Dec 2, 2024 | Branding, Innovation, Strategy
A phenomenon in my local area, Sydney’s inner west.
Suddenly, there are electric cars everywhere from manufacturers I had not heard of a couple of years ago. That is in addition to the venerable brands, Volvo, MG, Lotus, and others now owned by Chinese investors, leveraging brand heritage.
China now is manufacturing very good EV cars at a fraction of the cost of traditional manufacturers. They have established technically sophisticated and innovative supply chains and are discovering and leveraging the benefits of technology. The US, Japan and Korea can only wish for the cost base the Chinese now have across their industry. Chinese manufactured EV’s now control 40% of the biggest market in the world, China.
Central planning pointed Chinese industry towards EV’s, and assisted development, while western manufacturers relied on lobbying and subsidies to maintain the dominance of petrol and diesel. The only real innovation over the last decade they have undertaken has been in racing, particularly F1. The logic expressed was that the innovation would ‘trickle down’ into our everyday cars.
It didn’t work so well with economics, but that lesson has been ignored.
Tesla may have started the ball rolling, but China has given it momentum, and now delivers 60% of global EV registrations, and accelerating.
The acceleration of global EV market penetration, perhaps hobbled only by the shortage of recharging infrastructure, and the time necessary to recharge has come at an astounding pace.
It is a classic case of don’t just change the rules, change the game.
Steve Jobs did the same thing with the iPod, then the iPhone.
The header is by DALL-E, and highlighted the further takeover of the auto industry by using Pirelli, now Chinese owned, on the track hoarding.
When you need to think differently about your strategy, revise your thinking, and figure out how to compete in the future, call someone who has seen it before.
E&OE. This analysis of the comparative costs of EV manufacturing came out a week after publishing the post. It delivers numbers that highlight the problem faced by western legacy car-makers. https://www.linkedin.com/posts/juergenstackmann_544-minutes-worth-watching-ed-conway-ugcPost-7271897558170456065-ETSC?utm_source=share&utm_medium=member_desktop
Nov 25, 2024 | Change, Governance, Strategy
Should the ACCC have approved the $8.8 billion reverse takeover of Sigma pharmaceuticals by Chemist Warehouse?
Chemist Warehouse is by far the largest competitor in the $17 Billion retail pharmacy market. Sigma pharmaceuticals is a wholesaler serving all pharmacies, and holding a major share. On the surface the reworked Chemist Warehouse/Sigma pharmaceuticals company could exert undue competitive pressure on retail pharmacy competitors. They would be in a position to dictate price and terms by virtue of their scale. Surely not a good outcome for retail prices.
On that basis when recently asked my view I asserted that the ACCC had made a mistake in allowing this transaction. It seemed on the surface that the power of the combined group would logically result in higher barriers to entry, less innovation, the lessening of competition logically leading to higher prices.
However, on the flip side, is it the role of anti-competitive legislation to protect competitive enterprises in a vertical?
Retail pharmacies make anywhere between 25% and 65% of their revenue from non-prescription sales. The latter number being Chemist Warehouse share, the former being the bottom end of all other retail pharmacies. In effect, pharmacies operate as competitors to Woolworths and Coles for a big chunk of their revenue.
We have a paradox here reflected elsewhere in the economy, most particularly in the retailing of food and groceries. Should regulatory authorities be required to interrogate just the horizontal market for competitive pressure, or should they also reflect on the verticals in operation that serve as the supply chains?
Coles and Woolworths over the last 40 years have effectively created what was 20 years ago an oligopoly. They had swallowed up in one way or another almost all of the competitive retail chains, and the power of the wholesaler serving independent retailers was significantly diminished. To facilitate their own supply chains, they built and continue to innovate through the supply and logistics chain to squeeze costs out, in any way they can, while maintaining a good return to shareholders.
Aldi launched into the Australian market in the mid 90’s. They deployed a different business model offering a limited range of house branded products at discount prices in low rent locations. As the number of ALDI stores increased driving market share, so did their competitive impact on the market increase. Currently it would be wrong to consider Coles and Woolworths an oligopoly, as Aldi is a growing, and apparently financially viable competitor.
After consideration, I concluded that the ACCC had in fact made the right choice in allowing the Chemist Warehouse Sigma pharmaceuticals reverse takeover.
At the other end of the scale, we have the privatisation of natural monopolies where competition is next to impossible. The obvious example is Sydney airport, a privatised public monopoly that has conducted innovative programmes to gouge the travelling public. Such a natural monopoly should never be privatised.
It is stupid and naive in the extreme to think that a private corporation would not leverage their pricing power to the benefit of their shareholders when customers had no option, and no alternative was likely to emerge. Promises of regulatory profit limitation have proven to be a politically useful mirage, its true nature only apparent just after the ink has dried.
Nov 22, 2024 | Branding, Marketing, Strategy
Brands are not built by superficial ‘Brand-building’ marketing activity. Ever.
They are built by doing hundreds of small things that matter to customers and those who aspire to be customers, well, time after time, after time. In this way, customers learn to trust the performance and value delivered. Then they become apostles for the brand amongst their friends and acquaintances who might similarly benefit.
The brand becomes much more than a label with a product attached. It holds a ‘Position’ in the mind of those who have truly consumed the whole experience.
Advertising is simply a reminder of what they already know and understand.
From time to time, a brand building ad comes along that tweaks the understanding of what is possible. Such an ad builds on the foundation, and perhaps adjusts it a bit in a desired direction. However, it remains an adjustment, a ‘refresh’, a polishing of the emotional response of adherents to reflect the evolution of circumstances.
Radically changing the foundation is a short road to oblivion.
As a young bloke, a long time ago now, I lusted after an XK150. The body design, feeling of success and freedom, and the snarl coming from that exquisite straight six designed in the 40’s and lasting well into the 70’s as the pinnacle of engineering was utterly seductive. That lust was never totally replaced by a similar lust for its genetic descendant, the E-Type, but it came very close.
Even now, 65 years later, that visceral pull of ‘Jaguar’ remains.
It is undimmed by time and the rubbish cars produced as Jaguar was handed around, owner to owner, like a parcel with frayed wrapping, at a kids birthday party.
Has this latest iteration to the Jaguar brand finally killed the goose?
My kids, and grandchildren have no connection at all with Jag. As my peers who did have that connection drop off the perch, any remaining brand equity from those glory days will die with them.
What a waste.
Mark Ritson in his column on the rebranding (death?) of Jaguar put the blind stupidity of the urge to ignore heritage better than I ever could.
It is possible that the visceral connection felt by some could be rebuilt from the crumbling foundations of Jaguar of the 50’s, and 60’s?
I suspect so, but that is from the perspective of someone in the thrall of that connection.
What would I have given to have been asked to contribute to the rebuilding of an icon of my youth. The effort may not have been successful, but I guarantee it would not have killed it off as comprehensively as this deluded nonsense now assaulting us will.
Nov 20, 2024 | Communication, Management, Strategy
When thinking about selling your business ensure you spend time and effort identifying the intangible components that could contribute up to 90% of the value of the sale
Almost 6 years ago I wrote a post that identified intangible value at 87% of the Standard and Poor’s index. An update to that index done by Ocean Tomo now puts the number at 90%. While this is a small increase only, it is off an extraordinarily high base, and the index is based on 2020 numbers. Given the run of technology stocks over the last couple of years, I hazard a guess that the number is now well over 90%. It is the last 10% that is, as everyone knows, the hardest to capture.
This is a considerably greater percentage than the other major stock market indices. For example the European S&P at 75%, Shanghai Shenzhen index is at 44%, and the Nikkei sits at 32%.
This wide disparity comes from the makeup of the indices.
The US S&P top ten contains nine technology businesses the outlier being Berkshire Hathaway. In order, on Nov 16, 2024, the top ten and their share of the index is:
NVIDIA 7.2%. Apple 6.8%, Microsoft 6.2% Amazon 3.8%, Meta 2.5%, Alphabet 2.1%, Tesla 1.8%, Broadcom 1.7%, Berkshire Hathaway 1.7%.
Even amongst these behemoths, there is a strong skew to the top three. This top ten constitute 35.4% of the total value of the 500 companies in the S&P index. The Pareto Principle at work, again.
The trend is also clear amongst the other major indices. From much lower bases, they are all heading towards the increasing valuation of intangibles in the total value of their stock.
Ignoring this trend and failing to respond is leaving money on the table.
Over the last few years, I have consulted on several projects where small businesses have been sold. In each case, the sale has been made at a considerable premium to the standard industry multiples that would usually be applied. The driver of the premium has been the effort put into identifying and articulating the value of intangibles to the purchaser. I’ve called it finding the ‘Rembrandts in the roof’, a phrase I picked up somewhere after reading of a dusty Rembrandt was discovered and authenticated in the roof of an old house in Amsterdam 30 years ago.
Are you actively looking to identify and quantify your hidden Rembrandts?
Nov 18, 2024 | Governance, Innovation, Leadership, Strategy
The latest economic complexity rankings put out by Harvard were recently released. Australia dropped from 93 in the world to 102. One place ahead of Yemen, one behind that manufacturing innovator, Senegal.
I had missed the report until an article in the auManufacturing LinkedIn group brought it to my attention.
The best that can be said about Australia’s drop from 93 in the previous ranking to 102 in this current ranking is that we have made possible the performance of the 101 countries that are above us.
This includes such stunners as Bangladesh at 100, Honduras at 97, Uganda at 96, and the home of Voodoo, ranking as one of the world’s poorest countries, Benin at 99.
To be fair, the ranking methodology struggles to adequately quantify the benefits accrued by services in its calculations. This compromises the ranking of Australia which has an advanced but hard to count services sector, while exporting mostly commodities, which is easy to count.
Nevertheless, while politicians are ensuring the public debate (aka playground squabbles) is around irrelevancies like the chairman’s lounge, long term challenges in education, aged care, housing, equality of opportunity, and economy wide productivity go uncontested.
Take education for instance.
This is a very substantial sector generating billions in economic activity by educating the children of our Asian neighbours. Many see it as a road to residence, which will benefit our economy doubly, as they have paid for their own education. However, many return home, enabling the ‘connections’ highlighted in the report as critical to complexity to be made. Meanwhile, for our own kids, we have continued to make getting an education more expensive to the point where it is becoming unaffordable in the absence of parental support.
In our wisdom, we are in the process of ringbarking this pathway to complexity.
How stupid can we be?
I recall in 1980 then Singapore PM Lee Kuan Yew warning that Australia was destined to become the ‘White trash of Asia’. It seems his warning is coming to pass.
PS. November 22. This ‘Visual Capitalist’ graph of the 30 largest exporters came into my feed today, adding some flesh to the bones of the index. The make-up of exports of several of them should lead to some deep thought. For example, Holland, Switzerland, Belgium, even the battered UK, where there are no hydrocarbons or minerals in the mix, outrank our commodity driven export mix. This is a solid indicator of the ‘complexity’ to which we should be building.
