The Devil's in the Detail: Australian business in Asia
By Bruce Gosper
Australia needs to understand Asia better: we’ve all heard it but what does it actually mean?
From a business perspective it means understanding what Asian markets want, rather than simply offering whatever we happen to have.This in turn means understanding the differences between those markets, realising that sometimes the subtlest variations can make or break a business. It also requires greater familiarity with the needs and aspirations of Asia’s growing middle class – the people who will ultimately be our most important customers.
We should recognise cultural differences and align our thinking to build relationships and maximise opportunities. We should not go on thinking we can simply ship our products to Asia without any adjustment or fine tuning.
At Austrade we still regularly hear the complaint that Australian exporters rely too heavily on generic packaging and marketing.
Businesses need to build their strategy around the idiosyncrasies of each market and where they sit on the development cycle.
While we might think we know our Asian markets, given the amount of information available to us and that we have had some history in trading with these countries, we can sometimes overstate our degree of understanding.
A survey of 2000 Australian companies to be released next month found that 62 per cent identified a lack of information on local culture and business practices, including local regulations, as being among the major challenges of doing business in China.
Complexities around local regulations, customer payments, licensing, permits and product standards also present challenges. Tariffs, quotas and import duties were also barriers to maximising our doing business.
In the same survey, China was the most popular choice for international target markets in the next two years, selected by 20 per cent of companies as their most important future market.
In reality, the Asia that Australia should seek is a collection of diverse nations in various stages of social and economic development. Asia is not a single cultural or economic monolith we can grasp with a simple formula.
Acknowledging and responding to this diversity by competing successfully in Asia will help drive innovation, productivity and income growth in the Australian economy.
In the process of exporting more to Asia, we will inevitably become more efficient, focusing on our strengths such as high-value Intellectual Property and design rather than lower-value production.
Know Asia’s markets by country and region
Even within nations there are many distinct markets with unique characteristics.
For instance, while we can talk in broad terms about “demand from China” it would be unwise to ignore the differences between regions or the complexities of second and third-tier cities. Local governments often have specific development priorities and consumers have unique purchasing habits. Any astute international business will understand these nuances.
Although China is now changing to a more domestic, consumer-driven economy, with greater demand for services, it is wise to remember that previous growth has largely relied on state investment, underpinning ongoing high demand for imported energy, minerals and construction services.
Countries such as Myanmar, Laos and Cambodia on the other hand remain focused on aid and development. Here, agriculture exceeds industrial output as a share of GDP and there is a basic need for infrastructure to improve productivity and living standards.
Mongolia, by contrast, is an economy driven substantially by its known and prospective mineral and energy resources.
India, like China, remains a buyer of Australian commodities, coal in particular. Yet, although India faces large infrastructure development challenges, it is also home to a significant number of market-leading multinationals.
Strong demand for skill development is creating opportunities for Australian education and training providers to form partnerships with some of these.
It is also creating pathways for Indian students to undertake undergraduate and post-graduate courses in Australia.
Indonesia, meanwhile, is also undergoing tremendous economic change. Two-way trade remains small in comparison with other trading partners at $14.6 billion in 2012 but there is huge scope for growth.
With a youthful and increasingly sophisticated, technologically savvy population, Indonesia is expected to be the world’s seventh-largest economy by 2030 and will become increasingly attractive to Australian companies.
Other economies are fuelled by ‘Factory Asia’ exports of low-value, labour-intensive manufactured goods. In Thailand and Vietnam, exports as a percentage of GDP are over 50 per cent. These countries seek to improve productivity through investment in technology and skill development.
Others such as Taiwan, Singapore, Malaysia and South Korea are high-value export powerhouses. In these countries, export activity is based on highly productive labour.
In most of Asia, domestic consumption is rising. In Indonesia, Philippines, Thailand and South Korea consumption accounts for more than 65 per cent of GDP.
Like Australia, the economies of Hong Kong, Singapore and increasingly South Korea are also driven by services and knowledge. These are developed markets where the services sector accounts for more than 70 per cent of GDP.
Free trade negotiations in the region, both bilateral and multilateral, are important for Australia and continue to form a key plank of our efforts to maintain growth and prosperity at home.
Australia has recently concluded agreements with Malaysia and South Korea and these will undoubtedly provide stimulus
to business and industry. A successful conclusion to the Trans Pacific Partnership and bilateral FTA negotiations with China and Japan should do the same.
At the same time, we should be careful about missing the forest for the trees. We need to view our trade and economic relationships holistically, rather than focusing too heavily on a single element, such as FTAs.
Keeping pace with Asia’s middle class
One thing that is absolutely fundamental is understanding our customer. But the Asian equivalent of “keeping up with the Joneses” – the mindset of Asia’s middle class – might be more demanding than we anticipate.
We know, for example, that growth in the luxury goods sector is now centred firmly on Asia. The region is a huge importer of global iconic brands, primarily from Europe and the United States. Despite infrastructure and regulatory challenges even Harley Davidson is well established in China and India, with sales growth in both markets.
Although Australia has few luxury megastars, it does have significant equity tied up in the brand “Australia” itself. “Made in Australia” carries significant premium cache in Asia, particularly when it comes to food.
Realising this equity, however, is not necessarily a simple matter. It may not be enough, for example, for an Australian food label to simply convey the idea of “clean and green”.
We need to build trust by telling a wider story about the environment from which the product comes, building long-term customer loyalty and market share.
As well as maintaining a persuasive national brand, we may also have to make adjustments to our products themselves, taking into account such things as texture and taste.
Understanding the drivers
Almost 650,000 Chinese travelled to Australia in 2012, the majority on holidays, making China our largest source market for tourists. Projections are that numbers will increase by 8 per cent compound growth to 2016–17. This gives us a unique opportunity not only to present the best that Australia has to offer but also to better understand what this new generation of increasingly affluent, young and independent consumers values most about us.
We are then in a better position to make sure they have access to it once they return to China or other countries, keeping their Australian memories alive.
The Tourism Research Council (TRA), which is now part of Austrade, recently surveyed Chinese tourists returning from an Australian holiday and found the overwhelming majority were more than satisfied with the experience. The full results make for interesting reading and are available on the TRA website.
Something else to emerge from this research was that nature-based experiences are a major highlight for most Chinese visitors.
Detailed information such as this about consumer preferences is just the kind of thing that will help us remain competitive and successful in Asia.
In the case of China we need to be aware, for example, of the emergence of online shopping and e-commerce as a favoured platform for both consumers and business.
As well as more direct access to customers, ongoing technological development in Asia opens opportunities for Australian companies in sectors such as auto parts to join global value chains.
Efforts need to be made to ensure they are aware of these opportunities.
Trade missions are one tried and true way of doing this and remain an important means of developing high-level contacts and access to markets.
They might be broad political or business delegations led by senior politicians, missions from a single industry sector, or broad familiarisation visits which include multiple industry groups with the support of government agencies – federal, state or territory.
Austrade is currently seeking expressions of interest for the significant missions to China in April led by Trade and Investment Minister Andrew Robb as part of Australia in China Week.
Companies can register for this and other mission through the online portal on Austrade’s website.
Austrade focuses on Asia
Asia remains a resource priority for Austrade, with 60 per cent of our 558 international staff positions based there and approximately half of our global network of offices. Most importantly, 400 Austrade employees speak at least one Asian language, more than any other government agency.
Understanding what Asia expertise already exists within your workplace, and further investing in this, is a key to success for Australian companies.
Asialink Business is working to build Australia’s capability to engage effectively with Asia in a business context, and
is another key resource for SMEs and corporates.
As Australia’s trade, investment, tourism and education promotion agency we appreciate that the response of Australian business to the challenges outlined here will determine its ability to compete. We also think we can make an important contribution to that response.
This does not mean we neglect other developed and emerging economies such as Latin America or Africa, where there is a strong case for our attention, but it does recognise the importance of the Asian region and the shifting centre of global economic weight.
The macro story of Asia’s growing middle class, its increasing urbanisation, changing demographics and problems with resource scarcity is often well understood.
Less so is the micro detail of markets, and more particularly how to find a place in those markets. That requires constant monitoring, market insight and information so that business can act with a degree of confidence.
Bruce Gosper is CEO of Austrade, the Australian Government agency responsible for promoting trade, investment and international education, and tourism policy, programs and research. Until his appointment in February 2009 he was Deputy Secretary with the Department of Foreign Affairs and Trade where he was Australia’s Senior Trade Policy Official, responsible for all trade negotiations.