23/10/2013 - 05:15

The challenges of change

23/10/2013 - 05:15

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A global business executive provided a good perspective this week on two perennial issues – dealing with change and coping with high costs.

The challenges of change

One of the few certainties in business is uncertainty. We don't know what the future holds and therefore need to build business plans that recognise this reality.

These are themes I've explored before in this column and I come back to them because new examples keep on arising.

Take the Australian dollar.

It hit $US1.10 in the middle of last year and just about every pundit agreed it was headed for a big fall.

The fall took longer to arrive than most expected, but it appeared to be happening with gusto when the dollar tumbled to US90 cents in July and August.

In the past month it has shown unexpected resilience, rising back to US96.7 cents this week.

Initially it was felt this was in response to the fiscal crisis in the US, but there is increasingly a view that the fundamentals of Asian economic growth are once again supporting the currency.

A Chinese economy growing at 7.5 per cent a year has to be good news for the commodity markets that drive investment in this country.

That is evidenced by the surprisingly high iron ore price, with the benchmark trading around $US135 per tonne.

The high Aussie dollar has also created a dilemma for the Reserve Bank of Australia, which said in August that it wanted the currency to fall further to bolster the competitiveness of local industry.

Many Australian businesses no doubt shared that desire, but now must deal with a currency that makes it challenging to compete.

Separate from the currency effect, the business sector also needs to deal with the high cost of building things and running things in Australia.

Fluor senior vice-president Joe McAnany brought a global perspective to this issue when he addressed an American Chamber of Commerce breakfast this week.

In particular, he highlighted the way in which global cost competitiveness has changed.

Houston-based Fluor used to look at markets outside the US as being low cost, but now the US is one of its lowest cost centres.

He said Fluor's mining group operated in three of the most expensive places in the world – Vancouver, Santiago and Perth.

Like many businesses, Fluor sends relatively simple work – such as detail engineering and high-volume work like production of documents – to low-cost locations including New Delhi and Manila.

China is still seen by many as a low-cost procurement option, and that is still the case for manufactured products, but Mr MacAnany said the picture was changing.

"At one time China was considered a good place to put work, but today Shanghai is one of the more expensive places to work from," Mr MacAnany told the AmCham breakfast.

"The salaries in China for professionals are going up by 15 to 20 per cent every year."

Looking back over the post-war years, Japan was originally seen as a low-cost place to do business.

Then its place was taken by South Korea, and after that by China.

"Who knows where it will be next," Mr McAnany said.

A global company like Fluor has enormous flexibility not afforded most businesses.

When it was working on the Simandou iron ore project, for instance, its work was undertaken in seven different offices including Perth, Melbourne, Toronto, and Paris.

But the principles it applies, like diversification and adapting quickly to changed circumstances, can be applied universally.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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