20/06/2012 - 10:42

Resources a regional specialty in the west

20/06/2012 - 10:42

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It’s misguided to think digging minerals out of the ground doesn’t entail much enterprise or commercial sophistication.

It’s misguided to think digging minerals out of the ground doesn’t entail much enterprise or commercial sophistication.

WIZARD Home Loans founder Mark Bouris recently asked: “Don’t you get sick of hearing about the importance of the resources sector? As if the only thing going on in this country is digging minerals out of the ground?” 

Mr Bouris posed the questions in the course of promoting his seminar the ‘Secrets to Business Success’ because, he said, only “the entrepreneur knows how to turn knowledge into commerce: managers and executives do not, and neither do governments, academics and bureaucrats”.  

He is right; managers, executives, governments, academics and bureaucrats don’t know how to turn knowledge into commerce. The rub is, no single person does, which is why it is curious that Mr Bouris should join the hundreds of other business gurus peddling the supposed secrets to entrepreneurial success.  

The ‘secret sauce’ in regions that are competitive in a particular sector is that they have more people across the whole chain of business who possess a small part of the total specialised knowledge required to make that sector a success. It is the cluster of complementary competencies that make a region competitive, not individuals on their own.    

Two examples – one local and the other US-based – illustrate the point.

Engineer-cum-marketing academic Sharon Purchase and I have interviewed industry people on what makes Western Australia a world-class centre for mining entrepreneurs to raise capital for micro-cap companies (ie, those seeking $10 million or less from the public).

We have consistently been told it is easier to put together a company in Perth than almost anywhere else.

One mining entrepreneur noted that Perth-based lawyers are typically more efficient and faster at processing resources-related contracts than eastern states-based lawyers; Perth lawyers have the experience to identify the key issues and devise a solution more effectively than their counterparts in Melbourne or Sydney. 

Legal services are only one factor in the complex process of putting together a mining venture, but one can appreciate that if, say, firms in Singapore or even Sydney, wished to compete with Perth in this sector they would be hard-pressed to match Perth on just the legal dimension alone let alone the other facets of nurturing small mining companies. 

New York has more money, a greater range and concentration of talent and cosmopolitanism than any city in the world, with the arguable exception of London.  

However, even New York plays second fiddle to Silicon Valley in terms of ability to nurture high-tech innovative companies. This is because, as a recent New York Times article noted, everyone in Silicon Valley “from lawyers to landlords has learned how to cater to the needs of tiny, young, risky companies. Not so in New York.”  

The Times reported the travails of fashion e-commerce entrepreneur Olga Videsheva, who moved to New York but found it difficult to rent office space because landlords wanted to see the past five years of her company’s financial data.  

In Silicon Valley, landlords understood it was pointless to ask for such data from start-up companies and developed other means of safeguarding their interests.

There is a significant insight from understanding that acquiring a competitive advantage in setting up resource companies requires complementary specialisation by an array of ancillary service providers such as financiers, marketers, accountants, lawyers, engineers, regulators and civil servants. 

The insight is that we short-change ourselves in thinking that exploiting our natural resources endowment is no more challenging than shovelling dirt. 

East-coast-based Mr Bouris may think “digging minerals out of the ground” doesn’t entail much enterprise or commercial sophistication but, if so, he is wrong. A comparison of Australian and Chinese investment in Africa is illuminating in this regard. In January 2011, more than 200 Australian resources companies had nearly 600 projects spread across 42 African countries worth, in total, more than $US20 billion. 

Given that it is largely demand from China that makes these projects viable one might expect Chinese investment in Africa to be even greater. However, Chinese direct investment in Africa across mining and a range of other sectors totalled just less than $15 billion at the start of 2012, according to The People’s Daily Online in a report aimed at underscoring the importance of China-Africa investment links.  

In short, Australia has achieved a substantially higher level of commercial direct investment in African natural resources than China, even though the latter country has a much greater economic interest in gaining access to resources and has spent several decades attempting to develop its relationship with African countries.

Australia’s relative success is a function of our competitive advantage in setting up small resources companies all over the world. 

There is indeed more to Australia than digging minerals out of the ground but in recognising that let’s shed the economic version of our supposed cultural cringe and celebrate that we’re literally world-class at the complicated business of accessing mineral resources in inhospitable places. 

Raymond Da Silva Rosa is Winthrop Professor, Accounting and Finance, and Associate Dean International at UWA Business School at the University of Western Australia.


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