The next few months are going to be critical for all smart companies that have weathered the global financial crisis, reviewed their 2010 business plans and started to convert part-time to full time staff.
The smart money people expect that the RBA will move faster than the rest of the world to resume the “inflation is coming” mantra and raise interest rates (and mortgages) by more than a full percentage point this year. The fact that this is an election year for both Rudd and Obama (mid-term elections) should provide a boost to cautious business expansion, as both governments will be maintaining their stimulus packages and talking up economic recovery.
There are marked differences, however, between the consumer climate in Australia, America and China that will shape the business horizons of smart companies around the globe. The business media is largely driven by the interests of the big end of town and the people who manipulate money markets rather than relate directly to consumers and the household sector. It is in everyone’s interest to turn a blind eye to the realities of the losses that have been faced by small business and their continued difficulties in obtaining long term viable funding for expansion.
According to data from Roy Morgan Research, 58% of consumers (up 2% and the highest since July 2007) of consumers say “now is a good time to buy” major household items compared to 16% (down 3% and the lowest since June 2007) that say “now is a bad time to buy” major household items.
In the long-term, 48% (unchanged) of Australians expect “good times” economically over the next five years compared to only 11% (down 2%) that expect Australia to have “bad times.”
Gary Morgan says: “Consecutive rises in consumer confidence to start the New Year indicate Australians believe the worst of the global recession of 2009 is behind us – only 16% of Australians expect “bad times” in the next 12 months and only 11% are worried about “bad times”’ over the next five years for Australia.”
In America, bankers are being called before the Congressional Finance Inquiry Commission to explore their role in generating the risk conditions that are only now being slowly hauled back.
Obama has just announced that there will be a special tax on the top banks that were given bailout funds, including those that have paid back the loans with interest so that they can rush back to obscene bonus payments. In the UK and Europe there is growing concern with the rush back to the business-as-usual capital markets and compensation payments that are creating a consumer concern.
Though the rate of growth in job losses is declining, US Consumer confidence this week sustained one of its steepest one-week drops in the last 25 years, following last week’s troubling US jobs report with an all-hands retreat from what had been a tentative positive trend in US consumer attitudes. The ABC News US Consumer Comfort Index dropped 6 points to -47 on its scale of +100 to -100, a highly unusual shift. It’s fallen this far or farther in a single week only 13 times in 24 years – more than 1,250 weeks – of ongoing polling.
A report by Richard Curtin, Director, Surveys of Consumers, University of Michigan to the Economics Outlook Conference in November, said: “There have been few times in our nation’s history, when events have been so threatening to our future living standards that we favor the immediate adoption of radically new economic policies and institutions. In the face of collapsing financial institutions and freezing credit markets, economic ideology quickly gave way to economic distress. Confidence declined with breathtaking speed. Uncertainty quickly engulfed nearly every aspect of people’s economic lives. The loss of confidence that stifled ordinary economic transactions became the justification for the rapid adoption of radical changes in economic policies and institutions.”
The three bright lights for small business this year are firstly that Tony Abbott will give the highest priority to the generation of jobs in remote communities (read marginal rural electorates) through small business subsidies, at the same time as supporting the claw back of the cash splash mentality that is scaring the RBA.
Secondly, the Chinese economy will grow to around 9% this year and hold up our terms of trade at a time when speculators go into a feeding frenzy taking our dollar close to parity which will make everything look good until after the election for our financial institution.
Finally, the end of the drought and re-investment in agriculture will complete our return to the traditional quarry/farm economy that will act as a rising tide for domestic consumer confidence.
There will, under these improving conditions, be a build up of pressure from unions to get above award payments, from salaried staff to get better pay and conditions and pressure from banks and regulators for more information and cost control measures.
So, small and medium enterprises need to secure home base by increasing the level of staff engagement – the measure of work place satisfaction – and reviewing salaries and incentive packages to encourage the top sales staff to stay and grow market share.
They must also strive to find ways to offer discounts and incentives to the best customers who are prepared to act as business partners.
The shake-up may be over, but the global after-shocks and impacts of withdrawal of stimulus packages are about to be felt across the globe.
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Dr Colin Benjamin is an entrepreneurship and strategic thinking sonsultant at Marshall Place Associates which 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.
Email dr.colinbenjamin@marshallplace.com.au
Contact: CEO Dr Jane Shelton, Phone +61 3 9640 0099
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
