Sunday, 16 October 2011

Australian PT Podcast Episode 1 Show Notes

First ever episode from the Australian Power Transmission Podcast.

Timken's been in the buying game.
Manufacturing Australia gets up and running.
Nord is now open in Australia (officially).
How is the new Carbon Tax going to affect Australian business?
Do trade shows offer value for money?
Shutdown decisions from BlueScope, Heinz, SPC and Ford

Timken has been very active in the field of acquisitions of late, expanding its domestic American power transmission presence.  After picking up Philadelphia Gear for $200M in June and QM Bearings last year, Timken has added Drives LLC to its Process Industries stable for $92M.  This recent activity by the $4.1B company increases its capacity in power transmission as it diversifies from its traditional bearings and steel portfolios.

Former Reserve Bank board member Dick Warburton has been appointed as the first executive chairman of Manufacturing Australia, a new industry group which will act as a voice for the manufacturing industry on issues relating to Australia’s new highly-controversial Carbon Tax.  Manufacturing Australia was formed by those companies likely to suffer most from the Carbon Tax, namely Amcor, BlueScope Steel and Boral among others and have a stated aim of deferring any Carbon Tax in Australia until the rest of the world moves first.

There is a fuller picture of what the Carbon Tax contains and how it will affect Australian manufacturers coming up later in this episode.

Nord Drivesystems Australia held its grand opening on the 6th of October at its Derrimut factory in Melbourne.  Flown out for the event were NORD founder Gustav Adolf K├╝chenmeister and head of International Sales Gernot Zarp.

Nord has been represented in Australia for nearly twenty years, originally using recent Regal-Beloit acquisition CMG as its main distributor before coming in direct to the market at the start of 2010.

 As I discussed during the news section, the Australian Parliament has just approved the Clean Energy Bill, 2011, which puts a price on carbon.  After an aborted attempt by former Prime Minister Kevin Rudd at a cap and trade system known as the Carbon Pollution Reduction Scheme, a new parliament with a minority government has its own political expediencies. 

Well, politics aside, what does the Clean Energy Bill, 2011 mean for the Australian manufacturing sector?

The scheduled start date is the 1st of July, 2012
Starting at $23 a tonne, raising 2.5% each year to 2015
There will be an Emissions trading scheme taking over from 2015
500 of Australia’s biggest polluters will pay
Companies that produce 25,000 tonnes of carbon dioxide per year or more will be penalised
2,000 megawatts of worst power generators to close by 2020

More information about the new tax and how it will affect industry can be found at

As you would expect with a new tax of this nature, opposition from the manufacturing industry has been pretty vocal.  An ad campaign based on deferring any carbon tax implementation has been seized upon by the opposition who have stated they will repeal it if elected.  In order to sweeten the deal for the manufacturing sector, exemptions and assistance packages abound, with over $9B expected to be spent to compensate losses over the short term of the next three years.  In addition, this amount again is expected to be spent on investment in new technologies to help reduce CO2 output by local manufacturers.

Having perused the 343 page Bill exposure draft, I can also tell you that the Clean Energy Bill is quite complex.  The companies affected by it will undoubtedly have to employ resources to ensure compliance and I’m sure we will soon see Carbon Tax compliance specialists popping up, much in the same way that Six Sigma Black Belts seem to be super dooper in every manufacturing firm.

As far as the world of mechanical power transmission is concerned, overall possible new investment in technology such as carbon sequestration may be offset by a reduction in Long Run Aggregate Supply.  It really is a Watch This Space.

Trade shows have been around since the year dot, and the mechanical power transmission industry is normally front and centre as exhibitors.  In Australia, National Manufacturing Week, AIMEX, Bulkex, Materials Handling Expo, FedEx, oops not FedEx, but you probably get the picture of a wide variety of shows, all with varying visiting demographics and aims.  So, what does a company do with so many options and (for most), only a finite marketing resource.

To be honest, Australian trade shows are small affairs, when compared with the big ones in Hanover and Shanghai and some in the US as well, but attendance per capita is usually higher and exhibitor lists run long.  So my question is... are they getting value for money?

Let’s take National Manufacturing Week as our example.  NMW is held every year, alternating between Melbourne and Sydney and incorporates the Australian Industrial Engineering Exhibition and Austech (for machine tools and equipment manufacturers).

So how do the numbers play out?  The smallest stand will set you back three grand for the floor space over four days, while the better spots are about four times this amount.  This is only the start of the real spend...

Consider everything else that has to be accounted for...

The costs of a display such as banners, hardware and special stuff like giant plasma screens is pretty high.  Many shows won’t let you use your own big screens, but make you rent them from them for the same price as what you can buy one with.  Actually, the whole renting gig also covers tables, chairs and the electronic swipey thing for following up sales leads with. 

Getting everything to the exhibition and unpacked also costs a bit.  This means renting either a trailer or truck, depending on the size of your display.

Servicing the stand will normally take a couple of staff members at a minimum and their costs have to be accounted for.

Extra promotional activities, catalogues, entertainment et cetera all adds up pretty quickly and before too long you’re out of pocket at least ten grand, probably closer to twenty if you’re doing it well.

So, what are the benefits for this sort of outlay?

Well, straight up, a whole heap of existing and potential customers are in the one place and coming to you.  The problem is, they are seeing all of your competition at the same time as well.  Still, 20,000 odd visitors is definitely a big number and even though only a small percentage will be interested in your product offering, the sheer scale alone will keep the reps on the stand busy.

I’ve been to a few trade shows over the years both as an exhibitor and a visitor.  One thing that nobody talks about is that there is a certain type of person that goes to them.  After a trade show, I’d go around seeing customers in their place of business and ask how they enjoyed it.  Less than half would even know it was on, and the half that did know could probably be halved again for actual attendance.  I’m not saying it’s a good thing or a bad thing, but it’s a certain type of person that goes in.

There are always going to be leads from trade shows, and following them up is where the real benefits are.  You can’t expect an immediate sales spike as a result of exhibiting at a trade show, but immediate sales isn’t normally the desired outcome.  Companies are mainly trying to look good – put simply.  It’s the fourth P of the marketing mix – Promotion.  Actually, I’ll take that one step further and call it Promotion through Positioning. 

There is no doubt that in Australia, if there is a trade show, SEW-Eurodrive will have the biggest stand of all gearing companies, in the best spot, with the shiniest display.  Bonfiglioli, Nord, Sumitomo, and Radicon all normally have a presence, while Queensland firm TEA is a staple for PT consumables.

The benefits obviously outweigh the costs for these firms, otherwise they wouldn’t keep rocking up year after year.

The high value of the Australian dollar continues to wreak havoc with the manufacturing sector, as BlueScope Steel, Heinz and SPC – who are both canned food manufacturers – and Ford have shed staff and decided to limit output in the short term. 

BlueScope has decided to lose 1000 workers across the nation as demand for Australian steel plummets, flying in the face of growing OECD requirements which are being nicely handled by China.  Last year, BlueScope recorded a $1B loss and with high fixed costs in the steel manufacturing industry was left with no real option but to mothball its Port Kembla furnace and Hastings Hot Strip Mill.

Heinz is trimming its workforce by 20% in a radical shakeup that closes one Victorian plant, reduces production at its Queensland cannery and will see 342 jobs go overall.  Most of the production will shift to sister plants in New Zealand, who doesn’t have an astronomical currency to contend with.

SPC in Victoria’s Goulburn Valley is also right-sizing to suit current demand, by retrenching 150 across three plants.  Imported fruit is the culprit here, along with flagging domestic consumption.  SPC parent company Coca-Cola Amatil is looking to lighten the load on individuals retrenched by offering them positions within the company where possible, however the local area will see those positions lost for the foreseeable future.

Ford Australia is also lightening its wage bill to the tune of 240 employees at its Broadmeadows and Geelong plants, as demand for their product also wanes.

There is little doubt that the current mining boom in Australia is causing some headaches for Australian manufacturers, especially those who rely on imports for whole or part of their income.  Sure enough, the price of imported materials has come down accordingly but it isn’t really enough to offset the pressure that a high currency puts on local product.
Tariffs are basically a thing of the past for many Australian industries and paper, steel, textiles and cars are all vulnerable whilst the Australian Dollar sits above parity with the Greenback.