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Is WA a major force or are we playing a walk-on part?

Catherine Ferrari

Chief executive officer, West Australian Symphony Orchestra

THE symphony orchestra business is very much a global business and, in it, the West Australian Symphony is a world class orchestra in the most remote capital city on the planet – a city which clearly has characteristics of a branch economy.

This has become more evident over recent years as private sector support – via sponsorship arrangements to provide “top up” funding for all arts companies – has become crucial to the ongoing financial viability of those agencies.

It has been stated that Western Australian enterprises suffer doubly from the effects of a branch economy, as foreign ownership is high, and many enterprises operate as branch offices for firms based in the eastern states.

The decision makers we seek in the private sector are often situated in the eastern states.

These factors build obstacles in our search for corporate sponsorship and funding, as we find increasingly that marketing and sponsorship budgets are being controlled from the east coast, and the “try before you buy” mentality is hard to support.

Chris Renwick

Chief executive officer, Rio Tinto Iron Ore

AT the risk of sitting on the fence, this question cannot be answered with a firm “yes” or “no”.

On one hand, globalisation and large-scale mergers and acquisitions in many industries – including my own, the iron ore and steel industries – are resulting in a lot of head offices being located in Northern Hemisphere and Asian capitals, or on Australia’s eastern seaboard.

However, it is beyond dispute that WA remains a leading player on the world stage, thanks largely to our rich and vast resource base.

The headquarters of a number of globally significant mining companies are in Perth.

Rio Tinto Iron Ore is a case in point. Yes, the official head office of Rio Tinto, one of the world’s biggest mining groups, is in London, but the headquarters for one of the organisation’s most profitable commodity groups – Rio Tinto Iron Ore – are here in Perth.

I am one of only two Rio Tinto commodity group chief executives based outside of London (the other is based in Brisbane).

From Perth, Rio Tinto Iron Ore has accountability for operations in Canada, Brazil, India and Guinea (West Africa), as well as the Pilbara. Our markets are in Asia, Europe and North America.

The efforts of Rio Tinto Iron Ore and numerous other WA resources companies contribute significantly to the State and national economies, as well as to global trade.

I acknowledge that my response to the question posed by Business Panel might be different if I was in the telecommunications, financial services or manufacturing industries.

However, through its resource industry, WA is – and will remain in the foreseeable future – of great importance in the global economy.

So, while I might be sitting on the fence, my legs are definitely swinging on the side of “no”.

Ian Murchison

Managing director, Foundation Capital

IT seems to me that we are becoming a branch economy.

The more Australia enters the global market, the more it affects local purchasing decisions.

This appears to be happening more, particularly among US companies, and on a growing scale as e-commerce aids the centralisation of decision making.

They form alliances and supply arrangements in the United States and there is little you can do about it if you want to break into that as an Australian company.

That is particularly the case in technical services such as engineering and design.

The big issue is larger contracts where you have a preferred supplier.

It seems there is a precedent that a lot of the larger local construction groups have to form alliances in order to win various contracts into the oil and gas industry.

Woodside has been active in developing local suppliers and funding early stage technology, but they could do more.

On balance it is important for WA that the headquarters is here and the purchasing decisions are here, the more you see globalisation taking over the less local decision making you have.

Terry Budge

Managing director, BankWest Group

BASED on the number of big company head offices located here, the short answer is, yes.

In fact the process is accelerating, as globalisation drives corporate consolidation in existing industries. The issue is facing the Australian economy in total.

However, the response of becoming a branch economy is simplistic and doesn’t address the real issues of WA’s position in the Australian and global economy.

WA makes a significant contribution to the national economy through the growth of the resources sector, and two major organisations, Woodside and Alcoa, have their headquarters here.

And the success of smaller companies in the new economy industries is cause for increasing confidence in the diversity and strength of the State’s economy.

The real issue is not the number of head offices that are based in Perth.

The real issue is our ability to attract business operations and new investment to contribute to the expansion of the Western Australian economy, particularly for new growth industries such as information, downstream mineral processing and education.

Our aim must be to build an economy that encourages and creates activities that result in high value adding jobs.

Our strengths are resources, education, professional services, and lifestyle and environment, and we must look to these for the opportunities for the future.

WA can stand up as a strong and vibrant economy without the mothering of big company head offices.

But we will need a shared belief, confidence and strong will to capitalise on the opportunities before of us.

Mark Barnaba

Chief executive officer, Poynton and Partners

THE WA economy has been perceived to be a branch economy due to its relatively small size and isolation from the rest of Australia. However, WA’s historical and predicted growth rates are narrowing the disparity in size.

An examination of growth trends illustrates that WA never was, and is not becoming, a branch economy.

On a per capita basis, WA’s economy is not small. Its Gross State Product (GSP) ($37,000) has outperformed NSW ($35,100), Victoria ($33,900) and the national average ($33,200).

Moreover, the economy is growing at a strong rate.

Over the past decade, WA’s GSP has grown, on average, 0.5 per cent a year more than the rest of Australia.

WA’s population, the engine driving economic growth, has been increasing at a faster rate (1.6 per cent) than the rest of Australia (1.1 per cent).

Furthermore, over the next 50 years, WA’s predicted population growth (0.9 per cent/year) will continue to surpass the rest of Australia (0.5 per cent/year).

Companies operating in WA have benefited from favourable business conditions.

The turnover of retail establishments in WA has been growing at 4.2 per cent/year, almost 50 per cent higher than the rest of Australia.

The top 10 non-bank public companies headquartered in WA have also grown (in terms of market capitalisation) at a faster rate (12.1 per cent/year) over the past 10 years than the rest of Australia’s top companies (10.6 per cent per year).

Lastly, WA’s proximity to South-East Asia has enabled the development of a stronger trade relationship relative to the eastern states. WA’s net exports to ASEAN countries increased by a massive 94 per cent last year, while the rest of Australia’s net exports to the region worsened by 61 per cent

These selected statistics are a small sample demonstrating WA’s economic performance and growth.

Although there is no guarantee that WA will not become a branch economy, relevant economic indicators suggest that this outcome is highly unlikely.

Professor Ian Constable

Director, Lion’s Eye Institute

WESTERN Australia and, to a lesser extent, Australia generally, has always been a branch economy in the sense that a small population with limited capital has developed major international-class mining, energy, agricultural and other export-orientated projects.

Economic activity and benefits, however, do not rest solely on ownership, board location or even management control.

Our challenge in WA is to maximise economic activity and the benefits of our local population without causing the environment to deteriorate.

This can be achieved by royalties, licensing fees and other agreed methods of sharing.

On the other hand, we have a good education system, a wonderful environment and a resourceful people, and we must utilise these assets to continue to build new niche companies in value adding on exports and new startups in the emerging knowledge-based industries.

While any startup that becomes nationally competitive is likely to be capitalised internationally, and therefore controlled elsewhere, benefits will still flow to the WA economy.

Smart populations and governments will realise that it is this continual regeneration that will maintain and enhance our local standard of living.

Tim Moore

Chief executive officer, HP-JDV

WE have moved from ‘places’ to ‘spaces’. Tens of thousands of people each day visit the homepage for NineMSN at www.ninemsn.com.au, but how many of them are aware that it is hosted in Adelaide? When you call directory assistance on 12455 does it matter that the operator who helps you is probably based in rural Tasmania?

In a branch context, people think of banks, and bank branch closures is always a hot topic, but for most people their suburban branch has been replaced not by a branch in the city, but by one in their home.

They pay bills on B-pay, get statements off the Internet and use their petrol station, Australia Post or Coles to withdraw cash.

One of the reasons why the unification of the European Union has been relatively painless is that people do not see themselves as Germans, or Belgians, but they see themselves Bavarians or Alsatians, Flemish or Walloons. When did you meet someone at a barbecue who, when asked where they came from, said “I am a citizen of the United Kingdom” – they were more likely to have said “I’m Welsh/Scottish/Cornish”. Employees of BHP Steel, Brambles and Hamersley see themselves not as Western Australian workers in a branch economy but as workers in the global steel, transport and iron ore industries.

For them, their suppliers and their customers a change to become part of Billiton, GKN or Rio Tinto may not be a major life event.

Michael Smith

Executive chairman, The Marketing Centre

WHILE WA may not yet be a branch economy, it is heading in that direction and will continue to do so without some far-sighted economic and industry planning.

Australia in general, and Western Australia in particular, are still mainly resource-based economies, with only limited domestic capital because of low savings.

We unquestionably need foreign investment to drive the development of our State.

Without a real development plan for industry, our resources and investment opportunities increasingly will be the subject of a capital competition driven by international stock markets seeking growth.

To control the capital and the fate of our resources we need to continue to command the expertise to put the projects and the deals together, thus the foreign capital serves us rather than WA offering up our assets to be exploited on the terms of others.

In this sense, capital is the fuel and management the engine.

An efficient engine makes the best use of fuel and usually has the first call on it.

Strategic investment in further development of great companies with great abilities will make us the head office for our resources.

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