Amazon poses a double threat to Australian retailers



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Amazon is a low-margin retailer sitting on other higher-margin businesses.
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David Bond, University of Technology Sydney

E-commerce giant Amazon has struck a deal to acquire Whole Foods Market, an American supermarket chain with more than 400 stores. The move has put even more pressure on Australian retailers as Amazon sets up shop in Australia.

But the real threat to Australian retail lies in Amazon’s business model. It is a low-margin retailer that owns several other highly profitable and fast-growing businesses, such as cloud services. These other businesses can and do cross-subsidise its retail operations.

JB Hi-Fi and Harvey Norman have suggested they will compete with Amazon on price, but given the cost structure of Australian retailers this may not be possible.

Amazon is very lean

While Amazon is extremely large, it is very lean. In 2016 alone, Amazon sold US$94.7 billion of product globally. But the cost of buying (or manufacturing) these products was US$88.3 billion, leading to a gross profit of just US$6.4 billion.

This means the mark-up Amazon puts on its products is very small. For example, in 2016 Amazon’s gross profit margin (gross profit divided by sales revenue) was just 6.8%. JB Hi-Fi had a margin of 21.9%, Woolworths 26.8%, Wesfarmers 31.0%, Harvey Norman 31.4%, Myer 42.1% and Super Retail Group a whopping 43.4%.

But Australian retailers also face high operational costs (wages, advertising, marketing and leases). The two largest, Wesfarmers and Woolworths, both have operating expenses in excess of 24.0% of sales revenue, while Myer, Super Retail Group and Harvey Norman are all around 40.0%. JB Hi-Fi is an outlier at just 16.3%.

Another important measure to consider is the net profit margin. This shows what percentage of each dollar of sales the company ultimately earns after all costs (including tax) are factored in. Net margin is calculated by dividing net profit after tax by sales revenue.

The net profit margins for Australian retailers are, for the most part, quite low – around 2-3%. This means they don’t have much room to move on price. If they drop prices, many will become unprofitable. So even if Amazon doesn’t start a price war in Australia, its business model is such that prices will be extremely competitive.

Amazon has other businesses

Most Australian retailers are only retailers. Some of the larger groups, such as Myer and Wesfarmers, operate across a few industries. But they ultimately still earn nearly all their revenue from buying and then re-selling physical products.

Amazon, on the other hand, has a profitable and booming services business. Its “services sales” represents about US$41.3 billion in sales, or 30% of its revenue. This covers third-party seller fees (Amazon charges other companies for access to its marketplace and warehouses), Amazon Web Services (a fast-growing provider of cloud services), digital subscriptions, advertising services and co-branded credit card fees.

In its 2016 annual report, Amazon reported US$12.2 billion in revenue from Amazon Web Services alone. The scariest thing for Australian retailers is that this has increased four-fold since 2013, and is responsible for nearly 75% of Amazon’s operating profit.

Amazon, then, not only has a large, low-margin online retail offering, but is supported by a fast-growing, high-margin cloud service.

Finding new ways to compete

Most Australian retailers will need to look at other ways of saving costs if they are to remain competitive with Amazon. For example, Coles and Woolworths can put even more pressure on suppliers to reduce their costs. Coles has recently signalled that it will pursue this strategy. And all of our retailers can try to reduce the cost of leases, and shift or reduce staff.

The small margins of most Australian retailers mean reducing prices alone isn’t a viable long-term strategy, especially as Amazon Web Services gains steam and Amazon is profitable in other countries.

Not every retailer will come under the same pressure, though. In the short term at least, groceries are still likely to be purchased in stores. But the same can’t be said of clothing and electronics. This means Woolworths and Wesfarmers should not be as concerned as Myer, Super Retail Group and JB Hi-Fi.

The ConversationThe answer for retailers may be to look past price and compete on other aspects of the shopping experience, such as convenience or customer service. But only time will tell if that’s what the Australian public wants.

David Bond, Senior Lecturer, Accounting Discipline Group, University of Technology Sydney

This article was originally published on The Conversation. Read the original article.

Could you pass the proposed English test for Australian citizenship?



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English language tests will be used to decide Australian citizenship.
from shutterstock.com

Misty Adoniou, University of Canberra

The Australian government is proposing tough new English language competency requirements for those seeking Australian citizenship.

Alongside a test of Australian values, and proof of your integration into Australian society, you’ll need to prove you can read, write and speak English at a competent level

We’ve been here before

Question: What do these two excerpts have in common – besides their clumsy sentence structure?

  1. If the land is ploughed when wet the furrows may, and in all probability will, wear a more finished appearance, and will be more pleasant to the eye, but land so ploughed will be more inclined to become set or baked, and when in this state will not produce a maximum yield.

  2. By carefully preplanning projects, implementing pollution control measures, monitoring the effects of mining and rehabilitating mined areas, the coal industry minimises the impact on the neighbouring community, the immediate environment and long-term land capability.

Answer: They are both language tests used to decide Australian citizenship.

The first is a 50 word dictation test that was key to the White Australia Policy. It was used to keep non-Europeans out of Australia.

Even if you passed the test in English, the immigration officer had the right to test you again in another European language. It was used from 1901 until 1958.

The second one is 50 words from a 1000 word reading comprehension exam with 40 questions that you must complete in 60 minutes.

This test is key to Australia’s proposed new Citizenship test. You must also write two essays, do a 30 minute listening test and a 15 minute speaking exam. If it passes through Parliament this week, it will be used from 2017.

Aspiring Australian citizens will need to score a Band 6 on the general stream of the International English Language Testing System (IELTS) test, the same score as those seeking entry to Australia’s top university.

So, could you pass the test?

The reading test

You have 60 minutes to read at least four texts taken from magazines, newspapers or training manuals, and answer 40 comprehension questions. Your short answer responses are also assessed for grammar and spelling. Here is an excerpt from a piece about bee behaviour.

The direction of the sun is represented by the top of the hive wall. If she runs straight up, this means that the feeding place is in the same direction as the sun. However, if, for example, the feeding place is 40 degrees to the left of the sun, then the dancer would run 40 degrees to the left of the vertical line.

Try the test for yourself.

The writing test

You have 60 minutes to complete two writing tasks. For example,

Write a letter to the accommodation officer complaining about your room mate and asking for a new room.

You are marked on the length of your response, its cohesion, vocabulary and grammar.

To give you something to gauge yourself by, this one didn’t achieve the required score of 6. It begins,

Dear Sir/Madam, I am writing to express my dissatisfaction with my room-mate. As you know we share one room, I can not study in the room at all any more if I still stay there.

As Senator Penny Wong observed about the test,

“Frankly if English grammar is the test there might be a few members of parliament who might struggle.”

Currently our national school test results from NAPLAN show that 15.3% of Year 9 students are below benchmark in writing. This means they would not achieve a Band 6 on the IELTS test.

A fair test?

I prepared students for the IELTS test when I lived and taught in Greece. They needed a score of 6 to get into Foundation courses in British universities. It wasn’t an easy test and sometimes it took them more than one try to succeed.

My students were middle class, living comfortably at home with mum and dad. They had been to school all their lives and were highly competent readers and writers in their mother tongue of Greek.

They had been learning English at school since Grade 4, and doing private English tuition after school for even longer. Essentially they had been preparing for their IELTS test for at least 8 years.

They were not 40-year-old women whose lives as refugees has meant they have never been to school, and cannot read and write in their mother tongue.

Neither were they adjusting to a new culture, trying to find affordable accommodation and a job while simultaneously dealing with post-traumatic stress and the challenge of settling their teenage children into a brand new world.

Learning a language takes time

Even if we conclude that tests about dancing bees and recalcitrant room-mates are fit for the purpose of assessing worthiness for citizenship – and that is surely very debatable – we must acknowledge that it is going to take a very long time for our most vulnerable aspiring citizens to reach a proficiency that will enable them to pass the test.

Currently we offer them 510 hours of free English tuition. That is at least 5 years short of what the research says is required to reach English language competency.

Testing English doesn’t teach it

The three ingredients of successful language learning are motivation, opportunity and good tuition.

The Australian government must address all three if it wishes to increase the English language proficiency of its citizens.

An English language test may appear to be a compelling motivation to learn the language, but without the opportunity to learn and excellent tuition over time, the test is not a motivation. It is an unfair barrier to anyone for whom English is not their mother tongue.

The ConversationAnd then this new policy starts to look and feel like Australia’s old White Australia Policy.

Misty Adoniou, Associate Professor in Language, Literacy and TESL, University of Canberra

This article was originally published on The Conversation. Read the original article.

Regulator failing to resolve complaints on alleged human rights abuses by Australian companies


Shelley Marshall, RMIT University

The Australian National Contact Point (ANCP) was set up as part of Australia’s membership of the OECD to hear complaints on the way Australian corporations operate overseas, but research shows it’s poorly resourced and rejects most claims at the initial assessment stage, raising concerns about its effectiveness.

There are National Contact Points already operating in OECD countries, that are achieving more with their mandate to promote Australian businesses respecting human rights while operating or based in other countries.

Australia does not have a legal framework that specifically regulates the human rights obligations of Australian corporations overseas. The Australian government is missing a vital opportunity to promote sound and ethical business practice and mediate disputes before they blow up, by inadequately resourcing this important human rights body.

Why is the ANCP needed?

Australian companies now operate all around the world in mining, manufacturing, finance and other industries. Sometimes this is through wholly owned subsidiaries, sometimes they invest in joint ventures or part shares, and at other times Australian businesses procure parts through supply chains.

When their activities negatively impact communities overseas, those affected should be able to go to the ANCP to hear their complaints. Though, in principle, communities can take their claims to local police and courts, in many countries corruption, bias and long waits often make remedy through legal avenues impossible.

Company structures also sometimes render it difficult to hold the parent company or a lead company in a supply chain responsible, even though that business may be calling the shots.

As the Australian government adheres to the OECD’s guidelines for multinational enterprises, it’s required to have a National Contact Point to assist corporations in observing these guidelines. Part of this includes providing a platform for mediation and conciliation.

Though its findings may not be legally enforceable, the ANCP is particularly important because it’s the only avenue for redress for many communities and individuals affected by Australian business, outside our national borders.

Properly resourcing the National Contact Point would allow the government to better fulfil its obligations under the United Nations Guiding Principles on Business and Human Rights (UNGPs).

Findings by other National Contact Points, when it comes to breaches of the OECD Guidelines for Multinational Enterprises, have been highly influential in other countries. For example, the UK NCP determined that mining company Vedanta Resources had breached human rights guidelines regarding its planned mine in India.

It found the mine would displace thousands of tribal people. This finding resulted in high profile divestments from the company by a number of shareholders and the adoption of a new corporate social responsibility approach by the company. Interviews with shareholders that divested revealed that although the determination was not legal in nature, it was seen to have heightened authority because it came from the UK government.

How the ANCP is failing

The research on Australia’s NCP is part of a larger project that conducted 587 interviews with 1,100 individuals mainly in Australia, the UK, India and Indonesia. It assessed the performance of the ANCP based on an analysis of every claim that has been lodged with the body.

It found that the ANCP has all but abdicated its workload; it rejected or transferred (to another NCP) two thirds of all complaints made. With only one exception, the remainder of accepted complaints were closed without resolution, as the ANCP was unable to bring the parties to mediation and unwilling to issue a determination against the company the subject of complaint.

In the more than ten years since its establishment, the ANCP is yet to make a single determination against a company the subject of complaint.

In my meetings with Treasury, the department confirmed that until recently, one public servant was tasked with running the ANCP, who already had a full-time load of other work. Treasury also disclosed this single staff member, with no expertise in the area, was expected to deal with complex human rights complaints involving some of Australia’s biggest companies, around their primary role, with no dedicated budget.

To provide a point of comparison, the Dutch NCPhas two full-time staff, as well as other staff who have responsibilities to the NCP as part of their other duties, and receives an additional €900,000 over three years to promote corporate ethics. It is advised by four independent members and four advisory members from the government departments most relevant to business and human rights. Australia’s NCP receives no such independent advice.

The cases brought to the ANCP include a complaint regarding ANZ’s alleged financing of logging in Papua New Guinea and alleged forced evictions at a coal mine in Colombia jointly owned by BHP Billiton.

What needs to change

There are several ways the ANCP can improve its functioning and provide access to remedy. Top amongst these are: improving the independence of the ANCP and properly resourcing it, improving the process for handling complaints and increasing transparency.

If there was ever a time that the much neglected ANCP has a chance of being reformed, it is now. Australia is making a bid for a seat on the United Nations Human Rights Council this year.

The ConversationModern slavery – especially the extent to which it taints the supply chains of Australian businesses and businesses operating in Australia – is the subject of a parliamentary inquiry and national attention. Hopefully this important human rights mechanism gets the attention it deserves.

Shelley Marshall, Vice Chancellor’s Senior Research Fellow, expert in corporate accountability, RMIT University

This article was originally published on The Conversation. Read the original article.

Australian values are hardly unique when compared to other cultures



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Social psychologists and sociologists have spent decades understanding how values are best assessed.
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Nick Haslam, University of Melbourne

There has been much talk recently about “Australian values”. The new citizenship test will require aspiring Australians to demonstrate they possess them, or can at least reproduce them under exam conditions. This raises the question of what these distinctly Australian values might be. The Conversation

Politicians and commentators have made a variety of suggestions. Malcolm Turnbull proposes “respect, the rule of law, commitment to freedom, democracy”. Other contenders include mateship, tolerance, belief in reward for effort, a resilient can-do attitude, egalitarianism, larrikinism and the storied “fair go”. But are there any singularly Australian values at all?

One novel way to tackle this question would be to rise up from our armchairs, step down from our soapboxes, and consult the large body of research on cultural values. Social psychologists and sociologists have spent decades understanding how values are organised and how they are best assessed. In the process they have conducted numerous comparative studies of the values of different cultural groups, Australians included.

How to examine cultural values

The most well developed understanding of cultural values can be found in the work of social psychologist Shalom Schwartz. Schwartz and a large ensemble of international collaborators have established that cultural values are best captured by seven distinct orientations. Each culture can be positioned somewhere along each dimension, from low to high, based on the degree to which its people endorse each set of values.

Embeddedness represents the extent to which people value being part of a larger collectivity, respecting cultural traditions and social order and subordinating personal desires to those of the group. In contrast, autonomy refers to more individualist values, in which the person’s independence is held in higher esteem.

Schwartz distinguishes two autonomous cultural orientations. Intellectual autonomy values prize individual curiosity, creativity and openness, whereas cultures that value affective autonomy cherish the pursuit of pleasure, excitement and diverse life experiences.

Embeddedness and autonomy are opposing cultural orientations. The same goes for Schwartz’s harmony and mastery orientations. Cultures that score high on Harmony place an emphasis on adjusting peacefully to the world and to nature, whereas those high on mastery value changing the world in the pursuit of individual or group goals.

The third and final polarity in Schwartz’s model involves cultural orientations towards hierarchy and egalitarianism. Cultures that value hierarchy hold authority in high regard and view unequal distributions of power and resources as legitimate and necessary. Cultures with a more egalitarian orientation value equality and fair treatment for all, regardless of social position.

Schwartz’s model of cultural orientations is the outcome of decades of empirical research around the globe. The seven-dimensional structure is itself derived from studies carried out in a wide variety of cultural settings.

Schwartz and his colleagues have employed translated versions of a standard measure of more than 50 specific values, organised into these seven dimensions, in which they rate the extent to which each value is a guiding principle in their life. Scores on this measure can reveal where one culture’s values sit relative to others.

Unique Australian values?

Australia is one of a collection of nations in which large samples of people have completed Schwartz’s value measure. We can see how it measures up using a publicly accessible dataset. This dataset provides average scores on each of the seven dimensions of cultural values for 80 cultural groups, drawn from 77 nations.

These scores are presented in the figure above. Each culture is represented by a blue dot, with Australia singled out in red. (For the statistically inclined, scores on each orientation have been standardised so the mean score is 0 and the standard deviation is 1).

It is plain to see Australian values fall very much in the middle of the pack on every cultural dimension. If our values were uniquely tolerant we would score high on harmony, but we sit on the global mean.

If we valued initiative and reward for effort to an unusual degree, we would rise above other nations on mastery, but we again lie on the statistical equator. If we valued respect and the rule of law to a distinctive extent we would score high on embeddedness, but we do not.

If Australians were uniquely inclined towards fairness and equality, with an irrepressible larrikin streak, we would score high on egalitarianism and low on hierarchy. But we don’t. The only dimension on which we are at all distinctive is affective autonomy, but according to Schwartz’s data 19 cultures are more pleasure seeking and fun loving than we are.

So just how unique are Australian values overall? One way to answer that question is to add up how much Australia deviates from the international average over the seven dimensions. By this metric, Australia is the second least distinctive culture of all, beaten to the gold medal by Brazil.

It is hard to escape the conclusion that what is unique about Australian values is their averageness.

Nick Haslam, Professor of Psychology, University of Melbourne

This article was originally published on The Conversation. Read the original article.

Farewell John Clarke: in an absurd world, we have never needed you more



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John Clarke, who died suddenly at the weekend, called out absurd politicking and dishonest language wherever he found it.
ABC Pr handout/AAP

Robert Phiddian, Flinders University

It cannot be the final arkle! Surely the inventor of Dave Sorenson, greatest and most persistently injured of farnarklers, will rebuild himself for the next match. Please tell me this is only the umlaut, and John Clarke will be back for the second half. In our more than usually absurd world, we have never needed him more. The Conversation

I can make no claim to personal acquaintance with Clarke – who died from natural causes while bushwalking in Victoria over the weekend – though by all accounts he was a lovely man. I do, however, feel I’ve known his work all my adult life, from Fred Dagg to last week’s Clarke and Dawe, so I write in appreciation of the work on this terrible day.

It is a magnificent achievement of focused and pitch-perfect satire. He gave voice to a brilliant antipodean acerbity that has always seemed a little old-fashioned in its moral and tonal dignity, and has been so pointedly timely because of that.

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The bedrock of his genius is the craft, the total control of rhythm, syntax, and tone. Because he wrote mostly for the screen and in short forms, it is easy to underestimate this quality. He was simply unparalleled. No Australian or Kiwi writer has ever controlled the rhythms and ironies of our English as well.

Internationally, you’d have to admit that Samuel Beckett was tauter, but nowhere near as funny. Other peers are scarce in all the world, even before you take his voice as an actor into account. Go back and read the scripts of the Games, and see if you can find a slip of tone or any emotional or political sloppiness. You may be some time.

His regular mode was disdain and wonderment at the antics of the knaves and fools who run this millennial world. He was the antithesis of excess and profoundly at odds with the dominant celebrity culture. Instead, he has been a voice from the immediate past in this era of globalisation, media glut, and economic liberalism, a voice of understated but never complacent decency.

All this is clearest in the strange success of the Clarke and Dawe skits. His reverse caricature of public figures made no attempt to imitate the person he was parodying, either in appearance or in the more obvious elements of voice.

So far as I am aware, no-one anywhere else has managed to pull it off. If you listen carefully, it really is John Clarke parodying Julia Gillard or Malcolm Turnbull, not by exaggerating the mannerisms, but by inhabiting their patterns of language and clinically exposing their vacuity or dishonesty. It’s a forensic satirical analysis at least half a world away from the swingeing condemnations of our other recent loss, Bill Leak.

Clarke was old-fashioned in manner and also in ethics. Very unfashionably, he valued facts, detachment, and restraint. This led to a deep and coherent form of political engagement that would explode foolishness wherever it appeared. He was broadly of the left, but he called out absurd politicking and the dishonest language wherever he found it.

Satirists are the permanent opposition to power in freeish societies like ours. He fought the abuses of power with wit and irony in governments of all colours, and in the corporate corruption of our national obsession with sport in the Games.

Had he stayed in New Zealand, he could well have had to take on the All Blacks for the sake of a more innocent love of the game. He ducked that fight, and Australia is the richer for it, in our usual way of Kiwi appropriation.

There was nothing soft about Clarke’s nostalgia. It remained a steady and brilliant challenge to value what is good, not just what is new. And he was fascinated by what he saw around him. His was the most generous spirited derision you could imagine.

Every time I have had to choose the tense of a verb in this article, it has been harrowing to have to use the preterite, and not the present. There were so many more knaves and fools for Clarke to excoriate as the tide of blah swirls ever around us.

I think I’ll go out and check the length of the 100 metres track at Olympic Park in memory of him. Perhaps we could go as a group.

Robert Phiddian, Deputy Dean, School of Humanities, Flinders University

This article was originally published on The Conversation. Read the original article.

Heed Hawke’s call – Australian federalism is an idea whose time has ended


Bede Harris, Charles Sturt University

Former prime minister Bob Hawke’s recent call for the state governments to be abolished is worthy of support.

Labor has historically been in favour of centralisation, while the Coalition has supported federalism. So, Hawke’s position is not surprising. But leaving aside party politics, there are good reasons why Australia should consider this change to its Constitution.

Solves no problem and confers no benefit

The reason Australia has a federal Constitution is a negative one. It was due to fear from the colonies of domination by each other or by the new national government.

Taken at its best, the adoption of federalism in preference to a unitary system was the necessary price of creating Australia as a nation. At its worst, it was a base compromise pandering to colonial jealousies, which now saddles Australia with an unnecessarily complex and expensive form of government.

Unlike in countries such as Nigeria, where federalism serves the purpose of providing for ethnic autonomy, Australian federalism solves no problem and confers no benefit.

The supposed major benefit of federalism is that it provides protection against tyranny by diffusing power. But federalism does not affect what governments can do to individuals, only which government may do them. Distributions of power are not as effective a protection of liberty as are restraints on power.

Federalism cannot provide an effective limit to what the state and Commonwealth parliaments can in combination do to the individual. Only a Bill of Rights can do that.

So, Australia is left with nine governments and 15 legislative chambers for a population of 24 million.

The costs of this are staggering. In 2002, the annual costs of federalism to the economy was estimated at A$40 billion – a figure that would be much higher today.

This covers costs such as running state and territory governments, costs to the Commonwealth of interacting with the states, and compliance costs to business. But it excludes intangible costs in the form of time and inconvenience: think of simple matters such as car registration or entry into a new school system experienced by anyone who has moved interstate.

Public opinion in favour

There is ample evidence that Australians, notoriously resistant to constitutional change, would support abolishing the states.

A 2014 survey by the Griffith Federalism Project found 71% of respondents favoured changing the current system. Among this majority, there were preferences for different allocations of power between national, regional and local governments.

The idea of replacing the states with regions defined along rational economic lines was an interesting feature of these results. But even more significant were the results of a 2014 survey commissioned by lobby group Beyond Federation, in which 78% of respondents supported the idea of Australia having a single set of laws for the country. So, it seems that constitutional reform to abolish the states would be well received by voters.

Making such a change would mean that, as in New Zealand and the UK, Australia would have a single (national) parliament with comprehensive lawmaking power. That parliament could delegate lawmaking authority to regions and/or local governments, in the same way as state parliaments currently delegate power to local authorities.

However, there would be no more disputes over which lawmaking power the national parliament had, and no doubt that national law overrode regional and local law. The legal system would be much simpler, and compliance costs to business and individuals radically reduced.

Australia would also have one department of education, one department of agriculture, one department of the environment and so on, instead of multiple agencies currently.

Disputes over shares of Commonwealth revenue allocated to the states is a constant feature of federal-state relations. All that would be a thing of the past. Expenditure could be determined according to the needs of people, irrespective of where they lived and without reference to artificial state boundaries.

The current focus on “reforming” the federation avoids the real issue: why have federalism at all? If we were writing a constitution from new, would we really recreate the current nine-government system? If the answer to that is “no”, there is a good reason to change it.

The Conversation

Bede Harris, Senior Lecturer in Law, Charles Sturt University

This article was originally published on The Conversation. Read the original article.

Australian Politics: 17 November 2013 – More of the Same


The link below is to an article that takes a humorous look at the recent scandal concerning allowances in politics. It’s worth a read I think.

For more visit:
http://www.themonthly.com.au/issue/2013/november/1383224400/don-watson/tony-abbott-apologises