Home > Surviving the downturn, a guide for small to medium enterprises - Part 1

Surviving the downturn, a guide for small to medium enterprises - Part 1

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article image Companies which are focussed on efficiencies and are accountable will fare the tougher times better
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At first glance, there are not many positives coming out of the coal sector, with dropping commodity prices, miners operating on thinner margins, deferred projects and investment, and job losses.
 
Add to this the myriad of smaller mining service companies that popped up mid boom and the challenges they are now facing as the industry backs off the boiler and the landscape gets darker.
 
But in every moment of darkness there are a few persistent fighters that will figure out how to tread the mining waters smarter, doing business differently and survive the downward trending cycle.
 
HunterNet chief executive officer Tony Cade told Australian Mining the small to medium mining service and supplier companies have been hit hard by the downturn in the Hunter Valley coal sector.
 
“If we had iron ore in the Valley, we’d be ok,” he said.
 
He added that there is future hope for the sector with a growing global demand for energy coming out of Asia, a relatively strong Aussie dollar and China’s decreasing stock levels all due to weigh in on the sector.
 
But for now the current state of the market is rife with uncertainty; there’s a looming federal election with no strong contender, legislation changes, and global growth statistics and sentiment not in the positive realm.
 
“Once the federal election is over we’ll see some changes,” Cade said.
 
However the current uncertainty, which Cade explained, is still seeing miners tighten belts after a period of extraordinary growth.
 
“Our members are looking at emerging markets like clean technologies,” he said.
 
“They’re focussing on internal efficiencies, and the reality is job losses.”
 
Cade said there’s a trend of “downproofing” amongst smaller suppliers as they position for the next stage of growth.
 
He said diversification is the key to downproofing business models.
 
Engineering and fabrication company T.W. Woods is a third generation, family owned business that has already set about repositioning its model and entered into new markets, Cade explained.
 
“A lot of these companies were all about the mining sector,” he said.
 
“They’ve had to look at how they can manufacture leaner.”
 
Capturing energy efficiencies and exploring clean technologies is one way these local manufacturers are surviving, but with the market turning so quickly they’ve had to adapt fast.
 
“The more agile these companies are, the better off they’ll be,” Cade said.
 
Experiencing a plateau in the mining sector has made the smaller suppliers, particularly in the Hunter region, “aware they need to take a longer term perspective to business,” Cade stated.
 
“They’re really challenging times for people in the market place,” HunterNet business development manager Karl Putnis added.
 
“It’s now a period of business rationalisation.”
 
No matter what you call it, be it rebalancing, plateauing, cyclical change, or rationalisation, the truth of the matter is times aren’t as rosy as they were but the base is still better then pre-boom.
 
“Business needs to stop and take check of where they can sharpen up,” Cade said.
 
Essentially the small to medium mine suppliers have two options - exit or increase efficiencies, Cade warned.
 
“There’s now a lot of pressure on price which wasn’t experienced in the good times,” he said.
 
“Margin squeeze goes down the line.”
 
And while these suppliers on a whole haven’t hit the panic button yet, they are concerned, Cade explained companies which are focussed on efficiencies and are accountable will fare the tougher times better.
 
“Companies that have this focus will benefit when recovery comes, and there will be a recovery,” he said.
 
Manufacturing makes up about 11 per cent of the Hunter region’s employment, it’s an industry which is driving innovative process change.
 
“A lot of difficulties in manufacturing can be linked back to difficulties in mining sectors,” he said.
 
“It’s a double edged sword because they’re so interconnected in this region.
 
“But companies are stretching traditional boundaries, going towards more high technological manufacturing processes.”
 
As the coal sector comes to grips with the downturn, it’s the mining service and manufacturers that have ridden the booming wave who are now contending with the possibility of a crash.
 
Downproofing companies that popped up when capital expenditure seemed like a blank cheque is no easy feat, especially when Australia has been dealt a pretty good hand over the past decade.
 
But as the adage goes the bigger the boom, the bigger the bust.
 
Whole down-and upstream industries that emerged out of the sector are now having to not only ensure their companies survive but continue to grow sustainably in a tougher economic climate.
 
The answer these smaller mining service companies are coming up with is three fold:

  • Get rid of any fat: Companies which employ thousands of people in regional Australian mining towns are laying off staff.
  • Diversify into other sectors: Mix up the offering and expand the businesses’ capabilities.
  • Look for efficiencies: Move into clean technologies; make the offering more efficient and cost effective.

 

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