Lack of support from Australia's investment capital market, combined with the limitations of private equity partnerships and inadequate ownership succession plans, have left proprietors of many domestic technology and services firms with few viable alternatives to selling out to foreign companies when they reach a natural growth ceiling.

 

According to principals and managers at some of the companies surveyed as part of Australia's Mining Monthly's exclusive annual review of the country's home-grown mining services industry, more local companies will face critical decisions about expansion capital and ownership in future as they seek to commercialise new products and expand into new markets.

 

Alan McElrea, chief executive of leading Australian mine software exporter Mincom, said his company's successful development over 25 years belied the fact that Australia was a difficult place for innovative small companies to raise investment capital.

 

“There is a notable difference in attitude to venture capital between Australian and say, US equity providers,” he said.

 

“Americans will take a calculated risk if they see potential in an idea or a product whereas we Australians tend towards the conservative side of things when it comes to investing in business.”

 

McElrea said more home-grown companies and concepts saw the light of day in the United States because investors in that country were more willing to “gamble on potential”

 

"Hundreds of businesses start up in the US every year and many fail too, but a vast number also succeed, because there is a collective consciousness within the investment community that this could be the next big thing," he said.

 

"This sense of enterprise is lacking here.

 

"We also have a very small population, Australia is a great place to get started, but we don’t have the critical mass often required to take a great leap forward, so looking overseas is often the only way to grow."

 

When Brisbane-based technology company Tritronics – a trailblazer in the field of mine-machine monitoring and information system design and development which generated $7 million of business in 2002 – fell under the control of Swiss Stock Exchange-listed company Leica Geosystems last year, it joined a long list of Australian mining service companies that have not been able to make the transition to major global enterprise on the back of solid domestic foundations.

 

The list includes the likes of Perth-based conveyer component maker Prok, Tasmanian-based heavy equipment provider Elphinstone, a 100% subsidiary of Caterpillar since 2000, slurry pump manufacturer Warman International, now part of the British-headquartered Weir Group, and New South Wales roofbolting machine supplier Cram Australia.

 

Leica's $12 million acquisition of Tritronics will enable the Australian business to compete on a more level playing field with the likes of global heavyweights Caterpillar and Komatsu in the years ahead.

 

NSW-based mine communication specialist Mine Site Technologies (MST) is another company proving it is possible to develop an offshore presence from an Australian ownership base. However, MST business development manager Denis Kent said he could see how some companies ran into a wall and needed to bring in an overseas partner to continue to grow.

 

"The research and development phase of a new product and then the commercialisation of it does cost quite a lot," he said.

 

"Most companies have a similar commitment to research and development but it is really the commercialisation of a product that can bring companies unstuck, we have seen it happen to a competitor of ours that needed an international company to come in and back it after the costs became to high."

 

With its desire to see the technology sector flourish, the Federal Government has come to the party with several grant schemes to help companies overcome high product development and commercialisation costs.

 

AusIndustry's competitive, merit-based grants program (COMET), part of the $5.3 billion Backing Australia's Ability - Building our Future through Science and Innovation package, is one option available to local companies. There is also the PDF Program, designed to increase the supply of equity capital for growing small and medium-sized Australian enterprises. PDF's are private sector investment companies established under the PDF Act, raising capital from investors and using it to invest in Australian companies.

 

Kent said while such schemes certainly helped, turning to the Australian Government was not the answer.

 

"If you need half a million or a million dollars to get a project going then most companies in Australia are going to be fine, but if you are looking at something like $20-30 million then definitely the level of investment in Australia just isn't there and companies need to look at these overseas backers."

 

While Kent and McElrea agreed foreign ownership was not necessarily a great evil, both said accepting the overseas lifeline could come at a big cost – the sacrificing of a company's Australian identity.

 

Kent said one of the benefits of being an Australian company, somewhat ironically, was the instant credibility it seemed to garner within the international mining community.

 

"If it's not the best then it has to be one of the best mining industries in the world so you get some play from that," he said. "You still have to make a good product or offer a good service and support it, but at least you have that initial acceptance because Australians are recognised as good miners and that good products come out of that industry."

 

McElrea added that dealing with Australian companies was often less threatening for clients as opposed to approaching giant American or European-owned multinationals.

 

"It can be intimidating to deal with some of the larger international companies by virtue of their size and complexity," he said.

 

"Australian products and services are often seen as a happy compromise, delivering high quality western technology while also being accessible and approachable.

 

"Our Australian-ness brings security and certainty to our dealings with clients and that is undoubtedly a key factor for many in choosing to do business with us."

 

The Australian Government said last year it expected mining services to become a $6 billion export industry by the end of the decade.

 

Australia's Mining Monthly