Is your board “Asia ready”?

Long-term macroeconomic forecast: Key trends to 2050
The Economist Intelligence Unit, June 2015

Passing us By: Why Australian businesses are missing the Asian opportunity. And what they can do about it.
PricewaterhouseCoopers, December 2014

"If you think in terms of a year, plant a seed; if in terms of ten years, plant trees; if in terms of 100 years, teach the people” - Confucius

A recent report from The Economist Intelligence Unit (EIU) provides macroeconomic forecasts for 82 countries until the year 2050. According to the research:

• in just over a decade, China will overtake the US as the world’s largest economy;


• Asia, as a whole, will make up more than 53% of global GDP by 2050; and


• the Indian economy will rise from ninth to third place, and the Indonesian economy from sixteenth to fourth place.

The key trends identified by the EIU regarding rapid growth in the Asian region mirror many other long term forecasts from investment banks, accounting and consulting firms, universities, the IMF and the OECD. In 2012, the Federal Government also prepared an “Asian Century” White Paper, which outlined how Asia will grow to be the world’s largest producer and consumer of goods and services, as well as home to the majority of the world’s middle class, by 2025.

Grappling with the Tiger – engaging with Asia

With the significant shifts in global economic weight that are occurring, it is important for Australian businesses to develop their strategic thinking and cultural engagement in relation to Asia.

Despite the volume of research supporting this call to action, there has been little change at the board level within Australian companies.

According to a recent report by PwC titled “Passing us By”, only 12% of Australian companies have any experience doing business in Asia at all. An Asialink survey similarly reveals that less than half of the 380 Australian businesses surveyed had any board members or senior executives with Asian experience or language abilities.

Until relatively recently, the significant risks in Asia associated with corruption, lack of market and regulatory information, cultural differences, supply chain management, intellectual property and other general trade barriers have served as disincentives for many Australian companies to explore opportunities in Asia.

Despite the risks, some Australian businesses have thrived in Asia. Certain smaller companies have, for example, exploited niche markets and focused on building their reputation in the region. ProScribe, for example, an online medical communications start-up from Queensland, experienced 15-fold sales growth in Japan and 6-fold growth in China by having a dedicated “Asia-Pacific” strategy. This involved making a genuine commitment to the culture of their Asian clients by having offices in Shanghai and Tokyo as well as adopting a Chinese name in business dealings.

Another example of success through a long term Asian strategy has been Blackmores Limited, which reported record sales over the previous financial year, boosted in part by growing demand from Chinese consumers. Blackmores first entered Asian markets in the 1990s but has more recently expanded into Taiwan and Korea. Its long term Asian strategy has been underscored by the idea that Australian brands are highly desirable in Asia. It has also built goodwill in Asia through its commitment to environmental sustainability, and recently won the 2015 Australia China Business Award for Sustainability and Social Impact.

Economic opportunities in Asia are on the rise

Going forward, there is likely to be a greater flow of goods, services and investments between Australia and Asia. The Association of Southeast Asian Nations (ASEAN) has plans to become a separate economic community and integrate its capital markets and stock exchanges by the end of 2015.

Low manufacturing costs in the ASEAN region and emerging consumer markets throughout Asia have created new demand and new opportunities. According to PwC’s “Passing Us By” report, China’s middle class is expected to grow to 3.2 billion by 2050, representing more than 66% of the global middle class.

Further, Australia’s recent signing of a Free Trade Agreement with China, and joining of the Asian Infrastructure Investment Bank (as its sixth largest contributor), may also open up new opportunities.

Some commentators have also pointed to improved corporate governance practices in China, including advances in regulatory enforcement, financial reporting, and the reform of state-owned enterprises.

It is imperative that Australian businesses and their boards consider doing business in Asia and seize the opportunities before the “Asia window” closes, as local and international businesses become more competitive.

How do Australian boards become “Asia ready”?

Awareness. Asia is a diverse cultural and economic landscape presenting many commercial opportunities as well as political, legal and regulatory risks. It is important for boards to have some understanding of these factors when considering their Asian strategy and evaluating risks.

Leadership. Board members should be open to change, and also willing to consider adopting and promoting an ‘Asia strategy’.

Partnership. Boards and companies looking to explore opportunities in Asia may benefit from the use of consultants, advisors, and other cultural and linguistic intermediaries. Respect for cultural differences, and especially understanding the importance of “Guanxi” (a Chinese term describing relationships, which involves the exchange of favours) is essential to building relationships, networks and creating trust.

Diversity. Local knowledge is invaluable and this may be reflected in the composition of board and executive teams. A recent study by the Diversity Council of Australia and Deakin University has shown that across ASX500 listed companies, directors with Asian heritage have increased from 5.9% in 2004 to 9.5% in 2013. This is a positive development, but there remains room for improvement.

A clear set of values. Through promoting a strong culture and robust governance practices, boards can help grow their reputation in Asia. In a recent interview, Dr Margaret Byrne observes that a clear understanding of one’s own cultural values is important in building cultural competency.

Patience. Investing in Asia takes time. Boards should keep in mind their longer term strategic goals. To borrow a phrase from Confucius, “the man who moves a mountain begins by carrying away small stones.”

Practical resources for Australian directors and companies

Over the next few months, the AICD will host with PricewaterhouseCoopers a series of workshops designed for Australian businesses heading to Asia. Please continue to visit the Centre for relevant content and updates.

The International Company Directors Course (ICDC) also presents a great opportunity to build capabilities in the region. Aimed at C-suite level and above, these courses are suited to directors who report to global boards as well as those wishing to build networks and knowledge in Asia.