have to do the whole lot.”
Opportunity abounds

China in particular represents an amazing opportunity for Australian companies to expand, explains Granziera. But with such a huge population, you need to identify your target audience.
“When you segment the market by age categories and requirements it’s staggering,” says Granziera.
“For example, we’re launching a baby range shortly and our figures show that in China there are [approximately] 16 million babies born every year. Our product is designed for children under the age of five, so at any one time we have a potential audience in China of 80 million people.”
Delivery to count on

Granziera says Australia’s reputation for quality and reliability is a boon to small businesses seeking to sell their products internationally.
“There is a tendency overseas to view Australia as a reliable country in every aspect – politically stable, with reliable products and pollution free – and you need a website that helps to project that image.”
Having a delivery partner to support this process is of paramount importance.
“You could spend millions of dollars trying to find the right segmentation, but you need to find the right partner to get it there,” he says.
This means an efficient website for selling, and prompt, transparent delivery operations.
“It’s the interface between you and the client, and you need to have reliable and informative system in place.”
Tracking door to door

Granziera is impressed with the sophistication of logistics now available to online retailers.
“We sent a product to Taiwan yesterday and we know through our tracking system exactly where it is in the process. That information is transmitted to the customer, and they can track it from the moment it leaves the warehouse, to when it’s on board an aeroplane, to when it’s on the way to their door.”
Granziera says his company have taken advantage of their partnership with Australia Post to gain exposure in South East Asian markets, while the reliability of the delivery service has helped foster repeat customers.
“We’ve been very fortunate with our partnerships in South East Asia and, in particular, with (Chinese online marketplace) Tmall and Australia Post,” he says.
“People have already moved the waters to help Australian businesses crack foreign markets – so take advantage of that.”
Australia Post can help you go global by reaching international markets and even setting up an online shop front in China. Find out more on Australia Post’s Small Business site.
Written by: Jacob Robinson

Australian Prime Minister Malcolm Turnbull has tasked new Innovation, Industry and Science Minister Christopher Pyne with making Australia’s economy more innovative.

The purpose of industry policy is to ensure Australia is prosperous, both now and in the future. But a nation’s potential to create prosperity is a direct function of its economic complexity.

Countries with high economic complexity have a highly diverse portfolio of firms all producing and exporting offerings few other nations are able to produce. These offerings require a multitude of inputs, a high share of which are sourced in country since they also have high economic complexity.

In this environment system integrators tend to have higher economic complexity than the producers of the components that make up the system; producers of production equipment tend to have higher economic complexity than the producers using this capital equipment; and producers of physical goods tend to have higher economic complexity than the providers of the necessary input services.

This explains why manufacturing is critical for the creation of prosperity in any nation and why prosperous nations, as a consequence of their high economic complexity, have a large share of systems integrators and advanced manufacturers in their economy (for example Japan, Germany, Switzerland, Sweden).

Against this backdrop it is very worrying that Australia’s economic complexity has declined over the last 25 years – it ranked 53 among all countries in 2012. The top three were Japan, Switzerland and Sweden.

The worry is magnified when you consider the automotive sector – the highest current contributor to Australia’s economic complexity –- will disappear over the coming two years. This is likely to lower Australia’s economic complexity by a further 5-15%, while at the same time reducing the share of manufacturing in Australia’s economy to below 5% (compared to Switzerland’s 20%).

So how can Australia use its industrial, innovation and science policy to increase its economic complexity?

1. Choose areas of comparative advantage

This means focusing on sectors like mining equipment, technology and services – a A$90bn industry with A$15bn in exports. The objective here must be to accelerate the export oriented and science and technology based growth of this industry with a realistic objective of doubling exports to A$30bn in five years. Other target sectors could include agricultural equipment, technology and services; medical equipment, technology and services; and sophisticated defence equipment, technology and services.

2. Focus on increasing the value add to raw material production

This would mean learning from the failure to capture sustainable prosperity from the mining boom through the lack of value add, and the late development of the mining engineering, technology and services industry.

We should not repeat the mistakes of the mining boom with the Asia food boom. This means driving high value add food production like science-based foods (e.g. gluten free bread, lactose free milk, fortified products) and luxury food products (e.g. selected spirits, wines, cheese, seafood). Both of these will also require a highly competent packaging industry.

Other sectors that fall under this heading would be the cellulose value chain (e.g. engineered timber products, high value chemicals, composite and fibre materials), and high value add products originating from minerals (e.g. spherical graphite, metal powders for additive manufacturing use, specialised alloys).

3. Develop tomorrow’s industries based on our comparative advantages in research

Examples here would be high-value chemicals from seaweed; advanced fibre material based production; advanced health and care solutions; advanced solutions for real life robotics applications; quantum computing; cell factory solutions.

4. Prepare for ‘industrial euthanasia’

Manage the transition out of yesterday’s industries into tomorrow’s highly service-based advanced manufacturing. In this world most manufacturing activities will take place in a virtual space with many of the key enabling technologies and their associate production systems spread across the whole manufacturing activity system. This has major implications for both productivity improvements as well as the role of people in these manufacturing activities.

For most firms the productivity improvements will outstrip the underlying demand growth. This means tomorrow’s demand can be satisfied with fewer employees, unless we dramatically grow the number of firms and move into domains where the market growth is high.

5. Ensure major government projects are not bought off-the-shelf

Instead, they should include a component of solving problems never before solved. Doing this in-country maximises the spillover effects, and as a result is important for growing economic complexity.

6. Align labour market flexibility with structural change in the economy

The shift in activities will generate very large skill gaps, meaning firms will need to vary their labour costs via new contractual arrangements with employees (more part-time work, more flexible work). These changes need to be managed with respect for the individuals concerned, recognising that the responsibility to maintain labour market relevance rests both on the employer and the individual.

A successful new industry, innovation and science policy is imperative, not only to secure our future prosperity, but also to address the already visibly declining ability to generate prosperity in our nation.

During the last couple of years mining services companies have had to rapidly adjust their strategies, shifting from a focus on growth to one of cost-control and cost-efficiency.

The challenges facing the mining industry are well known.

Declining commodity demand and falling prices have had a big impact on miners and on the engineering, contracting and construction firms that service them.

After years of investing in new assets to meet sector demand, many are grappling with the discovery that they now have expensive equipment lying idle.

In this environment, management of fleet portfolio risk is as crucial as the life cycle costs of ageing and under-utilised assets and can become a substantial drain on an organisation’s profitability.

To cope with the changes, business strategies geared around continuous growth have been replaced by strategies aimed at maximising operational performance and cost efficiency.
And in this asset-intensive industry, one of the best ways of achieving both of these goals is through tight control and smart management of assets.

The nature of assets

Typically, the assets owned by mining services organisations are costly. Whether it’s precision drilling equipment or large earthmoving trucks, the assets are expensive to purchase and to maintain.

The other fact about them is they are absolutely essential for revenue.

In large part, a mining services organisation lives or dies based on its ability to deliver the correct services and functioning equipment to the right location, at the right time.

Apart from cost and capability, one of the big considerations when dealing with any mining asset is its life cycle.

Given the conditions under which they operate and their heavy usage, these assets can have a very limited economic life.

Understanding the life cycle of assets and maximising their productive use is fundamental to business performance.

The question of ROI

The return on an asset investment is derived by balancing investment cost, the asset’s lifespan and optimal usage of the asset.

Companies will want to drive their assets as hard as possible, employing them as frequently as possible to extract maximum productivity.

They must also ensure the assets are available for use when needed. This requires maintaining assets so they comply with applicable regulatory requirements, are reliable and deliver productive output for a minimal TCO [total cost of ownership].

Take the example of a fleet of mining trucks.

We know that once they are in use, even the best of them won’t last much longer than 60,000 run hours. For the first few years, it’s reasonable to expect the trucks will operate fairly reliably with essential servicing but as time goes on, maintenance time and cost will increase, and reliability will decline.

Once this phase is reached, the need to overhaul major components and deterioration on other components means the assets will be out of action for longer and longer periods, thus reducing productivity.

Lifespan and maintenance cycles

When the recent boom was in full swing, maintenance cycles weren’t much of an issue.

The industry’s hunger to explore new sites and expand existing ones ensured demand for mining services and equipment was strong.

So strong there was a good business case for purchasing new equipment to match new contracts.

In this way companies could avoid the problems of an ageing fleet and asset downtime.

But as the market has slowed, contracts are harder to come by and these same companies are discovering they have a very extensive investment in underutilised assets.

There is little incentive to buy new equipment, but the crippling danger of an ageing asset portfolio is the slow slide towards an uncompetitive fleet.

So, what’s the best course of action for a company in these circumstances?

Striking a balance

The first step is to fully understand the impact of assets on your cost structure when you bid for work. A software system can help you to derive an accurate total cost of ownership.

It provides a means of planning asset life cycles, monitoring and tracking usage, identifying underutilisation, and analysing usage trends on costs – both now and into the future.

Through more efficient allocation of resources, effective inventory and purchasing management, the system can help reduce maintenance costs.

And it will help optimise efficiency by minimising downtime, scheduling maintenance using a risk based approach.

With this information, you can make more informed bids.

You may discover it makes sense to sacrifice gross margin because the project supports your turnover cycle of assets.

You may also find that ongoing costs are making your old equipment unprofitable and that the best option is to salvage it for whatever you can get.

It’s all about balance

When trying to contain costs and maximise efficiency, there’s another particularly important best practice. Analyse your assets in two distinct ways – in isolation and as a portfolio. It’s important to know the costs, utilisation and productivity of a particular drill, for example, but it’s equally essential to know the status of the organisation’s fleet of drills.

The condition, capability and TCO of the fleet can indicate risks.

Right now, one of the more noticeable problems for companies that bought up big in the boom is the imbalance in the age of their asset fleet.

Much of their equipment is of a similar age, which means maintenance demands will increase in sync and much of it will need to be replaced at a similar time. This points to a significant cost burden in the near future.

Good life cycle planning is essential in these circumstances.

In many ways, the best examples of asset management involve balance.

The balance between new and old equipment required to avoid risk.

Balance between productive utilisation and maintenance, so that output is maximised and downtime minimised.

And balance between cost-cutting and investment, so that financial imperatives are met while keeping the fleet, and ultimately the company, competitive.

Ultimately, today, asset management can make a considerable contribution towards business and profitability by reducing costs and increasing the productivity of assets.

The emergence of frameworks including PAS55 and ISO55000 have helped an will continue to shift the thinking of how to manage assets from that of determining what cost to meet a level of service, to one of understanding the implications of the performance, cost and risk trade-offs at various investment levels.