Economy

The multi-billion dollar industries of the future

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As part of SmartCompany’s Developing an Entrepreneurial Australia Roundtable, we asked IBISWorld general manager ROB BRYANT to nominate the 10 multi-billion dollar industries of the future

Developing entrepreneurial Australia

As part of SmartCompany’s Developing an Entrepreneurial Australia Roundtable, we asked IBISWorld general manager Rob Bryant to nominate the 10 multi-billion dollar industries of the future and then asked our panel of 17 entrepreneurs and experts to try and identify the niches within these sectors that Australian businesses can exploit. Over the coming weeks, SmartCompany will profile the 10 big industries of the future.

Who knows, we may even spark the next great Australian global giant. If you are already operating in one of these sectors, we’d love to hear from you about the opportunities and barriers that exist. Send your feedback here.

How the industries were identified

Rob Bryant says that in the next five years there will be industries born and industries reborn as they move through the various stages of their lifecycle. In attempting to identify the next 10 growth sectors, it is useful to examine the prevailing trends that lead to the birth of industries.

New industries are born as a result of outsourcing. That comes from three distinct sources;

  • Households New industries carry out household activities in a quarter of the time and a third of the (real) cost of the DIY household and improve both our standard of living and our quality of life.
  • Businesses Businesses are now outsourcing non-core activities and franchising, transferring jobs from one business or industry to another business or industry to be done more efficiently with huge productivity gains.
  • Other nations Our exports are the result of other nations outsourcing some of their needs of goods and services to us.

At least $720 billion in revenue was generated in 2006-07 as a result of outsourcing by households, businesses and overseas countries that began in the “new age”, around 1965. This is just over 25% of the nation’s total revenue in 2006-07 of $2.7 trillion.

There is clearly a lot more growth to come from the outsourcing boom.

1. Business & property services – outsourcing non-core functions

Key statistics, 2007

Statistic

Value

Industry revenue

$179,422 million

Revenue growth (06-07)

5.3%

Number of enterprises

755,000

Employment

1.239 million

Exports

$7789 million

Imports

$8488 million

IBISWorld estimates

Products and service segmentation

Major market segments

Outlook

The outsourcing of non-core business and property services functions – such as customer service, information technology, human resources management and data processing – has been a rapidly growing sector for more than a decade. But the growth is far from over. Companies will continue to focus on their core profit-generating activities and bring in specialists to provide the common, commoditised functions.

And while outsourcing in the business and property outsourcing sectors has traditionally involved shifting functions from Australia to low cost nations such as India, there are still areas where smart Australian can compete with innovative technologies and business models.

The IT space will continue to be the biggest area of opportunities. It is estimated that many companies outsource half of their IT spend and will increasingly look to hand off more complex, high-end functions. Margaret Banaghan, IT services research manager from research firm IDC, says outsourcing will grow in the areas of green IT, services oriented architecture, web services and mobility services.

Outsourcing of environmental services could also be a growth area for Australian SMEs. For example, companies are already looking at ways to outsource functions such as the measurement of carbon usage and energy management.

IBISWorld forecasts that this sector will grow at an average annual rate of 3.1% over the five year period to 2012-13. Growth will be influenced by the performance of property and business services sector (property services, for example, could be about to go through something of a downturn as the credit crisis puts the squeeze on the global property sector).

As has been the case for the last five years, IBISWorld is forecasting that the growth in the number of enterprises in the sector be fuelled by stronger levels of outsourcing within the economy, along with the continued entry of new franchise operators.

Key sensitivities

IBISWorld also nominates a number of factors that will affect the performance of the property and business services sectors. These include:

Business outsourcing – private sector. The trend towards outsourcing non-core activities, such as accountancy, human resource management and data processing, plays an important role in determining the level of demand for the services offered by this division.

Number of businesses. Fluctuations in the number of businesses operating in the economy will influence demand for a range of services provided by this division.

Real GDP growth. The overall performance of the Australian economy affects the demand for services provided by this division. Periods of strong economic growth bodes well for a number of services provided by this division such as real estate agents and accounting services.

Real household disposable income. Growth in the level of real household disposable income will affect the timing of services demand from this division by consumers.

2. Financial services – outsourcing of transactions/investment

Key statisitcs 2007

Statistic

Value

Industry revenue

$500,037.1 million

Revenue growth (06-07)

6.7%

Number of enterprises

29,795

Employment

396,850

Exports

$1500 million

Imports

$1708 million

IBISWorld estimate

Products and service segmentation

Major market segments

Industry outlook

The continued swelling of Australia’s $1 trillion superannuation is already changing the face of the Australian economy and will continue to do so for the foreseeable future. It is also creating numerous opportunities through the outsourcing of transaction and investment services.

Some of the sub-industries that will grow in the coming years from outsourcing by the superannuation sector include investment managers, industry analysts, product creators, relationship management experts, financial planners, IT suppliers and asset managers.

The relatively mature nature of the Australian retirement savings industry gives local companies the chance to export their services to markets where retirement savings systems are still under development. Big investment banks such as Macquarie have already helped established Australia’s reputation in the global financial services sector – it’s up to SMEs to leverage this advantage.

IBISWorld forecasts that this industry will grow at an average annual rate of 4.8% during the five year period to 2012-13. The biggest driver to industry revenue will continue to be the local superannuation funds industry, which will continue to exhibit an increase in assets largely due to compulsory superannuation contributions.

The anticipated rise in individuals’ retirement at age 60 and above resulting from the removal of the tax at the end benefit stage is expected to further strengthen the demand for superannuation products and provide incentive to increase voluntary contributions in the five years to 2012-13.

External influences will also affect this sector, with the sup-prime crisis increasing the wholesale cost of funding. With increased globalisation in the finance industry, institutions are able to source funds from domestic and international sources. As such, the increased cost of wholesale funds in addition to a tightening bias towards interest rates by the RBA is likely to see variable loan repayments increase.

Key sensitivities

IBISWorld also nominates a number of factors that will affect the performance of the financial services sectors. These include:

10-Year bond rate. Interest rates affect demand for finance and the allocation of investment funds between shares, property, cash, etc.

Capital expenditure. The level of capital investment in the economy impacts on the demand for finance and related services such as leasing.

Legislative compliance requirements – finance and insurance. The industry is highly regulated and subject to government interference to achieve government policy objectives. The most notable recent examples are the impact of compulsory superannuation and changes in the regulations affecting the health insurance sector.

Real GDP growth. The level of economic activity and interest rates, influence the level of savings, demand for credit, the quality of lending portfolios and the level of financing transactions.

Residential property yields. The performance of property markets influence investor confidence and, in turn, the demand for lending products and the quality of the banks lending portfolio.

Sharemarket performance. Performance of equity markets which influences investor confidence and, in turn, the demand for bank lending products and the quality of the banks lending portfolio.

 

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