Federal Treasurer Joe Hockey has been universally flagellated for prohibiting the acquisition of GrainCorp by US-based Archer Daniels Midland (ADM) Company.
The criticism is grossly unfair. It is also politically and commercially myopic.
Australia is a huge country with substantial resources and a small population. Sometimes we need to protect strategically placed companies and industries. We shouldn’t resile from that even if it offends the sensibilities of a bunch of doctrinaire economists or point-scoring politicians or the vested interests at the top end of town.
It’s not as though this problem is unique to Australia. If, for example, some of our largest banks were to put a consortium together to bid for the Bank of China does anybody seriously think the Chinese Government would entertain that sort of deal?
There have been precedents for the GrainCorp prohibition. In 2001, then Federal Treasurer Peter Costello stopped Shell from taking control of Woodside.
The boot was on the other foot in 2010 when the Canadian Government stopped BHP Billiton from taking control of the Potash Corporation of Saskatchewan, the world’s largest fertiliser manufacturer.
Claims that the GrainCorp prohibition sends adverse messages to potential overseas investments ring hollow when one looks back at the Shell-Woodside prohibition. Since then, there has been a tsunami of foreign capital into Australia. A prominent participant in that wave of foreign investment has been Shell itself.
The truth is, foreign investors owe us nothing. Our interests are not necessarily aligned. They work to different agendas and very different timeframes.
As an example of the timeframe issue, it is not uncommon for foreign oil companies to find a commercially viable natural gas field in Australian waters and then decide not to bother developing it for many years because it suits their global scheduling program.
This is clearly contrary to Australia’s interests: we would want the gas field developed and commercialised as quickly as possible. Our only defence against this conflict is to put a time limit on the tenure of the leases; so use it or lose it.
As for different agendas, quite some years ago, the Australian subsidiary of a substantial British-based chemicals group split from its UK parent. One of the key reasons was said to be conflicting agendas. The Australian subsidiary apparently wanted to expand into Asia but it was over-ruled by the British parent which had decided to tackle Asia in a different way.
Dealing specifically with GrainCorp, there is a widely held view that GrainCorp needs access to substantial funds to carry out expansion and development programs. This is an entirely separate issue from the acquisition itself. There are many alternative ways for GrainCorp to gain access to broader funding. That can be fixed within Australia with no help from ADM.
In addition, ADM has a range of other options available to it for involving itself in the Australian grain industry. For example, it could joint venture with GrainCorp (and other companies) on a range of business opportunities.
There is no doubt that, to reach its full potential, the Australian agribusiness sector needs massive investment and a lot of that funding will have to come from overseas. But allowing foreign interests to take over strategically placed Australian companies and assets may not be the only nor the best way to address the problem.
Waving the ADM acquisition through would have given the US group access to perhaps the most vertically integrated agribusiness in Australia. It would have controlled most of Australia’s grain storage and handling facilities and all but two of the bulk port terminals in the eastern states.
It would also have obtained substantial interests in Australian flourmilling, oilseed processing and refining, and malt production.
And what of ADM itself? If a foreign company wants to take over a strategically positioned Australian company, then its own credentials and track record should be closely scrutinised.
In fact, ADM has had what one observer described as a “troubled history of price-fixing”. If there is substance to this claim, that could have represented a major risk for the Australian grain industry – not today, but several years down the track after any acquisition.
Companies that are in a position to dominate markets eventually succumb to the temptation to raise process and extract monopoly rents.
And when that happens, what do we do?
Joe Hockey may well have been right. Foreign investors might not like knockbacks like Woodside and GrainCorp, but as long as they know the rules they will keep investing in Australia.
GO
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Joe Hockey and the GrainCorp Prohibition
Federal Treasurer Joe Hockey has been universally flagellated for prohibiting the acquisition of GrainCorp by US-based Archer Daniels Midland (ADM) Company.
The criticism is grossly unfair. It is also politically and commercially myopic.
Australia is a huge country with substantial resources and a small population. Sometimes we need to protect strategically placed companies and industries. We shouldn’t resile from that even if it offends the sensibilities of a bunch of doctrinaire economists or point-scoring politicians or the vested interests at the top end of town.
It’s not as though this problem is unique to Australia. If, for example, some of our largest banks were to put a consortium together to bid for the Bank of China does anybody seriously think the Chinese Government would entertain that sort of deal?
There have been precedents for the GrainCorp prohibition. In 2001, then Federal Treasurer Peter Costello stopped Shell from taking control of Woodside.
The boot was on the other foot in 2010 when the Canadian Government stopped BHP Billiton from taking control of the Potash Corporation of Saskatchewan, the world’s largest fertiliser manufacturer.
Claims that the GrainCorp prohibition sends adverse messages to potential overseas investments ring hollow when one looks back at the Shell-Woodside prohibition. Since then, there has been a tsunami of foreign capital into Australia. A prominent participant in that wave of foreign investment has been Shell itself.
The truth is, foreign investors owe us nothing. Our interests are not necessarily aligned. They work to different agendas and very different timeframes.
As an example of the timeframe issue, it is not uncommon for foreign oil companies to find a commercially viable natural gas field in Australian waters and then decide not to bother developing it for many years because it suits their global scheduling program.
This is clearly contrary to Australia’s interests: we would want the gas field developed and commercialised as quickly as possible. Our only defence against this conflict is to put a time limit on the tenure of the leases; so use it or lose it.
As for different agendas, quite some years ago, the Australian subsidiary of a substantial British-based chemicals group split from its UK parent. One of the key reasons was said to be conflicting agendas. The Australian subsidiary apparently wanted to expand into Asia but it was over-ruled by the British parent which had decided to tackle Asia in a different way.
Dealing specifically with GrainCorp, there is a widely held view that GrainCorp needs access to substantial funds to carry out expansion and development programs. This is an entirely separate issue from the acquisition itself. There are many alternative ways for GrainCorp to gain access to broader funding. That can be fixed within Australia with no help from ADM.
In addition, ADM has a range of other options available to it for involving itself in the Australian grain industry. For example, it could joint venture with GrainCorp (and other companies) on a range of business opportunities.
There is no doubt that, to reach its full potential, the Australian agribusiness sector needs massive investment and a lot of that funding will have to come from overseas. But allowing foreign interests to take over strategically placed Australian companies and assets may not be the only nor the best way to address the problem.
Waving the ADM acquisition through would have given the US group access to perhaps the most vertically integrated agribusiness in Australia. It would have controlled most of Australia’s grain storage and handling facilities and all but two of the bulk port terminals in the eastern states.
It would also have obtained substantial interests in Australian flourmilling, oilseed processing and refining, and malt production.
And what of ADM itself? If a foreign company wants to take over a strategically positioned Australian company, then its own credentials and track record should be closely scrutinised.
In fact, ADM has had what one observer described as a “troubled history of price-fixing”. If there is substance to this claim, that could have represented a major risk for the Australian grain industry – not today, but several years down the track after any acquisition.
Companies that are in a position to dominate markets eventually succumb to the temptation to raise process and extract monopoly rents.
And when that happens, what do we do?
Joe Hockey may well have been right. Foreign investors might not like knockbacks like Woodside and GrainCorp, but as long as they know the rules they will keep investing in Australia.
GO
Market Data – Harnessing The Power of Attraction
ICG Auto Insight works with leading consumer behaviour academics to develop market data analytics that will identify the relative attraction of your brand and help guide strategy by pinpointing your brand’s growth potential against the competition.
Many measures have been tried with collation of market data to quantify the value of an automotive brand in a competitive market place.
The core objective is to understand where your brand stands relative to your competitors and what drives customers to you versus the competition.
CSI scores only really tell you what has happened – the hope is that if the results are good there will be peer group brand promotion.
Another measure is known as the Net Promoter Score (NPS). This measure seeks to quantify the level of advocacy of your brand by those who have had contact with it. Once more it is a historical measure that assumes higher brand advocacy translates into greater future engagement.
What is much harder to measure, but critical to future sales, particularly where conquest growth is required, is a robust measure of your brand’s relative attraction within your key competitive set.
This is where ICG has partnered with leading academics to devise a robust measure of relative attraction.
Relative attraction is made up of key elements such as overall brand strength, brand loyalty, areas where your brand position and customer base can be threatened and areas where you can grow, either through conquest or growing the market.
A relative attraction measure can rate the view of both customers and prospects. It can help you devise strategies that reduce attrition and increase attraction within your competitor customer groups.
ICG Auto Insight can help you develop a clear view of how your brand is seen by customers and non-customers and can be key to developing your next successful growth strategy.
Talk to us on 03 9036 6300 about how ICG Auto can deliver that clear view.
Government lobbying: when to stand out?
As with most major industries, the automotive industry has numerous peak bodies representing the various major players and most often handling government lobbying.
Be it the manufacturers, the dealers, the suppliers or the workers, each has a national body ostensibly representing the group’s interests with policy makers at both Federal and Statel level.
However, when a policy decision impacts directly and specifically on your business or even when you feel that the group response needs reinforcing, direct engagement with government lobbying becomes a strong option.
Lobbying any policy maker is not a case of simply presenting an argument that seems obvious to you, nor is it a case of sending off a multi-page technical submission from your legal advisors.
Effective government lobbying requires an understanding of the political motivations and administrative mechanics that create and enact new policy.
It requires a thorough knowledge of the roles of each of the key players and the contacts to get to the right people, armed with succinct and precisely targeted arguments.
For broader industry matters, it may well be that an ‘industry body only’ approach will suffice; however, if your business stands to be directly and negatively impacted by a policy decision or proposal do you really want to sit on the sidelines?
ICG Auto Advocate is here to help you achieve results – talk to us 03 9036 6300 about your government lobbying needs.
New Chinese Policies Point to More Than Just Family Size
The third plenary session of the 18th Central Committee of the Chinese Communist Party considered and announced a number of important social and economic reforms, with the relaxation of China’s one child policy garnering much media coverage.
However, almost hidden from view was an equally important policy reform, a reform that suggests the course for China’s ongoing growth and consequently has an impact on our future prosperity.
That policy change was the relaxation of the enforcement of China’s household registration system, known as ‘hukou’, a system that had barred rural residents from equal access to benefits such as healthcare and education when they move to cities.
This clearly signals that, consistent with previous statements made by Chinese Permier Li Keqiang and his predecessor Wen Jiabao, the Chinese Government has it in mind to continue growing the economy through increased urbanization.
It is also entirely consistent with the comments reported on in a previous ICG Insight, from Executive Vice Chairman of the China Mining Association, Wang Jiahua, when recently speaking at the Melbourne Mining Club.
According to Mr Wang, “By 2030 a further 200 million agrarian Chinese are expected to move to the cities.”
The relaxation of Hukou, when added to by the inevitable population growth increase resulting from the relaxing of the one child policy, is clear evidence that the Chinese authorities are not planning to slow growth any time soon.
The continuing benefit to the Australian economy of that growth is obvious – Australia’s economic lucky streak could go on for some time, despite the wails of the doomsayers.
Now all our policy makers have to do is make sure they don’t drop the ball on the opportunity.
Here’s hoping.