Monday, 6 June 2011

Business models change. Industries must adapt or die.

Although we are now well into the 21st century, I'm still surprised at how often there are calls to protect certain dying industries in Australia. Protectionism is simply bad economic policy. All it does is delays the inevitable.

The foreign competition argument for protectionism is growing from Bob Katter

Most arguments in favor of protectionism focus on the threats of foreign competition. Bob Katter and his new Australian Party are now leading the charge to "protect" Australia from China, Thailand, Philippines and Singapore. Of course, Bob is just pandering to those who see themselves as under attack from foreigners.  He is drawing on a potentially potent mix of short-term self interest and misguided patriotism, verging on xenophobia.

The Australian Party is committed to providing support and protection to Australian industries and reversing this madness - Bob Katter

Technological change is more important than foreign imports
Horse & buggy, Port Melbourne c.1900

The most important argument against protectionism is actually about technology change. Technology is not new and it will continue forever.

Let's take transport as an example. At the turn of the 20th century, the horse was the most common form of urban transport. But when the motor car was invented, jobs for blacksmiths and farriers declined sharply.  Yes, it was an economic problem for those employed in the horse-related industries.  On the flipside, the motor car created a whole new range of employment opportunities.

The same is happening in the early part of the 21st century.  Technological change from improved manufacturing processes have reduced items that were highly technical to mere commodities, and made them unprofitable.  That's the reason some forward thinking companies such as GE have moved on from manufacturing appliances to focus on higher value products such as medical equipment.

It's (the appliances business) a low-margin low-growth company being attacked by foreign competition

Those appliances are still being made - but by lower cost labor in emerging economies.

Technology change from the Internet is more dramatic

Over the next few years, the Internet will accelerate the pace of change of existing industries.  For example, already the development of Google Maps has rendered the old map making business model obsolete.  And this is just the start.

The big change is that services which used to be provided by experts will now be accessed by individuals themselves.  Instructions and systems are popping up all over the Internet, to do it yourself:

  • Do it yourself wedding stationery - is fast making printers obsolete
  • Do it yourself will kits - reducing the role of the family solicitor
  • Digital photography and Facebook - cutting deeply into the professional photography market.
  • A Google search - reduces the need for the average computer technician
  • ETrade - means most shareholders no longer need a stock broker

If you are a wedding stationery printer, family solicitor, stockbroker or professional photography there is a natural desire to call for some protection for your industry.  Yet, that will only delay the inevitable.  Your industry is changing - you need to change with it.

Create the infrastructure for the layman.  The democracy of Google.

Industries that are currently serviced by experts will slowly become the realm of the layman.  One by one, professional services will be simplified, codified and made accessible to everyone.  It's democratisation by Google.

In 1985 when I was first trading shares, I never thought I'd be able to transact myself.
In 1990 when I was audio taping focus groups, I never thought it would be possible to video tape and edit them on a laptop computer.
In 1991 when I published a book via a publisher, I never thought I'd be able to self publish online.
In 1996 when we built our first website, I never thought I'd be able to create a website.

Instead of each of these services providers being paid for the labor, now we are happier that their knowledge has been transferred into infrastructure that we can tap into as we want.

Consultants and professional services are like manufacturers - be ready for the change

In 2011, there are a lot of things that I still need an expert for, but that won't be the case in 2020.  Consultants and professional services will become more and more accessible.  The change will be towards more and more automation, and online access.  I'm one of those consultants, and I'm enthusiastic about the change.  If you are a manufacturer, you should embrace it too.

If you are in an industry facing change, embrace it.  Specialise, innovate, develop infrastructure.  Just don't ask for protection.

Let me know what you think

Mark S

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