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Chairman's Message
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Chairman's Message

Chairman’s Message

I have spent most of this month in South America   - visiting Bogotá, Buenos Aires, Lima, Santiago and Sao Paulo -  and came away with two overwhelming conclusions. The first is that the countries involved are all experiencing considerable economic activity, driven by a variety of factors, including the expansion of their middle classes. Annual GDP growth is not the same in all of the countries, but there is more than enough going on to offer ample opportunities for Australian companies.

The second conclusion is one of disappointment, namely, that Australian companies are just too conservative and too slow in seizing the opportunities on offer. Caution should always be exercised when venturing into new markets, but taken to an extreme, delaying action until potential risk is reduced to developed market levels means that our companies usually arrive when the best opportunities have already been snapped up by more savvy and  entrepreneurial competitors.

Each market has a different dynamic and risk profile, but understanding that and having the required market intelligence is often the key to not missing out on the best business opportunities or growth spurts. Some of Latin America’s markets offer steady and continuous growth, with Chile being the standout example, but others are far more volatile and require rapid action to benefit from shorter periods of strong growth, with Argentina being one such example. Both types are worthy of consideration.

It is fair to say that few Australian companies would currently have Argentina on their list of priority markets for engagement. Yet, the Buenos Aires stock market has risen by almost 100% this year. At the same time, a growing number of domestic and foreign companies have started to bet that the country will pursue a more business-friendly strategy after the 2015 presidential elections, if not well before then. On the basis of that assessment, they are starting to prepare themselves for the expected upturn in economic growth and the explosion of deals that are likely to flow after years of subdued activity.

Based on past observations, I suspect that most (if not all) Australian companies will wait to see what happens post 2015 and will want to see a pattern of stable and sustained business-friendly government action before committing to doing anything in the market. That approach may help to avoid excessive risk, but it will also mean that our companies will arrive too late. Competitors will already have forged the important alliances and positioned themselves well in advance of the market confirming its recovery and growth.

There are also quite a few other approaches that I think we need to reconsider if we hope to maximise what Latin America has to offer to us. Amongst these are thinking that Chile is the only viable gateway into the region. It has very strong credentials, but the region has moved on a long way since the 1990s and there is no reason why Australian companies should not enter the region through other markets.

Likewise, it is time for us to abandon the perspective that Latin America is only suited as a destination for our mining and METS companies. This sector undoubtedly offers excellent opportunities and is the current foundation of our relationship with the region, but there is much more to Latin America. Above all there is the rise of its middle class and what this process means in terms of urbanization, retailing and the need for a wide variety of services. Australia may not be best suited to meet the region’s basic needs   - as it has the potential to feed and house its people -   but we certainly have the capacity to satisfy its wants, including a desire for the latest fashion, for world-class wine and other beverages, for all of the trinkets and elements common in more developed economies.

We also need to abandon our preference for acting with a herd mentality. The classic example is how many different players are planning  delegations  to  visit  the  region  to  coincide  with  Expomin  in  April,  2014.  This  mining  exhibition/conference  is undoubtedly an important event and warrants our involvement, but probably not the mass representation that Australia will arrange. I firmly believe that delegations would get a far better hearing if they were to go at other times of the year and avoided competing with  one  another  and  with  many  other  delegations from  throughout the  world.  We  should  not  fear  a  more independent and individualistic approach.

There are some outstanding Australian success stories in Latin America, but there are also quite a number of underperforming players who have not been able to find the right way of engaging with their chosen market(s) in the region. In some instances this is due to poor decisions or bad timing or incorrect strategies, but part of the problem is also a lack of preparedness to take advice. Previous success in other markets is not a guarantee of future success in the Latin American markets.

Jose Blanco, Chairman

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