As all the economic indicators on the economic roller-coaster keep pointing up, I get the feeling things are about to change.
Everyone who has ever had a ride on the Big Dipper at Luna Park knows that it gets more exciting as the number of clicks slow down at the peak of the ride – just before the rush to the bottom. That’s the time to settle into your seat, check your safety belt and prepare for an exhilarating experience.
And it all certainly looks like the ride will be a good one. The top end of town is recording no sign of a decline in either business or consumer confidence. It is still possible to get finance at three times the Japanese rate and the economy is powering on through the commodity boom with the service sector finding great opportunities in export markets.
But there are very disturbing signs that we are heading downwards. Remember 1990? The Roy Morgan Values Segments (developed in conjunction with this writer) for the past year, shows a disturbing similarity to the pattern in 1990 in which consumer sentiment plummeted before the massive federal election handouts flooded the market with record promises in a desperate battle for the mind of the electorate.
For a start there is political instability coming our way. There is a very rough ride ahead in the international economy over the coming months of the electoral cycle with the imminent departure of Blair and Bush in the next year or so and the coming Howard/Rudd clash at home.
Bankruptcy is increasing dramatically, according to insolvency practioners. We now have a lacklustre Australian sharemarket that shows every sign of a shift away from equity investments into an already inflated property market, with financial institutions looking to create new home equity deals to try to maintain the momentum.
Australian currency traders are following the Prime Minister to Japan and shifting to the lower risk yen, and the international rating agencies are arguing about the propensity of governments to be willing to bail out collapsing banks and investment funds.
In the United States there is a massive rise in debt problems in the mortgage market where unsupported loans by desperate financial institutions are prompting debates among the top banking institutions. More than $US36 billion in packaged loans, bonds and derivatives (collateralised debt obligations, or CDOs) to sub-prime, high-risk borrowers has raised great concerns as this represents more than the combined rate for the last decade.
Shares in the large investment banks are down 10% on the previous year and the legendary former chairman of the US Federal Reserve, Alan Greenspan, has already warned of the potential for a US recession in the normally upmarket US presidential election year.
In China, the Government is seeking to rein in the rate of speculative investment that is not related to any form of productivity, and is giving close attention to the potential for a US recession.
The McKinsey Quarterly this month is reporting that in China there are hundreds of former state-owned enterprises that have been deluged with foreign investments without adequate management or controls over the returns that are supposed to be available. In Taiwan, a significant number of foreign investors are shifting to the emerging European market and moving against the US dollar, which will push up the Aussie currency just at the time we will be getting less for our grain due to the drought.
It may be an election year, but the federal Treasurer has already indicated that there is less room for a buy-a-vote spree to prop up the market and we are living off the end of a private equity scramble for cash flow business opportunities in the retail and hospitality markets.
And how about this for a symbol of what’s coming? In Australia the pre-eminent store Myer has announced that it is halving its “store frontage” so that it can consolidate its remaining business into the remaining store.
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So want does all that mean to the SME market? It’s time for strategic positioning that adopts the strategy of the squirrel rather than the ostrich.
Now is the time to get closer to customers and especially to their end-users, to make meaningful relationships that offer prospects of disaggregation of the value chain and more meaningful business partnerships.
Now is not the time to assume that the average customer is indicative of the market without also paying close attention to the share of mind of each product, as well as the pattern of product and service delivery between affluent and other locations.
Take advantage of the high levels of current business confidence to confirm and consolidate forward orders. Service companies should move to reinforce their basic customer offers, invest heavily in customer relationship management to identify the higher risk elements of their business, and tighten their terms of trade.
Dr Colin Benjamin is chairman of independent Melbourne think-tank Marshall Place Associates and director general of Life. Be in it International.
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