Archive for October, 2007

Airline safety

October 26, 2007

The spate of airline crashes in Asia – most recently the Phuket crash involving a 24 year old airliner – has prompted considerable discussion about aviation safety.

We have therefore done some research. The Federal Aviation Administration (USA) says ‘there currently is no evidence in accident data that would support the ranking of individual airlines’.

We sensed a big cop out, and we searched and found www.planecrashinfo.com 
§          Top of the list are US airlines (e.g. Delta, AA, Continental), despite each having a number of ‘fatal events’ – their substantial number of flights work in their favour.
§          Bottom of list are Cubana, China Airlines, Indian Air Lines, Pakistan International Airlines, Iran Air.
§          Clean sheets over the last 20 years are BA, Iberia, JAL, Air Lingus, Cathay, Qantas, Air India, El Al, Air Canada and Southwest Airlines. Air NZ is there too courtesy of the 20 year time frame. 

The considered opinion is that airline safety is largely determined by four factors – aircraft age; maintenance; pilot skills; flying conditions (mountains, ice, rain).

The first variable can at least be quantified – Qantas doesn’t fare well with an average aircraft age of 10.8 years (explains its recent splurge on new aircraft). Others at the high end are North West (13.4), Delta (12.2) and JAL (12.1).

Airlines with young fleets include Emirates (3.1), Virgin Blue (4), Singapore Airlines (5.3) and Air NZ (6). Happy contemplating! 

Understanding investment incentives

October 25, 2007

The IEDC Conference in Montreal in 2003 highlighted the central role of investment incentives in economic and regional development in North America. The messages are still as relevant in 2007.

Jean Matuszewski, President of E&B Data, argued that incentives are still very important to firms like GM, Honda, AOL, IBM etc and that states like Michigan, Illinois, New York have used substantial incentives to secure major investments.

Alberta in Canada has, on the other hand, secured investments of $US23 billion over 2000-2002 with only limited incentives (presumably due to oil, gas, petrochemicals where incentives are not so critical). Mr. Matuszewski went on to explain that high profile mistakes occur in incentives packages (unfunded rises in public expenditures, firm closures without adequate clawbacks) and that it was right for criticism to come from watchdogs like the Business Incentives Reform Clearinghouse, Good Jobs First (promoting accountable development) etc. 

I visited one of the websites (www.transparency-usa.org) and found a useful overview of the issues, entitled ‘Bidding for Economic Development: The Role of Site Location Consultants’. A summary:
§          As the gatekeepers to new businesses and jobs, site location consultants have become very powerful players in the business of economic development, courted and wooed by ED officials. As one put it ‘Having a good relationship with one site location consultant is like having a good relationship with 50 or 100 companies.’
§          The surging demand for site selection services is due to downsizing i.e. many corporations once handled the task in-house.
§          Many companies often have a clear idea of what they want from a location, but are unsure about where they want to locate. This is especially true as companies have become more global.
§          The site selection process usually starts with the client ranking what it wants from a location – skilled labor, cheap labor, a good transportation hub, low taxes etc. Most site consultants then run those preferences against databases until the field is narrowed down to 12-15 sites. It is usually at this point that the consultant will start working his contacts in the cities that qualify as potential sites. Confidentiality is maintained, even when down to 3-4 sites.
§          The consultant then visits the final contenders and interviews local leaders to assess the business climate’, particularly the willingness of each community to pony up tax breaks for a company whose identity is still unknown.
§          As the consultant reports back to clients, some companies may press for more incentives, which is when the bidding war begins.

The Wadley-Donovan Group advises site consultants to  ‘spend the most time negotiating in the preferred location. Use offers from the alternate areas for leverage’. 

(Editor’s note: A few take-home messages:
1.       There’s a whole incentives industry out there that is ‘underground’ and unnoticed. 2.       One school sees it as a shock-horror scenario. Another school argues that bidding wars are OK. They are the means by which a market economy reconciles private and public benefits. This theory assumes all parties have perfect knowledge, and equal intelligence, in knowing exactly what they are bidding for.
3.       The sad truth is that many rural regions do not have the data or contacts to match the city regions).    

Pattie’s Pies – outstanding example of regional investment

October 25, 2007

A fascinating example of regional investment, family-owned Pattie’s Pies, continues to unfold. It was a small company based in Bairnsdale, eastern Victoria.  Anyway, about 10 years ago, Pattie’s Pies bought out the Four ‘n’ Twenty pie business, that had in turn been snapped up by the US multinational Simplot. 

Simplot is a $US2.6 billion business begun by Idaho potato farmer J.R. ‘Jack’ Simplot. In 1995, Simplot amazed Australia with a $76 million punt on Pacific Dunlop’s bakery business, incorporating the iconic Fourn ‘n’ Twenty pies and other well-known brands – Herbert Adams, Wedgwood, Great Australian Pies and Nanna’s apple pies. ‘The Australian’ newspaper says the self-styled Mr. Spud (as his vanity number plate in Boise, Idaho, attests) was willing to pay almost double the next highest bidder. 

Meanwhile, back at the camp, Patties had been building sales and market share, and a reputation, throughout the 1990s. It was, and still is, owned/operated by a local family, and the CEO is one of five sons in the business.

Around 2000, it received a grant of $270k from the Victorian Government to assist its expansion. A $600k grant from the federal Dairy Regional Assistance Program followed in 2001 – this was linked to employment outcomes. 

The key reasons behind the decision to expand in Bairnsdale (which is a good three hours from Melbourne)  were its pre-existing (albeit modest) manufacturing base and family/lifestyle factors.  

Bairnsdale is actually an interesting case study. It is the main town (population of 12,000 or so) within East Gippsland, which was described as an ‘economic cul de sac’ by Bill Kelty, head of the Commonwealth’s Regional Development Taskforce in the 1990s. He memorably summed up its weak transport and commercial linkages to NSW and beyond, its distance from Melbourne and its sparse population. However the area has benefitted over the last decade by the Seachange effect – the growth of Paynesville and Metung as retirement villages has strengthened Bairnsdale’s role as the regional service centre. 

Getting back to Pattie’s Pies, it is remarkable development at a number of levels.

§          It has built a strong position in a slow-growing market, and ships its product all across Australia and to the USA.

§          It was a confidence-booster for the wider Gippsland region, which is still a low growth region due to earlier hits to its energy and forestry industries.

§         The government grant enabled spillover effects to be realised.  

A bouquet to government agencies for its role in this company’s evolution.   

www.patties.com.au

Business trip to south of France?

October 24, 2007

 Now you owe me a favour! We have discovered a bona fide reason for a business trip to Grasse, in south-east France. Aromatics is a serious global industry.  

The area around Grasse, known for two centuries for the production of aromatic and medicinal plants and extracts, now is home to 80 companies and 3,500 jobs in the “Science of Living Things” industries. 

Working with natural materials and synthetic products to create fragrances and flavours, these companies are developing their know-how in different sectors – perfumery, domestic products, cosmetics, food-processing, pharmaceuticals and dermatological products.

The sector represents 10% of the world market (1 billion euros) and exports 60% of production.

In 2003. the Azur-Provence district and the Grasse Entrepreneurs’ Club launched a project for a “World Observatory of Nature” to be set up in Grasse. This technological platform was intended to constitute a shared resource for the industries in the Provence-Alpes-Côte d’Azur (PACA) region.). After meeting in July 2003, the participants in the centre defined the fields for cooperative work e.g. nurturing new companies, training programs, research, a collection of plants producing natural essences, communication, conferences and conventions.

We have not caught up with these folks, so if any blog readers can update u, we would appreciate it.

The original information came from our friends at LPS in France – LPS Info n°6. Contact lionel.rubaudo@poleazurprovence.com or Xavier Roy at LPS in France splinfo@wanadoo.fr 

Australian wine – stereotypes from the past

October 24, 2007

J.C. Shepard, our correspondent in Colorado (#1 state for beer production per capita in USA!)reports as follows “Whenever I see ‘Australian’ and ‘wine’ in the same sentence, an image of the old Monty Python sketch (1972) inevitably pops to mind.”

UK Wine expert – A lot of people in this country pooh-pooh Australian table wines. This is a pity as many fine Australian wines appeal not only to the Australian palate but also to the cognoscenti of Great Britain.

Black Stump Bordeaux is rightly praised as a peppermint flavoured Burgundy, whilst a good Sydney Syrup can rank with any of the world’s best sugary wines.

Château Blue, too, has won many prizes – not least for its taste, and its lingering afterburn.

Old Smokey 1968 has been compared favourably to a Welsh claret, whilst the Australian Wino Society thoroughly recommends a 1970 Coq du Rod Laver, which, believe me, has a kick on it like a mule – 8 bottles of this and you’re really finished.  

Of the sparkling wines, the most famous is Perth Pink. This is a bottle with a message, and the message is ‘beware’. This is not a wine for drinking, but for laying down and avoiding.

Another good fighting wine is Melbourne Old-and-Yellow, which is particularly heavy and should be used only for hand-to-hand combat.

Quite the reverse is true of Château Chunder, which is an appellation contrôlée, specially grown for those keen on regurgitation – a fine wine which really opens up the sluices at both ends.” 

Moral of the story? Reputations can be turned around! – Ed.

Concentrate on sound infrastructure’ says Swiss-based body

October 24, 2007

The World Competitiveness Yearbook 2003 made some very interesting observations:

  • Nations should concentrate on sound infrastructure: for economic purposes e.g. Communication, Administration, and Sciences, and for social purposes e.g. Education, Health, and Security. Governments cannot escape this ultimate responsibility, even if implementation is sometimes delegated to the private sector.
  • Companies should rediscover the virtues of transparent, ethical behaviour. No enterprise can be successful, nor a nation be competitive, if public opinion is distrustful of the business community.
  • Of the 59 countries assessed, only 4 had negative GDP growth in 2002 – Argentina (-1.2%), Venezuela (-9.6%) Israel (-1.1%), Iceland (-0.5%).
  • Europe was a mixed bag. Larger economies encountered significant difficulties in adapting and reforming the role of Government – in France, Germany, and Italy, slower growth placed them on the borderline of recession.
  • Upcoming economies, such as Slovenia, Czech Republic, Hungary, Slovak Republic and Estonia had strong growth (between 3.2 and 5.8%). Their low cost base allows them to reap greater benefits from their entry into the EU.
  • This is not a good period for Latin America. Infrastructure, and capital investment in general, has slowed. Very few competitive industrial clusters are being developed, with the exception of Chile.
  •  Source: International Institute for Management Development: IMD World Competitiveness Yearbook 2003. Lausanne: IMD, 2003. 782p., graphs, ill., tables. ISBN: 2970012170 (via NPCC) 

    Marketing without advertising…

    October 22, 2007

    Paquita Lamacraft, now happily ensconced in Europe (formerly of SW Victoria, Queensland etc.), says most practitioners are used to having to produce high level results with little or no funding. She relates the following story. 

    When the National Customer Service Program AussieHost was introduced, to be an AussieHost town, 60% of the businesses had to have 60% of their employees certified.

    I said that the first town in our region to achieve this status would have more free advertising than they could ever handle.

    Port Campbell successfully took on the challenge and has reaped years of free promotion. Shortly thereafter a State Government officer telephoned me on the subject. Always the salesperson, I asked when would we see him in our region to sample the tourism facilities.

    He laughed and said he would in fact be attending a wedding in Port Fairy on the coast in two weeks time. He revealed that the bride had selected it as a favourite venue, that she grew up in the suburbs of Melbourne, and was now a principal ballerina for the Monaco ballet and was marrying a lead dancer from the Freiburg Ballet.  

    I asked the official if he had bought a gift yet. He had not. I suggested we pick the bridal couple up from the airstrip beside the church, and fly them along the coast, over the Bay of Islands and the Twelve Apostles. We would also throw in a National Parks Video of the same views, all for free.  

    He was stunned, and asked why. I replied that with such a wedding party there would be lots of international guests. I had had no budget for promotions, but I figured the bride and groom would be so thrilled by what they saw that they would talk about it worldwide for years, bringing more people to the region.

    “Well, actually, the guest list includes Boris Becker and a few of his friends too”. 

    It cost $125 for the plane rental from one of my newly qualified AussieHost businesses. When I returned to work in Victoria 8 years later, the same government official was voluble. The groom had been back twice, renting a light aircraft of his own and touring the region, bringing a party with him to also enjoy the exploration. Other members of the wedding party also returned – high spending independent travelers.  

    The power of the people is enormous. 

    There are lots of great workable, low cost ideas in my forthcoming book “It Just Might Work: Practical programs for Economic Development.”

    If anyone has bright ideas, please contact me on Paquita.Lamacraft@Milton-keynes.gov.uk

    Supermarket muscle

    October 18, 2007

    Catherine Sleep, editor of just-food.com in the UK, drops us a line from time to time. Her recent missive on supermarkets hits the spot. 

    How much choice do you feel YOU have in where you shop?

    If you’re anything like me, you’ll feel short-changed. I have just one supermarket in walking distance, and it’s a small-format outlet in the town centre at that. Within twenty minutes’ driving distance, I have access to two larger supermarkets, although one of these is just a larger version of the town centre store. And this is despite the fact that I live in a town with over 100,000 inhabitants.

    It doesn’t feel like a lot of choice. But what bugs me more is the lack of small food shops. We have one independent fruit and veg shop which is reasonably good value and does a roaring trade, a couple of bakers and a butcher. But the last fishmonger shut up shop several years ago. There are a couple of struggling delicatessens catering to the gourmet with plenty of cash to splurge and a taste in sun dried organic exotica, but few people can afford to buy much of their weekly shopping there.

    So although many people are far worse off, I don’t feel I have a great deal of choice. This is replicated in towns up and down the UK and it’s getting worse.”  

    (Our April 04 newsletter reported that a government-funded study concluded that Oz farmers are not being disadvantaged by the major supermarket chains. But the Opposition says it’s a snow job – Editor)

    ‘Creativity just as prevalent in rural communities’ – US expert

    October 18, 2007

    Stu Rosenfeld wrote a great piece on creative enterprise clusters, appearing in the northern summer 2004 edition of the US Economic Development Agency magazine. Excerpt follows.

    Many small cities and towns can and do cultivate creative and cultural environments. But location matters, and the most successful of these are near enough to recreational or historic areas to attract tourists, seasonal residents, and urban expatriates. 

    More isolated rural communities have a much harder time building and benefiting from their cultural assets.

    There is an expanded view of creativity, however, that allows even out-of-the-way towns to benefit. This is creativity as an economy’s engine (not frame) driving the design, packaging, marketing of goods and services to increase their competitiveness. Creativity becomes not a type of place or class of person, but the defining characteristic of a specific kind of enterprise.
    §          Plumbing fixture giant Kohler Corporation (Wisconsin) has internationally-recognized artists and employees working in long-term residencies, leading to its successful ‘Artists Edition’ product line.
    §          ACEnet, in Athens, Ohio, helps local food processing companies design imaginative labeling and tell stories about their products to create brand recognition and get higher prices.  

    Creativity and talent are just as prevalent in rural communities as they are in cities, but are not as evident when measured solely by advanced degrees or patents. Creativity defines a type of cluster composed of companies and entrepreneurs that take their principal competitive advantage from a distinctive appearance, form, content, or sound that they embed or embody in their products or services. 

    The Creative Enterprise Cluster involves people or companies:
    • whose product is art or design e.g. potters, writers, jewelers, web page designers.• in which art or design provides the distinguishing feature e.g. designer home furnishings, CDs.
    • defined by art or design e.g. ad agencies, landscapers and architects.
    • that sell, supply, or contribute to art or design-dependent products or services e.g. galleries, craft and supply distributors, and arts councils, arts or craft schools and art foundries. 

    To access the article, contact apd@orac.net.au, or rosenfeld@rtsinc.org

    Bangalore – victim of its own success

    October 18, 2007

    The success of India’s high-tech and outsourcing industry was built on Bangalore, but the southern city has become a victim of its own success.

    Its rapid growth is putting pressure on the city’s congested roads and software firms complain that acute power cuts are taking a toll on their business.  The Software Technology Parks of India, that facilitates high-tech exports, says 284 firms have set up base in the ‘Silicon Valley’ of India over the last two years, taking the total to 1,322.

    Infrastructure was a key factor in bringing IT firms to Bangalore, along with a huge pool of English-speaking engineering students and mild hillside climate that offers respite from India’s sweaty summers. Restaurants, pubs and boutiques have sprouted up. However, the narrow roads and lanes of the city (pop. 6 million) are packed with 2 million vehicles and 886 people died in traffic accidents last year. There is a significant power shortage, and living costs are being driven up by a shortage of hotels and quality apartments.  Azim Premji, chief of Wipro, India’s 3rd largest software exporter, says ‘we all believe that the infrastructure problem is serious here.

    To sustain growth, we need to go to places where there are opportunities – both manpower and infrastructure. We have not seen any infrastructure growth in the last five years in Bangalore.’ Premji, India’s richest person, says he is not looking to expand in Bangalore, and he refers to overtures from Hyderabad, Pune, New Delhi and Calcutta.  

    Source: Jay Shankar, AFP.