audio close compressed excel image menu pdf video word
Screening for culture as a sustainable competitive advantage
Screening for culture as a sustainable competitive advantage

Screening for culture as a sustainable competitive advantage

Evaluating investment opportunities in an uncertain global equity landscape can be challenging for many investors. Looking beyond share price movements to companies with strong fundamentals and embracing a thorough approach to due diligence can help to build quality portfolios, even while market volatility continues.

At AFIC, our investment strategy sees us take a long-term position in Australian and New Zealand companies with strong fundamentals. Part of our strategy is to understand the strength of the industry position of a company, focusing on its sustainable competitive advantage.

Two of our Portfolio Managers recently embarked on a visit to the United States and Europe to better understand the offshore operations of our investments in their respective markets and whether their competitive advantage can help them navigate future market challenges.

In particular, we wanted to meet with local management and understand the culture of the companies in greater depth.

The power of autonomy

When in the United States and Europe we often look to meet with Mainfreight, a New Zealand based logistics and transport company. We view the company’s culture as a key strength and like to see how it is maintained across diverse markets.

Mainfreight actively encourages staff and leadership to act as “owners” of the business, helping them to exceed client needs by reducing the burden of excess administration and approvals. The company has recognised the demand for agility in international freight and fosters a culture that improves service which has enabled it to establish a position in this large freight market.

We also see that, despite Mainfreight embracing a decentralised leadership model, the senior management meet regularly to remain aligned on their approach to tackling current business challenges and to maintain strong relationships within the business. The benefits of this shared vision and trust is that leadership can be nimble and flexible, which is advantageous in the global freight industry.

We came away from our meetings with Mainfreight feeling confident about the quality of its culture, convinced it is a unique competitive advantage for the company. Mainfreight has demonstrated that its culture allows it to provide a faster, more flexible service to its customers than its peers, which makes us believe there is a long runway of growth in the US market for this company.

An entrepreneurial spirit

While in the US our Portfolio Managers also met with Macquarie Group, another example of a company leveraging culture to its competitive advantage. During our time meeting with key stakeholders at Macquarie Group, the entrepreneurial approach of the company and the energy it created was evident.

We came away from our meetings with a real sense that Macquarie is at the forefront of developing projects for its clients in the US infrastructure space, particularly in green energy, renewable energy and data related infrastructure.

The acquisition of the Green Investment Bank in the UK and with long-established participation in projects across the globe, Macquarie is in an influential position in helping to develop US infrastructure. However, it was the entrepreneurial culture of actively empowering employees to get out there and find opportunities that caught our eye.

This culture has also been a significant factor in Macquarie Group’s ability to build strong relationships with customers. There is a level of trust in these relationships that opens the door for Macquarie Group employees to be taken through opportunities at a very granular level, giving the company deep insight into the potential of each investment.

Macquarie’s trust in their employees to manage key relationships in a way that works for them, and to pursue opportunities without excessive red tape, gives the organisation a broader scope of projects to investigate and align its financial and technical capabilities with.

Culture is one of several factors AFIC looks for in companies. To gain a broad view of a company’s sustainable competitive advantage we explore elements both within companies and their product portfolios, but also within the operating environment of its industry and across its supply chain.

In the second part of this series, we will dive into the product portfolio of companies and some of the ways we sought to evaluate company products throughout the visit.

Latest News