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intellectual capital

Thinking long-term: is innovation all digital?

This piece on is an edited transcript of comments on given by Christine Holgate as part of a discussion panel held by the Committee for Economic Development of Australia (CEDA) titled ‘Thinking long-term: can industry seize the innovation opportunity?’ Read the original text here.

So often when people talk about innovation they think it’s some new product, or new technological advancement. For me, innovation can be very broad ranging. It’s about doing things differently inside your organisation.

Personally, I think the people at the real coal-face of the organisation often have the best ideas. So by talking to your employees, or talking to your customers, you have a much better chance as an industry to really understand what innovation can do.

Intellectual capital doesn’t always pay off

I believe there’s an opportunity to invest more generally in innovation. Investing in intellectual capital is just like investing in anything else – it doesn’t always pay off.

You see, for every great 10 ideas, only one or two are going to get up. You don’t just need a return from that one or two ideas, you have to consider covering the cost of the ones that don’t work. So you need super-returns.

I went to Israel last year and I could have kicked myself that I hadn’t been earlier in my life. What a fabulous country: no natural resources, but abundant intellectual capital. And it’s a really great reminder what brilliant things can happen if intellectual capital is what you invest in.

Growth means looking beyond Australia

Australia has industries like health, food, education, financial services – not even taking into account our resources – where we are known to be the best in the world. We have the highest quality, the highest standards.

I’m extremely passionate about trying to encourage Australian companies to embrace and grow, not just in the Association of Southeast Asian Nations (ASEAN), but in Asia more broadly.

Thirty-five per cent of global growth is coming from China at the moment. Indonesia is forecast to be the third biggest economy in the world by the year 2030. And yet as a country, we’re investing more money in New Zealand in 2015 than we’re investing in Asia. Why would you do that? Why would you do that when the Australian and New Zealand economy only adds up to about 2% of the world’s economy, and when the other 98% is available to be cultivated?

To get super-returns, can I suggest – as much as I love this country – why would we not go just up the road to Asia? We are so lucky. Now is the time to do it. Because the advances in technology are enabling smaller companies in Australia to really go and take it via social media.

Small can make it big with social media

Blackmores ran a social media campaign on WeChat. If you aren’t familiar with WeChat, it’s how the Chinese communicate; they don’t use Facebook, they use WeChat.

We approached Li Na, the world’s number two women’s tennis player, to support a charity event. We were trying to raise awareness of congenital heart disease in China with children, and we asked Li Na to do it.

I believe we just recorded her in our own office, off the back of someone’s own camera. No big expense. We asked people to log on, hook their mobile phones on to our WeChat account, and to track their steps. And for so many steps we’d give money to the charity.

Within days we had five million hashtags, 800,000 people had logged on, and 25 million steps had been tracked. We just could not believe it.

But you see, that is an example of how small Australian companies can really exploit this wonderful opportunity and get their message out. You no longer have to spend millions to do it, so I think, if you do not go and grab hold of ASEAN: beware. Because the Germans are – and I hate saying that because I love Germany too – 23% of capital investment going into Indonesia is coming from Europe.

Not every milestone is financial

One of the learnings that I’ve experienced is that when change happens, or you’re trying to push for something like moving into China, and regulation evolves, it can be seen as risky.

I think what you have to do is try and educate the shareholders in the market – I don’t mean that in a patronising way. But we need to set milestones other than financial, and try and bring our shareholders on the journey. There are many ways to measure success, and they’re not just financial. I’ll give you an example.

I went to Blackmores’ Chairman of the Board Marcus Blackmore and said, “Marcus, I want to spend all this money in Asia, and try to turn it around, even though generally we aren’t making any profits there, and despite the fact we’ve already been there for 35 years. And I’m not sure when you’re going to see your cash back. I just know we need to do it.” That was my business case.

Why? Because we needed to build a natural hedge in the business, because our raw materials came from overseas, we needed to have diversification of risk, and so I talked through the other strategic reasons.

Generally, Marcus says a business plan is out of date the day the board has signed it off. Which is true, isn’t it? It’s like budgets, budgets change the very next day and you’ve got a different view.

So I think we need to think differently about financial hurdles and how we invest in innovation and opportunities. It’s not just financial – there are very many different other ways to think about it.

Are banks right to consider overseas investment risky?

I don’t think Australian business are doing enough to innovate. But it’s not just because the CEOs or the boards don’t want to, it’s because of a set of circumstances.

If you go to the bank and say “I’d like to build a facility down in Adelaide, can you lend me $10 million?” they will say, “Sure”, and just give you whatever your margin rate is over cash.

Conversely, if you say “I’d like to spend $10 million building a business in China,” they are likely to say “Sure, that’s three times your normal rate.”

So to start off with the banks, they generally make it more expensive for overseas investments, they put that hurdle in because they say it’s higher risk. Potentially it is higher risk, but I would suggest it’s higher risk if you don’t do it.

Free trade agreements are just the first step

Saying all that, I think the free trade agreements with the government are a really positive sign and a really good first step, and I’m really encouraged that Federal Minister for Trade, Tourism and Investment, the Hon. Steve Ciobo is going to take on the great work of former Federal Trade Minister, the Hon. Andrew Robb AO and carry on with it.

It’s not really the tariffs that are the issue. They are a big impediment, but they’re not the issue. For us, for example, in food and health, it’s actually the ingredient strategies and the regulation when you go into a country.

For China I really want to see a recognition of our standards here in Australia, which are the highest in the world. And if we have recognition of them we would be able to take more products in.

China is booming because of the free trade zones. But really to serve a world market you need to be in the broader retail market, and that requires another level. The free trade agreements are just the first step. We now need to free up regulatory barriers.

We need to utilise our international student resources 

The Government can do one thing to help – well, they can do lots of things – but they can do one thing in particular. You ask a lot of small Australian businesses, “Why aren’t you embracing ASEAN or Asia?”

They’ll often say “Because there are so many risks” or “We don’t understand” or “We don’t have the skills”. The language barrier puts off a lot of people.

We have hundreds of thousands of students right now living in Australia. What I would love to see is the government changing the rules on the number of hours these Asian students can work in our society.

Legitimately, they’re only allowed to work 10 hours a week, and so what happens is they can’t get meaningful work. So they end up working as waiters and waitresses, and – whether we like this or not – so often not being paid the correct wage, working more than their 10 hours and being employed illegally.

I say this because I have first-hand experience of how great these students are. We took in a foreign student at Blackmores with the help of Sydney University; a young law student from Korea. He helped Blackmores launch in Korea, and he’s now our junior lawyer.

So as you can see, there’s this wonderful resource not being utilised. While students can legally stay on for a year after graduation, this clause is actually not good enough. These students need to go back to their families and they haven’t got the money for that luxury – and if they’re being sponsored in any way then those businesses want them back.

But while they’re here, let’s have them doing meaningful work. It’s good for them, it’s good for their countries, but selfishly, it’s good for our business.

Long-term government support

In terms of waiting on government for policy changes to encourage better regulation, we have a culture of knocking off politicians as soon as they get voted in. Maybe we need to support our politicians and it’s us as voters who are a part of the issue.

We should respect the people that are voted in, respect the people’s choice in voting them in, and get behind them and help them be successful. We need a long-term government.

Christine Holgate

Chief Executive Officer and Managing Director, Blackmores

This speech on intellectual capital and other innovation opportunities was first published by the Committee for Economic Development of Australia (CEDA). Read the original text and more of CEDA’s top 10 speeches on disruption and innovation here

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