· Housing,Disruption,Recession,Engagement,Purpose

Sad Side of the Australian Growth Story

In the last post, I introduced the Australian workplace challenges for leaders. The challenges facing business leaders are due to the economy, technology, and engagement of the human capital. In this post, I will expand on these topics including the latest economic data and trends. I also discuss the “elephant in the room”- the cost of housing - and its impact on businesses.

Economics

 

Australia has surpassed the Netherlands with the longest continuous period of economic growth without a recession. In economic terms, a recession occurs when there are two successive quarters of negative growth. In Australia, we have clocked 103 recession free quarters.

 

Credit for this achievement is shared between the Reserve Bank of Australia (RBA) and successive governments from both sides of politics for embedding policies like the wages accords, the deregulation of banks, floating currency, tariff reduction, implementing the GST and the most important of all - compulsory superannuation.
 

Surprisingly, Australia was only slightly impacted by the Global Financial Crisis (GFC) as indicated by the chart below. Factors which contributed to the outcome are the fiscal stimulus of $42 billion, the monetary policy (dropping interest rates by 3%) and of course China’s stimulus which directly benefited Australian mining.

During the same 25 year period many sectors of the economy have evolved or shrunk. The clothing, textiles and footwear sector has virtually disappeared with the reduction of tariffs and the manufacturing sector has continued to decline with the imminent closure of the car manufacturing plants in Melbourne and South Australia.

Other notable sectors on the growth trajectory have been: education (because of the huge growth in international students), mining (because of the Chinese building boom), construction (because of the housing boom), and finance (because of compulsory superannuation).

The following chart shows the industry sector changes in the last 25 years.

While the mining industry collapsed during the period 2016-17, this economic slack was picked up by the construction and farming sectors.

While technically, the Australian economy might not be in recession, some economists argue this win is bitter-sweet. “What’s happening in Australia is a long, drawn out, sort of slow recession.” says Bob Gregory (a former RBA board member) who prefers to focus on the full-time labour charts to measure the resilience of the economy.

Will your organisation be recession-proof when the tide turns?

Technology

While the economy appears resilient, certain industries continue to go through considerable change due to consumer behaviour and technology.

Some industries impacted by technology are; the taxi industry (due to the rise of alternatives such as Uber), the hotels' industry (due to the rise of alternatives like Airbnb), and the retail sector (due to online retailers such as Amazon).

Each of the incumbent players has had to adapt their offering to mitigate the disrupter:

  • The taxi industry creating 13CABS mobile application.
  • The hotel’s industry requesting regulatory changes to impose higher costs on AirBnB usage
  • Supermarkets such as Woolworths and Coles boosting their online presence to protect retail spending from shifting online, to companies such as Amazon. 

However, the most drastic impact on technology has been in the music, media and publishing sectors.

The music sector had to modify its revenue model with the digital sharing of content through Apple’s iTunes, Spotify, and YouTube, forcing the sector to continually change its model, in order to compete.

The media sector continues to be severely challenged by online alternatives such as Netflix, Facebook and Youtube as the public adapts to new, readily available media sources. The recent voluntary administration of TEN Network has impacted all the other free-to-air television stations.

The publishing industry, both newspapers and magazines, has seen a steady decline in sales for many years as a result of rise of online content. Many have yet to find an alternative source of income to replace lost revenue. Fairfax Media, the publisher of The Sydney Morning Herald and The Age, has continued to build their web presence with Domain.com.au to grow the revenue stream.

Domain is a dedicated classified website for selling real estate. Recently, a private equity offered to buy some of the major Fairfax assets including Domain and the associated mastheads of several major newspapers in Australia. Effectively, Domain is now worth more than the rest of the business combined.

A journalist at the Australian Financial Review wrote a piece suggesting the newspapers were included in the deal because they acted as “click bait” for Domain. In other words, the newspapers have become less a source and simply an aggregator of news to help people find Domain links and stories. How things change.

Here, we have two different approaches when confronted by change. Channel Ten continued with a “business as usual” model of promoting new content while Fairfax pivoted the business and looked for other sources of income. In the case of Fairfax, the other source became the primary asset of the business

Human Capital

As described in the previous post, millennials are more challenging to please due to their aspirational needs. The following chart can provide an explanation.

The Australian unemployment rate has hovered around 5% for over a decade, which is extraordinarily low rate for any developed nation. Human psychology suggests that, no matter how good things are, we always want them to be better. When the GFC hit the global economy like a wrecking ball, Australia had the lowest levels of unemployment ever recorded (4%).

Is your organisation attracting or losing quality staff?

Housing Costs - The 'Elephant' in the Room

With the economy steadily growing for the past 25 years, a low unemployment rate has meant successive governments have opened the doors to immigration. With the population increase, and large foreign capital inflows have resulted in the cost of accommodation (either bought or rented) rising significantly when compared as a ratio to wages. The average free-standing home in Australia is now $500,000, while in Sydney and Melbourne, it is over one million dollars.

While the housing construction boom has buoyed the economy to reach this unprecedented economic milestone, it is also eroding the disposable income of the consumer. The following chart from Commsec goes back fifty years and demonstrates the dramatic rise of spending on housing compared to the decrease in food and clothing.

With the high cost of living, employees are constantly looking to change jobs and careers to find jobs with higher salaries and satisfaction. For companies to maintain quality staff, there must be something compelling to offer in order for them to “stand out from the crowd”.

Conclusion

While the Australian economy has proved remarkably resilient over the last 25 years, providing unprecedented levels of wealth and growth, there are significant challenges ahead for many industries trying to compete for the scarce disposable income of the consumer.

Technology disruption means that every organisation needs to be flexible, resilient and not fear but actively accept the inevitability of rapid change. The staff are at the forefront of these changes and business leaders need to be open and willing to embrace this change.

To attract talented staff (particularly millennials), companies and industries must have a compelling offer. A purely financial reward is not sufficient, and in most cases, cannot be afforded. Furthermore, a purely financial reward, will not attract the loyalty that has been the keystone of previous generations of employees. Something more is required.

While the economy, technology, and societal trends will inevitably increase challenges, I will show how these can be confronted and overcome.

When we distil the Purpose, People, Planet strategies as well as the Profit, we measure the Organisational Wellbeing as a whole. Not only do we give it the best opportunity to be resilient, but give the greatest opportunity for growth.

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