The IBISWorld list of Australia’s top 500 private companies provides a rich tapestry of the nation’s present and future. It shows both our strengths and our weaknesses.
I have selected six companies to highlight some of what is happening in Australia and what is likely to happen. There is no particular magic in these companies but they tell the story of Australia in 2014 and beyond. This country has an incredible growth story if we make the right decisions.
There is no more dramatic development in Australia than the influx of Chinese capital into our apartment and housing market.
Most of the original Chinese money that came out here was linked to education but more recently it is part of a strategic asset diversification by a vast number of wealthy Chinese. In some cases that money has come from corruption, but we should not put too much emphasis on that aspect. So it is no surprise that one of the pioneers of attracting Chinese investment in Australian apartments, Harry Triguboff’s Meriton, is one of the top performers among the private companies.
Triguboff is also the largest apartment owner in Australia, so he is a huge winner from Chinese investment. But also on the top 500 list is Central Equity in Melbourne.
What has surprised a great many people is that Chinese investment in Australia has been evenly spread between Melbourne and Sydney. Most people thought it would be concentrated on the harbour city, but the strong educational institutions in Melbourne have attracted vast sums. Many Chinese have developed a love affair with the southern capital. Brisbane has attracted some Chinese money but the lion’s share of capital is in our two major cities.
The second company that shows us what is happening now and what lies ahead is Kogan.com.
Ruslan Kogan has aimed to provide the lowest cost appliances to the Australian market and he has extended that operation internationally. Essentially, Kogan contracts Chinese or other Asian groups to make television sets and other appliances for Australia and he markets them on the net using his own brand name. He is able to sell top-quality products at much lower prices than conventional retailers.
And he knows how to market on the net. Kogan is not the only operator in the market who is disrupting conventional retailers, but he has become an important force and a pioneer.
One of the disappointments is that there are very few technology companies on the list.
A similar list in the US would have been dotted with technology companies making a run to take advantage of the development of new technologies. Kogan is hardly a technology company but it is one of a relatively few among our top 500 private companies in the technology space.
This is a major weakness in Australia and is going to mean that we will need to rely on overseas technologies to improve our productivity. Groups like Kogan are forcing Australian retailers to substantially increase their productivity and lower their costs. Consumers are the winners.
The third group that illustrates what may be ahead is Murphy Pipe & Civil. It has done extremely well out of the Queensland gas fields, which involve substantial pipe networks. Naturally once the construction phase ends, there will be less demand for pipes. But if Australia is to have any sort of future, we are going to need to develop gas fields for our domestic eastern state markets.
One way or another, if we are to avoid a substantial recession bought on by very high domestic energy costs, we will need to use fracking technology. So Murphy and other pipeline groups are part of our future.
Longer term, we are going to need to develop gas if our farmers are to compete with the US, which now has substantial advantages over Australia in rural areas as US farmers take advantage of low cost energy via fracking.
I believe part of the future of Australia will be to develop food products for the middle classes in Asia. One of the big developments in Asia is the looming explosion of the Asian middle class that will want top quality food.
By 2020/2030 there should be between about two and three billion people in the Asian middle class. We have never had a market like this for our food. But of course, we will need to develop our gas at same time to provide energy and fertiliser.
This is why I picked out the Craig Mostyn Group, which is one of our biggest food producers. It is good to see them performing well in our top 500 list. Another strong performer is Murray Goulburn, Australia’s largest milk processor.
In some ways milk is a precursor to Australia’s agricultural future. New Zealand has shown just how strong the current Asian market is for clean dairy products. Australia has been caught napping but Murray Goulburn, a farmers’ cooperative, plans to lead the charge into Asia. And it won’t be alone following the takeover of the Warrnambool Cheese and Butter operation by Saputo.
Also strong on our list is a series of warehousing/transporting operations. The nature of warehousing and transportation of goods is going to change as more and more transactions are brought online. Private companies will need to adapt to this. Currently, sharemarkets are strong and private companies that want to list on the stock exchange now have a chance that was simply not available two or three years ago. If our markets hold, more of our private companies on our list will find themselves in the public arena.