Taming the tiger

The signing of three trade agreements with Asian countries could see more Australian companies expand into the region in the coming year, reports Domini Stuart.

It is old news that Australia is well placed to do business with Asia. The rising middle class is creating a fast-growing market for our goods and services as a spate of free trade agreements (FTAs)is removing barriers to trade. Yet, according to a 2014 research report carried out by PwC Australia entitled Passing us by, only nine per cent of Australian businesses are currently operating in Asia and 65 per cent have no intention of doing so in the next two to three years.

“Our level of investment is woeful,” says PwC Australia Asia practice leader Andrew Parker. “At the end of last year we had invested more in New Zealand than we had in Asia. The opportunity to get a substantial foothold in the region is passing us by.”

Unprecedented opportunities

The dramatic wind-back of tariffs and trade quotas triggered by recent FTAs is opening up unprecedented opportunities.

“It will be a few years before we feel the full benefit but the FTAs have already had a very big impact on our perceived relationships with these countries,” says Warwick Smith AM MAICD, chairman of the Australia China Council, Asia Society Australia and Australia and New Zealand Banking Group (ANZ) for NSW and the ACT.

The IT revolution has also facilitated international business for companies of all sizes. “Distance is no longer an impediment to entering or understanding a market when you can do research and get instant information wherever you are in the world,” Smith continues. “And technology has helped to transform our payment systems. Transaction banking capability including trade finance, cash management and securities services is now far more sophisticated and penetrating than it was even five years ago,” he says.

But none of these benefits are unique to Australia. Many Asian countries are trading just as freely with Europe, the US and each other, and technology is available to everyone. Many American and European brands are well established in Asia and every new, world-class competitor that emerges from the region is helping to chip away at Australia’s advantage.

“I believe that risk aversion is holding a lot of Australian companies back,” says Andrew Bassat, chief executive officer (CEO) and co-founder of SEEK, which owns 66.5 per cent of China’s leading online jobs firm, Zhaopin.  “Expanding into Asia is not easy, but a well-planned and well-thought-out approach can uncap significant medium to long-term growth opportunities.”

A different attitude 

Businesses in Asia are famously built on face-to-face meetings, bonding and trust. Yet, according to Francis Wong OAM, chairman of the Council for International Trade and Commerce South Australia and managing director of tour company Encounter Australia, Australians have a reputation as one-visit traders who want to do business by email and phone.

“That suggests they’re either ignoring Asian preferences or failing to do basic research,” he says.

Some directors still fall into the trap of thinking of Asia as a single, homogeneous marketplace. “Asia is a continent of many countries, each one with its own history, culture, business practices and traditions,” says Peter Hearl GAICD, a director of Telstra, Goodman Fielder and Treasury Wine Estates. “Whatever you’re offering, you need to tailor it to meet local needs, tastes and price points. Boards can’t hope to make effective decisions unless they understand the nuances of each country.”

This isn’t as simple as recruiting an Asian director to the board. “Asia is a dynamic and fast-moving region, so someone who is retired and no longer in the traffic may not have the contacts and networks you need,” says Smith.

He adds: “If you’re doing business with more than one country, you can’t presume that a director from China will have any special insight into the culture of Thailand, Myanmar or Japan. As long as the board is sensitive to cultural differences, drawing on resources like Asian business groups and societies can be a cost-effective and efficient way to access current information.”

The board also needs to question whether the right people are being sent overseas. “I have lived and worked in most parts of the world and I’ve seen a lack of cultural sensitivity derail more expat executives than anything else,” says Hearl.

“I’ve also seen many executive assignments cut short because of a cultural disconnect at family level. When I moved to Hong Kong to take responsibility for a number of Asian territories I sourced a 10-day cultural immersion program for myself, the head of human resources and both our wives. That made it much easier for us to live in Hong Kong and do business,” he says.

A long haul

Asia is not the place to look for a quick profit. Compumedics recently secured $10 million in contracts for their sleep diagnostics products in a period of just three months – but chairman, founder and CEO Dr David Burton is quick to dismiss any suggestion of overnight success.

“In my experience, success comes with deep relationships that have proved themselves over many years,” he says. “We have been in China for more than a decade. Our distributors are like family now and have shares in the business, and we have also built up the largest reference base of hospitals and universities in the field.”

Familiarity with culture and lifestyle also makes it much easier to identify market opportunities. “Research carried out by one of our collaborative professors in China showed that 30 to 40 per cent of the Chinese population suffer from sleep disorders, but fewer than one per cent can afford to be diagnosed or treated,” says Burton. “We saw an opportunity to provide much more affordable opinion by migrating our product into the cloud.”

Unwelcome surprises

Australia is recognised around the world for its high standards of governance – a standard most Asian governments are keen to emulate. But it would be unrealistic to expect to find it in every territory.

“There isn’t the same level of transparency in Asian markets as we’re used to in Australia,” says Bassat. “Boards aren’t big fans of surprises but they need to accept they’re going to get them.”

The large numbers of young Asian people being educated in Australia and other western countries are helping to drive change. “They live in the west for four or five years, make friends and have first-hand experience of the way we do business,” says Rod North, managing director of Bourse Communications, a company that acts for businesses expanding into Asia and also Chinese companies wanting to list on the ASX.

“It’s inevitable that Asian businesses will become more internationalised as they go home to the family business or move up the corporate ladder,” he says.

In the meantime, unsuspecting Australian businesses can still be caught out by pockets of corruption. “If you’re too eager to agree to some Asian company’s requests they may test the water to see how far you’ll go,” says Wong. “I recommend starting with countries like Singapore, Malaysia, Thailand and Hong Kong which have well-established systems of governance.”

Collaboration

At the moment, Australia’s export trade relationships with Asia are largely built around bulk commodities. However, growing demand from the middle class is largely for products and services like food, health and financial services, education and tourism which are typically provided by small to medium enterprises (SMEs). SMEs make up 85 per cent of Australian businesses, and they face a particular set of challenges.

Some are simply naïve. “Not all SMEs have enough time or resources to spend a lot of time in Asia but I’m constantly amazed by how few have visited any Asian countries at all, even for a holiday,” says Wong. “It’s impossible to imagine the pace of change, the size of the market and the nature of the opportunities until you’ve seen them for yourself.”

It’s also hard to envisage the scale of the competition. “I’ve been to many overseas food shows but I’m still taken aback by just how many businesses are out there fighting for a deal and shelf space,” says Howard Dray, managing director of The Old Colonial Cookie Company which exports the Butterfingers brand to Japan, China, Singapore, Thailand, Hong Kong and Dubai.

Some set off on road trips without realising they’re just too small to be remembered by serious importers. “One solution is to piggyback a business that is already exporting successfully,” he says. “You can benefit from their experience and contacts, and there are benefits for them, too, because most Asian distributors prefer to import a range of products from each supplier.”

You could even make buddies of your competitors. “Large Asian importers deal with companies all over the world; they’re not interested in very small orders,” Wong continues. “If you collaborate with people selling a similar product and set up a centralised ordering system, you’re enabling them to place a more substantial order with just one phone call or email. I strongly advise SMEs to put themselves in the distributors’ shoes and do everything they can to make life easy for them.”

There is also the challenge of supply and demand. “Getting the first order is hard work but the real headaches can start when people come back for more,” says Dray. “You need to be sure you have the capabilities and capacity for production if your business starts to grow.”

A sudden surge in demand can require a massive capital expenditure followed by a wait of up to 90 days for payment. “It may sound like a dream come true but a big order can actually bring a company to its knees,” says North.

There’s no question the export market is challenging. However, as Parker points out, if we want to be part of the growth in intra-Asian trade, we can no longer continue to rely on the export of bulk commodities. “Businesses of all sizes must lift their engagement and investment in the region,” he says. “It’s up to boards to lead the way.”

What does it take to succeed in Asia?

Warwick Smith: Patience and persistence – you really need to exercise both in large doses.

Rod North: Choose your interpreters carefully. Some would rather misrepresent what you say than risk offending the Chinese representative.

Andrew Bassat: Most companies need to get started without “betting the shop”. Increase your investment gradually as you become more confident and familiar with the environment.

Francis Wong: Once the relationship is established you can cut back on visits but, in the first year at least, be prepared to make many trips.

Howard Dray: Make sure you’re ready for repeat business.  Check your resources, your production capability and your access to finance.

Peter Hearl: Focus, focus, focus. Build scale in one or two cities, provinces or countries before you move into other geographies.

Dr David Burton: They say a fool and his money are soon parted but, in Asia, they’re devoured. If you’re after a fast way to make easy money, you’ll be considered the fool.