Asia: it’s more than your next holiday
But this is not a cyclical change as a result of the global financial crisis; rather it is a structural change that will continue apace. And this is good news for Australia. With the end of the resources investment boom, we are rebalancing our economy back to a reliance on the services sector, just at the time that a growing Asian middle-class, and China in particular, are growing their levels of consumption and demand for services is increasing as incomes rise.
Australia’s future economic prosperity depends on deeper and sustained engagement in Asia. If we are going to maximise the opportunity that the rapidly growing middle class presents, our businesses will have to be where the consumers are – and that is increasingly in Asia.
The record to date, however, shows we are not very good at doing business in the region. We know our tourist hotspots, but the same can’t be said when it comes to the economic hotspots in Asia and where we’re likely to have success.
Holiday destination or economic hotspot?
Asia is becoming an increasingly popular region for Australian holidaymakers. 6 of the 10 most popular holiday destinations for Australians were in Asia last year: Indonesia, Thailand, China, Singapore, Japan and India.
Indonesia has had the strongest growth in popularity with Australian holidaymakers of any country over the past 10 years, followed by Japan and then India. Indonesia was also the second most popular destination last year, attracting 1.2 million Australians.
What many Australians don’t realise is that our favourite holiday destinations are also the future economic hotspots of the world. Instead of just visiting these places, we should be looking for opportunities to do business there as well.
4 of them are set to be amongst the world’s 5 largest economies in purchasing power parity terms by 2030 – China (1st), India (3rd), Japan (4th) and Indonesia (5th).
Achieving this potential is not guaranteed. China, India and Indonesia all face considerable structural challenges. They will need to significantly enhance their institutions and their infrastructure if they are to realise their long-term growth potential.
As one of the few developed economies in our region, Australia is ideally placed to help countries dealing with these problems, and as people get more wealthy, they spend more on the kinds of services and products that Australia offers.
Running back to the familiar
Despite this reality, few Australian businesses have truly taken the plunge and there are now signs we are running back to the familiar. Our research has found that of Australia’s large companies, half are doing business in Asia but only 23% have staff on the ground in-market.
Staggeringly, 65% have no intention of changing their stance towards Asia in the next 2–3 years. China has previously been the number one country that Australian CEOs considered important for their company’s overall growth for the past 7 years.
In our 2017 CEO Survey, interest in the US, which had consistently come in at second place, has slightly increased. Turning away from China due to the short-to-medium term risks in the economy is short-sighted, just as turning towards the US is a case of running back to what we know.
The US economy might have got a green tick from the IMF in January and is looking stronger, but the US is growing at around 2% annually whereas China is growing at around 6.5%. We must also remember that China is only part of the Asia growth story. ASEAN and India both have large and young populations and can not be overlooked.
Finding success in Asia
While growth in Asia will never be risk free, there are 5 steps we can take to give ourselves the best chance of success:
- The first is the importance of understanding the Asian context
- Understanding the context and nuances of each market within Asia
- To pick your sector well and put time into understanding the rules and regulations
- Figure out what your capability needs are and then find the best partner to complement your business on the ground in Asia
- Investment in Asia requires a long-term approach
Relationships matter in business everywhere, but they matter even more in Asia and you should treat them, and invest in them, as strategic assets.
Asia is not homogenous and each country in the region has it unique customs and traditions.
For example, China is much more open to foreign competition in some sectors than others. The ChAFTA gives Australian companies unprecedented access, particularly to the growing services sector.
It’s essential you pick the right partner, make sure your strategic objectives are aligned, ensure due diligence is robust, and you have the right deal structure – including being open to giving up control.
There are significant opportunities in the region for Australians prepared to invest in more than just a holiday.