13 August 2017
Indispensable economic partners: The US-Australia investment relationship, a report published by the United States Studies Centre, details the deep benefits of the US-Australia investment relationship. The study represents the most comprehensive analysis of the two-way investment relationship ever undertaken.
The report includes 13 case studies of businesses with strong ties to both the United States and Australia. These are the result of discussion with a broad array of business leaders throughout Australia. For each case study, we specifically asked each business what led to their investment overseas, what strengths the US and Australian business climates provide them and also what they hope will improve in Australia’s business climate.
Headquarters: Seattle, Washington
Significant figure: Up to a third of global web traffic goes through Amazon Web Services
Amazon Web Services (AWS), a division of Amazon.com, is a cloud computing business that provides on-demand virtual computing and hosting platforms for businesses, governments and individuals. Launched by Amazon.com in March 2006, AWS has grown quickly and is now accessed by around a third of all internet users and forecast to earn more than US$13 billion in revenue in 2017 – more than half of Amazon’s global profits.
AWS’s virtual computers act, from a user perspective, just like local computers except that they are accessed and controlled over the internet instead of on a physical server space onsite. From Netflix and Airbnb to data-mining economists, AWS allows users to have dramatically more computing power and server capabilities in a cloud format at a fraction of the price of traditional onsite facilities. It’s paid for on a “pay-as-you-go” basis rather than having to guess and buy all IT capacity upfront for the forward few years. These services are provided through a number of so-called Availability Zones, or “server farms” located in 16 regions around the world, including the Australian region based in Sydney, which was the ninth region to launch. The Australian operation provides “consultative technical support” which is, in many ways, closer to business advice than traditional troubleshoot-type technical support.
Like any business decision, the reasons AWS chose to open up a regional hub in Sydney are multifaceted, but they include the importance of geographic proximity in terms of latency (the time it takes for a cloud-based service to respond to a request by a user) and that there is an important and growing Australian user base for cloud computing services. Sydney’s time zone also gives it a distinct strategic advantage: AWS employees in Sydney support customers all around the world due to the company subscribing to a “follow-the-sun” model for support, meaning top-level support is available to its customers 24 hours a day.
Most notably, however, AWS believes that the best locations attract the best employees, which in turn help attract and retain the best customers. “We put our offices in the best places to attract the best talent,” Australia-New Zealand Public Sector Country Manager Andrew Phillips said. Given its desirable and family-friendly environment as well as reputation for early adoption of new technology, AWS found Australia to be the sort of location that encourages this valuable chain reaction. The roughly 1000 well-remunerated AWS employees in Australia are clearly a benefit to Australia – and the service itself has helped local companies, like software company Atlassian and online marketplace Freelancer.com – globalise more quickly.
The multiplier effect of the AWS platform itself, however, has arguably created the greatest benefit to Australia. The AWS presence in Australia has allowed the company to market their services to local organisations more effectively than from overseas on a “fly-in-fly-out” basis. This, in turn, has provided demand for a larger local AWS presence. With this expanded footprint, AWS has been able to do more collaborative local development of its innovative services. “You can’t predict how your customers are going to use your products,” Phillips said, while noting that “over 90 per cent of ideas for new features come from customers”. This type of symbiotic product tailoring has created significant local demand for IT professionals certified to operate systems that use the AWS platform.
There are currently 5,500 open job requests in Australia requiring AWS certification while it is predicted that a further 50,000 such certified users will be needed in the coming years. This is an essentially new source of medium-skilled, high-wage jobs but, just as importantly, the very presence of these jobs strengthens the platform, creating new benefits to Australian corporate and government users of AWS, as well as leading to further employment opportunities for Australian IT professionals – including at AWS itself.
Headquarters: Thousand Oaks, California
Significant figure: The treatment of tens of thousands of Australians suffering from difficult to treat illnesses
One of the largest independent biotechnology firms in the world, southern California-based Amgen researches, develops, and manufactures drugs used to combat difficult to treat illnesses ranging from cancer and osteoporosis to kidney and cardiovascular disease.
A leader in advanced human genetics, Amgen focuses on a small range of highly-specialised drugs for areas of high unmet medical need – having produced a total of 15 drugs since its founding in 1980. Two of its most well-known and highest-selling drugs include Prolia to treat osteoporosis, and Neulasta, which builds white blood cells to reduce infection in chemotherapy patients.
Having been in Australia for 26 years of its 37-year history, Amgen has treated tens of thousands of Australians. Yet Amgen’s investment in Australia is clearly not motivated by revenue alone: Australia accounted for only around one per cent of its global revenue in 2016, contributing $300 million to the company’s overall revenue of A$30 billion.
In Amgen’s calculations, the ultimate value of Australia lies in its high quality medical infrastructure and world-leading research facilities. While Amgen is active in approximately 100 countries around the world, Australia’s uniquely robust and mature hospital system has allowed Amgen’s Australian operations to participate in approximately 25 per cent of the company’s worldwide clinical trials. Australia is home to only 200 of Amgen’s 20,000 global employees, yet more than a third of the full time staff in Australia – primarily in Melbourne – focus on local research and development.
By nature, clinical trials are time-consuming, complex, and expensive. To be done correctly, they require an entire ecosystem being in sync. Good physicians, strong intellectual property protections, and a stable regulatory environment with little sovereign risk are just some of the necessary components. Australia is made all the more attractive as an investment location for biotechnology research and development given its high-quality research institutions, the congruous nature of its medical standards to other developed countries, and the fact that the country has all of these attributes on an island – naturally allowing for a targeted and limited market.
In 2016 alone, Amgen ran more than 40 different studies at 230 sites across the country involving more than 1,000 patients, with a significant portion of the research focusing on haematology, oncology and cardiovascular disease. The deep and established ties that Amgen has established from years of research and development have only further solidified the necessary foundation to allow for further biomedical research in Australia. Future research will focus on Amgen’s cutting-edge exploration of genetic mapping to develop personalised medicines.
The benefits for Australia that result from Amgen’s sizeable investment in clinical trials go beyond the fact that Australian patients, often with no other available remedy, are some of the first in the world to be given new means of fighting their illnesses. The economic multiplier effects of such research are immense: Amgen’s clinical trials also support the work of cutting-edge physicians and researchers, help medical staff and researchers develop new skills, and ultimately result in increased workforce participation.
Headquarters: Perth, Western Australia
Significant figure: A$400 million to set up its Alabama shipyard
Austal is a Perth-based shipbuilder and defence contractor with shipyards in Australia, the United States, and the Philippines. Founded in 1988, Austal today has designed and built more than 260 defence and commercial vessels for more than 100 customers in 50 countries around the world, with 2016 revenue of A$1.3 billion.
While most shipbuilders at the time of its founding were focused on steel and fibreglass hulls, Austal consciously chose to design and build aluminium vessels. It has only recently added steel as an option for military vessels.
Like so many other instances of Australian expertise and ingenuity being developed independently and often oblivious of the resources present in other nations, it soon became clear that Austal’s extensive abilities in manufacturing aluminium vessels at a large scale was unique and unmatched on a global scale. This included the United States, home of the world’s largest naval fleet, where there simply weren’t any large yards capable of Austal’s style of shipbuilding.
Austal’s international expansion faced a predicament: the US military seemed to have a need for Austal’s ships due to an increase in littoral warfare but US law and customs prevented Austal from being able to manufacture US military warships in Australia. Given these challenges, Austal Founder and Chairman John Rothwell made the ambitious decision to directly enter the US market in 1999. In less than 20 years, Austal has invested more than $400 million dollars in allowing their US shipyard to become one of the largest employers in Mobile, Alabama, with more than 4,000 employees.
The Mobile shipyard now serves as the centre of manufacturing for two high-speed aluminium ship classes for the US Navy: the Littoral Combat Ship (LCS) and Expeditionary Fast Transport (EPF) programs. The LCS is uniquely capable of anti-submarine warfare, mine countermeasures, and surface warfare. The EPF allows for the rapid deployment of troops and cargo with limited port infrastructure. The fulfilment of these two projects has led to nearly 85 per cent of Austal’s annual revenue coming from the United States.
A foreign-owned company operating a major manufacturing hub in the United States is a difficult and rare enough task unto itself, but to focus solely on sales to the US military – infamous for its byzantine procurement process – is another obstacle altogether. Rothwell attributes his US success to a number of reasons that acutely demonstrate the benefits of both the Australian business environment and close military and cultural ties between the United States and Australia. Without hesitation, Rothwell says, the deep and broad-based relationship between the two young nations was a major factor in Austal’s US success. “I would be surprised if there were too many companies who could achieve [what Austal has],” Rothwell said.
Rothwell found that entering the US military market was made easier by Austal’s Australian background. While doing the initial “rounds of the Pentagon and naval establishment” to gauge their interest in Austal warships, Rothwell would regularly come across senior naval personnel who had had a great Australian experience in their military travels. The fact that Australians in the United States are well-liked, culturally aligned, and operate similarly helped Austal a lot, he said. The strength of the military relationship and high levels of trust between the United States and Australia cannot be overemphasised in facilitating an agreement in which Austal, a foreign-owned company with commercial but not military success in Australia, bought US facilities for building critical US military warships.
The trust relationship also goes both ways: due to the security-sensitive nature of Austal’s military work in the United States, Austal’s Australian team can only retain a minority stake in the board of Austal’s US outfit. Austal’s executive team are effectively forced to trust that a corporate board in charge of overseeing the overwhelming majority of their revenue will act in the Australian firm’s best interests.
While Austal’s military procurement work involves a limited number of countries, the fact that Austal has supplied “the most powerful navy in the world” is certainly noticed and has helped international commercial and military sales, Rothwell said.
Headquarters: San Francisco, California
Significant figure: 400+ apprentices hired on the Curtis Island project in Queensland
Bechtel is one of the world’s largest engineering, construction, and project management companies. In its nearly 120 years in operation it has completed more than 25,000 projects in 160 countries, and had revenue in 2015 of US$32.3 billion.
Bechtel’s presence in Australia dates to 1954, when it provided engineering services for a pipeline pump house. Since then, Bechtel has been involved in a large number of significant projects in Australia, ranging from the mining sector and LNG installations to power stations and telecommunications infrastructure.
A number of these projects have been the first of their kind in Australia, such as the Curtis Island LNG facility off the coast of Queensland, near the city of Gladstone. This A$11 billion project involved providing a full array of engineering and construction services. “It passed on a range of skills to the local contracting community,” said Bechtel’s regional president Shaun Kenny, “including leading safety and quality standards”.
The local employment and contracting impact was significant. The project involved more than A$1.5 billion in wages to long-term Gladstone residents, hired and trained 436 apprentices, employed more than 500 Aboriginal and Torres Strait Islanders, and awarded more than 40 subcontracts totaling A$350 million to local businesses.
Remarkably, the company sees the possibility of further LNG expansion, as well as further work in the mining sector. As iron ore and other mining continues, “tougher deposits are going to have to be mined”, Kenny said. This will present engineering challenges that Bechtel sees as opportunities.
Bechtel’s “on-the-ground” presence has allowed it to move beyond natural resources into a number of other areas. It is now involved in the Australian defence and infrastructure sectors. This includes the remediation of old defence bases to form part of urban renewal and housing expansion projects – particularly around some of the very expensive Australian cities, such as Sydney.
In Asia, the company is also heavily involved in the building of data centres which are driving the cloud computing revolution mentioned in this report’s discussion of Amazon Web Services. Because of the importance of minimising transmission costs, local data centres are vital, but clients demand world-leading technology.
Although more of Bechtel’s work is being done digitally, Kenny said Bechtel wanted “to have people here and not rely on bringing expats in and out of Australia”. Australia’s strong rule of law, education system, natural resources, and “emerging technology base” are all strong advantages of Australia that make investing here attractive. Bechtel has also benefited from the wanderlust nature of the Australian workforce – not only willing to go overseas but eager. “You’ll find Australians all over the world – remoteness breeds that,” Kenny said.
“It’s good for the company to be strategically positioned here, and we have 70 years of history in Australia. We definitely don’t want to pull out; it takes time to establish your reputation.”
The Bechtel experience highlights the knowledge spillovers and community ties – especially in regional centres – that overseas engineering and project management investment brings. It also underlines the fact that investment in Australia is a “binary” decision for many companies – they are either in or out. Relatively small shifts in the attractiveness of the investment environment may have little observable effect on investment, unless a sufficient number of negatives add up to a company moving out of Australia completely.
Headquarters: Chicago, Illinois
Significant figure: More than A$1 billion invested in Australia
With more than A$115 billion in global revenue, the Boeing Company based in Chicago is the world’s largest aerospace company. Approximately two-thirds of its global revenue in 2016 came from Boeing’s commercial airplanes business with the remaining one-third of revenues derived from the company’s defence and space work.
The fact that Australia is Boeing’s largest operational footprint outside of the United States is no coincidence and certainly did not happen overnight: Boeing has invested more than A$1 billion in its Australian operations, which date back to 1927 through Boeing’s heritage companies. Today, Boeing has more than 3,000 employees across seven wholly-owned subsidiaries located in 27 locations throughout the country. It is engaged in a wide variety of sectors, including advanced manufacturing of complex airplane components, defence systems development, research and development, training/modifications/upgrades, and unmanned systems.
Because it takes a long-term view of its business and where its resources should be located to best serve its customers, Boeing continues to invest in its Australian operations. Boeing has invested in manufacturing upgrades at its Fishermans Bend facility in Melbourne, as well as new facilities for its defence team in Brisbane and Adelaide.
The multiplier effects of Boeing’s investment in Australia are enormous. In 2015 alone, Boeing spent around A$400 million at more than 1,000 Australian suppliers. Boeing’s many decades of work with Australian suppliers have not only helped Boeing’s global development but also given local companies like the Victoria-based Lovitt Technologies, over the course of its 20 years of work with Boeing, the opportunity to grow. Lovitt grew “from an automotive tooling supplier into a globally competitive aerospace component manufacturer”, according to the president of Boeing Australia, New Zealand and South Pacific, Maureen Dougherty. She said there are a number of reasons for this sustained engagement.
Firstly, Australia is a fundamentally democratic country with rule of law and transparency similar to the United States. Secondly, Boeing has major military and commercial sector customers in Australia. As a US-owned company, the military component in particular would obviously be more difficult to navigate if Australia did not have such extremely close US ties. In Dougherty’s view, there’s an interoperability and interchangeability in the US-Australia relationship that allows for close collaboration between Boeing’s US and Australian offices.
Lastly, Boeing’s close partnerships with local universities, private institutions, and government organisations have been integral to Boeing’s success in Australia. Partnerships with local universities such as the University of Queensland, Queensland University of Technology, and the Royal Melbourne Institute of Technology as well as CSIRO, the federal government agency responsible for scientific research in Australia, have not only helped to drive innovation in aerospace systems design, development and manufacturing. Such partnerships, particularly with universities, have also given Boeing the critical ability to develop a pipeline for future talent.
One of the innovations arising from Boeing’s work in Australia is used at Boeing Aerostructures Australia at Fishermans Bend in Victoria. The Victorian team is the sole supplier of many of the moveable trailing edges, such as wing flaps, of one of the most technically advanced planes in the world, the 787 Dreamliner. It is the only Boeing site in the world that applies a “resin infusion” system on components of the Dreamliner’s moveable trailing edges – a technology developed in Victoria that makes the plane lighter and more efficient.
Given Boeing’s sustained and committed investment and impact over many decades, it came as little surprise when Boeing won the Australian Trade and Investment Commission’s inaugural Investment Award in 2016.
Headquarters: San Jose, California
Significant figure: A$15 million invested to establish Australian innovation centres
Founded in 1984 by two Stanford University computer scientists trying to connect different computer systems, Cisco is a Silicon Valley-based technology company that connects, secures, services, and produces a wide array of ubiquitous technologies ranging from office phones with integrated video collaboration, to internet modems and machine learning networks, to energy management software. From the broadest perspective, Cisco specialises in technology networks and communications with 85 per cent of the world’s internet traffic running on Cisco technology.
Today, Cisco earns more than A$60 billion in revenue a year, with around 70,000 employees working in more than 165 countries and 480 sites doing business across the world.
With its estimated 1,000 Australian-based employees, Australia is Cisco’s seventh largest revenue source, according to its director of corporate and government affairs, Tim Fawcett. Australia is considered an early adopter of technology. When Cisco entered the cloud computing sector in Australia, it rose to first in market share faster than anywhere else, Fawcett said. And when Cisco entered the Internet of Things arena, it similarly rose to first in market share faster than anywhere else in the world – faster than the United States, Japan, or the United Kingdom, according to Fawcett.
“There is no doubt that the Australian economy is embracing digitisation faster than anywhere else in the world,” Fawcett said.
In many ways more remarkable, however, is the considerable amount and diverse ways in which Cisco has invested in Australia. The northern Sydney suburb of St Leonards is home to one of Cisco’s Global Technical Assistance Centres (TAC) and is the Asia-Pacific regional headquarters for customer solutions support. This is one, in a network of TACs, in a “follow-the-sun” global model in which Cisco provides 24-hour customer support. The Sydney team has some 400 of Cisco’s most experienced systems engineers, who provide the highest quality support to its customers.
While many technology companies seek to transform certain businesses, Cisco investments in Australia clearly demonstrate how it is working to also transform cities and governments around the world.
In partnering with industry, government and local universities, Cisco has established innovation centres in Perth and Sydney. The innovation centres provide access to technology expertise, development equipment, investment funds, and other key innovation ingredients to start-ups, industry experts, developers and researchers in an open environment of collaboration. The innovation centres are currently focused on developing new solutions through the Internet-of-Things technology to agriculture, transport, and natural resources sectors. This follows Cisco’s already established work in Adelaide as a Smart City, with connected street lights, parking, and public Wi-Fi.
Cisco has also invested in and partnered with promising Australian technology firms. One such example is the Adelaide-based Cohda Wireless, which specialises in connections between self-driving cars. Cohda and Cisco’s Internet of Things business unit joined forces to explore the vehicle component of its Smart Cities program.
In 2015, Cisco announced a new initiative known as AUSTEM2020. In trying to address the ever-increasing shortage of students with strong STEM (science, technology, engineering, maths) foundations, Cisco launched two components to support and increase STEM education in Australia. Firstly, it invested A$31 million over five years in Australia’s education system and committed to training a minimum of 20,000 students per year by 2020 in STEM education. Secondly, Cisco pledge to commit 20 per cent of their staff to do 20 hours of mentoring per year by 2020 – which it estimates costs around $10 million.
According to Fawcett, Australia has a world-class social safety net and a highly tech-savvy population, giving it “wonderful economic platforms” to transition to a digital economy. Cisco, Fawcett said, sees itself as a key facilitator for that transition.
Headquarters: New York, New York
Significant figure: More than $4 billion invested in its Australian businesses
Citi Australia is the largest international bank in Australia and was among the first foreign banks to be granted a banking licence in 1985.
Although Citi has a modest-sized retail banking operation – it has around 0.5 per cent market share of deposits and mortgages – it brings significant advantages and plays a big role in the retail banking market. Also, being the largest credit card issuer in the world, it brings scale and innovation to the Australian market, where it holds an 11 per cent share. Citi currently extends $17 billion in loans to its Australian retail and institutional clients.
The global network that the New York-based Citi has is critical for its Australian clients. The firm started moving outside the United States more than a century ago and now operates in 100 countries, with a consumer presence in 19 markets around the world. Being the most international bank in the world, it can bring its network to bear for its Australian clients throughout all its product offerings.
One of the most striking things that comes through in the Citi experience is the fundamental importance of US debt markets – and the key role that US financial institutions play. The “trans-Pacific pipe of capital”, as Citi Australia’s chief country officer David Livingstone characterised it, is fundamental for funding the Big 4 commercial banks: CBA, NAB, Westpac and ANZ (with US$29 billion raised for them last year alone), but also for other corporates.
This happens through direct access to US markets for some companies, but for many small and medium enterprises (SMEs) it is the funding that the Big 4 banks are able to access from the United States that flows on into Australia – allowing significant lending to the SME sector. The United States is the largest and most sophisticated capital market in the world, dwarfing Europe in its importance for Australia. “Not all financial innovation happens in the United States, but a lot of it does,” Livingstone said.
Human capital and knowledge transfer is also crucial. “We bring Australian talent back to Australia,” Guy Matthews, Citi Australia’s head of corporate affairs, said. It is common for Australian Citi executives to spend a decade or more in overseas markets before returning home to Australia, bringing skills and perspectives that can benefit their local colleagues.
Citi sees this with its clients, too. Expertise and knowledge transfer has been particularly important in the LNG sector, for example.
Like many other companies, Citi views Australia’s attractiveness as an investment destination stemming from its respect for the rule of law, being part of the OECD, the Australian Stock Exchange and its regulatory provisions, the fully floating exchange rate, and a strong base of experienced professional services talent such as lawyers and accountants.
In terms of Australia as a destination for foreign investment, global competitiveness is the key dynamic. The corporate tax rate is important – particularly since Australia is now one of the highest taxing OECD countries, whereas in the early 2000s it was one of the lowest. Personal income tax rates are also important for attracting management talent. “We can’t keep taking the lifestyle dividend forever,” was how Livingstone put it. Part of bolstering that lifestyle dividend is about the physical infrastructure of cities themselves, which has implications for amenities, commuting times, and quality of life more generally.
Headquarters: Issaquah, Washington (suburb of Seattle)
Significant figure: A$500 million to open up facilities in Australia
One of the largest retailers in the world, Costco is a wholesale, membership-only warehouse club known for its discounted prices for bulk purchases of consumer goods. Beginning with one store in Seattle in 1983, Costco now has more than 730 locations around the world and earns more than A$100 billion a year. Targeted towards both households and small to medium businesses, Costco sells a diverse array of goods, ranging from groceries, apparel, and home electronics, to tyres, office equipment, and furniture. Costco prides itself on having high-quality brands for prices below traditional retail outlets due to its “no frills” shopping experience in a concrete-floored warehouse.
Only eight years after opening its first Australia warehouse, Costco now has eight locations in the areas of Melbourne, Sydney, Canberra, Brisbane, and Adelaide. The combined annual revenue of the eight locations is reportedly more than A$1.5 billion a year.
In implementing a business model developed in a more competitive retail market, Costco has not only taken some of the market share from Coles and Woolworths duopoly in a relatively short amount of time, but it has also helped make a distinct impact on their prices. Woolworths and Coles are reported to have spent extraordinary amounts – as much as $1 billion for Woolworths – in an effort to cut prices that were as much as 37 per cent higher than Costco. Despite these efforts, however, one recent analysis determined that Costco is still 27 per cent cheaper than Coles and 24 per cent cheaper than Woolworths on a number of products.
In addition to more competitive prices, Costco has also pushed Australian retailers and vendors to embrace the latest global retail trends, from more organic offerings to new packaging concepts, such as bulk packaging. Costco’s treatment of its employees also stands out when contrasted with its competitors. Most retailers around the world focus on cutting employee costs as much as possible to increase profit. Since its founding, however, Costco has subscribed to the belief that better compensated and happier employees will lead to a better customer experience. The result: when Costco hired 225 full and part time employees to staff its Docklands location, they were paid more and continued to work at Costco for longer than employees at most retail chains.
As a multinational corporation, Costco prides itself on bringing the best from around the world to each store at the lowest possible price. That has most clearly been demonstrated in bringing foreign brands to Australia, but also has included helping Australian goods – ranging from Uncle Tobys muesli bars to Tasmanian farm-raised salmon – to go global by being sold in Costco warehouses around the world.
Although membership-only warehouse shopping is a staple of many American households, Costco was a relatively foreign concept to most Australians before it opened its first warehouse in 2009. It was so foreign, in fact, that it literally pushed boundaries while spending around A$500 million to get its stores built across Australia. According to Costco’s Australian Country Director Patrick Noone, it took more than two years to get the local authorities in Victoria to fully understand Costco’s unique business model and allow an area of the Docklands in Melbourne to be rezoned for Costco to operate. Costco wanted to take advantage of a retail market that was ripe for innovation in a country with low levels of corruption, high income levels, positive long-term prospects, and a helpful free-trade agreement with the United States but government proved to be a significant headwind.
According to Noone, it was not until a delegation of Victorian government officials visited Costco in the Seattle area that the state government began to grasp how Costco worked. While the building of each Costco warehouse in Australia that has followed the Docklands location has also required rezoning, the process has been significantly shortened now that Costco is a better-known entity.
Australia’s eight Costcos make up a little over one per cent of the company’s worldwide presence, yet Costco has quickly made a significant profit, with Australian warehouses estimated to account for 5 per cent of Costco’s worldwide earnings. This growth is expected to continue as Costco looks to add a ninth store in the Sydney area and a tenth in Melbourne.
Headquarters: Irving, Texas (next to Dallas)
Significant figure: A$20 billion in cumulative investments in Australia
The largest publicly-traded international oil and gas company in the world, ExxonMobil has made more than $20 billion in cumulative investments in Australia. ExxonMobil has historical roots in Australia through its predecessor company, Vacuum Oil, which opened its first branch in Queen Street, Melbourne in February 1895. The company was pivotal in the discovery of oil and gas in Bass Strait, with the Gippsland Basin joint venture completing its first discovery in February 1965. Since then, offshore facilities have supported production of 4 billion barrels of oil and 8 trillion cubic feet of gas.
Although its primary role has been to extract natural resources, a spinoff benefit of the company’s involvement in Australia has been local skill development. Before the Bass Strait projects, Australian companies such as BHP did not have the oil and gas skills to perform modern petroleum resource projects. ExxonMobil’s work in Australia has contributed to “enormous growth in specialised skills,” ExxonMobil Public and Government Affairs Manager Andrew Murphy said. A proliferation of Australians equipped with skills gained from working on ExxonMobil’s Australian sites are now travelling around the world working on other oil and gas projects, Murphy said.
The two-way knowledge transfer between the university sector and geoscience and petroleum engineering has been particularly marked. Engineering and geology programs at several universities involve significant interaction. As one example, at the University of New South Wales, the School of Petroleum Engineering was established in 1985 as an independent entity dedicated to the field, only 20 years after the discovery of Bass Strait oil. Two clear policy challenges are present. The first is around the Australian industrial relations system, which has been partly responsible for cost blowouts on certain projects – and labour costs and productivity are especially important toward the end of the life of a project. Changes to the workplace relations system could make Australia more attractive for future investment.
The second is the importance of a stable fiscal regime. ExxonMobil has paid around $12 billion in Petroleum Resource Rent Tax (PRRT) over the past two decades in nominal terms. Under this scheme Australia has remained a favourable investment destination for ExxonMobil with two generations of developments in the Bass Strait, as well as the significant investment in the Gorgon Project.
With this in mind, the government needs to be cautious about making significant changes to a regime that has been proven to be effective over the long term, but is experiencing a short-term revenue reduction due to recent declines in resource price and a lag between the start-up of projects and commencement of PRRT payments that is inherent in the design of PRRT.
Policy certainty drives lower risk premia and more investment according to the company.
Headquarters: GM Holden – Port Melbourne, Australia; GM – Detroit, Michigan
Significant figure: A$9 million invested to expand laboratories at GMH Proving Ground in Lang Lang, Victoria, part of approximately A$80 million annual R&D budget in Australia
Few companies have as long a history of US investment in Australia as General Motors and Holden. Founded in 1856 as a saddle manufacturer, Holden eventually moved into automobile bodies and began selling General Motors (GM) cars in the 1920s before being formally merged with GM in 1931.
From protectionist tariffs that resulted in GM Holden producing the first Australian-made car in 1948 to political backlash towards industry assistance, the public attitudes towards and government treatment of GM Holden from the early 20th century through World War II and into the 21st century, in many ways trace the broader Australian attitude toward foreign investment.
This year, 2017, will be a momentous one in the iconic carmaker’s storied Australian history, as it marks the final year in which Holden cars will be manufactured domestically. While successive Australian governments have helped facilitate Australia’s evolution into a skills-based economy – including reductions to government subsidies for auto manufacturing – it has nonetheless been difficult for many Australians to see such a quintessentially Australian brand cease in-country manufacturing.
The final outcome of what remains of GM Holden in Australia today, however, is just one example of the broader shifts in Australia as it has become a high-skills based economy. Lower-skilled manufacturing has left but GM Holden’s higher-skilled design and engineering teams have remained in Victoria and made significant contributions to the global GM brand.
GM’s decision to continue investment in its design and engineering team of approximately 350 people was not done for nostalgic purposes. On the contrary, GM consciously decided to take advantage of the Australian teams’ long history and extensive experience by integrating its design and engineering teams as central components of the global GM company. As one of the few locations in the world once capable of designing a vehicle on a piece of paper and putting it into production all in one country, the design and engineering teams are some of the most experienced and mature in all of GM.
The Port Melbourne-based GM Holden design team has already won awards for their work, including the Concept Car of the Year at the 2007 Detroit Auto Show for Holden’s EFIJY, the team’s modern update of the classic Australian FJ Holden. Having already designed Holden concept cars for more than half a century, it was an easy transition to design concept cars for GM, which it has now been doing for more than ten years. The GM Holden design team’s work on the Buick Avenir – a brand and model not even sold in Australia – won Best Concept Vehicle at the 2015 Detroit Auto Show.
Despite Australia’s small population, it can “punch well above its weight” in auto design, GM Holden Design Director Richard Ferlazzo said. Only GM’s team in Melbourne and the global headquarters in Detroit are capable of designing and building a concept car completely in-house, Ferlazzo said.
Australian auto designers have benefited from the unique aspects of well-established Australian car culture, including the fact that Australia has one of the most diverse car markets in the world, with around 60 brands on Australian streets compared to around 40 in the United States and other major markets. That exposure to a diversity of brands, in addition to the cosmopolitan car culture of Australia, is undoubtedly an intangible advantage.
The engineering team, which works closely with the design team, has also made valuable contributions to GM’s diverse brands. The Lang Lang Proving Ground roads and test facilities located outside of Melbourne, where every Holden has been tested since 1958, are now being used by GM’s engineering team to test the powertrain components and emissions of Holden vehicles sold in Australia, in addition to Chevys and Cadillacs sold around the world.
In addition to the experience gained from decades of designing, building, and manufacturing vehicles in one country, GM Australia’s Head of Engineering Brett Vivian believes that Australia’s high quality universities, which not only produce strong engineering students but have also collaborated with GM’s local and global engineering team, has made engineering in Australia an attractive operation.
Car manufacturers are clearly facing leaner days than in the past, but the GM Australia team’s unique experience designing, engineering, and manufacturing Holden cars have made the remaining design and engineering teams valued tools to the entire GM company. While no longer one of the most powerful brands in the country, GM Holden has become a remarkable example of a legacy company evolving with the times and taking advantage of Australia’s core competencies.
NASDAQ: GOOG; GOOGL
Headquarters: Mountain View, California
Significant figure: More than $400 million per year invested in Australian operations
Google is a highly visible technology company specialising in a number of areas including internet search, cloud computing, software platforms and applications, and hardware.
Australians use Google’s products as part of their daily lives to find information, plan travel and work more productively. At an economic level, the company supports an immense amount of business activity in Australia. According to one report, more than 840,000 Australian businesses connected with consumers via Google in 2015 alone, while generating A$15.1 billion using Google platforms. The same report found that on a typical day in 2015, Australians sent an average of 190 million emails using Gmail – twice the number of Australian phone calls.
Today’s technology companies require 24-hour global stability on their platforms. A Gmail user needs assurance that their email will not go down even as engineers in the United States sleep, and users value the fact that content they create for a platform like YouTube will be accessible by audiences anywhere in the world and in any time zone. For this to be the case, Google needs engineering teams in places like Australia to keep their global platforms online.
The question of “why Australia” goes further for Google. The company invests more than A$400 million per year in its Australian operations and has a long-term approach to talent development in Australia. This includes deep links to Australian university computer science programs and programs to develop STEM skills and support for careers in computer science in Australians schools. Google has also collaborated with Adelaide University to develop a “Massive Open Online Course” for teacher professional development on Australia’s new Digital Technologies Curriculum, which has been taken by more than 10,000 teachers.
This substantial investment in talent development is important to Google Australia because around half of Google’s 1,300 Australian employees work in the company’s engineering division. Google Australia engineering, though young, already has a storied background. Google Maps, estimated to be viewed more than 60 million times a week by Australians, is an Australian invention that has been taken global by Google and become a massive hit with consumers around the world.
“A culture that is open to innovation and new ideas is an important part of what helps Google attract talent to Australia,” Google Australia’s Public Policy Manager Alexander Lynch said. “The computer scientists we employ at Google Australia could find work anywhere in the world,” Lynch said.
“They choose Australia because of its culture, the quality of life, and Australians’ openness to new arrivals. Importantly, there has been a pathway to permanent residence in Australia for people and families with the skills Google can use to compete effectively in the global digital economy.”
Google’s presence in Australia has not only been useful in securing highly-skilled computer scientists from overseas. More than 500 Australians now work for Google elsewhere in the world, and many will bring the global technology skills they have acquired back to Australia.
Google’s large engineering presence has played a part in the development of Australia’s growing technology and startup industry. Google helped found and continues to support StartupAUS, an organisation that represents the interests of startups in Canberra, and supports Fishburners, the largest network of non-profit co-working spaces in Australia, through its Google for Entrepreneurs program. It also provides mentoring for startups in the co-working space near Google Australia’s head office in Sydney. Google Australia’s engineers have gone on to work in some of Australia’s most promising digital companies.
Headquarters: Melbourne, Australia
Significant figure: A$1 billion invested in ammonia plant in Louisiana
Incitec Pivot (IPL) is an industrial chemicals company specialising in industrial explosives, chemicals and fertilisers through its manufacturing of nitrogen-based products. With an Australian history going back to 1919, IPL is now Australia’s largest manufacturer and distributor of fertilisers and one of the world’s largest manufacturers and distributors of industrial explosives.
IPL had already made a sizeable investment in the United States with its A$3.3 billion purchase of the Utah-based Dyno Nobel in 2008 – the largest explosive manufacturer in the United States – when it made major headlines again in 2013 by deciding to be the first company to build a world-scale ammonia plant in the United States in 20 years.
The decision to invest such a sizeable sum was not an easy one for the Australian company. According to IPL’s chief executive James Fazzino, “as a general rule, investing in the chemical industry tends to ruin shareholder value”. Fazzino has found that the exception to that – and where the profit lies – is where there is “discontinuity” in the market.
Such an opportunity presented itself with the US shale gas revolution. Given that the majority of the cost associated with making ammonia is gas, the massive influx of cheaper gas arising from fracking occurring across the United States was the exact sort of disconnect that IPL has looking to capitalise on.
One of the earliest companies to take advantage of the North American shale revolution, the United States is now the source of around half of IPL’s more than A$3 billion in total annual revenue. The development of the A$1 billion Louisiana-based plant, along with IPL’s other US operations, is expected to soon make IPL’s US operations account for a majority of its global earnings.
IPL was, naturally, questioned back home for its choice of building a plant in the United States over Australia – which was, at that point, still enjoying massive profits from Chinese demand. The company went as far as to spend A$30 million on a feasibility study for building an ammonium nitrate plant in Newcastle, NSW. Ultimately, however, IPL determined Australia’s convoluted regulatory environment, energy costs in Australia compared with the United States, and limited long-term customer base for a Newcastle operation would be insufficient for such a sizeable investment.
According to Fazzino, the standards and regulations for building an ammonia plant in Louisiana were higher than in Australia, but the Louisiana government went out of its way to work with IPL to streamline the process, quickly making available the necessary government authorities to expedite the process. When IPL said that it needed to quickly get the construction of the plant started, the state allowed IPL to pay the necessary overtime for the regulatory personnel to get the job done, he said. Fazzino believes that at the end of the three years that it took to get the Louisiana plant built and running, the potential Newcastle plant would have only just concluded the approval stage.
Furthermore, Fazzino said, “people forget the US economy is the largest in the world”, thereby giving it access to the world’s largest market.
IPL’s Australian project development expertise was critical to its foray into the United States in that the company had, only a few years prior to its investment in Louisiana, built an ammonium nitrate plant in Moranbah, Queensland. It capitalised on that as well as its experience with US operations, the fact that the US ammonia industry had downsized, the disruptive nature of the shale gas revolution, and the regulatory environment in the United States being favourable for their ambitions.
Headquarters: Sydney, Australia
Significant figure: US$8 billion in assets in its US Public-Private Partnership program
Lendlease is an Australian property company, founded in 1958. Headquartered in Sydney, Australia, it has 12,000 employees worldwide, with regional offices in New York, Singapore, and London.
Some of the company’s noteworthy projects include: Barangaroo South, Darling Square, Victoria Harbour and Brisbane Showgrounds in Australia; Elephant & Castle and International Quarter London in the United Kingdom; Paya Lebar Quarter and Tun Razak Exchange in Asia; and Riverline in the United States.
Lendlease is a great example of the role the two-way investment relationship with the United States plays in fostering the growth of Australian businesses.
The sheer scale of the US market presents significant opportunities for companies like Lendlease, but the structure of the market is important, too. “Property is inherently local”, Dale Connor, the CEO of Building in Australia said, “the way we come to market is different in different places”.
That also creates an opening. While a single US city is big enough to matter, it is also localised enough that a strategic error does not cause damage to the brand nationwide. This allows Lendlease to experiment in local US markets with different business models and product offerings.
Lendlease’s US effort focuses primarily on “gateway cities”: New York, Boston, Los Angeles, Chicago and San Francisco – each different, but each large enough to support a meaningful-sized business in its own right.
One opportunity the company sees is to take the Public-Private-Partnership (PPP) contracting model, which is so important in Australia, to the US market. A good example of both the scale effect as well as Lendlease’s early PPP efforts in the United States is the company’s military housing privatisation business in Fort Hood, Texas. Lendlease was contracted by the US Army to manage all aspects of the development, financing, construction, and property management for housing more than 5,300 military families into former military housing on a 50-year lease. Lendlease provides 45,000 houses and 15,000 hotel units, totalling US$8 billion of property development in its operations related to its military housing units.
The possibility of transplanting business models from market-to-market goes both ways. The company is also thinking of using insights from the multi-family dwelling market in the United States to create a new asset class in the Australian market. Decades of experience in both markets are crucial to being able to adjust the product to the tax and regulatory environment.
The biggest challenges the company sees to increased investment in Australia is in the regulatory environment. “Planning is what kills Australia,” Connor said, whereas worksite productivity, though important, is a second-order issue. “Speed is crucial from a foreign investor perspective,” he said, and the planning process slows project planning and development down significantly. This, in turn, has significant implications for the overall capital cost of projects, and hence their attracting foreign investment.
View the full report: Indispensable economic partners: The US-Australia investment relationship.