Crossing Borders

Free Trade and Globalisation

Free trade agreements and globalisation mean that today’s business world is moving faster than ever…

According to the Department of Foreign Affairs and Trade, a free trade agreement is an international treaty that removes barriers to trade, facilitating stronger trade, commercial ties, and economic integration between countries. The idea of Australian owned and made companies exporting products tariff free is great; the thought of Australian manufacturing going down the drain as local businesses struggle to compete with cheap foreign imports is not.

There is hope, though, as SPC Ardmona proved as sales skyrocketed when the company’s future was in jeopardy as consumers put their dollar behind supporting an Australian made product. Australian companies do have what it takes to compete internationally in sectors ranging from pharmaceuticals to playground equipment – not necessarily on the basis of price, but on quality.

Australia currently has seven free trade agreements in place, with New Zealand, Singapore, Thailand, USA, Chile, the Association of South East Asian Nations (ASEAN) and Malaysia, accounting for 27 per cent of total trade. Free trade agreements certainly have positives, some of which include eliminating tariffs, stimulating the economic growth of developing countries and enabling countries to specialise in what they do best. Consumers today have far greater access to products manufactured all over the world than ever before. The advent of online retail combined with smartphone and tablet technology has only added fuel to the fire. Free trade and globalisation puts a world of choice at consumers’ fingertips – but at what cost?

China and India are the world’s manufacturing powerhouses, with the irresistible allure of cheap labour. China may be Australia’s largest trading partner but scandal after scandal involving food and product safety over the years means that the Chinese public has largely lost faith in its local suppliers. Following the melamine milk scare in 2008 which claimed the lives of at least six babies and left 300,000 ill, there has been a huge demand from the Chinese market for Australian-made infant formula. While attending trade shows, pharmaceutical contract manufacturer Sphere Healthcare was approached by potential customers interested in canned infant formula. Sphere Healthcare recognised the opportunity, later installing a canning line for infant formula to be exported to China.

Canned or fresh, Australian produce is renowned for being nutritious and healthy. Consumers are starting to realise the environmental cost of trucking, flying and shipping food around the world, and the slow food movement has been gaining momentum, persuading consumers to eat locally grown produce in order to reduce food miles. The climate change debate has highlighted the previously unheard of issue of food miles and eating local helps minimise carbon emissions. Australia, of course, has a strong agricultural heritage but news of growers ploughing healthy crops into the ground and going broke because they cannot compete with cheaper foreign imports has become all too common. The situation was certainly looking bleak for around 120 Goulbourn Valley growers supplying SPC Ardmona earlier in the year, along with growers as far north as Cape York in Queensland and down south to Jerilderie in NSW. SPC Ardmona has been packaging premium fruits and vegetables in Australia for over 90 years but that all nearly ground to a halt earlier in the year.

With a brand portfolio of household names like SPC, Goulburn Valley and IXL, SPC Ardmona is the last remaining major fruit and vegetable processor in Australia. The historic company made headlines in January this year, requesting a $25 million bailout grant from the federal government that would have been topped up with $25 million of state government funds and $150 million from parent company Coca-Cola Amatil. The request was rejected and upon announcing the decision, Prime Minister Tony Abbot stressed that Coca-Cola Amatil was profitable and well-resourced to restructure its subsidiary and save it from closure.

SPC later received a $22 million assistance package from the Victorian government and $72 million from Coca-Cola Amatil. Conditions attached to the government’s co-contribution include that Coca-Cola Amatil would invest $78 million and that a minimum of 500 full-time employees continue to be employed by SPC Ardmona for three years. All payments made under the deal must also be refunded if SPC Ardmona ceases operations in Shepparton within five years – but that looks very unlikely to happen. In January and February, following the federal government’s decision not to contribute $25 million, SPC Ardmona reported an amazing 60 per cent increase in the sales of peaches and pears as consumers put their dollar behind saving the company. While SPC Ardmona was once struggling to survive, the company has recently signed a $70 million deal with Woolworths, and Managing Director Peter Kelly says he now needs more staff and 86,000 more fruit trees to meet demand.

Bonds was another iconic Australian company that made the headlines but there were no bailouts this time to stop the company from shutting down its sewing machines and heading overseas. After Bonds moved its manufacturing operations to China, Cambodia and Vietnam in 2008, there was a surprise twist when a group of ex-workers got together and formed their own underwear business. Entrepreneur Lisa Nouh, the daughter of a former Bonds supervisor, came up with the idea for Tuffys and Tuffetts, underwear made for Australians by Australians. The ambitious two purchased a number of ex-Bonds sewing machines and phoned ex-workers, who were thrilled with the opportunity and started busily designing the men’s and women’s ranges. Tuffys and Tuffetts is an Australian owned and made brand, stripping underwear back to basics with cheeky patterns and bold, playful colours. Only the finest Australian cotton makes it into the super comfortable designs, which are made in a warehouse in Arndell Park. Lisa has received a $50,000 grant to improve her online only business.

The downsides of free trade and globalisation are realities that Australian companies, large and small, have to deal with. While free trade and globalisation might mean that fast fashion has never been cheaper, many are now beginning to question the true economic, social and environmental costs of clothing that is made abroad. The promise of cheap labour may be enough to entice big name brands like Bonds into manufacturing overseas but only time will tell if along with wages, quality standards have also dropped. Bonds may have moved its manufacturing operation overseas but they are not the first and will not be the last in the fashion industry to do so.

Australia loosened its grip on two of its sweetest national icons many years ago. Aeroplane Jelly and Arnott’s Biscuits are two true blue food manufacturers that have been gobbled up by international giants. Aeroplane Jelly was invented in 1927 when tram driver Bert Appleroth made jelly crystals in his bathtub at home and started distributing them along his Sydney route. Aeroplane Jelly is a market leader, with more than 20 million packets sold every year but the company remains just as famous for its jingle as its jiggle. The Aeroplane Jelly jingle holds the record as the longest running jingle in Australia’s history. Aeroplane Jelly wobbled off into foreign hands in 1994 when it was acquired by McCormick Foods in the USA from Traders Pty Ltd.

Like Aeroplane Jelly, Arnott’s Biscuits Limited had a fascinating start. The company was founded by William Arnott, a Scottish immigrant who climbed aboard a ship set for Australia in 1847. He was very particular about the quality and freshness of his biscuits, even going as far as purchasing a herd of 200 cows to ensure that his factory, known as the William Arnott Steam Biscuit Factory, had a reliable supply of fresh milk. Today, Arnott’s is famous for chocolatey Tim Tams, Wagon Wheels and Tiny Teddies but the company was acquired by the US based Campbell Soup Company in 1997. This is just a small taste of the quintessentially Australian food manufacturers that have been sold off over the years – although it is worth noting that Aeroplane Jelly and Arnott’s Biscuits continue to be made in Australia.

One competitive advantage that Australia does have in the world market is a reputation for both food safety and quality manufacturing. Forpark is an Australian owned company manufacturing playground and park equipment that exports to South East Asia and other parts of Asia including Singapore. While there are local manufacturers who can do the work at cheaper prices, Asian buyers turn to Forpark because they recognise the quality of products designed and made in Australia. The company also receives enquiries from interested buyers in New Zealand and the Middle East.

Free trade agreements and globalisation may be changing Australia’s business landscape but beating foreign competition by developing quality products is the name of the game. The future of Australian children depends on Australian owned and made companies being bold enough to innovate and adapt.

Making Sense of Management

Management is the art, or science, of getting things done through people. Sounds fairly straightforward – except for the fact that people are not robots waiting to do our bidding. People have their own minds, motivations, and goals. So how do managers keep operations – and the people behind them – running as planned?

January 18, 2019, 3:35 AM AEDT