Summary presentation of the 2011 White Paper outlining the economic engagement of South Australia with China. It was the first comprehensive investigation of the economic ties and was a precursor for a comprehensive China strategy.
Business Model Canvas (BMC)- A new venture concept
Challenging South Australian Myths about China - Engaging with the Rising Economic Power
1. Challenging
South Australia’s Myths
About China
Key Conclusions from the Joint Research Project
‘White Paper’: “Business Engagement with China:
A Strategy for South Australia’s Future?”
19 April 2011
Glen B. Wheatley, Best Solutions International Pty Ltd
2. Notes
& Appreciation
• The Australian Bureau of Statistics (ABS) was a key data source
• Unfortunately the ABS cannot supply detailed
statistics for service exports and imports
• Goods which either departed or arrived via another state are not
included, eg. goods destined for SA may be in NSW statistics
• Special thanks for their support
• Education Adelaide
• South Australian Wine Industry Association
• South Australian Tourism Commission
• South Australian Chamber of Mining and Energy
• Jim Wilson, Glen Stafford, Annette Wheatley & Geoff Upton
3. Key Conclusions
• Over 4,500 jobs in SA are dependent on China exports,
mainly in mining, education & wine
• China is South Australia’s largest trading partner
• Top four exports: mining ($833 M), education ($328 M), wool ($69 M) & wine ($66 M)
• Industry leaders see China’s importance growing,
but are concerned about the future
• Position is fragile without strategic approach and lack of coordinated policy formulation
• Need to increase the value-add of SA exports
• Traditional manufacturing must adapt as the world globalises
• Without a cooperative and strategic approach,
SA will become a “has been” with China
• SA as a small state can only compete on the world stage with unique value-add
• Together we can be powerful: SA with resources & technology; China with capital & markets
4. Myth 1: SA Buys More
From China Than it Sells
Since 2005 we have sold more than we have bought
2005 2006 2007 2008 2009
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
Imports 624 773 1,003 1,160 994
Exports 735 768 1,012 1,269 1,544
SA Goods Exports 2009
Total: $ 8,318 Million
SA Goods & Services Trade with China
in M $
Sources: 5368.0 International Trade in Goods and
Services, Australia, Table 36d Merchandise Exports
& Table 37d Merchandise Imports; ABS custom from
May 2010; & calculations by the author
5. Myth 2: China is a Threat to SA
China trade is increasing net employment in SA
Job Count 2009 – All Industries Wages Earned 2009– All Industries in M$
Net Positive Effect of China Trade for SA in 2009
Best Case: 4,902 jobs = $ 320 Million in wages = $ 84 M in payroll taxes
Worst Case: 3,293 jobs = $ 234 Million in wages = $62 M in payroll taxes
Approach: Total export/import per sector divided by the average revenue per employee. Author grouped
imports into those with viable local (SA/AUS) producer and those without to determine total imports
which might be replacing local jobs.
Sources: ABS 6302.0 Average Weekly Earnings, Australia, TABLE 10I. Average Weekly Earnings,
Industry; Series 81550DO001-200809 Australian Industry 08-09, ABS custom from May 2010; &
calculations by the author
6. Myth 3: China is a Cheap Mass Market
China has changed enormously in the last thirty years
7. Myth 3: China is a Cheap Mass Market, cont.
China’s consumer spending has changed greatly since the ‘70s
Source: “China's luxury boom - The Middle Blingdom”,
The Economist, 17 February 2011 . Also see points below
Australian Wine Exports 2008
Total value and average per litre prices
Source: AWBC - Wine Export Approval Report, Dec. '08
“Ask a well-heeled Chinese lady about her new handbag and she is quite likely to
point out that she bought it in Paris. This tells you not only that she is rich enough to
travel, but also that the bag is genuine.”
Including Chinese purchases outside China (55%!), the nation’s share of the global
luxury market will triple, to 44%, by 2020
8. Myth 4: Communicating
with Chinese is Easy
Cross-cultural communication can be challenging
Survey respondents who
found communicating with
the following nationalities
difficult or very difficult
Source: Joint Research Report online survey,
October-November 2010, total of 51 respondents
Poor preparation could cost SA
$53 Million annually
Approach: Total SA exports and imports multiplied by potential
efficiency increase due to better cross-cultural and language
preparation. Similarly lost time and energy due to
misunderstandings assumed to be 2 workdays per year.
9. Myth 5: SA has a Clear China Strategy
Collectively, we could be better in:
• Analysing, interpreting & planning
we have had insufficient transparent information and interpretation
• Setting China as a priority
• Coordinating our efforts between
companies, industry groups & government
• Identifying our true strengths and highest value-add
and taking a sustainable approach to business
• Formulating state and national policy to support
our shared goals & strategy
10. Investing in Our Future with China
Do we just milk the cow or do we invest in its health?
Estimated Net Return from
2009 SA Exports to China
Total: $200 M
Suggested Re-Investment
of Part of Return in M$
Suggested Investments in SA’s China Future
Cross-cultural & language training, market analysis & strategy,
manufacturing & service innovation,
entrepreneurship & investment attraction, communication & promotion
Approach: Total calculatory wages multiplied by an average 25% income tax (15% for
superannuation payments). Corporate profits were assumed to be 7.5% of revenue,
which was then taxed at 30%.
11. Learn From the Fable of
Fred the Manufacturer
• Perfect World of Oz (?)
• Fred makes toasters in his company “Toastmasters”
• He is happy that the high walls around Oz protect him
• Life is easy without much competitive pressure
• Threat Looms from Overseas
• Somebody in Emerald City lets in toasters with the sticker “made in China”
• The toasters are OK, but Fred knows his are better and continues his ways
• Fred notices that sales are dropping, blames the Chinese, but continues his ways
• Generation V-A (Value-Add) Enters
• Despite Fred’s protests, his son Frank learns Chinese & goes on an exchange program
• Frank is modern and develops a really smart new toaster with a cool design
• Fred is worried about the raw material and assembly costs of the new toaster
• F&F Focus on Core Strengths
• Frank imports the commodity bits from China but keeps the “brain” of the toaster in Oz
• F&F listen to their customers and do smart marketing, so sales boom
• F&F start exporting, becoming fans of globalisation
• F&F invest more & more in R&D, always introducing the next best kitchen gadget
• Toastmasters becomes the world standard and is now sold in 30 countries
12. Silly Story?
Think Again – It’s Just like Breville!
Development of Underlying Earnings* at HWI/Breville in % of Revenue
16%
14%
12%
10%
8%
6%
4%
2%
0%
HWI Chairman, June 2005:
“PI was aware that significant
change was needed and inevitable.
...HWI will emerge as a very strong
global participant in our industry..."
FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 HY11
*Underlying Earnings before interest, tax, depreciation & amortisation (Underlying EBITDA)
Sources: HWI/Breville Group Annual Reports 2001 to 2010 and Breville Half Year Results to
December 2010.
Breville Chairman, June 2010:
"...underlying and reported profit after tax for the
yearPincreasing by 65% and 92.1% respectively.
The progress achievedPre-affirms the group's strategy
of focusing on the development of innovative products
and leveraging those products across multiple
geographies.”
13. So What Can
Each of Us Do?
• Increase your knowledge about China and encourage
those around you to do the same
• Ask yourself "How could China's development affect me
and how can I constructively become engaged?
• Share & discuss the White Paper and this presentation
with people around you
• Ask your leader “What is our China strategy?"
• Find out for yourself: Speak with Chinese here in SA
or travel to China
• Build up a China-focused team in your organisation and
constantly increase its understanding of China
• Take an active role in the interface between SA & China
by joining ACBC and similar groups
14. Thank You for Your Attention!
Please feel free to approach us with comments, questions or ideas!
Confucius Institute at the University of Adelaide
Annette Wheatley, Business Program Manager
T: 8303 4798
E: confucius.institute@adelaide.edu.au
Australia China Business Council (SA)
Sean Keenihan, President
T: 8223 6808
E: acbcsa@acbc.com.au
Best Solutions International Pty Ltd
Glen B. Wheatley, Director
T: 8338 6299
E: glen.wheatley@bestsolutionsintl.com