Marshall Place Associates Live More of Your Life

Thursday, 15 March 2007

Everyone who has ever had a ride on the Big Dipper at Luna Park knows that it
gets more exciting as the number of clicks slow down at the peak of the
ride – just before the rush to the bottom. That’s the time to settle
into your seat, check your safety belt and prepare for an exhilarating
experience.

And it all certainly looks like the ride will be a good one. The top end of town is recording no sign of a
decline in either business or consumer confidence. It is still possible
to get finance at three times the Japanese rate and the economy is
powering on through the commodity boom with the service sector finding
great opportunities in export markets.

But there are very disturbing signs that we are heading downwards. Remember
1990? The Roy Morgan Values Segments (developed in conjunction with
this writer) for the past year, shows a disturbing similarity to the
pattern in 1990 in which consumer sentiment plummeted before the
massive federal election handouts flooded the market with record
promises in a desperate battle for the mind of the electorate.

For a start there is political instability coming our way. There is a very
rough ride ahead in the international economy over the coming months of
the electoral cycle with the imminent departure of Blair and Bush in
the next year or so and the coming Howard/Rudd clash at home.

Bankruptcy is increasing dramatically, according to insolvency practioners. We now
have a lacklustre Australian sharemarket that shows every sign of a
shift away from equity investments into an already inflated property
market, with financial institutions looking to create new home equity
deals to try to maintain the momentum.

Australian currency traders are following the Prime Minister to Japan and shifting
to the lower risk yen, and the international rating agencies are
arguing about the propensity of governments to be willing to bail out
collapsing banks and investment funds.

In the United States there is a massive rise in debt problems in the
mortgage market where unsupported loans by desperate financial
institutions are prompting debates among the top banking institutions.
More than $US36 billion in packaged loans, bonds and derivatives
(collateralised debt obligations, or CDOs) to sub-prime, high-risk
borrowers has raised great concerns as this represents more than the
combined rate for the last decade.

Shares in the large investment banks are down 10% on the previous year and the
legendary former chairman of the US Federal Reserve, Alan Greenspan,
has already warned of the potential for a US recession in the normally
upmarket US presidential election year.

In China, the Government is seeking to rein in the rate of speculative
investment that is not related to any form of productivity, and is
giving close attention to the potential for a US recession.

The McKinsey Quarterly this month is reporting that in China there are
hundreds of former state-owned enterprises that have been deluged with
foreign investments without adequate management or controls over the
returns that are supposed to be available. In Taiwan, a significant
number of foreign investors are shifting to the emerging European
market and moving against the US dollar, which will push up the Aussie
currency just at the time we will be getting less for our grain due to
the drought.

It may be an election year, but the federal Treasurer has already indicated that
there is less room for a buy-a-vote spree to prop up the market and we
are living off the end of a private equity scramble for cash flow
business opportunities in the retail and hospitality markets.

And how about this for a symbol of what’s coming? In Australia the
pre-eminent store Myer has announced that it is halving its “store
frontage” so that it can consolidate its remaining business into the
remaining store.

So what does all that mean to the SME market? It’s time for strategic
positioning that adopts the strategy of the squirrel rather than the
ostrich.

Now is the time to get closer to customers and especially to their end-users, to
make meaningful relationships that offer prospects of disaggregation of
the value chain and more meaningful business partnerships.

Now is not the time to assume that the average customer is indicative of
the market without also paying close attention to the share of mind of
each product, as well as the pattern of product and service delivery
between affluent and other locations.

Take advantage of the high levels of current business confidence to confirm
and consolidate forward orders. Service companies should move to
reinforce their basic customer offers, invest heavily in customer
relationship management to identify the higher risk elements of their
business, and tighten their terms of trade

CONTACT: Dr Colin Benjamin, Marshall Place Associates

Marshall Place Associates offers a range of strategic thinking tools
that open up a universe of new possibilities for individuals and
organisations committed to applying the processes of innovation,
creativity and entrepreneurship.
CONTACT
Dr Jane Shelton
Chief Executive Officer,
Marshall Place Associates
Level 15, 461 Bourke Street
Melbourne 3000
Ph: +61 3 9640 0099  
Fx: +61 3 9640 0009   
Email: contact@marshallplace.com.au