“Asia’s close geographic reach, dense consumer base and high levels of purchasing power make it very attractive for Australian enterprises”John Spence, CEO,
The Karma Royal Group
For many business people contemplating Asia from Australia and New Zealand, the immensity of the market seems overshadowed by the scale, the speed of change and the diversity at our doorstep. While some still hesitate, the opportunity grows every day. Chief Economist of Austrade; the CEO of ANZ Asia-Pacific; Australia’s 2010 Entrepreneur of the Year; and Uschi Schreiber, Markets Leader Oceania, Ernst & Young all agree: if Asia isn’t already a focus of your growth strategy, it’s time it was.
After 20 years as an Asian banker, ANZ Asia-Pacific CEO, Alex Thursby, has witnessed the region’s revival first hand and believes its resurgence is unstoppable.
“If you look at the world’s economic history over the last 2,000 years, all but 400 were led by Asia. Now, against the backdrop of massive demographic, political, legal and financial changes, we are returning to the reality before the Industrial Revolution when China and India dominated global gross domestic product (GDP),” said Thursby. “Five years ago, there were 58 Asian multi-nationals in the top 500. Today, there are 136. I can’t see that momentum slowing.”
Indeed, the International Monetary Fund (IMF) forecasts GDP growth in China, India and Indonesia at around 9%, 8% and 7% respectively, until 2015.1
These figures demonstrate Asia’s increasing importance to almost every Australian company. The region has long been seen as a source of cheap labour and raw materials, offering the potential for highly competitive operating costs.
But now, it is also home to a rapidly expanding, unthinkably large consumer base with relatively high disposable incomes, making Asian expansion an ever more attractive prospect.
Ernst & Young Entrepreneur of the Year, John Spence, is the founder of the Karma Royal Group, which has pioneered boutique villa resorts across Asia. He describes his experiences of the emerging affluent in Mumbai: “It’s unbelievable. The other day I saw a billboard for a mobile phone company. It said ‘We’d like to thank our 20 million new subscribers’ — and that’s just one company.”
He sees a microcosm of Asia’s wealth in his own customer base. “We’ve got people who bought with us 15 years ago, and their equity and earnings have gone through the roof. So now we’re upgrading them to a much better product.”
As Spence is finding, Asia’s rapidly expanding middle class is threatening to replace the US and Europe as the world’s primary global consumers.
According to the Asian Development Bank2, in 2008, Asia’s consumers accounted for about a third of Organisation for Economic Co-Operation and Development (OECD) consumption expenditure. By 2030, this will rise to over 40%, with an annual spend of USD$32 trillion.
Potential for growth
“Asia is the most densely populated region in the world,” says Uschi Schreiber, Ernst & Young’s Oceania Markets Leader. She adds that the numbers are becoming more compelling for Australian companies operating in a limited home market.
“Most of Australia’s large corporate operate in an oligopoly market, where a small number of companies have control over the supply and demand and can each influence prices and affect competitors,” she said. “As a result it’s extremely hard to achieve significant growth in such a saturated market.”
Yet growth is what shareholders are demanding.
“Boards are demanding growth, and significant growth at that. For Australian companies to achieve this, they either need to diversify or look at new markets.”
And where better to look than on your doorstep?
“Asia’s close geographic reach, dense consumer base and high levels of purchasing power make it very attractive for Australian enterprises.”
Austrade’s Chief Economist, Tim Harcourt agrees: “We used to talk about Australia’s ‘Tyranny of Distance’ from the rest of the world, well now we can talk about the ‘Power of Proximity.’
In this ‘Asia-Pacific century,’ Australia finds itself in the right place at the right time. If we’re smart about it, the growth opportunities in Asia could make us one of the most successful economies in the world.”
He says that the Association of Southeast Asian Nations (ASEAN) has joined China and India as one of Australia’s most important economic regions.
“ASEAN accounts for 10% of our trade, with nearly 45% of Australia’s 44,000 strong exporter community selling goods alone to the ASEAN market. It’s becoming important for small business too, with 21% of exporting small and medium sized enterprises (SMEs) now selling into the region.”
Yet, Australian companies are not charging en masse towards the world’s most rapidly growing customer base.
Missed opportunities in the services industries?
While total exports to Asia are more than double that to the rest of the world, our business links with Asia are going backwards. In 2009, investment to Asia fell 11.3% and trade with Asia fell 4.2%; while business trips to countries beyond Asia surged by 40%3 — a trend largely driven by Australia’s services industries.
According to Tim Harcourt, in 2009, while Australia’s top four export markets for goods were China, India, Japan and Korea, for services, the US and the UK took first and third place respectively.
“It seems that Australian services industries may be underestimating their opportunities in Asia. We really excel in professional services, architectural, construction and engineering services, and in managing huge infrastructure projects. Wherever I travel in Asia, that’s the message coming through.”
As one of Australia’s leading bankers, Alex Thursby is concerned and puzzled that many local services companies appear blind to the opportunity on their doorstep.
“People have to accept that Australia is now integrated with Asia. Our economic reliance on the region is huge and increasing daily. All our major exports — tourism, mining, education — depend on Asia. We have an expanding Asian migrant population, strong diplomatic ties and a very good understanding at the Department of Foreign Affairs and Trade (DFAT) level. What’s concerning is that not enough industries are following the money.”
While Thursby concedes that some Australian companies are doing an excellent job of implementing aggressive Asian growth strategies, he is worried by the inertia he sees in other parts of the economy.
“BHP, Leighton, Linfox, Toll and many of our engineering and education providers are out there and doing well,” he said. “But most of Australia’s service industries have become moderate with their strategic growth plays.”