The services sector posted respectable growth of 13 per cent and a number of Australian service oligopolies continued to diversify their revenue base with small overseas plays. Telstra (rank 32) receives about 6 per cent of its revenue overseas, mainly in North Asia, but it is showing little sign of moving aggressively beyond its domestic market. Toll Holdings (rank 58), virtually a transport monopoly, grew its foreign revenues to a similar percentage but jumped 18 places on the list coming off a low base. Its purchase of pan-Asian SembCorp Logistics drove growth along with the contract to operate Asia’s premier oil and gas supply base in Singapore. Qantas (rank 12) also creates about 24 per cent of revenues overseas, but it remains very much a domestically focused national carrier.
In the manufacturing sector, Amcor (rank 6) and PaperlinX (rank 7) are genuine global players, but continue to struggle with the strong Australian dollar, which is depressing their Australian dollar earnings. BlueScope Steel (rank 10) has signalled its intention to reduce its Asian focus in preference for North America, a surprising play given the strong growth prospects in North Asia and a solid year of 8 per cent foreign revenue growth.
Perhaps most interesting of the services oligopolies is Foster’s, which is seeking to create a complex global supply chain predicated on a dual value chain for beer and wine. Foster’s is in effect running a domestically-focused strategy with beer, building on its dominant market share, and only making marginal plays in overseas markets (it withdrew, along with its main competitor Lion Nathan, from China). Foster’s may have a globally recognised brand, but the firm gets limited commercial advantage from it as a result of an international licensing deal struck with the brewer Scottish & Newcastle in the mid-1990s. By contrast, the wine strategy, although contentious with investors, probably has more growth prospects and is more global in scope with its geographically dispersed sourcing. Foster’s generates about two-thirds of its revenues in Australia and Asia, a quarter in the Americas and a tenth in Europe and the Middle East. Its growth rate in the latter, however, was 19 per cent in 2007, compared with only 2 per cent in the Americas and 4 per cent in Australia and Asia.
Niche Plays Rule
The strongest strategies outside the mining and finance sectors tend to come from niche players. The stand out performer was resource and energy services provider Worley Parsons (rank 19) with 41 per cent foreign revenue growth. Further demonstrating that the mining boom is having positive knock-on effects in associated industries was the impressive debut of mining services company Ausenco at rank 64. And the global infrastructure boom introduces engineering services firm SMEC (rank 99) to the list for the first time.
Biotech specialists CSL (rank 16) and Cochlear (rank 55) continue to thrive from their global niches. CSL posted foreign revenue growth of 24 per cent, while Cochlear managed 14 per cent and a return on equity of over 30 per cent. Another new entrant to the list is Transfield Services (rank 57), whose international revenue is likely to grow after it made its first move into the US market last year by buying management services company US Maintenance for $372 million, whose clients include Wal-Mart.
There are many other firms that have established robust global niches including finance software company Computershare (rank 31) and surfwear manufacturer Billabong (rank 41), the world’s biggest surfwear maker with a presence in 100 countries. Billabong is even looking at possibilities in Dubai, where surf is unlikely, other than of the artificial variety.
Other favourite niche players maintained their positions. Brambles’ (rank 8) “think global, strategise regionally and act local” approach is entrenching its global dominance in logistics services, including pallets. The company is recording a soaring return on equity of over 90 per cent, according to IBIS.
Leighton Holdings, which specialises in construction contracts, gets only 14 per cent of its revenue from offshore, and had flat growth for the year, despite its longstanding strong presence in Asia. But this is likely to change, especially with the firm’s growing activities in the Middle East, where construction activity is at fever pitch.
The thinning
If niche plays are the most successful of all the globalising strategies, then it is no surprise that The Diplomat Global 100 is proving that niche companies are also the most attractive to foreign predators. Of the eight companies acquired by foreign competitors in the last year, all have been service or manufacturing specialists. The loss of Rinker, Pacifica, and Vision Systems dealt a blow to manufacturing’s share of national foreign revenue, which fell 3 per cent. Another five service sector specialists also fell to foreign takeover with Adsteam Marine, Macquarie Prologis, Mayne Pharma, Mincom and Multiplex picked off. These service sector losses were offset by the growth in other niche players, the surge in property and infrastructure funds and trusts, and the growth in mining related services.
Perhaps the most peculiar absence in The Diplomat Global 100 is that of agribusiness. Despite surging soft commodity prices, agribusiness revenues dived 20 per cent to a meagre $4.4 billion. Nufarm (rank 38) and AWB (rank 25) offer some hope, posting 24 per cent and 28 per cent growth in foreign revenue respectively. And the debut of ABB Grain at number 65 is another positive. But Nufarm may also be seen as symbolic of the travails in the sector. Despite a collapsed private equity bid in December, it remains surrounded by foreign suitors and is likely to fall. A longstanding failure to globalise Australian agribusiness has left the sector vulnerable to a recent foreign buy-out frenzy just as fundamentals reach new highs. Clearly, Australian companies no longer ride the sheep’s back to global prosperity.
Australian globalisation is at a cross-roads. If companies come through the global shakeout with solid balance sheets, opportunities to expand via acquisition will be plentiful. With the resource boom likely to keep the dollar strong, those assets will be even cheaper.
But if the loss of niche players and agribusiness companies continues, an incipient thinning of diversity in Australia’s globalised companies will gather pace. The potential retracement and even destruction within property and infrastructure trusts is already set to exacerbate this trend. In that event, the powerful growth of mining may tip Australian globalisation towards a fundamental imbalance.
The Diplomat Analytic Unit
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