WHG 0.00% 76.5¢ whk group limited

smh article labour aggregating companies

  1. 2,499 Posts.
    I've been following WHG with interest and when I came across this article I couldn't help but think about WHG.

    http://business.smh.com.au/business/learning-an-old-lesson-a-sucker-is-born-every-minute-20081114-677q.html

    Basically it examines the collapse of ABC Learning. It's obvious debt and shady management brought it down, but interestingly the article also seems to suggest the main reason it fell over was because it was a labour aggregating company. That is, it took labour intensive service type products and corporatised it.

    According to the article these kind of businesses are built on shaky grounds because they are less efficient than family/privately controlled businesses. They not only have higher costs in the form of fees associated with maintaining a ASX listing, but privately held firms will have tighter grip on costs. It cites farming as an example where the family run farm will be more cost conscious than the corporate farm, hence allowing it to run more efficiently than its corporate counterpart.

    So, my question is how applicable is this theory in the SMH to WHG? Is the theory even valid in the first place?

    It does seem to be a pretty bold judgement call on behalf of the writer to suggest the main problem was its basic business model.

    But if my interpretation is correct it seems to be equally applicable to ASX listed firms like Slater and Gordon (a company of laywers) and WHG (a company of accountants)

    One way of looking at it, if the theory holds, is that in that when the financial phase of this crisis has peaked and the recessionary phase begins, people will be more cost conscious and see accountants from a listed firm as providing the same service as the average chartered accounting partnership but at a higher price. The same product, lower cost effect sees clients moving out of WHG and into privately owned firms.

    Any thoughts?
 
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