Powered by MOMENTUM MEDIA
investor daily logo

The problem with 'flag of convenience' licensees - Column

  •  
By Columnist
  •  
5 minute read

The great battle of Troy around 1000 years BC was fought just on the unfolding of the Iron Age, a major change.

The Dorians were moulding axes, knives and swords that would bring the victorious Bronze Age warriors of Mycenae, Sparta, Knossos and Ithaca to their knees.

Today, the world is rapidly entering an extraordinary new age, an information age where within 10 to 15 years almost every human on the planet will be interconnected through the web to a vast array of knowledge at their fingertips, including every book written in every language. Global intelligence will not be subjected to the tyranny of distance, but will work in harmony at the tap of a finger.

Within a month or two, Google will be able to give you the entire contents of what the Chinese Emperor wrote to King George III when the English had the hide to suggest trade with China; a China that then thought they were the colossus of the world. "Where is my tribute," asked the Chinese emperor. I just quote a line; shortly Google will give me the entire content. Just think how fast so much research will be able to be done.

==
==

This is the beginning of artificial intelligence that will be made available anywhere in the world, instantly.

Australia of course is now in its second iron age. The first was in the 1970s and 1980s when the explosive birth of Japan as a modern nation created the great iron ore, coal and bauxite mines of Australia to build the infrastructure necessary for a developed country.

In June, China signed off on a 19 per cent increase in the Australian iron ore price, on top of last year's 70 per cent jump, a total increase still dwarfed by the meteoric rise of the major base metal, copper.

As Australia's trade balance and Australians profit hugely from the explosive growth to the north, first by China, second by India, Australia is again the 'treasure chest' of Asia. BHP and Rio Tinto, our major resource groups, notch up profits in a minerals climate beyond anyone's wildest dreams even five years ago.

It is well worth reading The World Is Flat by Thomas Friedman to get a grip on the forces unleashed by the Internet that are now rapidly changing the world and driving the growth of China and India.

These forces have dramatically escalated since 2000, when many hundreds of Indian IT people left the US with the downturn in the dotcom boom and set up in Bangalore. Suddenly, the global-crossing fibre cables were lit up by the second and third owners, and international calls became instantly dirt cheap, and the phones rang hot in Bangalore to outsource not just IT development work in all its forms, but data, customer service and high school maths coaching.

I spoke last week to an American Chinese IT man, who in just 18 months had set up an IT/data centre in China employing 200 people, taking his company's total employees to 1,400. Could he have employed these people in the US? No, they were not available.

They had obviously cost far less, and the fascinating comment was that this centre had enabled the group to rapidly improve the quality of its data and systems.

China has already double the capita per head of India, but India now wants to catch up, so Australia has rarely looked better, or has it? When you look at the globalisation and technology trends I have just touched on above, can you name a single Australian leader in this space? Just as we do not have a Microsoft, we do not have a Google. Sure we are outsourcing to India and China, just like the Americans. Here we are followers, not leaders. In the treasure house, we are leaders.

China and India are ramping up their pace of growth; their needs for energy and materials. The old world of Europe and Japan are returning to growth too, but not the materials-intensive growth of India and China, which are building the materials-intensive infrastructure of a developed nation. Manufactured exports from China have a significant disinflationary impact around the world, just as labour outsourcing takes some of the pressures off wages.

The rapid rise in the prices of oil and key metals do have their inflationary impact, and this is now showing up in US and Australian measures of consumer inflation, even after 16 0.25 per cent "measured rate hikes" in the US. Global rate increases coupled with the tax-like impact of high petrol prices are now causing inflation and discretionary spending problems, and the first significant equities market correction since 2002/03.

My bottom line is that we are in a very dynamic world. It will be resources hungry for many years, though there will be very big hiccups in the resources markets. Overall I feel this current market correction will be a significant but not mega hiccup, and will provide excellent opportunities to invest in an Australian equities market that will do very well indeed over the next few years. Perhaps not at the amazing pace of 2003 to 2006, but very good.

The problem with 'flag of convenience' licensees - Column

The great battle of Troy around 1000 years BC was fought just on the unfolding of the Iron Age, a major change.

investordaily image
investordaily image
ID logo

Comments powered by CComment