Company Profiles: Australia And The Pacific Essay

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A widely used regional designation for Australia and the Pacific is Australasia, whose broadest scope contains the countries of Australia, New Zealand, Malaysia, the Philippines, Papua New Guinea (PNG), and the many island nations of the Pacific, such as Fiji, Samoa, and Tonga. A more narrow definition contains Australia and New Zealand, countries with close historical, economic and cultural links; and PNG, geographically close and strategically linked to Australia. All three countries are members of the British Commonwealth. The more narrow definition is the focus here.

The largest economy in the region is by far Australia, with a 2007 nominal GDP of roughly US$908 billion in 2007 (according to the International Monetary Fund). New Zealand followed with a GDP of about US$129 billion. PNG’s GDP was roughly US$6 billion. This difference in GDP scale is reflected in the relative size of the three countries’ corporate equity markets where shares of many of the larger companies trade. Total market capitalization of the Australian Stock Exchange (ASX) as of September 2008 was approximately US$1.2 trillion; of the New Zealand Stock Exchange (NSX), US$36.9 billion (as of July 2008). There are 1,937 domestic companies listed on the ASX while only 149 are listed on the NSX. The Port Moresby stock exchange (POMSoX) is the official stock exchange of PNG. Capitalization of companies listed on POMSoX was approximately US$7 billion in late 2006.

Australia

A company could be considered domestic from a regional point of view either because it is headquartered or domiciled in a local country and/or because its operations are primarily located in the region. From either perspective, Australian companies are the most prominent in the Australasian area. According to IBISWorld (whose database contains both public and private companies), of the top 500 companies in Australasia as defined here, 469 operated in Australia in 2008, with total revenue of approximately A$1.3 trillion. Thirty-one of the remaining companies operated in New Zealand, having total revenue of A$62 billion, while one was in PNG, with total revenue of A$1.4 billion. Many of these Australian corporations were either subsidiaries of foreign multinationals, including companies such as IBM, Coca-Cola Amatil, ING, Nestle, Citibank, Vodafone, Pfizer, and Sony, or large local companies.

Many public-traded and Australian-domiciled firms are not just prominent in the Australasian region but in worldwide markets as well. In 2008, eight of the Fortune Global 500 companies were located in Australia. None were in New Zealand or PNG. Even more Australian firms are represented on the Forbes Global 2000 list (with two from New Zealand and again none from PNG).

Australian financial services firms are especially important in terms of global size. In 2008 the four largest Australian companies on the Forbes Global 2000 list (where companies are ranked in terms of sales) were commercial banks: National Australia Bank, ranking 89, followed by Commonwealth Bank (99), ANZ Bank (117), and Westpac Banking Corporation (130). These constituted the so-called Big Four of Australian banking and had combined total sales that year of over US$110 billion and profits of US$17 billion. Other major Australian financial services firms on the list included QBE Insurance Group (365), Macquarie Group (an investment bank) (410), AMP Australia (435), and St. George Bank (447).

The Macquarie Group also has other listed satellites and affiliates and two of these made the list as well: Macquarie Airports, which takes equity stakes in and operates international airports, including Sydney Airport (1007) and Macquarie Office Trust (1796). Macquarie in particular has a global presence and is known for its financial business model, which involves raising capital on equities markets to invest in various infrastructure and other business enterprises. Its home-grown imitator, Babcock and Brown, was 1353 on the Forbes list. These companies, especially Babcock and Brown, have faced difficulties as a result of the subprime crisis, as sources of inexpensive liquidity to finance leveraged investments have dried up.

As a sector, mining and resources companies are perhaps as significant as financial companies in the overall Australian corporate profile. The Forbes 2000 list included Woodside Petroleum (845), Santos (another energy firm) (1496), Fortescu Metals Group (1633), and Newcrest Mining (1716). Bigger than all of these but jointly domiciled in the United Kingdom and Australia (with primary operations in the latter country) is BHP Billiton, with sales of $39.5 billion and a ranking of 83. These companies have generally been quite profitable but are facing potential challenges as worldwide commodities prices weaken.

Transportation and logistics is also a major corporate sector, mainly because of Australia’s large physical size, which requires long-haul movements of goods and services. Major Australian transport firms included Qantas Airways (719), Toll Holdings (a logistics firm) (985), and Transurban (a major toll road operator and logistics provider) (1786). Outside of these three major sectors, other significant Australian global companies include Telstra, the country’s major telecommunications provider (and formerly a government monopoly before being privatized) (215), Westfield Group (a property developer and listed real estate trust) (390), and Woolworths, a major grocery chain (395).

Within Australia, Sydney, in the state of New South Wales (NSW), remains a prime location for many of the largest companies, public or private. In 2008, 45 percent of the IBISWorld top 500 Australasian companies, by revenue, were headquartered in NSW (accounting for 225 companies). This regional dominance was especially striking in the finance sector where 56 of the 58 domestic and foreign authorized deposit-taking institutions were in Sydney. Australia is an especially attractive location for foreign financial services firms seeking to operate in Asia because of its English language, corporate legal system based in English law and time zone that spans the end of the U.S. trading day and beginning of the European trading day while being coincident with the bulk of active trading in most Asian markets. The state of Victoria, which contains Australia’s second largest city, Melbourne, accounted for another 27 percent of the top 500 by revenue (133) companies.

One other measure of the size and scope of the Australian corporate sector is a listing of the location of regional headquarters of multinational corporations in the country. As of 2002 Invest Australia indicated that the country was home to 848 Asia Pacific regional headquarters (RHQs), defined as an office located in Australia, whose parent company is located in a country other than Australia and that provides business services on behalf of the parent company to associated companies and customers located in countries other than Australia. The majority of these RHQs were located in NSW. Approximately one third were involved in the information and communications technology industry, with strong presences in manufacturing, finance and insurance, and research and development.

The Australian Bureau of Statistics (ABS) estimated in its 2001 report on the small business sector (defined as a business employing less than 20 people) that there were 1,233,200 private sector small businesses in Australia during 2000–01, which represented 97 percent of all private sector businesses. These small businesses employed almost 3.6 million people, 49 percent of all private sector employment that year. Overall the industries contributing the highest number of small businesses were the construction industry (21 percent of small businesses), property and business services industries (19 percent) and the retail trade industry (15 percent). Relatively few enterprises were engaged in agriculture but in this sector the majority of enterprises (including Australia’s very important wine producing industry) were small.

New Zealand

As noted above, New Zealand’s corporate sector is much smaller and less globally prominent with a significantly different sectoral composition. Of the top 10 companies on a list of the country’s top 100 companies, the largest is a dairy products manufacturer (Fonterra Co-Operative Group Ltd.) while the sixth largest is a producer of lumber and home interiors (Carter Holt Harvey Ltd.). The second largest firm is a grocer (Progressive Building Limited) and public sector or formerly public sector entities have three places in the top 10 (New Zealand Defence Force, New Zealand Police and New Zealand Post Ltd.). In this last category there are numerous public, quasipublic, or privatized public bodies in the overall top 100 list including local governments, universities, and governmental departments. Only two New Zealand firms are on the Forbes 2000 list for 2008: Telecom of New Zealand (ranked 1095, with sales of US$3.81 billion and profits of US$2.34 billion) and Fletcher Building (ranked 1796 with sales of US$4.58 billion and profits of US$0.37 billion).

New Zealand’s corporate sector is also heavily dominated by Australian firms, especially in financial services. Partly this is because New Zealand is much smaller in terms of GDP as noted above and in population (roughly 4 million people versus 21 million in Australia). There are also very close economic links between the two countries, including the Trans-Tasman Travel arrangements of 1973, which allow citizens of the two countries to travel between and live and work without restriction within each other’s national borders, and the Australia New Zealand

Closer Economic Relations Trade Agreement (ANZ-CERTA), effective since 1983, which essentially created a common market. As a result Australia is New Zealand’s principal trading partner, providing 20 per cent of merchandise imports and taking 21 percent of merchandise exports. New Zealand is the third largest market for total Australian investment, direct and portfolio, and Australia is the largest foreign investor in that country. Australian companies dominate the financial services and transport sectors in New Zealand through foreign subsidiaries. Nearly all banks in New Zealand have parent companies domiciled in Australia and listed on the ASX.

Because of this close integration between the two economies, New Zealand’s share market capitalization relative to its economy (42 percent of GDP) was much smaller than Australia’s (151 percent of GDP) as of 2005, since it is often more efficient to list on the ASX or raise capital in the much larger Australian funds markets. The countries used to have similar relative levels of capitalization, at roughly 60 percent of GDP for each country in 1994. However, while both countries conducted significant privatizations of government enterprises and deregulation of financial markets, only Australia instituted mandatory retirement savings by employees and employers. The ASX is now the twelfth largest share market in the world and the fourth largest in the Asia Pacific by market capitalization.

By one measure, New Zealand public companies, in any case fewer in number, were more closely held than Australian companies in 1995. However, updated estimates and adjustments for the much smaller size of New Zealand firms (where it takes less capital to accumulate large stakes relative to the total) indicate that both countries’ publicly traded firms have relatively broad ownership (with adjustment for size New Zealand’s firms are more widely held) with both countries above OECD averages on that metric.

Papua New Guinea

PNG is similar to New Zealand with respect to the fact that it has close ties to Australia. A number of trade and defense treaties bind PNG and Australia, including the Papua New Guinea–Australia Trade and Commercial Relations Agreement (PATCRA II), the Agreement for the Promotion and Protection of Investment (APPI), and, most recently in 2004, the Joint Agreement on Enhanced Cooperation. These treaties facilitate trade, employment and investment in PNG by Australians. In 2008, 8,000 Australian nationals lived and worked in the country. Australia is PNG’s largest source of imports and destination for exports, with Australia purchasing 30 percent of the country’s exports in 2006.

However in most other economic respects PNG is quite different from both Australia and New Zealand. The country was administered by Australia under a United Nations trusteeship after the end of World War II. Complete independence was declared from Australia in 1975 at the end of a process of increasing self-government.

Although larger in population terms than New Zealand (6.1 million people in 2008), the country’s company sector is much less developed. PNG has a dual economy with a small formal incorporated sector whose employees are engaged primarily in mineral production, public sector services, a small manufacturing industry, and miscellaneous services such as finance, construction, transportation, and utilities. In that formal sector, the largest palm oil company, based in both PNG and the Solomon Islands, floated on the London Stock Exchange in 2007. The Solomon Islands is a major foreign destination of business activity for PNG companies, with 22 operating there in 2008 with investments of US$103 million. The firms operating in the Solomon Islands include names such as Bishop Brothers, Credit Corporation, Daltron, West New Britain Palm Oil Limited, Bank South Pacific, Lamana Hotel Developments, and KK Kingston.

However, the bulk of economic activity and employment in PNG still takes place primarily in the much larger informal sector, which relies heavily on subsistence agriculture. Partly because of that, PNG social indicators put the country well below those of most lower-middle-income countries as measured by the World Bank.

Bibliography:

  1. Australian Bureau of Statistics (ABS), Small Business in Australia 2001 (Report 1321.0);
  2. Australian Government Department of Foreign Affairs and Trade, New Zealand Country Brief—January 2008 (2008);
  3. Australian Government Department of Foreign Affairs and Trade, Papua New Guinea Country Brief—June 2008 (2008);
  4. Linda Cameron, Investor Protection and the New Zealand Stock Market, New Zealand Treasury Policy Perspectives Paper (07/02, October 2007);
  5. Forbes Magazine, The Global 2000 (2008);
  6. Fortune Magazine, The Fortune Global 500 (2008);
  7. IBISWorld, Top 2000 Companies Database (2008);
  8. International Monetary Fund, World Economic Outlook Database, April 2008 (IMF, 2008);
  9. Kompass Company, Business Profiles of New Zealand’s Top 1000 Companies (2008);
  10. Organisation for Economic Development and Cooperation, Economic Survey of Australia 2006 (OECD, 2006);
  11. Pacific Islands Trade and Investment Commission, Sydney, PNG Investments in Solomon Islands at US$103M (September 6, 2008);
  12. Radio New Zealand International, Biggest Palm Oil Company in PNG and Solomons to Float on London Stock Exchange (December 16, 2007);
  13. World Federation of Exchanges, Market Statistics (July 2008).

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