State Focus: South Australia’s tech success

There’s more to South Australia than vines and mines. Find out how its frequent dry spells have led to a leading edge technology industry.

Think of South Australia and images of Adelaide’s churches might come to mind, or perhaps some of Australia’s greatest vineyards; Coonawarra, the Barossa Valley, McLaren Vale and the Adelaide Hills being among the most well known. But the news lately has focused on the manufacturing sector, in particular the automotive industry where global pressure has forced closures, such as the well-publicised Mitsubishi plant last year.

All is not lost however, says Jim Raz, managing director of Export Access, South Australia state manager for the Australian Institute of Export (AIEx) and the International Trade Association of South Australia (ITASA). The skills from the automotive industry have been transferred into parts production, he observes: “Vehicle parts is very strong and has reported quite strong growth.”

South Australia’s exports have traditionally relied on sectors such as wine, automotives, minerals and agriculture, says Patricia Moessinger, Austrade’s South Australia state manager. The state has since added services to its traditional base, however. “What we’re seeing is growth and diversification. There’s a strength in new areas of service and technology, that’s the exciting part,” she says. “There’s ICT, water and wine technology, there’s a lot of R&D going on in clean energy at the moment.”

Education is the state’s focus area for services, for tertiary university-based education as well as vocational training. “The South Australian government has been very active in education. We now have about 28,000 international students, and we’re still growing here whereas other states have slowed down,” says Moessinger. “There’s quality education but there’s also affordable costs and the lifestyle is quite attractive.”
Services and technology are the two key areas where South Australia must perform to avoid becoming a victim to uncontrollable elements. One of the great difficulties with having wheat and wine as key exports is that both are susceptible to climate, as the recent drought has shown.

“The size of the wheat crop has a big effect on exports because we export most of our wheat. When we have the drought, we have water restrictions that dictate the amount of water that can be converted into wheat,” explains Stuart Mitchell, partner of Export Solutions and AIEx board member.

“When two-thirds of exports come from the farm or out of a mine, it depends on whether it’s a good or a bad year,” he adds. “The mining sector depends on demand. When you get depressed demand, you have to market harder.”

However, because of its susceptibility to heat and drought, South Australians are leading the way in various climate-related technology, particularly in water and energy.

“South Australia has developed a real strength in water technology because of the issues with have here with lack of water. There’s a lot of innovation around better use of water, more efficient use of water,” notes Moessinger. “Clean energy is a developing industry—solar, wind, geothermal and hot rocks. They’re attracted to South Australia because it’s the hottest state.”

Raz agrees that it’s an opportunity already doing the export rounds. “We’ve developed tremendous expertise and technology in how we manage our water. Some areas are only just starting to experience the problems relating to water and climate conditions that we were facing eight years ago.”

Time to market
Dampened economic conditions have affected exporters’ confidence, but Raz believes there’s a window of opportunity, now that the dollar is low, for smaller players to compete. “With so many big players falling over, and with Australia being seen as good quality, we are seen as good value,” he says. “If we can have ourselves primed when the world recovers and the drought breaks, companies will emerge a lot leaner and a lot more competitive. All of that equals opportunity.”

South Australia excels in support for exporters, and the State Government’s Department of Trade and Economic Development is quite active in encouraging investment in the state, across regional as well as metropolitan areas, says Moessinger. She notes that businesses are hungry for information, as well as funding from the Market Access Program, a state-based version of Austrade’s Export Market Development Grants scheme.

The inclination is also to network, she says. “They want to find out what other exporters are doing. With [chamber of commerce] Business SA we support their Women of the World program, a way for women to find out what other women are doing, to network with each other. That covers importers and exporters—and men are welcome too.”

Associations such as the AIEx, ITASA, Business SA and the Council for International Trade and Commerce SA, a body of various ethnic chambers of commerce, operate and cooperate on events, training courses and other initiatives.
As for the future, Raz sees South Australia step up, for example, from automotive manufacturing to the defence support industry. “There will be long term spin-offs in the security sector and the ICT sector,” he says.

Moessinger says growth will certainly come from the technology movement. “The future is in the new technology. Companies that provided services to the auto industry are now looking to upgrade to perhaps provide for the defence industry,” she remarks. “There’s a shift happening of companies moving to where the demand is.”

Trade Links
Business SA: www.business-sa.com
Council for International Trade and Commerce SA: www.citcsa.org.au
Department of Trade and Economic Development: www.southaustralia.biz
Export Access: www.exportaccess.com
Export Solutions: www.exportsolutions.com.au
International Trade Association of South Australia: www.tradesouthaustralia.com

SA Profile
Capital City: Adelaide
Population:
1.6 million
Export Revenue: $10.6 billion (excluding services)
Top Three Exports:
Metals and other confidential commodities; road vehicles, parts and accessories; wine
—Source: Department of Trade and Economic Development
CASE STUDY
Tarac Technologies

A wine company with a difference, Tarac Technologies collects grape marc—skins, seeds and other residuals—for reprocessing. The result is recovered grape alcohol, extracts and tartrates that are then sold back to the industry.

Joint CEO Chris Zajac notes that a decline in the Australian demand for brandy and fortified wines led them to look at international markets. “We had to export because the growth of the wine industry increased the amount of residuals available, but demand for grape alcohol was reduced,” he says.

Tarac currently exports its value-added residuals to South Africa, Europe and the US. With four plants in wine-growing areas of Australia—three in South Australia and one in New South Wales—it has considered setting up a US plant. “The US is still an opportunity for us to explore further because there have been some changes with regard to the alcoholisation of wine. Our preference is to do it in partnership with someone who knows the local laws and regulations,” says Zajac.

The business also keeps abreast of shifts in the industry that may present other opportunities. Recent changes in the European Union allowed it to gain a foothold there. “Their industry grew on subsidies,” he explains. “That changed in 2008 when subsidies were slowly reduced. For the first time, that allowed us to be competitive. We knew that was going on, so we started to develop some market knowledge of producers and users so that when the opportunity did present itself we were in a position to provide what the market required.”

Last year, in addition to winning South Australia’s Regional Exporter Award at Austrade’s Australian Export Awards, Tarac had an opportunity to further its research on the Chinese market when they were selected as part of a travel group for Telstra and Business Club Australia’s Win Business Gold in Beijing competition. “We do have a distributor in China for some of our extracts and we continue to try and build on that relationship,” says Zajac of Tarac’s future there.

One area where Tarac worked hard was on negotiating its trading terms. Zajac says they like to keep control of the bills of lading until the account has been paid to avoid having to organise letters of credit. “Once the ship sails we fax the bill to the customer giving them evidence that the goods have been shipped, and upon receipt of those funds we then courier the original documents”, he explains. “The value of the goods and the potential excise is just phenomenal so we monitor that extremely closely.”

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