Direct investment by Australian companies in overseas markets is an increasingly important pillar of Australia's economic growth, including investment in the fastest growing economies in our region.
Asialink Business supported an important new report on outbound investment by the Committee for Economic Development of Australia, which seeks to raise awareness about how foreign investment builds on the benefits of exporting. Director of Research and Information, Megan Mulia, contributed a chapter to the report on 'De-risking Asia', which looks at the risks involved in doing business with Asia, and the best ways to mitigate these risks.
Doing business in Asia can offer enormous rewards but also significant risks. Before deciding to expand into Asia, Australian businesses need to conduct extensive research to identify the types of risks that can apply to their operations in particular Asian countries. Failing to mitigate these risks can damange a business's reputation or profitability, and can even lead to legal sanctions.
Political risk can take several forms, and being attuned to the underlying political climate and nuances of the different markets in Asia is critical, says Megan Mulia.
"The failure to anticipate major political events is in part a result of over reliance on macro data that can present a picture of economic health and development while hiding underlying political and social tensions. GDP growth rates, investment flows and the longevity of government can only ever tell one part of a nation's story. It's worth noting that underlying turmoil can have real implications for markets."
Just as important as political risks, but often ignored, are the risks associated with failing to understand diverse local cultures in Asia.
"Falling into the trap of dismissing the important of garnering cultural intelligence can be the difference between business success and failure," says Megan Mulia.
"When a company moves into a new market, business models should be modified to reflect local preferences, customs, and habits. For example, changes should be made to product and service offerings, pricing, and marketing. The one-size-fits-all approach to international business is flawed."
Significant effort needs to be made by Australian businesses to understand local cultures and develop trusted relationships before expanding into particular Asian markets.
"Brand risk can manifest in many guises," says Megan Mulia. The rise of new technologies and social media, as well as underdeveloped intellectual property laws, can impose significant risk on Australian brands in Asia.
"Real-time networking on social media and the sheer speed of messaging is potentially catastrophic from a reputational risk point of view."
"Ignoring market and regulatory knowledge, on-the-ground engagement and social media networks, along with logistical hurdles in the rush to get into Asia early can conspire to hurt [a company's] brand."
Read the full report
The full CEDA report includes chapters on:
- Outbound investment and the macroeconomy by Professor Renée Fry-McKibbin, Professor of Economics, Crawford School of Public Policy; and Associate Dean of Research, College of Asia and the Pacific, Australia National University (ANU);
- Institutional settings: adopting an outbound focus by The Hon. Dr Craig Emerson, Managing Director, Craig Emerson Economics; President, Australia China Business Council NSW; Adjunct Professor, Victoria University College of Business; Columnist, The Australian Financial Review; and Council of Economic Policy Member, CEDA;
- The Asian Opportunity by Andrew Parker, Partner, PwC;
- Integrating Australian agricutlure with global value chains by Professor Alice Woodhead, Professor University of Southern Queensland Greg Earl, Contributor, The Interpreter; and Board Member, Australia ASEAN Council; and Dr Shane Zhang, Senior Lecturer, University of Southern Queensland;
- De-risking Asia by Megan Mulia, Director, Research and Information, Asialink Business.
The report can be downloaded at the CEDA website.