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Outsource magazine: thought-leadership and outsourcing strategy | August 22, 2017

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A rising dollar and strong Asian competitors shook up the Aussie BPO sector

A rising dollar and strong Asian competitors shook up the Aussie BPO sector
Martin Conboy

There are parallels between the Australian outsourcing sector and the Australian car industry. I saw an article in our local media and saw immediately the common theme with the Australian outsourcing sector.

In the mid-1960s, when Australia’s trade minister Sir John McEwen was urging Holden and Ford to seek motor vehicle export markets in Asia, the leader of one of Asia’s poorest countries decided his country needed a car industry. Defying the advice of economists, he ordered the country’s biggest company to start making cars – with Ford’s assistance.

The country was South Korea. Its leader was Park Chung-hee, one of the authoritarian economic visionaries who was to transform Asia. The company was Hyundai.

Today, Australia’s car industry is on the brink of collapse. Ford will stop manufacturing here in 2016. Holden and Toyota are persevering for now, but running up big losses. If their sales, and our dollar, remain at current levels, they too will be unviable.

The car parts manufacturers are thinning month by month. A manufacturing sector which employs 50,000 workers, produces 221,000 cars a year, and generates $3.7 billion of exports and $5 billion of value-added output is in real danger of closing down.

South Korea, by contrast, is now the fifth biggest car-maker, behind only China, the US, Japan and Germany. Hyundai is the world’s fourth biggest car manufacturer; it overtook Ford several years ago.

There are many reasons why the Australian car industry is dying, but one is inescapable: Australians are no longer buying the cars our manufacturers make.

Why is car manufacturing here in danger of collapse, whereas South Korea has become a world leader?

The higher dollar has made Australia globally uncompetitive as a place to produce.
It worked fine when our tastes were simple, and Holden and Ford had the market to themselves.

The Koreans, by contrast, built their own car industry. They erected higher protective walls, which shut out all imports. But from the start, they aimed to build globally competitive manufacturers, and export to the world.

As South Korea grew richer, Hyundai built up its scale of production, holding down costs. It worked relentlessly to improve quality, and to innovate.

South Korea has changed a lot since, but it remains dedicated to being a global force in car-making. Imports usually take less than 10 per cent of the Korean market; in Australia, they now have 91 per cent.

In South Korea, manufacturing is seen as a national mission. In Australia, it is seen as a costly diversion from the nation’s real strength in ripping out minerals.

The government and Reserve Bank have allowed the dollar to soar, making local producers globally uncompetitive.

Goods and services are now twice as expensive to produce in Australia as in South Korea. A decade ago, when the dollar was low, they were almost identical.

The high dollar is one reason why the Australian car industry now stands on the brink of collapse. Since 2011, it has oscillated around $US1.05, 50 per cent above its pre-mining boom average of US70¢.

That has made our exports far more expensive, costing them sales in the Middle East and elsewhere.

How could Ford, Holden and Toyota reduce their prices by 25 per cent since 1995 to match the fall in import prices when average costs in Australia have risen by 55 per cent in that time? And average weekly earnings have risen 107 per cent?

It was impossible, and those who blame the car makers don’t understand the business. The cost equations have shifted so dramatically. A range of factors has changed consumer preferences. And their market share has slumped, and as their production has fallen, their unit costs have soared.

Australia is no longer a competitive place to produce cars. To save what is left of the industry will require both the dollar and consumer preferences to shift back to where they were. It’s a big ask.

Therefore if you substitute the words “car industry” and put in “outsourcing / call centre industry”, and substitute “Philippines” for “Korea” one can understand what has actually happened.

The higher dollar has made Australia globally uncompetitive as a place to have a call centre or BPO business.

It worked fine when our tastes were simple,and we just accepted poor customer service as normal  and there was limited competition; however, along came Asian service providers with more rigour around their KPIs and they have created the new normal, which is a cut above what we were used to.

The Philippines, by contrast, built their own industry. From the start, they aimed to build globally competitive service providers, and export to the world. They worked relentlessly to improve quality, and to innovate. They appointed a minister for the sector and got a seat at the cabinet table and controlled their own destiny.

The Philippines has changed a lot since, since it became the world champ for voice BPO work, but it remains dedicated to being a global force in BPO. From zero agent seats in the late Nineties the Philippines now has nearly 30,000 seats servicing Australia.

In the Philippines, the BPO and service sector is seen as a national mission. In Australia, it is seen as a sideshow from the nation’s real strength in mineral exploration.

(Manila image courtesy of donsimon / Shutterstock.com)

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