Family businesses size up the year ahead

Australian businesses are expecting a better year in 2014, but the cost of manufacturing and a desire for more management freedoms weigh heavily on the minds of owners.

Made in Australia

Garry Beard of AH Beard, fifth-generation Australian bed-maker (AH Beard wants to get China into bed, June 13, 2013), is concerned that Australia is pricing itself out of the market, leaving the door wide open for more imported products.

“If you compare a bedding factory in Los Angeles to one in Sydney, we’ve had a 3 per cent wage increase compounding for the last seven years. That wage increase in LA has been non-existent. If you compare the rent between Australia and Los Angeles, we’ve lived under a 2-3 per cent compound increase every year for that period, whereas rent in Los Angeles has gone down.”

However, he is confident that Australia’s consumer confidence and local supply will recover. In the meantime, Asian markets will be increasingly valuable.

“We now supply Australian made products to 60 stores in China … We hope the free trade discussions between Australia and China keep on progressing because that will also make us much more competitive – at the moment we’re up against some very heavy duties.”

Manufacturers and other dependent industries are being forced to change their focus to take advantage of the falling Australian dollar. Owners say it’s time for the government to consider some of the measures used to encourage manufacturing overseas.

Erich Hofmann of Hofmann Engineering, which specialises in making equipment and components for large-scale miners (How to succeed in manufacturing, July 11 2013), says he’s expecting 2014 to be his business’ hardest year ever. With almost no new mining projects appearing around Australia, his company has had to change its entire focus to repair/maintenance of (mostly overseas) mine sites. Luckily his business covers other industries too and there is still some activity in the oil and gas and defence sectors.

As an exporter of mining components, his outlook is slightly brighter, but that will depend on the Aussie dollar dropping as much as possible. As for what he’d like to see from Canberra, he says manufacturers need a helping hand.

“It’s going to have to become protectionist in the way the Europeans and North Americans do it – ‘smart protectionism’… What I’ve seen with the Americans is that they say ‘well if it’s for defence or green energy, where American government dollars have gone in, then it has to use American parts,” he says.

According to Hofmann, it’s the same story in Canada, one of Hofmann’s main clients. If a project is taxpayer-funded, the parts have to come from within Canada.

Grains, rains and dollar pains

Two things will weigh on Australian agribusinesses this year: the weather and the dollar. Both the mercury and the Australian dollar were too high for comfort in 2013, with a significant drought dominating production in eastern Australia.

David Lock, CEO of diversified food business Craig Mostyn Group (How the Mostyns won control by giving it up, November 14, 2013), will also be watching events unfold in Asia such as the Indonesian election in April, which may lead to a change in the country’s position on imported cattle and could directly affect Australian agribusinesses.

But he also hopes Australia’s federal and state governments move to encourage domestic processing.

“I’m a great believer in Australia value-adding its own commodities… It seems to me that governments are very focussed on exports, and I don’t quite understand the great attraction for encouraging live exports when they could encourage a domestic processing sector that exported a boxed product,” he says.

“There’s a fair bit of emotion around where the consolidation comes from and who owns it, whether it’s offshore interests or onshore. And at the end of the day, I don’t think it really matters. We’ve had foreign ownership in Australian agriculture for decades.”

Come one, come all

Family businesses in the tourism industry are doing everything they can to appeal to the flourishing Chinese middle class.

“We need to consolidate our position as one of the top destinations for Chinese visitors. There’s a huge potential in the Chinese middle class and we have a great opportunity here as a place that’s not too far away from them,” says David Hammon, joint managing director of Scenic World Travel (The gold mine at the bottom of a coal field, January 23).

Tourism is seen by many to be the shining beacon of the Australian economy as the mining boom falls away.

And while tourism companies may be set to stand out in 2014, other industries including hospitality and retail will likely benefit from overseas visitors too.

Unshackling management

Alister Haigh, fourth-generation CEO of Haigh’s Chocolate (A family of chocoholics, March 7, 2013), wants to see more flexibility in how retailers can manage their staff.

“It’s very rigid at the moment and retailers are finding it hard to flex their workforces up and down depending on demand… Our sales, for example, are very much affected at the moment by the weather. You don’t know four weeks in advance what the weather’s going to do so you can change rosters,” says Haigh.

That issue feeds directly into why retailers are employing more casual staff than part-timers, which is something Alister says neither employers nor workers want.

Because he sells his own products out of his own stores, the growing power of Australia’s major supermarkets doesn’t worry him in the same way it does for many other small and medium retailers. However, the falling Australian dollar is a cause for concern.

“We do import our cocoa beans. Some of the raw products are locked into the world market and therefore, theoretically, the price should go up… And also a lot of our packaging comes from overseas and so that will be impacted,” he says.

Online sales are something that all retailers are looking to expand on this year, Haigh’s included. While the company doesn’t plan to send products overseas in the near future, Alister says online sales are a great opportunity to sell beyond the cities which you have stores in.

Best laid plans

“This is the year family businesses have to revisit their plan,” says Dominic Pelligana of KPMG’s private enterprise division.

He says because this year is unlikely to see any severe gyrations in the Australian business landscape, it’s an important opportunity for businesses to consolidate their strategy.

Despite the average age of a family business owner now sitting above 58, the rate of retirement is surprisingly low.

“We’re not seeing a lot of incumbents retiring or selling, but we are seeing them ease back. Those with good businesses don’t want to sell because they know they won’t get the value.”

And while business sales are not as bad as many business owners may think, a solid business is one of the best investments available in 2014.

“If it’s a half-decent business, why wouldn’t I just keep it? Earning good money and continuing to improve on it… there aren’t too many alternatives.” 

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles