Australia

After 25 years growth, what next?

Although it’s one of the most attractive international investment destinations for UK companies and investors, Australia is always a difficult market to read.  It’s not just the distance and time zone.  Perhaps the conflict comes from the fact that it feels so “British” in so many ways, but is economically so different.  The heavy dependence on mining and a services sector focused on Asia-Pacific tends to mean that economic cycles are almost the inverse of those in the UK and USA.

So back in 2008-2011, when doom and gloom hit the West, Australia powered ahead, with rapidly improving GDP and strengthening exchange rates – almost solely built on Chinese demand for raw materials.  Over the past two years, however, the economy has retracted as mining has suffered.

That’s not to say that the economy has not been resilient.  Despite negative factors, the end of the financial year last Thursday (June 30) brought with it official confirmation of 25 years of uninterrupted growth.   In the last year, though, whilst GDP grew by 3.1%, net disposable incomes actually fell by 1.3%.  So the country is producing more but earning less.  Average salaries have fallen as high-paying manufacturing and mining jobs have been replaced by low-paying service sector jobs, many of which are part time.

Now economists are worrying about what will happen in this new financial year, with uncertainties around Brexit (despite the distance!), the Chinese economy and many other international factors which have significant effects on Australia.  A new government and new budget may mean increased taxes.

As a result, Australians are spending less, and companies have drastically cut back on investment.

So is this a crazy time to consider trading with Australia?  Not at all, if the focus is right.

The Australian dollar continues to trade at around 20% less than in 2013-14 and is around 30% less than its peak in 2012, when its value made it basically impossible for any business to sell anything in to or out of the country.  The costs for visitors, whether on business or tourists, were painful.   Now costs seem more reasonable and the country is once again viable for visitors and investors.

Key reasons for foreign direct investment into Australia are the high skill levels, geographical positioning to act as a base for the whole APAC region and, of course, the ease of doing business and easy cultural fit.  Although salaries are still relatively high compared to most other developed countries, Australia is definitely viable as a base for R&D and other skilled activity in sectors such as Healthcare and IT.  Tourism also presents good guarantees of investment return.

Since the exchange rate is only likely to reverse in the future – albeit it’s unlikely that will happen very soon – it could be a wise moment to make long term investments in Australian companies.  The ones that dominate their part of the world stage, and demonstrate great long term potential, are property investment companies such as Macquarie, AMP, LendLease and Westfield.  Their well-diversified portfolios mean that A$ growth should be reliable, and future exchange rate changes are likely only to improve the valuation.

From the exporter’s perspective, the opportunities for selling goods seem poor.  On the other hand, it could be a better time to be selling services, especially those that can be delivered into Australia from lower cost economies.   For example, “in time zone” outsourcing to Philippines has been undersold in the past, but must now be increasingly attractive as businesses seek to control costs.  More cost-effectively, Australian companies could be encouraged to invest in setting up their own offshore Shared Service Centres for even greater economic benefit.

 

by Oliver Dowson, CEO at ICC – International Corporate Creations

Iceland beats England

A lesson for British Business

To add to all the disruption and apparent chaos that the country has descended into over the last few days, soccer fans are shocked – or at least disgruntled – by tiny Iceland’s defeat of mighty England in the European football cup yesterday.

What happened there?  Pundits were united in saying that the key factors were the commitment and enthusiasm of the Icelandic team. It proves that with determination and a good plan, even the unlikeliest of the teams can succeed.

There’s a lesson for British Business here. A disappointingly large number of companies in the UK do not expand abroad, limiting their international activities to exporting via third party distributors or perhaps outsourcing some labour-intensive activities such as accounting or call centres. Quite apart from reluctance to invest and fear of the unknown, I still meet many business people who believe that “we do it better here at home”.

Just as with football, overseas business subsidiary teams, especially those based in developing countries, often overtake their British HQ staff in terms of enthusiasm and commitment. This is particularly true where the company has had the foresight (and some would say bravery) to hire highly skilled individuals to perform strategic roles in the globalised company.

All over the world you can find skilled, qualified professionals determined to prove their worth. Put them into a new international subsidiary operation, and your demonstration of commitment to their country will be repaid many times over with their contributions to your business. Expansion is Great!

by Oliver Dowson, CEO at ICC – International Corporate Creations

It’s business as normal in Brazil

… and a good time to grasp opportunities

Reading the press and watching TV news covering the current impeachment process of Dilma Roussef, you might think that Brazil is descending into chaos.  But for Brazilian companies, and for 99% of the population, it’s very much business as usual.   And for international companies, now is a great time to grasp the nettle and exploit this market.

I’ve just returned from meetings with several recent start-ups in Brazil, and can vouch for the continuing high level of enthusiastic confidence that they will achieve great economic success.   Nobody is fazed by the political situation – almost everyone in business is looking forward to Dilma going, even if so many other untrustworthy politicians will remain in office, as it’s a first and big step towards improving the country.

It’s true that the economy has nose-dived in the last year, but this is more down to the depressed mining sector, that has become increasingly reliant on the Chinese market, which has largely dried up.   The spark that came with the discovery of huge oil reserves under the sea off Rio has dampened more because of the fall in oil prices than the “car wash” corruption scandal at Petrobras.

Unfortunately, the corruption scandals have further discouraged foreign direct investment and business expansion in Brazil.  The reality is that corruption is largely off the map for most businesses.  I’ve set up, managed and grown several companies there since 2006, and have never in that time even seen suggestions of bribery or false accounting. That’s not to say it doesn’t exist – when it comes to government or very large corporate contracts, clearly it does.   I can see how some Brazilian accounting practices, such as allowing small businesses to work on “Lucro Presumido” (presumed profit) could support it.  However, I believe that international businesses starting up in Brazil can be confident that they won’t get involved in any way.

Confidence in Brazil has picked up a great deal in the last few months, as evidenced by the improvement both in the exchange rate and the stock exchange (see charts).  The exchange rate is still around half that of 3 years ago, and looks to have stabilised.

Whilst this – in addition to tariff barriers – can make the Brazilian market unattractive for most exporters, it’s very good value now for setting up in-country operations such as Shared Service Centres, in/out-sourcing, and local manufacturing for the MERCOSUR countries.

The overwhelmingly young workforce is increasingly well-educated, and it’s easy to hire professionals in most sectors who have very good English.  In my experience, productivity levels can be impressive.   There are some interesting barriers to overcome.   Brazilian employment laws are archaic and byzantine, all staff are “unionised” (but not in the sense understood in other countries), annual salary increases are mandated, the paperwork can be formidable.  However, all these can be addressed in a straightforward way, with some professional help, and the advantages of having 3 or 4 professionals for the price of one definitely outweigh the disadvantages.

It’s also one of the most pleasant countries to live, work and do business.   If the weather alone doesn’t lift one’s spirits, the enthusiasm and “can do” attitude of the Brazilian people will.

 

Brazil Stock Exchange Index

Brazil Stock Exchange Index

 

Brazilian Real Exchange Rate

Brazil Exchange Rate

 

 

by Oliver Dowson, CEO, ICC – International Corporate Creations

(Graphic Brazil Stock Exchange Index – courtesy Google)
(Graphic Real Exchange Rate – courtesy Yahoo)

 

10 questions to ask when locating your overseas SSC or insourcing operation

by Oliver Dowson, CEO, ICC – International Corporate Creations

Great, so you’ve decided that you can both save money and improve business efficiency by setting up a Shared Services Centre or “Insourcing” (wholly-owned Outsourcing) operation abroad.  Excellent.  Now where?   There are hundreds of possible destinations.  You’ll naturally be putting cost evaluation at the top of your checklist, but there are lots of other considerations.  Leaving aside the financial, legal and technical matters that everyone thinks about, there are some others that frequently get neglected or overlooked:

  1. Does the time zone work?

How much real-time communication is needed with your other offices?  Whilst it’s usually possible to hire staff who work nights or non-standard shifts, it’s much more difficult to retain them, and it’s especially difficult to get good management.  If it’s data processing work, then work on the other side of the planet where the time difference will help (they work while you sleep), if it’s high-contact, think North-South.

  1. Will the team have the right language skills?

While you may assume the staff you’ll hire will speak and write English, it’ll be their second language in almost all countries, and there are many kinds of English, not just British and American!  Think carefully about what communications you will need, written and spoken.

  1. How easy will it be to hire and retain staff in the future?

Even if it looks easy to hire the staff you need now, think ahead.  If you’ve picked a location which other multinationals are planning to set up in, it’s likely that the competition for skilled staff will drive wage inflation and increase employee turnover.

  1. Will applicants be right for the job?

There’s probably nothing that gets lost in translation more than a job description!  Straight translations hardly ever work, even for defined qualifications – advertising needs to be drafted in consultation with local HR specialists to ensure the right cultural angles are considered.

  1. What other skill sets are readily available?

You’ll know exactly what operations you want performed now, and the skill sets you need for those, but again, think ahead.  Most businesses setting up abroad only think about moving specific tasks.  However, once it’s successful, you should want your SSC to take on a wider scope and responsibility – and remember that the higher-skilled the job, the bigger the saving by doing it overseas instead of back home.

  1. How fast are wages likely to rise?

Salaries in developing countries almost always rise faster than back home – annual rates of 8-15% are common.  In some countries, wage rises are government mandated.  And, of course, any merit increases go on top!  You need to plan costs for 5 years ahead and plan to stay on top of achieving productivity improvements year after year.

  1. How easy is it to get to?

With good local management, you won’t need to rely on expats located there – but to be fully successful, you will need a lot of regular visits from the mother ship, both by those who can give training and support and by some of the top CXO team.  Enthusiasm for travel quickly wears thin if it’s a horrible journey – you and your colleagues will need to travel there year after year.  Also, when things go wrong, you may need to get people there in a hurry.  So don’t only look for locations with daily direct flights, but consider the door-to-door journey time and the jetlag effect.

  1. Is it a nice place to visit?

OK, you’ll only ever be going on business – but let’s face it, you and your colleagues are much more likely to visit frequently (and thereby help develop the operation) if you enjoy going there – so this really is a critical consideration.  Good weather, tourist attractions, food that you like and a happy culture all help.

  1. How will your staff commute to and from work?

Understanding this can be critical to staff retention and operational management.  If the only way home is by bus, and the last one leaves at 18:30, they won’t ever stay late.  If they have a 2-hour commute each way by train, any new job offer that comes along with a shorter commute could be very tempting!  These aren’t exaggerations, but true examples applying to many staff in two common outsourcing locations.

  1. How useful will it be as a base to develop new regional business?

You might only be interested in setting up a SSC today, but, depending on your Company’s business, it’s well worth thinking about how the operation could serve as a future sales and marketing hub for the country or region where you are setting up.  Setting up the initial operation can be costly, but adding functionality later is usually straightforward and cheap.