Having been dominated by resources for the last decade, where is Australian business heading now and which sectors can we look to for future growth?
Nobody has a crystal ball for the business world. But discussing, analysing and understanding its movements and trends allows us to better recognise where growth, and therefore investment opportunities, might be best found as the economy continues to change shape.
An August 2013 report from Phil Ruthven, founder and Chairman of business information provider IBISWorld, painted a fascinating picture of the shape of the Australian business environment. At the time there were over 2.15 million businesses in existence in Australia, 62% with revenue of less than $200,000 and 28% with revenue of less than $50,000. The report said that 75% employed less than five people and that collectively our nation’s businesses enjoyed revenue of over $4.2 trillion. The top 35 corporations took 17% of that pie.
It is an enormous pool from which to pick a winner – an ocean of companies of different shapes and sizes, some floating, some sinking and some gobbling up the others. But just like an ocean it ebbs and flows with some predictability. Seasons have their typical and expected effects. Sectors move with the tides and currents. And various events, some expected and some not, cause dangerous conditions for certain industries but provide the perfect environment in which others can thrive. The last decade has provided such an environment for mining and its related industries. Despite endless stories of doom and gloom, resources is not a sector that is going to stop influencing the country’s economy any time soon. But a slowdown is being felt.
In other fields, as the Australian dollar begins to relax against a strengthening US dollar, exporters and retailers with a strong international e-commerce presence are finding they have extra wind in their sails. And as the Federal Government edges its way closer to agreement over the National Broadband Network, businesses with a technology angle, or that could benefit from a greater internet audience (online educational institutions or web-based medical networks etc), stand to see an improvement in conditions.
Also, of course, as Australia’s population ages over the coming decades, businesses in the health and aged care sector will experience an enormous increase in demand.
Within industry sectors recognisable patterns can be identified. These are worth considering when looking for future opportunities. For instance, the IBISWorld report says that from 2009 to 2012 the sectors that shed the least number of businesses were health, agriculture, real estate and manufacturing. At the other end of that scale, hospitality, administration and support services, arts and entertainment, information media and telecommunications shed the most. But none lost more than government administration, which saw many departments losing weight as work was increasingly outsourced.
Within sectors there are also interesting patterns, with mining being dominated by large businesses, and agriculture dominated by small businesses. Governmental support, or lack of it, also has its own effects. Just look at what has happened in the field of automotive manufacturing, and within Qantas since it sought subsidies from the Federal Government.
Finally, one of the great drivers of business is business itself. Just as households tighten their purse strings during times of uncertainty, so do businesses. As exchange rates relax and interest rates remain at all-time lows, companies are more likely to spend. This is one of the Reserve Bank’s (and central banks from most other advanced nations) goals, to encourage more money to flow between previously risk-averse businesses as the economic environment becomes more stable.
These issues should be researched when considering where investment opportunities could arise as the structure of the Australian business landscape shifts away from resources. Many tools and data sets are available that can help illustrate the future business environment. The more of these you utilise, the more accurate your results will be. Speak with your financial adviser to understand more about the future of the Australian economy.
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