Jason Ellis shares his views on doing business in Asia and which ASEAN countries offer Australian directors the best opportunities. Zilla Efrat reports.
For as long as he can remember, Jason Ellis FAICD wanted to lead organisations.
"It didn’t really matter what they were – the cricket or football team or a business ... But as you come to the realisation you are not going to play cricket for Australia, leading a business becomes more practical," he says.
Perhaps he already had a good example of a strong business leader to follow. His father Jerry Ellis AO FAICD had a distinguished business career with BHP, riding through its ranks to become its chairman. Ellis snr still sits on several boards today, including Iron Road, MBD Energy, Alzheimer’s Australia (NSW) and the Eisenhower Exchange Fellowship.
Ellis jnr, it seems, could be tracking a similar route. While completing a Masters in Commerce at Wollongong University, a graduate trainee program opened up at what was then BHP. He applied and got a position.
But he notes: "I realised quickly that BHP was a large company in which you could easily be ‘lost’ and the best way to demonstrate your abilities was to be the big fish in a small pond. With this in mind, I requested a transfer to Papua New Guinea in 1996 to run a small BHP operation in Port Moresby. That gave me a broad exposure to general management at a young age. It was a great opportunity in a challenging location."
Ellis has been with the group (bar a two year stint with Commercial Metals) ever since, including during the demerger period to BlueScope Steel (BSL) in July 2002.
This route has taken him across Asia to run BSL operations in countries such as Sri Lanka, India and China. At present, he is president of BSL Thailand and a director on the boards of the three companies with which it is involved.
At the same time, he is also a director of the Australian Chamber of Commerce (and its vice president) and a director of the South East Asian Iron and Steel Institute. He also sits on the boards of two small Australian companies in which he has invested.
Ahead of the Australian Institute of Company Directors national conference in Singapore last month, entitled Directing in the Asian Century, he told Company Director magazine about doing business in Asia and which markets in the Association of Southeast Asian Nations (ASEAN) offer the best opportunities. An edited version follows here.
Company Director (CD): What are the biggest mistakes you see Australian business or directors making when approaching Asian markets?
Jason Ellis (JE): I am not sure there are huge mistakes, but there are certainly things Australian companies, and by inference, their directors, can do better when looking at selling to or investing in, Asian markets.
For example, many Australian companies view Thailand or other ASEAN markets as cheap labour points to manufacture goods to re-sell back into Australia.
This is a very narrow view of the opportunities that exist in this part of the world.
The real value is using Thailand (or ASEAN) as a "staging point" for supply to South East Asian countries, South Asia, the Middle East and Europe. Geographic location, infrastructure support (particularly in Thailand), the cost of utilities, a well-educated employee base, shipping lanes and by a long way last, employee costs, all contribute to making Thailand (and ASEAN) a strategically viable alternative to supply from – rather than "export back to".
CD: What tips could you provide Australian directors overseeing their organisations’ expansion into Asian markets?
JE: Here are a few tips, in no particular order:
- Appoint directors who actively work in Asia along with those with past experience in the region. The markets, customers, institutions, laws and rules are so fluid that conditions change quickly and current experience is the most relevant.
- Know the investment laws very well. Unlike Australia, ASEAN governments are investment friendly – take the Thai Board of Investment, for example – and actively encourage foreign investment in sectors they wish to grow. There are many "somewhat hidden" benefits directors should avail themselves of before spending capital.
- Ethics or transparency is still a huge problem in all ASEAN countries despite what the in-country press may say about improvements. Directors must maintain a rigorous stewardship approach, but more importantly, they should employ people they trust implicitly.
CD: Which is the best way to enter a market?
JE: In many of the ASEAN countries, it is not necessary by law to partner with local companies. However in my experience, going it alone increases risk. Despite what the "rules" are and what local investment organisations will tell you, the path to business establishment and, more importantly, successful operations in ASEAN markets can be a minefield of bureaucratic traps, especially when dealing with local government agencies. Customs and different government departments can be managed more effectively by a local partner than by a relatively new Australian company.
When investing in ASEAN there is no doubt having 100 per cent ownership is easier to control, but we have found that local partners have opened many otherwise closed doors. They have given BSL advice on investment issues, government relations and contacts with key customers. We would never have been able to find this all out by ourselves.
Local partners (if you pick the right ones) will also offer opportunities into domestic supply channels that are far more effective for your goods and services, making the payback on investment more efficient.
In Thailand, BSL is jointly owned by Nippon/Sumitomo, Loxley Public Company and BSL.
BSL’s approach, however, to ownership structure is different in different regions.
In China, for example, we are 100 per cent BSL-owned. In India, we are a 50/50 joint venture with the Tata conglomerate.
I believe one of the key roles the board of directors can play is to assess local partners and decide on the best investment structure. And, having people on the board with Asian experience would be a good start to this.
CD: Which markets in Asia excite you most and why?
JE: Firstly Indonesia. It has a huge population, a burgeoning investment climate and is at the bottom of its investment life cycle. From an investment perspective for domestic sales of goods and services, it has, in my view, by far the most potential.
Next are Thailand, Laos, Cambodia and Myanmar. I would treat these four countries as one from a business opportunities perspective as their economies are so intertwined.
However, on its own, Thailand also has many advantages. It is the second-largest ASEAN economy and 24th-largest globally; it has the largest middle-class population in ASEAN (12 million); it is Australia’s ninth-biggest trading partner; it is ranked by Bloomberg as the second-most promising market for investors globally, after China; and it is ranked 18th for ease of doing business (compared with China at 91, Indonesia 128 and India 132).
Thailand is also at the geographic centre of the high-growth Asian region and a critical hub for regional value chains (particularly Japanese supply chains). With Myanmar now open for trade, a corridor from East to West is being created through Thailand, providing lucrative access to South Asia and beyond. Thailand recently announced a 2 trillion baht (around A$65 billion) investment in enabling infrastructure.
My third choice would be China and India, but there is so much written on these two countries that I am not sure I could add much value other than to say if an Australian company wants "Asian exposure", not to be in China and India would limit its strategic intent and opportunity.
CD: How should directors handle demands that involve bribery or corruption in Asian markets?
JE: Giving into demands in the fear of losing business is just pure laziness. If you make yourself known to be an ethically based company in Asia, a company that will not engage in any bribery and corruption, people will leave you alone. But you do have to make it very transparent and so obvious so that people will not bother asking.
If you leave the door of ethics open, people will always try. Then it comes down to who you employ, how you manage them and the governance principles around your operations.
Boards operating in Asia need to have very sound governance processes and to ensure that directors and the CEOs of various companies select the right the people.
More boards should be visiting the region more often than they do to understand the business in the region and business conditions.
CD: Is it necessary to have a director on your board with Asian experience or are there other ways for boards to access information and advice on Asia and its markets?
JE: It’s preferable for Australian boards to have board members with relevant and up-to-date Asian experience. However, an Asian advisory council may work just as well if boards are looking for the advice without the additional governance activities that go with being a board member.
Assuming an Australian company is serious about exploiting the opportunities in Asia, then a board member (or members) or an Asian advisory council would be a great start.
CD: What could Australian directors learn from boards in Asia?
JE: How to act (make decisions) with haste in an extraordinarily competitive environment without dropping the rigour on investment reviews.
Also, to come to the region more often.
It sometimes amazes me that Australian companies still have a risk premium attached to investments in Asia.
From my perspective, it’s almost the opposite, with risks associated with Australian investments growing each year given its poor investment climate, compounded by government and regulatory inaction and often anti-business policies.
When you look at the growth rates in many Asian countries, the improved banking regulations since the 1997 financial crisis and the workable investment rules, you would have to surmise that the investment climate is less risky than in Australia which is a mature high cost economy with an unstable minority government.
If you had $1 to spend, where is the least risky place to invest it? In my mind that would be a high growth economy with sound banking and investment laws that welcomes fresh capital.
Have a look at the investment incentives in ASEAN countries compared to Australia.
The current Australian Government discourages further investments, while most governments in Asia are positively encouraging investments.
CD: How would you rate the level of governance on Asian boards in general and what could be improved?
JE: There is no doubt Asian boards could improve in the governance space. Organisations such as the Australian Institute of Company Directors are highly respected in this part of the world.
The Thai Institute of Company Directors has a very strong relationship with Company Directors, but its capacity to influence at the same level or rate as Company Directors has not yet been achieved.
This does not stop its desire to do so, which of course opens many opportunities for Company Directors to expand its customer base, not only in Thailand but the rest of ASEAN.
CD: Has reading the culture in the different Asian countries you have operated in been a challenge?
JE: It has, but I think it has become less of an issue since I first became involved in this part of the world.
Senior Asian business leaders are far more international than they were 15 years ago. The second and third generations running major companies in Asia have, for the most part, all studied or been exposed to international business.
In any culture, if you are polite and gracious and have good manners, then your likeability and acceptability will be much higher than if you are rude and arrogant. That’s probably true anywhere.
CD: What have been your biggest lessons learnt in doing business in Thailand?
JE: First, learn the language as quickly as possible (I have a reasonable degree of Thai comprehension now). Even if you never reach fluency, being able to understand the context of conversations in the local language is a huge benefit.
Second, the attitude of governmental organisations (such as the Thai Board of Trade) to the investment climate is the key to success.
And third, customers are the same in every country I have operated in. They all want the same thing: fit-for-purpose products, delivered on time with no errors, supported by sound technical advice and excellent branding.
CD: How has Thailand changed over the past decade or so?
JE: I first worked here in 1997, right in the middle of the Asian financial crisis. It has changed considerably since then. It is far more English literate now – nearly all our mid-level managers can speak English fluently.
Culturally, while it is still very proud of its history and "Thai-ness", it is becoming part of the global economy with many business leaders studying offshore, as noted before, and bringing back international ideas and concepts.
Infrastructure in Thailand has greatly improved. In 1997, I can still recall it taking me three hours to get home from work after heavy flooding. Now there are multiple forms of transport that can give you alternatives (sky trains, overhead freeways, underground trains and so on).
But what really drives Thailand, and will continue to do so, is its investor-friendly status – something Australia could really learn from, particularly given its proximity to burgeoning middle-class Asia.
CD: How has BSL Thailand been affected by global economic uncertainty?
JE: Global conditions mainly affect Thailand’s export market.
BSL Thailand has changed its sales focus to be 90 per cent domestic and 10 per cent export. Before the global financial crisis, we were 50/50 in regards to exports versus the domestic market.
That was a real risk in an environment where there is a huge overcapacity in steel making around the world and particularly in China.
BSL Thailand’s business is now affected more by local issues, such as last year’s flooding and political uncertainties
CD: What are the biggest challenges for the BSL Thailand board?
JE: We have a number of significant investment decisions to make in the next few months or years. How this is managed and implemented will be of crucial importance to us.
In addition, BSL in Asia now has a new partner in Nippon/Sumitomo and meeting its expectations will also be vital.
CD: What do you see as your own biggest personal challenges as a director in Asia today?
JE: Ensuring my board is fully abreast of the key issues facing the business, particularly the movement in competition and how we as a company need to act in advance of or react to competitor movements.
CD: What advice would you give Australian directors about to join the board of an Asian company?
JE: Make sure you fully understand the business entity you are joining and what ownership structure exists beyond just the face value.
CD: How does sitting on a the board of a small Australian company differ from your other Asian roles?
JE: I sit on the boards of Geelong Fabrications (Geelong, Australia), in which I made a private investment, and CTC Terminals (Newcastle, Australia), a shareholder of Newcastle Agri Terminal, which is building a modern storage and export facility for bulk agricultural products in Carrington, Newcastle.
In fact, my brother-in-law is involved in building the terminal and encouraged me to personally invest in the company.
I enjoy bringing big-business processes and transparencies to these smaller boards.
These companies are very small, so as directors we are across all the ins and outs of the business and are effectively auditing the companies every month, as opposed to every quarter or half year as bigger boards would do.
So while the governance is not as formal, it certainly happens more regularly.
As a director of a small company, you are almost an executive director. It’s your own money, so you are very keen to ensure that things are working and to offer your skills and advice.
Even though I live in Thailand, I talk to one of the managing directors almost once or twice a week.
CD: Who has had the greatest influence on your life and thinking, and why?
JE: There have been two people thus far in my business life.
My father, Jerry, was a successful successful executive and director, and still is, of a number of Australian publicly listed companies.
He has always offered sound advice when I have sought it.
He has skilfully never forced his views or ideas, but has let a natural wash of conceptual thinking roll over me since I was an emerging leader.
The other is Dhongchai Lamsam, CEO of Loxley Public Company.
Khun Dhongchai is probably the most naturally gifted CEO (or leader in general) I have ever met. He has such poise and clarity of thought when it comes to issues of business leadership.
I have been a director on BSL boards in Thailand for around eight years and in that time, Khun Dhongchai has always given logical, sound and practical advice to the incumbent BSL CEO.
CD: Where do you see yourself in 10 years’ time?
JE: I will be 52 and hopefully will have been CEO of a publicly listed company for some time.
CD: What are you hobbies and interests outside of work?
JE: I play golf as often as I can (handicap now 15), run and swim to keep fit, keep my wife happy and my children educated (they are both in boarding school in Australia).
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