Missed opportunity?

Thursday, 01 October 2015


    Many Australian companies have been slow on the uptake when it comes to maximising potential business growth opportunities in Asia. A recent thought leadership discussion debated the reasons why. Angela Faherty reports.  

    Peter Cai: The PwC report, Passing us by: Why Australian businesses are missing the Asian opportunity states that only 9 per cent of Australian businesses are currently operating in Asia; 12 per cent have experience doing business in Asia and the majority, two-thirds of Australian business, have no intention of going to Asia. What are the most significant reasons why Australian businesses seem reluctant or unable to invest or build their revenues in Asian countries? 


    John Thorn: I was quite staggered to read this report; I was amazed at how low the statistics were, given the noise around Asia. The other thing that surprised me was there was little mention of relationships and people. In Asia, it’s all about relationships – they think much longer-term and those relationships take a long time to build. It’s very difficult for Australian companies with a short-term mindset to allocate time in Asia with the right high-level people, “the number one man”. Unless you’ve got someone who is going to be there for the long term, it isn’t going to happen.


    Penny Bingham-Hall: This comes back to a short-term versus long-term view. The companies that have been successful in Asia have been there for decades and they’re only now reaping the benefits. You’ve got to have very patient capital as well as patient people and often shareholders aren’t happy about that. 


    Mark Whelan: We wrestle with this issue of impatience around capital and returns every day. That’s been ongoing and will continue to be ongoing. We’ll reap benefits and we are already starting to see that and are getting reasonable returns on equity, but it’s not to the level that some would want. But it will come in time and we’re still committed to it.

    The other thing that I would add is that up until more recently, the hard commodity story around Asia has overwhelmed everything else, so people have missed out in other areas where there are significant growth opportunities and we need to continue to talk about that. We need to educate the business community in finance and engineering, agriculture, health; they are all areas that we are very strong in as a country and have great service capability.


    Jackie Korhonen: I run a smaller  Australian technology company that is currently debating and questioning our Asian strategy.  We’ve been in Asia for about five years. One of the things that we struggle with is that everyone talks about “Asia” collectively, but it is a conglomerate of very different markets. If you want to set up in China, there are a lot of problems, such as culture or language. It’s much easier to start in Singapore, but Singapore is very crowded. So for us, it is about trying to figure out where in Asia we differentiate ourselves. That is the first challenge.


    Peter Cai: Is there anything companies can do to reassure investors, analysts or fund managers about the long-term nature of such a strategy?


    Nicola Wakefield Evans: I think that is one of the major problems. For example, I sit on the Toll Group board and until the takeover by Japan Post, a lot of commentary criticised us for our Asian strategy, lack of financial performance and huge investment. Nothing was happening, according to the press, analysts and investors.  

    However, the rationale for Japan Post’s takeover of Toll was its Asian network. What the analysts, financial press and investors had missed was that Toll had built up a strong Asian footprint. They were just looking at the dollars, the lack of revenue and performance and the bottom line. However, Japan Post, one of Japan’s biggest companies, looked at Toll from a completely different perspective, and it’s that perspective that is missing in the Australian financial press and the markets. We’re too focused on short-termism.


    Penny Bingham-Hall: I could almost mirror that with a BlueScope example. We had a long-term technical relationship with Nippon Steel and had talked to them about maybe investing in our Australian business. But they wanted to expand into Asia. They paid for half of our Asian footprint – the total of what the whole company, at that stage, was valued at by the market in Australia. We got a 50/50 joint venture partner with deep pockets rather than a competitor and could suddenly expand our Asian business. It’s a different example, but again the Japanese saw this incredible value in our Asia network and in our facilities.


    Steve Vamos: It comes down to mindset.  What is the mindset of people leading Australian companies as it enters this particular area of focus? It’s probably got the highest degree of difficulty because we’re talking about being more innovative, more productive, more diverse, more inclusive and using more technology. It is about technology and disruption. In addition, you have then got the Asian Century. I think the challenge we have is adapting our mindsets for change, because that’s not where we come from typically, particularly in Australia.

    The other key issue is belief. Working with start-ups, one of the things that has really struck me in the last 12 – 24 months is that belief is the fundamental currency of business, because cash doesn’t come before belief. Overcoming fear and building belief is something we have to think very carefully about at an organisational, individual and at a national level. We’ve got to be less critical of ourselves and more encouraging, supportive and ambitious.


    John Thorn: I agree with that, but you probably don’t have the luxury of being brave for very long – that’s part of the problem.


    David Rampa: It is, and accessing capital in Asia is also part of the problem. I think there is capital available in Asia that has a different time horizon to Australian capital. 


    John Thorn: That’s where building relationships comes in to play. It’s all about trust. You can only do that by spending time – lots of time – building the trust, and then you can get the capital.


    David Rampa: Back in my Telstra days we conducted research on going into Asia and understanding the three pillars of business: legal, commercial and relationships. Americans will always put legal first, Europe is more about the commercial element, but in Asia it’s the relationship at the forefront. I think that’s key for us to understand in trying to do business in that market.


    Nicola Wakefield Evans: There’s also a structural issue with Australian companies. Australian companies by and large are not used to competition, because we operate in duopolies or monopolies. However, Asian companies are not used to dealing in duopolistic and monopolistic situations. You’re a big fish here and you’re a little fish in a huge pond in Asia. That’s actually quite confronting. We don’t have the tools because we’re not used to operating in that type of market.


    Peter Cai: What role do you think the government should play in educating business or even the Australian population about opportunities in Asia?


    Penny Bingham-Hall: It’s a multiple role. It’s about starting in schools by encouraging kids to learn various different Asian languages.We’ve probably been a bit slow at that. It is also about flying the Australian flag in terms of high-level relationships. And when businesses get into trouble, there are times when you need government to step in and make sure we’re playing on a level playing field.


    Nicola Wakefield Evans: Government is very underrated because there’s been a shift in the way that Austrade operates over the last five years. When the Japan Post takeover of Toll was announced, one of the first phone calls that our CEO and chairman made was to the Prime Minister and the Trade Minister. That was important because the Australia Japan Free Trade Agreement had just been signed and it enabled the government to have a positive story about an Australian company being taken over by a Japanese company. I think there’s been a lot of really important work being done, it’s just not publicised. On the flipside, I’m passionate about Asian language and I’m intensely frustrated about the lack of any tuition for children learning an Asian language in this country. We’re doing a massive disservice to our children who are going to be competing for jobs globally in the future.


    Andrew Parker: The language issue is vital in terms of cultural understanding, however if business is not demanding these skills, the government is not going to supply them, it’s going to be a lost investment. The onus is on business to demand that skill and value it.


    John Thorn: I think it’s a missed opportunity.


    Steve Vamos: I agree that we’ve got great people in government and government agencies. I think one of the areas where we are letting ourselves down though, is creating a sense of what’s important to this country going forward. When we had good, clear leadership in this country it actually helped as our political leaders were able to say what is important. It sends a message. 


    John Thorn: You are so right. Only two things change the dynamic – a great leader or a disaster. 


    Mark Whelan: The consistency and persistence of the message is really important too. It can’t just be said once and think the whole country will think it’s great and get behind it. We’ve got to be constantly pushing this message, constantly driving those relationships, constantly celebrating the successes. We don’t tend to do that.


    Nicola Wakefield Evans: I have been very disappointed that the strategy in the Asian Century white paper issued by the previous Labor government, has not been continued and articulated by this government. I liked the white paper. There was a lot to be critical about, but it actually set out a blueprint. It honestly analysed where the gaps were and suggested having a conversation about how to fix them. That piece is missing. The problem with the current message is you don’t know what the vision is, so strategies cannot be set to fix the gaps that have already been identified by previous governments.


    Andrew Parker: It needs to be bipartisan.


    Mark Whelan: It’s more than that though, because we’ve got three layers of government. We get it confused as the message goes through.


    Penny Bingham-Hall: Our governments are very short-term focused so to have a five-year plan is virtually impossible.


    Peter Cai: What are the important things to consider when investing in Asia?


    John Thorn: Relationships. You have to start there because if you don’t start there all those other things you mentioned are irrelevant. Unless you’ve got the right people to deal with all those issues you’re not going to succeed.


    Mark Whelan: There are also some issues that get in the way. The capital requirements that are put on banks in terms of investments into Asia are a massive impediment. It’s not a level playing field. Double taxation of profits from offshore investments is another impediment. These are some of the practical things that the government could work with us on to actually make it easier to do business in and out of the region, because it does stifle returns. 


    Nicola Wakefield Evans: This issue was raised in the white paper. The Australian tax system is an impediment for Australian companies to invest in, not only Asia, but to actually invest offshore.


    Mark Whelan: This is a big issue for small innovators and entrepreneurs.


    Nicola Wakefield Evans: Absolutely, but it’s not only the tax system, it’s state government impediments, currency issues and if you’re in the financial services sector, you’ve got the complex regulatory system. There are no business passports and that’s one thing that the Australian government could do. It’s done it to a limited degree in the funds management world, but there should be more passporting between Australia and Asian countries to make access to capital and investment decisions a lot easier.


    Penny Bingham-Hall: This problem comes back to the government and short-termism. One government decides they’re going to do something, then the government changes, someone else comes in with a whole different agenda and it doesn’t get followed through.


    Steve Vamos: We’re a fragmented small country, which in a changing world is a dangerous place to be.


    Peter Cai: How do we proposition ourselves in the Asian market?


    Mark Whelan: The way we have tried to position ourselves in Asia is to say we are an AA-rated Australian brand with all of the capabilities and service propositions of a global city bank, but we’re very heavily focused in the Asia Pacific region rather than globally. That’s been successful for us.


    Nicola Wakefield Evans: I think the problem is we don’t, as Australians, see ourselves as part of the region. That needs to be our selling point. Telstra did really well because the reason it was able to compete with its competitors was to say it was a regional telco. The companies that have recognised this are the ones that have been more successful.


    Steve Vamos: An interesting case in point is the Telstra joint venture in Indonesia with Telkom Indonesia. What’s happened in the IT and communications industry over the last few years is the growth of what we call “network application services”. More applications are being run on the network, which has brought telcos into the space where IBM, HP and other services companies have operated. What Telstra had to do was first of all build a credible offering in that space and win customers in Australia and compete with the big global players. Then we were able to go to Indonesia and show that we can bring value because we’ve done this in Australia and we know how to evolve a network application services business. It’s about building capability and credibility against those international players and then finding the right partner to go to market with and bring the two strengths together.


    John Thorn: Another factor is innovation. You’ve got to be seen to be innovative. Across Asia they are hungry for the latest technology and the latest ideas. It’s actually a wonderful characteristic of many parts of Asia. They want the changes, whereas in Australia we seem to fight it all the time.


    Peter Cai: What kind of additional capability do Australian companies need to be successful in Asia in terms of the attributes of the employees they hire?


    Nicola Wakefield Evans: Andrew and I are both involved in AsiaLink, which runs a very good leaders program each year for middle-ranking Australian executives who either have Asian responsibility or their employer wants them to work in Asia. Once they’ve gone through the program, they completely change their mindset. We’ve got to start doing more of that at senior levels. 


    Mark Whelan: I send 100 of our bankers, two groups of 50 to Asia, twice a year. I’ve been doing that for four years. This is in our corporate and commercial banking area, where we think there is the greatest opportunity medium to long term to educate the bankers on Asia. They only go for one week, but it’s an immersion program. We don’t just take them to Shanghai, we take them to Guangzhou or into other countries.  We’ve been to Vietnam and Indonesia. The whole purpose is to [help them realise] that Asia is multicultural in its own right and the importance of networking and relationships. 


    Andrew Parker: It’s about “investing” in that relationship. My observation of Australian companies is that they go up there, do the deal and then come back and that’s it. That relationship is actually a strategic asset, much more than any other asset that the organisation has. 


    Matt Dobbin: Do you think we’re strategic enough at a country level around Asia?


    Steve Vamos: I think we’re getting more strategic in business every day because we all have to be. Are we strategic enough?  I don’t know. I guess my personal view is that strategy today is very different to doing strategy 10, 20 or 30 years ago, because things are changing so fast. 


    Penny Bingham-Hall: You’re probably never strategic enough are you? Are we getting better? I think so.


    John Thorn: Strategy is fine, but unless you’ve got the guts to get out and do what you say you’re going to do, it’s a piece of paper.

    Latest news

    This is of of your complimentary pieces of content

    This is exclusive content.

    You have reached your limit for guest contents. The content you are trying to access is exclusive for AICD members. Please become a member for unlimited access.