09/11/2011 - 10:49

Too much of a good thing can cost plenty

09/11/2011 - 10:49

Bookmark

Save articles for future reference.

The effects of a strong resources sector are being felt throughout the economy – and it’s not all good news.

Too much of a good thing can cost plenty

The effects of a strong resources sector are being felt throughout the economy – and it’s not all good news.

MINERS once relied on a canary in a cage to warn them of the danger of a silent killer – methane gas. Australia currently has three ‘canaries’ chirping about an unexpected danger caused by the mining boom – the export of skilled work.

Striking Qantas engineers are the first canary, and while union leaders have acted badly by calling for a boycott of the airline (which has to be the world’s best example of shooting yourself in the foot) their underlying complaint has some validity.

Concerned General Motors car designers are singing from the same song sheet as the Qantas engineers with their claim that the design of the next Commodore car, if not all GM vehicle design work, will be shifted overseas.

Woodside Petroleum technical staff are experiencing, in silence so far, deep disquiet about large parts of the offshore platform and subsea design work for oil and gas projects being exported to the US oil capital, Houston.

Those three examples, and undoubtedly many more, are a reflection of the damage caused by the steady creep of ‘Dutch disease’ through the Australian economy – a pseudo-economic term for a country pricing itself out of the market.

What’s happening is that the cost of doing business in Australia is rising faster than in most other countries.

That does not mean that Australian engineers and car designers are being overpaid. It’s more a case that skilled workers in other countries, including the US, are being paid less – a result of both domestic cost cutting, and the high value of the Australian dollar relative to just about any other currency.

No-one has yet produced the precise numbers on what’s happening but it is a fair assumption that skilled technical work of the sort needed to service a Rolls Royce jet engine, or draft the specifications for an offshore petroleum platform can be done overseas at a cost at least 30 per cent less than in Australia. In some cases the cost difference could be as high as 50 per cent.

In a globalised world, where governments encourage companies to compete fiercely for work in the name of increased productivity and efficiency, that leads to a mismatch between revenue and costs.

Revenue is being earned in a competitive environment. Costs, until now, have not been subjected to the same intense levels of competition, which they must be or the underlying business fails.

Qantas is the example of the day, struggling to survive against low-cost rivals in a global industry where passengers (including Australians) demand ever-lower air fares, but with a cost structure that is painfully higher than its competitors. Something has to give.

The General Motors vehicle designers are making the same point, as are the specialists undertaking some of Woodside’s work, and these are the key points:

• it is cheaper to design cars and gas platforms in Detroit or Houston than it is in Melbourne or Perth;

• it has become very easy to shift technical designs around the world thanks to modern communications systems; and

• once lost the skilled jobs will be hard to bring back.

In a nutshell, that is what’s called Dutch disease, an affliction first noted in the 1960s when The Netherlands suffered a period of a high exchange rates and internal costs rising faster than those of its neighbours thanks to its North Sea gas discoveries, resulting in widespread job losses in industries not exposed to the gas boom.

Until now talk of Australia catching Dutch disease has been theoretical. What’s happening at Qantas, GM, and Woodside is proof that the disease has been contracted.

Is there a cure? Yes, but it will be painful, requiring either the development of entirely new industries which can survive in a high-cost environment, or an end to the mining boom – and neither of those solutions appear to be on the horizon.

Social media slide?

IS social media a fad or the future? It’s a question that has led to many interesting conversations with the fad squad – generally made up of older, non-users of technologies such as Facebook and Twitter – while younger people see social media as the future.

The problem, as regular users of the various technologies have discovered, is that while they might be fast and deliver a broader lifestyle experience, they are also time consuming and intrusive.

It is perhaps because of the emerging negatives that the uptake of social media by big companies has slowed dramatically as hard-nosed business managers question what’s in it for them.

That has come through in US research, which focused on the 500 biggest companies in that country.

The University of Massachusetts found that, in 2010, around 60 per cent of the group surveyed had a corporate Twitter account and had tweeted in the previous 30 days. This year the number of companies with an account has crept up to 62 per cent – the point being that growth has slowed.

It was same with blogging and the use of Facebook where the usage rate has risen from 56 per cent to 58 per cent over the past 12 months.

The research prompted this headline in the US business magazine Forbes, ‘Are corporations giving up on social media?’

Spin-ore

GOVERNMENTS are generally regarded as the world’s best spinners (Shane Warne excepted), but a recent claim by MagNet, a lobby group representing iron ore miners with an interest in a type of ore called magnetite, might have re-opened the spinning competition.

In a media statement criticising the proposed new mining tax, MagNet said: “One of the key environmental advantages of magnetite is its purity in concentrated form, which requires less energy and releases less carbon emissions in steel-making compared with traditional haematite ores.”

That’s true, and good news for the steel mills of Asia. But it’s not so true of the emissions produced during the heat-intensive processing stage, which takes place in Australia.

ccc

‘‘Fashion condemns us to many follies; the greatest is to make oneself its slave.’’ 

Napoleon Bonaparte


STANDING BY BUSINESS. TRUSTED BY BUSINESS.

Subscription Options