A further slowing in growth
2015 could be a good year for smaller businesses. Dean Pearson, NAB’s Head of Industry Analysis, looks at opportunities sector by sector, suggests ways to make the most of them and explains how technology is helping to level the playing field for SMEs.
As the mining boom continues to decline and the economy slowly rebalances, there are good reasons for SMEs to take a cautious approach to 2015 but there are also good reasons to be optimistic.
“Technology will continue to remove barriers that once put SMEs at a disadvantage,” says Dean Pearson, NAB’s Head of Industry Analysis. “It’s opened up a global market place for SMEs, giving them access to an audience that was unimaginable just a few years ago. Cloud computing is continuing to replace expensive software and servers, and I think there’ll be more opportunities for smaller businesses and microbusinesses to use the technology systems of larger businesses. This not only helps solve problems associated with scale, it introduces opportunities for collaboration and innovation.”
SMEs have also embraced the opportunity to share ideas through business forums and other networks. “I think we’ll see a lot more interest in collaboration as the networks become more sophisticated,” says Pearson.
Businesses with a deep understanding of their customers will be well placed to take advantage of this year’s opportunities.
“The more you know about your customers, the better you can shape your products or services to meet their needs,” says Pearson. “You can also target and personalise your marketing. I think it’s really important to read sentiment surveys, such as those produced by NAB, and you can also engage your customers directly. Most people are very clear about what they do and don’t like and many are proactive and keen to communicate. They’ll happily provide feedback if you ask the right questions.”
While Australia is one of the fastest adopters of technology in the world, smaller businesses are taking it up slower than larger ones. “Only about 50 percent of SMEs have a digital business strategy compared with about 97 percent of larger businesses,” explains Pearson. “A digital business strategy is very important for SMEs because most customers will be used to dealing with big organisations and they’ll expect the same level of sophistication from you.”
The year should also bring more opportunities to sell to Asia. “Many SMEs are very engaged with Asia but mostly through imports,” says Pearson. “A lower dollar and recent trade agreements could see the focus shift towards export opportunities.”
Across the board, one thing that’ll continue to work in SMEs’ favour is the fast pace of change. “This gives smaller businesses an advantage over larger organisations,” says Pearson. “They can be far more nimble and innovative, and much faster to respond.”
Building and construction
Low interest rates are likely to support housing activity for the foreseeable future and residential investment should be an important bright spot for the economy. The housing market will continue to create opportunities for allied businesses in construction as well as professional services such as finance, architecture, design and planning.
Two trends are creating significant opportunities for SMEs. Tourists are becoming more interested in what they do than what they see, which means they’re searching for experiences. And more Chinese visitors are choosing to travel out of major cities into places such as the Gold Coast and far north Queensland, which is encouraging for regional businesses. The lower dollar could also encourage more Australians to holiday at home rather than overseas.
An ageing population with rising levels of income is creating demand for more and better health services. “Healthcare overtook retail as the biggest employer in Australia in 2009-10 and, since the GFC, about 35 percent of jobs created have been in this sector,” says Pearson. The recent trade agreements should create more opportunities for export, particularly for businesses in areas such as biotechnology, pharmaceuticals, aged care and health.
Communications and training
“Almost 100,000 jobs have been created in this sector since the GFC, mainly due to growth in student numbers, particularly international students, and an increase in the number of available courses,” says Pearson.
There are opportunities for businesses that appeal to a student demographic and there should also be more opportunities in online education, both home tutoring and at the tertiary level.
There’s been a decline in manufacturing over the past 20 years but it’s still an important part of the economy. “Over 900,000 people are employed by the sector, many in smaller businesses that are manufacturing products such as scientific and industrial instruments, pharmaceuticals, audio equipment and high-performance metals,” he says. “Australia’s future may not lie in labour-intensive, high-volume manufacturing but there’ll be other opportunities, particularly where technology can be used to improve products and processes.”
Successful manufacturing businesses are typically good at translating research into commercial opportunity. As the price of 3D printers falls and they’re able to use a wider range of materials, expect to see a big uptake both for reducing the cost of production and manufacturing goods on demand.
It’s likely there’ll be more retailers embracing online business as a growth initiative rather than a defensive strategy. For example, there could be opportunities for SMEs to mirror major retailers by having physical stores as a pick-up point for online purchases. Sentiment surveys suggest that customers want value for money and are willing to pay a reasonable price for products and services that fulfil certain experiences and expectations. Top performers in the sector also understand that shopping still needs to be fun. Disney Store in the US embodies that idea – its mission statement is to ‘be the best 30 minutes of a child’s day’.
As with most wealthy countries, Australians are increasingly valuing services over goods. However, compared with other developed economies, Australia’s services exports have remained very narrowly focused on education and tourism. The new trade agreements could create opportunities for exporting knowledge-intensive services ranging from professional, financial and business services to health technologies, mining services and agribusiness.
Watch NAB Economist Dean Pearson explain to Kochie some of the big trends he believes could affect small business in 2015, along with some of the opportunities which could arise.
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