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23 October 2017

Businesses Under Pressure from Technology and Politics


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Businesses Under Pressure from Technology and Politics

Upward shot of marble columns at a political establishment

By Daniel Blizzard, CEO

Ongoing investment into the latest technology is essential to remaining competitive, on a domestic and international level, according to the latest Equipment Demand Index (the Index).

This quarter, the Index focused on technology and the role of politics in a business’ ability to grow.

Fatal impact

Almost a third of respondents (27.8 per cent) state that their ability to compete against local competitors could be greatly hindered as a result of not upgrading their technology.

While many businesses are aware of the impact that out of date equipment can have on their company, the percentage of businesses currently struggling with outdated and unproductive assets has doubled since December 2016 from 11.6 per cent to 22.4 per cent. So far this calendar year, despite some initial trepidation in the first quarter, businesses appeared to be fairly confident in the Australian economy and their ability to grow, however, it seems that this feeling hasn’t necessarily translated into actual investment in their operations.

AlphaBeta’s recent report, Advantage Automation found that only 9.0 per cent of listed companies are actively investing in automation, compared with more than 25.1 per cent in Switzerland and 13.9 per cent (average) globally.

The report also anticipated that if Australian businesses were to implement new technologies such as automation, that Australia would receive a $1 trillion dividend over the next 15 years.

While some focus on competing with their local competitors, some are more focused on the international market. For example, manufacturers are more concerned about their ability to compete internationally as a result of a lack of investment in technology, with 35.8 per cent of this group citing this as a major drawback.

Business gets political

2017 has been a tumultuous year for politics across the globe, with many businesses unsure of what to expect from local and international governments.

In the March 2017 quarter edition of the Equipment Demand Index, Capital Constraints a Common Complaint, research found that although businesses were keen to grow their operations, many were reluctant to do so. This was largely a result from the political hangover of 2016 with the Brexit shock in the UK, the announcement of President Trump and the Chinese economy slowing down.

Although businesses appear to be more confident this quarter, 54.8 per cent of businesses expect politics to have an impact on their ability to grow which will inevitably have an impact on acquiring the assets they need to expand. The biggest sectors who anticipate an impact on their business are mining (93.3 per cent), property and business services (74.2 per cent) and electricity/gas/water (71.4 per cent).

On top of this, 26.6 per cent of all businesses intend to increase their asset base, down from 28.8 per cent in the June 2017 quarter.

Victorian businesses are the most bullish of all the states with 28.8 per cent of all firms intending to add to their plant and equipment this quarter.

If we compare this to the September 2017 quarter, Victoria recorded a strong increase in investment in plant and equipment of $3.1 billion, up from $2.1 billion in the June 2017 quarter. Although investment in the state has wavered over the past six months, it now appears to be levelling out.

Despite the electricity/gas/water industry being one of the most concerned sectors regarding negative impact from politics, they are also the most ambitious with 71.4 per cent of businesses intending to acquire new assets.  This is followed by agriculture, forestry and fishing (43.2 per cent) – which is currently seeing a surge in new agritech to monitor crop and livestock wellbeing – and transport (28.2 per cent).

A financial awakening

The Index has also found that businesses are continuing to look to alternative capital solutions to finance growth and away from big banks. A total of 50.3 per cent of businesses intend to use alternative forms of funding this quarter compared to December 2016, where only 40.5 per cent of businesses intended to do this.

This switch to alternative funding could be a result of Basel III, which is dampening bank appetite for lending. Tighter regulations in this area are expected to continue, which is where we anticipate an increasing number of businesses turning to alternative funds.

Technology is changing the face of industries across the globe, as is the continuing upward trend of how that technology is acquired: through alternative capital solutions.

More information on Australian business sentiment can be found in the latest Equipment Demand Index.

 

NB. The research and publication of the Equipment Demand Index was conducted under Maia Financial’s previous name, Alleasing. 

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