economic overview australia sept 2010rev1

Economic Overview

A U S T R A L I A

“Elegant Simplicity” in Business & LifeKotan Australia© www.KotanAustralia.com

Australia Economic Overview 2010“Elegant Simplicity” in Business & LifeKotan Australia

© www.KotanAustralia.com

General Information

Capital: CanberraSurface Area: 7,692 thousand sq kmOfficial Language: Australian (form of English)Population: 22.155 million (2010)

Head of State::H.M Queen Elizabeth II, represented by theGovernor General HE Ms Quentin Bryce Head of GovernmentPrime Minister The Hon Ms Julia Gillard (finally decided)



Recent Economic Indicators

Source: Australian Bureau Of Statistics (ABS)

5.3%0.8 -0.9

4.5%

UnemploymentExchange Rate Range (US$):

Interest Rates:

Other Key Data:

2.4

20.3

-3.5

-41,582

3.0

39,841

53,862

1,193.0

2010(b) 2010(a)Aug 2010

2009(a)2008200720062005

3.12.13.73.03.32.8Inflation (% change yoy)

19.822.419.120.119.7Goods & Services Exports (% to GDP)

-4.1-4.4-6.1-5.2-5.6Current Account Balance (% GDP)

-16,551-40,634-45,953-57,727-40,932-41,482Current Account Balance (US$m)

3.31.42.24.92.43.5Real GDP Growth (% change yoy)

38,91138,35637,38335,31433,868GDP per capita PPP (US$)

44,89547,98644,79937,58435,935GDP per capita (US$)

982.11,038.6951.4784.5738.3GDP (US$bn) (current prices):



Australia’s Trade & Investment Relationships

17.8%11.1%

8.3%5.8%5.6%

Australia’s Main Import Sources, 2009 (e):1. China2. United States3. Japan4. Thailand5. Singapore

21.6%19.5%

7.9%7.4%4.9%

Australia’s Main Export Destinations, 2009 (e):1. China2. Japan3. Republic of Korea4. India5. United States

196,239200,581396,820

4,342

Australian Merchandise Trade, 2009Exports (A$m)Imports (A$m)

Total trade (exports + imports) (A$m)Merchandise trade deficit (A$m)

12,28111,67810,281

9,1977,648

Major Australian Imports, 2009 (A$m) (e):Crude PetroleumPassenger motor vehiclesRefined PetroleumGoldMedicaments (incl. veterinary)

39, 39729,96015,049

7,6407,180

Major Australian exports, 2009 (A$m) (e):CoalIron ore % concentratesGoldNatural GasCrude Petroleum




Other Key Measures

Business confidence has since Aug 2009, continued to be positive in the economy’soutlook. It has dipped slightly with the electionand also uncertainty with European debt.

Business Confidence Consumer Confidence

Consumer confidence has since Aug 2009, followed the trend of business, however at a lowerlevel. The impact of interest rate increases forhome loans has created volatility over this time.


Exports Imports

Exports have continued to grow, with the June 2010 quarter at 1.2% the fastest for the last 3 years, on the back of China’s demand for iron ore. China’s demand is expected to continue which is prompting companies such as BHP Billiton to expand production and mines and continue to grow the economy.



Economic Forecasts - RBA

2.75

2.5

2.5

Jun-10

3.0

3.75

3.75

Jun-12

2.75

3.75

3.75

Dec-11

RBA April 2010 Statement

Period

Dec-09 Dec-10 Jun-11 Dec -12

GDP Growth 2.7 3.25 3.75 4.0

Non-farm GDP 2.5 3.25 3.75 4

Underlying CPI 3.25 2.75 2.75 3.0

Growth Comments:• Growth in public demand is expected to slow as fiscal measures run their course, with this being offset by a pick up in

private sector demand• The outlook is underpinned by the positive outlook for the resources sector, with increase in investments and demand

from Asia continuing, as well as increased domestic savings levelsInflation Comments:• Inflation is expected to be within the top end of the RBA’s acceptable band of 3 to 4%Monetary Policy:• After 6 interest rate increases from the end of 2009, the RBA has left the cash rate at 4.5% for the last quarter, and is

expected to remain at this level till the end of 2010, due to uncertainty in global growth due to European debt concerns.

• Next increase in rates is speculated for Feb 2011, which should stimulate consumer spending over end of 2010

Source: Reserve Bank of Australia (RBA)



Industry Trends



Industry Segments Overview

These index’s show industry trends based on orders, inventories, capacity, input costs, etc. The base line of 50 points represents the separation between expansion(+50) from contraction(-50).

Manufacturing Industry Index

Service Industry Index Construction Industry Index

Growth

Contraction Moderating

Source: Australian Industry Group (AIG)



XXXXXXXXXXXX

Key Industry Figures 2009 Industry Revenue *1,477.1 $ millionRevenue Growth *3.4 % Industry Gross Product *449.6 $ millionNumber of Establishments *587 Units Number of Enterprises *245 Units Employment *4,310 Units Exports *377.3 $ millionImports *1,425.3 $ millionTotal Wages *236 $ million

Major Player Weir Group (Australian Holdings) Pty Limited GUD Holdings Limited Gilbarco Australia Pty Ltd

Product/Services Centrifugal Pumps Air and Gas CompressorsRotary Pumps Reciprocating Pumps Submersible Pumps

Item Purchases Wages Depreciation Research and Development Utilities Rent Other Profit

Compressor Market Overview

Source: IBIS Market Reports

SAMPLE OF SPECIFIC MARKET OVERVIEW ONLY



Australian Business Trends



Australian Business Insights Structure• Manufacturing in Australia is approximately 16% of GDP, and is continuing to decline

• Focus has shifted in many industries to importing, selling and servicing to meet industry demands

• Compressor market has few manufacturers left in Australia, most are imported from overseas sources

• Population base in Australia makes it difficult for local manufacturers to compete on commodity type products, where overseas manufacturers have a lower cost base compared to Australia (A$18/hr)

• Majority of the population is based in the capital cities of Melbourne (5 M), Sydney (5M), Brisbane (2M), Adelaide (1M), Perth (1M). To be able to support the Australian market for commodity type products requires to be present in at least Melbourne and Sydney as a minimum.

• Expectation from customers is that an organization has as a minimum – Sales, Technical, Quality and Customer support; Service, Repair and Parts replacement capability to support products sold within an acceptable lead time, this can range from 24 hours (for breakdowns) to 1 week for remote sites

• Structure of organizations generally consist of head office with core functions and inventory with a satellite network of service centres and / or agents to handle interstate and remote customers. This network can be company owned or joint venture / license / service contract arrangements with small owner operators through to larger service specialists.



Australian Business Insights Market Penetration• The core fundamentals for gaining a foot hold in the market is based around QCDS, i.e.:

QualityCostDeliveryService

• Product reliability is a key consideration to establishing creditability in the market place

• Cost or price needs to be competitive, but not necessarily the lowest. Many organizations use “Whole of Life Calculations” for establishing the total cost to the organization and establishing savings potential.Knowledge and approach varies widely, e.g. mining companies versus small residential supplier

• Relationships are important in Australia, they provide the entry conditions into customers and establishes credentials for the product

• Buying decisions and approaches vary dependant on the type of organization being targeted, i.e. small, medium or large. The key is always to develop trust with the key decision maker to ensure that the price is competitive, product is reliable, service and support infrastructure is in place.The bottom line is to ensure that no one in the decision tree will lose face, it operates at an unsaid level but is alive and well

• The base operating culture is “Say what you do, and do what you say”



Australian Business Insights Operations• Start up of a operation in Australia can be through a number of options, i.e.:

Licencee – quickest entry and lowest cost base, limited flexibility and controlJoint Venture – quick entry, medium cost base, ability to control and monitorPartnership – medium entry, medium + cost base, more ability to control, monitor and driveCompany Owned - longest entry, higher cost base, greatest flexibility

• Each of these options provide pro’s and con’s to growth and profit opportunities, depending on the target market(s) and long term plans for revenue growth

• Distribution is costly due to the long distances between locations, especially in remote areas. Most organizations use established distribution specialists and negotiate their specific needs and prices.

• Product range – the optimum approach is to have a core range of products and then alter /adjust to the specific conditions and needs of customers, if technically possible. This reduces the overall inventory levels needed to be held and reduces required working capital and infrastructure requirements

• Personnel – Australia is currently experiencing a skill shortage in a number of areas, mainly in the tradesman and professional areas. Obtaining people with the required skill set could be a challenge

• Product – Brand ImageIndian manufactured products are seen similar to products from China in terms of quality and reliability. There is limited knowledge and exposure to India as a source of products that are imported into Australia



Questions



Further Assistance or Enquires

For Further Assistance or Enquiries Contact:

Paul Mracek JPCPEng, FAIM, GAICDChief Executive Officer,Kotan Australia Pty Ltd

T : +61 3 9532 5476M: + 61 (0)418 885 122E: [email protected]

economic overview australia sept 2010rev1

Documents