Australia’s mid-market companies remain optimistic about their future according to a recent research study undertaken by Fairfax Media in partnership with KPMG Enterprise. The survey of senior executives and business decision-makers across a broad spectrum of local companies and not-for-profits found the confidence in the mid-market is not only being driven by traditional economic factors but a genuine excitement around the potential of technology to drive growth.lick here to edit.
According to KPMG Enterprise’s NSW partner-in-charge, Tony Nimac, the digital economy has proven to be a huge boon to the mid-market.
“Traditionally it has been difficult to go global but digital enables companies to develop a global product from day one,” Nimac says. “Moreover, digital technology combined with our close links to Asia are already bearing fruit and mid-market companies are seeing great growth across the region.
“We’re already seeing it in the pharmaceutical sector, baby formula and agriculture sectors and this will broaden.”
For Nimac, access to Asian markets and especially China is enabling Australian companies to grow quicker and scale faster than in the past.
A case in point is listed medicine manufacturers, Vitex Pharmaceuticals which opened a state-of-the-art manufacturing facility at Sydney’s Eastern Creek late last year. It is the largest pharmaceutical facility built in Australia in the past 16 years and is one of the most advanced in the world.
Chief executive officer, Dr Aniss Chami, says the listed or over-the-counter medicines market has exploded in recent years and the company has rapidly expanded its existing export markets into the Middle East as well as into Asia. The new manufacturing facility which provides some of the larger name-brands with their products was built to meet the surging demand coming from China for Australian products.
Yet while Dr Chami says “we have a giant screaming for Australian medicine”, Vitex has been slightly hamstrung by an excessive regulatory burden.
Furthermore, contrary to much of the rhetoric around corporate tax cuts, he says: “Tax cuts are a band aid not a surgery.”
“We’ve got to fix the roots in Australia,” he says.
“State and federal governments need to show more urgency around building infrastructure and cutting red tape for booming industries. We’re not asking for freebies but governments need to expedite processes so we can expand. For example, we want to expand our manufacturing facility from 140 employees to 440 employees by January next year but we don’t have the government support to even get an electricity upgrade,” Dr Chami says.
“Our vision is to make Australia one of the world’s best in terms of pharmaceutical manufacturing but in many ways, governments restrict innovation.”
Yet beyond the need for “a little bit of red-tape cutting” Chami remains bullish about the future and in the power of technology to drive his company forward.
Another local company riding the digital wave is ASX-listed machine-learning specialists Appen who according to CEO, Mark Brayan are providing the data to “eight of the top 10 tech giants” including Apple, Amazon and Alphabet as they build out their AI offerings.
“AI learns more the more data you give it, so we’re not in the business of building robots but training them,” he says.
“We work with people in 130 countries in 180 languages and use technology to collate data. The faster we can collate data, the better it is for our business. Furthermore, good data equates to good robots. Machines do what we tell them to do so they rely on good data so high volumes of high quality data keeps the world safe from bad robots.”
The company is one of Australia’s home-grown unicorns and has an enormously positive story to tell about their growth as they now supply nearly every major tech firm with the data driving their AI and machine-learning.
“Data drives AI which is often forgotten. Basically, if you want any AI product to mimic the human element it will require an enormous amount of data – millions or billions of data points. What we’re doing is the grunt work under the covers.”
Brayan says the majority of the customers are overseas and staffing levels reflect the business structure with the majority of employees based internationally.
“We’re an Australian-listed company but we’re a global business made up of a good cohort of talented people around the world,” Brayan says.
He says the ASX listing has been very good for the business and has given them good access to capital in Australia. If anything has been a constraint on the company it has been an access to talent and technology.
“They’re happy challenges – speed and scale. There really are no barriers to growth beyond the pace of growth and what we’re trying to do is to simply respond to that challenge with more technology and more people. It’s a wonderful position to be in - being an essential part of the AI story.”
Founder and managing director of private equity firm Anacacia Capital, Jeremy Samuel agrees it is a pretty good time for Australia’s mid-market companies. Specialising in the mid-market and the nation’s SME sector, Anacacia were an original investor in Appen when founders Dr Julie and Chris Vonwiller were examining their succession planning before it listed.
“It’s one of Australia’s great success stories that we don’t tend to talk about much despite it being a billion-dollar company delivering great dividends to shareholders and operating at the cutting edge of AI and machine learning,” Samuel says.
And while Appen’s story illustrates the limitless potential of technology, he emphasises that it can also be a threat to mid-market players.
“It’s a threat that is there to be dealt with - the basic principles of business are the same now as they have been for years. The best businesses have always evolved and been able to adapt.”
Beyond potential technology pitfalls, Samuel acknowledges there is a capital shortage in the mid-market.
“There’s plenty of capital around for start-ups and for those listed in the ASX 100 but options for capital in the mid-market can be limited.”
He suggests Australian growing mid-market companies need to be bold - they need to look at blending their existing shareholders and board with outside investors.
“It’s a great time generally in the economy at present and capital will follow a good business or good idea and good people,” he says.
KPMG Enterprise’s Nimac agrees funding can still be a challenge as can the regulatory burden but what sets Australia’s mid-market companies apart is “they just tend to get on with it.”
“They’re not sitting back, they’re the quiet achievers in the economy.”
The Sydney Morning Herald