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Innovate or Perish

Economists widely predict that residential construction and exports - the mainstay of Australia’s domestic economic growth - will slow in 2017. Part of this is the Chinese Government’s concern about investment outflows (Australia has been a significant beneficiary with Chinese Direct Foreign Investment growing by 72.5% over 2010-15). So, where is growth going to come from? 

One of the most alarming statistics comes from the Boston Consulting Group Global Manufacturing Cost-Competitiveness Index.   

The BCG analysis demonstrates that Australia was the least competitive of the top 25 global manufacturers between 2004-14 – Australia’s direct manufacturing costs, for example, were just under 30% higher than the US. Manufacturing wages grew 48% in Australia over this period while labour productivity fell 1%. While this was a period of abnormal events with the mining boom, the Australian dollar at parity with the US, and a GFC, it still creates a stark picture of why a focus on productivity is important.

Over the last two decades, we have seen a global trend towards offshoring to reduce labour costs to achieve productivity gains. Now, benefits are being achieved through innovation to lower costs. This is an area where Government policy is there to support business. These incentives include: 

  • Small business rollover relief that removes the tax impediments associated with changing your business structure.
  • Tax incentives for investors in early stage innovation companies.
  • Broadened tax incentives for early stage venture capital limited partnerships and venture capital limited partnerships.
  • More generous employee share scheme arrangements particularly for high-growth start-ups.
  • Immediate deductions for start-up businesses.
  • Reduced company tax rates for small businesses.
  • Plus there is also the R&D incentives for innovative companies.

For survival, all business operators need to look at the trends in their industry.  Advances in technology, in particular, will make some operators unsustainable and give others the capacity to change the very nature of their sector either through production efficiencies or disruption. After all, tech company Uber started in 2009, spreading exponentially around the world well before it launched in Australia in 2014. Real Estate Agents may be next with companies like Purplebricks. 

The bottom line is that you cannot rely on the stability of your business model to sustain over time.

 

Sandeep SinghComment