Articles

Time For A Major Paradigm Shift In Economic Thinking.

The motor vehicle manufacturing industry in Australia is a walking cadaver. It is one of the last industries that made sense under the pre1980’s protectionist era but – once the true reality of global ‘open market’ policy hit our naïve political and economic brains-trust – sat like a prisoner on death row merely waiting for the futile appeals for a stay of execution to be exhausted.

The problem for all of us in this country is that the current debate is being sidetracked into ideological politics rather than constructive conversation about what the real position of this country is and how to strengthen it. The media is fed propaganda based statistical argument that support dogma but hide the truth. Yes – Germany does subsidize its motor vehicle manufacturing industry on a per capita basis more than 400% higher than we have historically.

But they invented the petrol driven automobile and are the world leaders in manufacturing them. In almost every market, German car brands are the most profitable so the return to tax payers from exports – not to mention domestic consumption – is off the charts.

The stark reality of a globally open economic market system is that you cannot hide. You must be the best or have a defendable competitive advantage or you will fail. It will only be a matter of time and how much you lose in the process that is open to conjecture.

Where our current thinking fails us is that it lacks a basic reality check in terms of domestic volumes and input costs. We will NEVER win on low cost production or high volume because of our structural issues. Trying to kill the exchange rate to create a short-term impact on cost of production for export is quite simply suicidal.

We need governments (and those people that influence them) to swing the economic thinking around to creating value adding innovation and businesses that are world class. Only by being the best and selling on value rather than volume will a country of 24 million people and a high cost base located on an island at the bottom of the globe compete in a sea of 6.5 billion people most of whom are located in the Northern hemisphere with access and volume advantages.

Which brings us to retail.

Exactly the same argument applies. Volume retail is increasingly dominated by the few and those few are becoming global giants. Far from being disconnected, online retail competes in exactly the same markets and by exactly the same set of strategic variables. Benchmarked branded product is increasingly going to be sold by the lowest cost operators – regardless of whether they are online or physical because all of the customer facing logistics will be resolved.

For survival, every retailer beyond the global volume giants will need to go back to the drawing board and find their unique customer value proposition, their appropriate cost base and an optimized business model that realizes either a global audience or a highly defined local audience and its limits. We then need governments, investors, financiers and all other stakeholders to get on board and not only support that approach, but fuel it. Anything else will be akin to death by a thousand cuts.