Much has been said about Australia’s business relationship with Asia. But what is the key to success?
In 2014, Joseph Stiglitz, a Nobel Laureate in economics and a former World Bank chief economist famously said: “When the history of 2014 is written, it will take note of a significant fact that has so far received little attention: China has overtaken the US as the world’s largest economy. China enters 2015 in the top position, where it will likely remain for a very long time, if not forever.” Today, that quote still rings true.
The Asian Century has descended upon us quickly and irreversibly. Seven out of ten top export markets for Australian businesses are in Asia, taking in 66 per cent of our total exports. It is widely acknowledged that China played a huge role in rescuing Australia from the worst effects of the global financial crisis.
A growing Asian middle class will reach 3.2 billion by 2030 and they will determine the fortune of many businesses around the world. You need to look no further than the recent meteoric rises in vitamin companies such as Blackmores and Swisse to appreciate the impact of the Asian Century.
Few would argue that Asia is an economic powerhouse and represents a huge opportunity for Australian businesses. The question is how do you capitalise on the Asian Century? This is easy to answer. We asked six leading directors and senior executives with extensive experience in Asia and asked them to nominate five top priorities for doing business in Asia.
One of the top priorities that most directors and senior executives share is the need to use local people to run and expand an Asian operation. Andrew Michelmore MAICD, CEO of Melbourne-based MMG, a diversified mining company with operations in Asia, Africa and Latin America, says it is crucial to use local people.
“We have learnt that you get the best performance out of your operation when it is run by local people, not by expatriates, which does not work in the long run, ” Michelmore says. “You actually have to find local people, develop them, find the ones you can trust and, ultimately, get them to be the managers of that operation and project.”
Michelmore, who is widely regarded as one of the few successful foreign executives working for Chinese state-owned enterprises, says his company has been practising localisation strategy for a long time with great success in places like Laos.
“They know how the politics works, they know the environment and they know how the culture works. They know how the workforce works, they know where all the relationships are, they know who to trust and they stop us from falling into any pitfalls.”
Jackie Korhonen GAICD, CEO of SMS Management & Technology, shares Michelmore’s view. She says people need to resist the urge to send expats to do the work. “When you are sitting in Sydney and Melbourne, you want to send the people you can trust and people who know your business, but you certainly have to at least couple that with a good investment in local people.”
John Thorn FAICD, a non-executive director of Amcor, has also noticed that Chinese companies have started to hire more and more Western executives to run their international operations. Andrew Michelmore is a case in point. More recently, Alibaba, the Chinese e-commerce giant also hired Michael Evans, a former Goldman Sachs banker, to run its international operation.
Recognising diversity in Asia
When talking about Asia, many people tend to think of it as one homogenous place. But this could not be further from the truth. Asia is a very diverse place, and includes mature markets like Japan and South Korea, and emerging places like Indonesia and Burma. In fact, for large markets like China and India, they are about as diverse as the European Union.
“We just talk about Asia as one market, which is absolutely not the case. You need to dissect Asia into different markets and have a different strategy for each one of the regions where you want to do business,” Korhonen says.
John Denton AO MAICD, CEO at professional services firm Corrs Chambers Westgarth, says Asia is not a monolith and people need to recognise it. “There is a lot of diversity within Asia. Even if you just think about India, there is a huge difference between Guajarati and Bengalis.”
One of the most successful Australian companies in Asia at the moment is the vitamin and health supplements producer, Blackmores. Its share price soared and briefly crossed the magical $200 per share threshold last month. The company has been a long-term player in Asia and it operates in many places from China to Indonesia.
Blackmores’ chairman Marcus Blackmore explains the necessity of adopting a differentiated approach in Asia. “We have different marketing strategies for Thailand, Malaysia and China,” he says. “For example, we have special halal products just for the Malaysian market.”
There is a general consensus that building long-term relationships in Asia is one of the most important things for business success in the region. Mark Hand MAICD, managing director of ANZ’s corporate and commercial banking, says Australian businesses need to build relationships before they push ahead into Asia.
“You have got to have that level of trust and understanding of the local market,” he says. “You need to meet potential suppliers, customers, manufacturers and distributors.” Thorn, a former managing partner at PwC and a former board member of NAB, says: “You need to develop contacts and relations with Asians. Without these relations, you have got nothing.”
In terms of developing relations with Asians, Denton, who played a key role in drafting the Australian Government’s Asian Century White Paper, says one of the most important things that business people need to bear in the mind is that Asians tend to take a more long-term view on relationships.
The predominance of family-owned conglomerates and state-owned enterprises have different time horizons than Western listed companies. “There are different time-frames at play within Asia. The kind of short-term returns that people often expect in Western economies are not as important as long-term returns,” he says.
Blackmore has an interesting perspective on how to build relationships in Asia, especially in China. He says one of the most under-utilised assets in Australia is the country’s large and growing Chinese community, who have been here since the time of the Victorian Gold Rush.
The company’s success in Asia (about half of its revenue comes from the region) is also due to its extensive partnerships in the region. “It is a bit of mug’s game, if you don’t have a partner who knows the local market. You have to be prepared to share profits with your partner.”
Blackmores’ Asia managing director, Peter Osborne GAICD, has been in Asia on and off for 30 years.
Blackmore tells a story about how his company failed to gain a foothold in Indonesia on its own and now it is giving the market a second go through forming a partnership with a local Indonesian partner. He attributes Blackmores’ success in China in part to its strong partnership with Sinopharm, the country’s largest pharmaceutical wholesaler.
When it comes to how to build relationships, Grant Dooley MAICD, head of Asia Business Group at Hastings Infrastructure and the former Australian Consul-General in Guangzhou, tells an interesting story about how he uses his interest in Chinese triads in 1920s Shanghai to build relations with officials and business people from that region.
Mukund Narayanamurti, CEO of Asialink Business, also offers some practical tips on how to engage with Asian partners. “In practice, this often requires a willingness to participate in after-hours business dinners, as well as being open to personal questions, for example, about your family.”
Unique product and services
During the Victorian era, English merchants dreamt of the opportunity of selling knives and forks to the vast Chinese population. Needless to say, they failed. This points to the fact that Australian businesses need to provide unique products and services to Asia.
Hand says you just can’t pick up a product that has been successful in Australia and expect it to sell in Asia. His advice for businesses is that you need to target high-end consumers.
“Australia has a great reputation and especially in food products. We are fortunate that we have built an aspirational brand as a country, particularly in China”, he says. “You need a product that is going to appeal to their perception and understanding of what comes out of Australia.”
He says it is important to find out what local people want and he nominates vitamin makers Swisse and Blackmores as two prime examples. These two companies have enjoyed extraordinary success thanks to the voracious appetite of Chinese consumers.
Swisse and Blackmores are riding the waves of health-conscious Asian middle-class consumers who want to enjoy a better lifestyle. Blackmore says it is important to know what Asian consumers want, not what you think they need.
The advice from all business leaders is if you are interested in making a quick buck, Asia or emerging markets are not for you. However, many directors and senior executives struggle to balance the need to provide short-term consistent returns with long-term growth strategy.
ANZ is arguably one the best examples of this dilemma. For the last seven years, the bank has been pursuing a super-regional strategy under the outgoing CEO, Mike Smith. However, its strategy has been under attack for its relatively weaker returns on its investment.
Hand defends the company’s strategy, saying ANZ has been laying the foundation for future success. He says you need scale, representation and capability in these Asian countries to be able to participate in these trade flows. “I am taking on new customers because of our Asia capability.”
Thorn says: “Even large companies get pressed by fund managers to get a return on a very short-term basis. This just does not happen in the emerging markets,” he says. “Your shareholders want a return on a consistent basis. You have to convince your shareholders your strategy is correct.”
Korhonen offers some practical tips on dealing with this issue. She says you need to be transparent about your strategy. “Show indication of progress, show little successes and be as transparent as you can be to keep people’s confidence,” she says.
“In the short term, it is much easier trying to get market share in Australia. If you don’t take a long-term view, 10 years from now, you will look back and regret it,” she says.
Just as the old Chinese proverb tells us, the best time to plant a tree was 20 years ago, businesses need to plan long-term for their Asia strategy.
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