Australia: Turning The US Fall-out Into Business Opportunities

Last Updated: 9 May 2008
Article by David Kenney

While the US fallout has affected the whole world, there are still ways to take advantage of business opportunities which may arise out of a negative climate, says David Kenney, Chairman of Hall Chadwick business advisors.

"Although the crisis in the US has had a detrimental effect, there are always ways to turn that round," said Mr Kenney. "We would advise any clients who have interests in the US to try to maximise the situation and look at the options. Should they enter other overseas markets or expand domestic markets to compensate, should they diversify or change?

Value of the A$ offers advantages

"One of the key advantages at the moment is that the value of the Australian dollar has increased substantially against the US dollar, with some expectation that it will go down further. So interest rates on loans will be more favourable in the US. For example, if a business has a loan in Australia being charged at 8-9% interest, it might make more sense to move this loan to the US where they will be charged at 4-5% interest in a depressed market. It is important for companies to match the costs of capital with what they are spending it on, and lower costs."

Mr Kenney explained that if a company is competitive in the US market it may also be competitive in the European market. "Change in currency value has not been so great there and while it is true companies are targeting a lot of small markets there, the States is really also a lot of separate markets. Many companies have been under pricing to get the work in the United States, but if the product is good enough the price can be raised without losing the sale."

Geographical Diversification

Mr Kenney's tips for businesses wanting to maximise their opportunities in the current US climate include identifying what works and looking at geographical diversification.

"It is essential businesses look at what they are really good at and where they have a competitive advantage," he said. "They should identify the skills, property, team expertise and organisational insights that have to date allowed them to grow and find out where they can improve and grow and what will allow them to improve. While it is hard, it is also important to find out what are the current impediments to a business, other than a US recession and also to identify the value of products and services.

"Geographical diversification is also another way of making full use of opportunities. We would recommend looking at where existing skills and products can be commercially used geographically in another locations."

Existing Client Base may Offer Opportunities in New Markets

Mr Kenney stressed the importance of looking further afield for solutions. "Businesses should examine where their existing client base exists in the world, so that they have a known receptive market to leverage off. For example, Mongolia is a remote market, unless BHP/RTZ is a major client. Other options available are smaller markets such as Australia and, in a short-term market that improves cash flow and short term profit, there are often emerging markets such as ex- Eastern Block countries where growth rates in the economy are relatively high. Looking at the long term, there are also plenty of markets that have vast potential."

Mr Kenney said that some of these alternatives could be an easier route, as clients are using known factors to grow rather than product or skill diversification.

"They already know the formula for success and merely need to adapt to the new customers and local conditions," he said. "But they need to identify resources, costs and cash flow during a period of reduced cash flow. It is also vital to plan the entry into each market, through countries, embassies and consulates. And they should not forget the role business groups, and local professional advisers can play- they not only get the penetration business plan thought out, they identify competition and also what can be expected as realistic results. Companies will get better at it as they learn with each country."

Product and Skill Diversification

Another essential ingredient to success is product and skill diversification, Mr Kenney added. He explained that most skills or products are transferable. "A car production line can diversify into tractors. If a business sells cars into a market, they should look at becoming more of a parts supplier as well to other types of cars. Changing skills or product has the problem that unless they enter with new ideas or technology, they need to take on established players who are already focussed in that market," said Mr Kenney. "They may well have a history of catering to the nuances of that market. So they need to identify the new advantage that they have over existing players.

Mr Kenney's advice in this instance is for companies to develop the product, develop the marketing strategy, develop the distribution basis and after care service and find the partners or finance to expand on a more risky venture and a longer one.

"This route may actually be the better way to go once businesses have identified the product or skill to diversify in," Mr Kenney continued. "But often it requires a more talented and skilful team. Once the new business is found to be sound and businesses have ensured that profits dictate the resources, then geographical expansion is also possible. The Western world is increasingly one market and it is the people with a specialisation which has been developed and utilised around the world that have the edge. So all is not lost on the US front- it is just a matter of being a bit more creative and thinking outside the square," Mr Kenney added.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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