A survival kit for non-miners

Something has got to give in the local Australian non-mining economy. Before all else, let me explain and then I will set out what I think will give first.

The high dollar is forcing large numbers of businesses to look at transferring manufacturing and service provision offshore. The high interest rates in Australia are fuelling that high dollar but also slowing local demand.

Many (but not all) unions, armed with 120 new weapons to use against employers via the so called "Fair Work" industrial relations act, are playing hard ball and becoming less flexible.

Productivity in Australia is falling –in other words, output per employee is falling. Employers are reluctant to retrench because of the high cost and the fear that the skills can't be replaced.

Retailers are squeezing local suppliers because in the supermarket industry there is intense competition and in non-food retailing the internet gives customers the chance to bypass local retailers. And then we have power prices and other utility charges rising, plus the high carbon tax on top of all this.

Consumers are lowering their borrowing and home building and commercial construction is slowing in non-mining Australia.

All this is happening in an environment where the way we do business is changing dramatically as the real implications of internet/mobile phone communications on supply chains and consumer behaviour become apparent. Those that picked these changes and were first to move will do very well.

The state governments are cutting back on outlays because their budgets are under pressure and, not surprisingly, the profits of the non-mining sector are being squeezed in the above environment – so the federal budget is under pressure. At the same time the miners are involved in extensive expansion which always affects profits to some degree. And just to top it off the Greens are planing a massive attack on coal mining in Queensland while the unions are giving BHP the stick in Queensland coal. I am sure readers will think of more pressure points but we will stop it there.

So what gives first? All around the country enterprises are re-looking at what they do and how they do it. Supply chains are being re-examined and the effectiveness of systems and labour is being looked at. Those companies that do this quickly and well will prosper. On the labour front, the industrial relations act is going to cause companies to get much tougher. My guess is that we are going to see a great many disappointing profits – but again, it will not be across the board.

I believe we are gong to see a dramatic rise in overseas outsourcing lead by the service industries such as accounting computer technology. There will a big rise in the number of takeovers as managers see that some companies "get it” while other legacy businesses do not. Productivity will rise but in many areas it will be brutal. I must emphasise again that many businesses will do very well – especially those that adapt to the changes in the way we do business and those connected to mining. Industries like heath and those linked to Chinese tourism have a good outlook. Independent contracting is maybe the way around labour hire in a number of industries.

Last month Morgan Research showed a rise in unemployment but the latest Morgan figures show an unemployment fall, so this process of labour shedding has not really started. When it gets underway the repercussions will force the government to use its borrowing power to lower interest rates. Unfortunately, there are few places to hide.

Again, readers will have different ideas about what is ahead.