Economy

Trade practices remains toothless… Hey, pay your debt… SME accounting battle hots up… Domain name shakeup… The value of pay cuts… German’s broadband attraction… Economy roundup…

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Trade practices remains toothless

Competition law changes designed to increase protection for SMEs against market bullying by big businesses are little more than window-dressing, leading lawyers say.

The legislation also proposes creating a new deputy chair position within the Australian Competition & Consumer Commission for small business. But even the business groups who have supported the legislation say this change is more symbolic that real.

SmartCompany can reveal that the new deputy chair position is likely to be filled by John Martin, the current ACCC commissioner with responsibility for small business. He will not be replaced as an ACCC commissioner.

The promotion of Martin, who has been criticised in the SME community for failing to speak out strongly enough on its behalf, will raise questions about whether the Howard Government is serious about addressing SME concerns about big business bullying.

SMEs had hoped the legislation, introduced into Parliament by Treasurer Peter Costello yesterday, would make it easier to take legal action against abuses of market power such as predatory pricing by big businesses under the Trade Practices Act.

But lawyers say the amendments, which set out various factors courts should have regard to in deciding if a business has “substantial market power”, will provide little or no extra protection to SMEs experiencing market domination by large competitors.

The changes could be described as slight tinkering at best, Minter Ellison competition law partner Geoff Carter says.

“For the most part the changes simply codify what the courts have already said in interpreting the section. We don’t think there will be any radical change in how courts will act,” Minter Ellison competition law partner Geoff Carter says. “In practice, it will still be one of the more difficult sections of the Trade Practices Act to apply.”

TressCox Lawyers competition law partner Alistair Little says the changes do not remove the main hurdle SMEs have faced in try to use the section to protect themselves from market bullying.

“You will still have to establish that someone has substantial market power before action can be taken and the changes don’t’ really take away from the overall operation of the section or how judges will apply the law,” Little says.

Family First Senator Fielding and Coalition Senator Barnaby Joyce have both expressed concern that the bill does not go far enough to protect small business. The Government needs the support of one of them to get the bill through the Senate.

– Mike Preston

Hey, pay your debt

Australian consumers are defaulting on increasingly smaller amounts of debt and at an earlier stage of their life, placing additional pressure on business cash flows, reports Dun & Bradstreet.

And think again before you sell goods and services to a young man in Sydney. You might not get paid.

New data from the collections and credit reporting agency reveals that:

  • Almost half (47%) of all consumer debts referred to D&B are for less than $400.
  • 50% of debtors are 32 or younger, a 25% increase on 2006.
  • Australian men are more likely to default than women (although women are more likely to owe money on phone debts. Australian males are 22% more likely to incur an entertainment-related debt and three times more likely to default on a banking and finance-related debt.
  • Australian men are less likely to ever repay these debts.

Rural Australians are better than city folk at paying up following a default.

Christine Christian, Dun & Bradstreet’s chief executive, says there is increased pressure being placed on business cash flow.

“We already know from our quarterly trade payments data that normal payment terms have almost doubled to 56 days from the standard 30-day period. Now businesses have to go to the expense of chasing smaller and smaller amounts of outstanding money.

However, she says, small business has no choice as it adds up to a considerable amount of money. She says Australians and particularly young Australians are running the risk of a black mark on their credit report for small amounts of money.

That can have a very big impact on a person’s ability to access affordable credit for major purposes like cars and property.

It is not just consumers slowing down the cash flow cycle. Foster’s announced last week that its terms of payments were being extended from 30 days to 40 days for most suppliers.

So how do you get paid?

  • Check the history of customers before entering into a business relationship.
  • Be confident customers can pay and do pay on time.
  • Establish clear credit terms from the start.
  • Have regular communications with customers.
  • Take action against delinquent customers.
  • Establish a good receivables management process to ensure defaults are dealt with as soon as possible.

– Amanda Gome

SME accounting battle hots up

The consolidation in the accounting sector is gathering pace. Victorian accountancy firm McLean Delmo has merged with the Melbourne arm of Hall Chadwick. McLean Delmo managing partner John Delmo said the merger would create a top 15, full-service firm turning over more than $13 million annually.

Delmo says that rising costs are forcing consolidation in the sector: “At McLean Delmo Hall Chadwick, [the wages] cost has risen from 30% to 38% [of turnover] in recent years. With that sort of ratio it is very hard for smaller firms to remain profitable and I expect many to disappear in the next five years.

“Coupled with that, you have to realise that the average age of partners at accounting firms is now creeping up to 60 years of age.”

McLean Delmo Hall Chadwick was founded as a two person partnership in Melbourne in 1966.

The announcement comes 10 days before WHK Group, the fifth-largest accounting group in Australiasia with revenue expected to exceed $200 million for 2006-07, changes its name to WHK Howarth on July 1. WHK Howarth is expected to go head-to-head with Deloitte Touche Tohmatsu to position itself as the mid-tier SME market leader.

Kevin White, managing director of WHK Group, told SmartCompany in March that initially four firms, one in Melbourne, one in Sydney and two others, will change their name to WHK Horwath. “Others will then follow. It will be a one to two year transition.”

In October last year, Deloitte merged with Horwath’s Sydney practice and merged with BDO’s Melbourne practice in July. The merger left a big hole in the Horwath network as the Sydney practice produced almost half of the network’s revenue.

– Jacqui Walker

Domain name shakeup

There is substantial community support for the creation of an aftermarket for the sale of Australian domain names, if the submissions to the government-sanctioned industry self-regulatory body .au Domain Administration are any indication.

The body started a public debate and received 45 submission before the closing date last Friday, according to a report in today’s Australian Financial Review. A panel is due to provide recommendations to auDA’s board in November.

– Jacqui Walker

Cutting wages and conditions is possible … but is it good for business?

Higher minimum wages, more family friendly conditions and better redundancy entitlements may be the key to building a more productive workforce, according to a new report by the Organisation for Economic Cooperation Development.

The report, which considers the connection between labour market regulation and productivity in its 30 member countries, says that nations that higher minimum wages are more productive because they encourage increased investment in employee training. The report also finds that paid maternity leave is also a big contributor to productivity because it limits career breaks around the time of the birth of a child.

The report comes in the wake two Australian studies, both reported in today’s Australian Financial Review, that suggest Australia is headed in the opposite direction.

A study of Monash University study commissioned by the Victorian Workplace Advocate released yesterday found that workplace agreements in new workplaces, known as “greenfields agreements”, remove at least one award condition in 81.8% of cases and all award conditions in 78.2% of cases.

And the problems employers can face if they seek to cut wages and conditions is illustrated by a survey of 1750 call centres conducted by research consultancy CallCentres.net. The study found that many call centre employers were struggling to secure employees and have experienced a sharp increase in employee turnover, even as wages declined as a proportion of revenue generated per worker.

The reports will give employers food for thought, particularly as the Government’s new fairness test comes into operation following the passage of the enabling legislation yesterday. Especially for SMEs, is the high wage, high productivity path the best way to keep employees and maintain profits?

– Mike Preston

German giant eyes Aussie broadband

European telecommunications giant Deutsche Telekom is considering joining Telstra and the G9 in tendering to build a fibre to the node broadband network in Australia, The Age reports today.

It has already secured financial backers for its bid, the report says, but is waiting to see the terms of reference for the Government’s tender process before making its final decision.

The latest scam?

Criminals are attempting to obtain consumers’ personal information via telephone. The criminals claim they are from a company which has chosen the consumer to be provided with a credit card with a pre-approved line of credit, the Australian Bankers’ Association (ABA) says today.

The consumer is told the credit card will be sent to him or her via mail if the following information is provided: name; residential address; driver’s licence; date of birth; and annual income.

“These scam phone calls sound like they are they are coming from a legitimate company and are used to trick consumers into submitting personal, financial or password data. These criminals are asking for information which can later be used to commit fraud,” says David Bell, the ABA’s chief executive.

Economy roundup

Economic activity is rising. The Westpac-Melbourne Institute Leading Index of Economic Activity, which indicates the likely pace of economic activity three to nine months into the future, was 6.7% in April, well above its long-term trend of 4.4%.

The strong figure will spur speculation that the Reserve Bank will increase interest rates in the coming months.

A slightly longer-term factor that will feed into market views about the future strength of the Australian economy is the massive infrastructure expenditure announced in almost every state budget this year. A table compiled by The Australian shows that, combined, the state governments have budgeted to spend $150 billion on infrastructure over the next five years, enough to provide a substantial spur to Australia’s economic growth.

After trading above 6400 points for the first time in its history yesterday, the S&P/ASX 200 came back to 6384.5 at 12.45 pm today, down 0.2% on yesterday’s record 6396.9 close. At the same time, the Australian dollar remained strong at US84.41¢, although down on yesterday’s US84.71¢ high.

– Mike Preston

 

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