From West to East: Australia’s Window into Asia


The focus of the world has shifted east in recent years – the 21st century has been hailed as the ‘Asian Century’ and the center of trade for the world has moved from the Atlantic to the Pacific.

This is certainly not a new trend; however recent events have highlighted increasing strategic options for Australian SMEs to explore.

For instance the internationalisation of the Chinese Yuan is an example of the new economic strength that is found in the Asian region, with foreign companies now experiencing unprecedented access to Asian markets, and vice versa.

With the recent signing of the China-Australia Free Trade Agreement, after a 10 year negotiation period,  it is expected that trade will double from the existing levels as the local tariff barriers have been lifted between Australian exports and the Chinese Markets.

For Australian and New Zealand SMEs, this presents exciting new opportunities being the best-positioned, geographically and in business to make the most of this shift in the world economy.

Of course, with these opportunities comes a new set of challenges. Small businesses will need to start thinking internationally if they want to capitalise on the opportunities presented in coming decades. By being agile and taking the time to truly engage with the new powerhouse economies of the Asia Pacific, businesses will be well-placed to grow throughout the Asian Century.


In recent article released by ANZ, Mark Whelan Managing Director of Global Commercial Banking stated “all too often there is a difficulty in translating such a huge opportunity into success for individual firms or even industries. Today, only a small fraction of our small and medium-sized businesses in Australia export and a recent report by the Economist Intelligence Unit tells us only 19 per cent of businesses have taken advantage of recent FTAs”.

Without a doubt, Asia is the most dynamic and rapidly changing part of the world. Backed by almost half the world’s population, economies in the region are responsible for some of the highest expansion rates globally and will continue to be a major source of global growth into the future.

China is Australia’s largest export market of goods and services, accounting for approximately a third of total exports.

According to a recent report by PricewaterhouseCoopers (PwC), Asian countries will continue to see dramatic growth in coming decades; by 2028 the report suggests that China, which has already become the largest country in the world by purchasing power parity, will be overtaking the US in market exchange rate.

An Expert’s Insight

TEC BRIC Speaker David ThomasDavid Thomas, TEC Speaker and BRIC expert on global hotspots,  suggested  “the Australia-China relationship is about to enter a ‘Golden Phase’ with the signing of the China-Australia Free Trade Agreement, the visit to Australia by President Xi Jinping, and the increasing awareness of Australia’s agricultural resources and services capabilities in particular sectors”.

David regularly works with many wealthy Chinese entrepreneurs, investors and business leaders who are building links into Australia for a combination of business, investment and migration purposes. He highlighted that this is creating opportunities for local financial services providers (wealth managers, insurance brokers, accountants, banks, lawyers etc.) to provide support and services for them on the ground in all of our major cities and regional centres.

“Many arrive with limited or no knowledge of Australia’s complex tax, superannuation, insurance and business environment. Many of them are looking to set up local businesses, local companies, superannuation funds, bank accounts and to insure themselves against a combination of personal and business risks,”

“They also have to decide where to live, whether to buy or rent, where to send their kids to school and how to develop a local network of personal and professional contacts. This is creating enormous opportunities for local SMEs to provide the relevant services, support and advice, and to upgrade their capabilities, language and cross-cultural skills to service this lucrative and rapidly growing market,” said David.

“China’s ‘Going Out’ strategy is in full swing. Nearly half of China’s wealthiest people are planning to move to another country within the next five years and there is already evidence of a sharp increase in numbers, interest and motivation amongst those who have Australia in their sights,” Concluded David.

Clearly East Asia’s importance is only going to increase in the future. For SMEs, though, the question still remains: How can this expansion drive business growth locally?

Why SMEs need to get involved

The rise of new economic superpowers in Asia is going to create radical changes for SMEs in Australia and New Zealand. While the biggest changes will be for exporters that are looking to earn a share of new consumer demand for the Asian region, this change will affect businesses at every level.

Free trade agreements are just one example. The recent deals signed with Japan, South Korea and China – three of the largest economies in East Asia – means the door has already opened for enhanced trade and market access.

Of course these agreements and engagement is a two-way street. SMEs have greater access than ever before to these economies, businesses can now compete directly with local businesses.

This means that competitors are no longer confined to the same town or state. Now, competition is on a global scale, with many innovative Asian enterprises looking to unlock new opportunities throughout Australia and New Zealand.

Hitting the export trail

China is the world’s largest food and beverage consumer in the world with a population of 1.3 billion, capitalising on the ‘dining boom’ across Asia is an increasing trend for Australian businesses.

Recent events in the F&B sector are providing more opportunities for Australian exporters than ever before.  China’s strong economy and wealthy cities are in demand of sanitary high quality meat, dairy, fruit and other products from Australian exporters.

One example of this is TEC member and Managing Director of Beerenberg Farms, Anthony Paech who has expanded his family business into a global operation, exporting an increased percentage of their products overseas. Their premium products are 100 per cent Australian, sourced directly from their farm in Adelaide. This particularly appeals to Asian customers and the five star hotels they supply.

Another shining example is award winning TEC member company Craig Mostyn Group, a leading diversified food and agribusiness with revenues in excess of A$310 million, who operate locally and throughout Asia. With close to 30 per cent of pork products exported to Singapore and the recent investment into abalone farming exporting over 95 per cent of its high value product into Japan and China.

Once you begin exporting into another country you are scaling your business to a much higher level, it is strongly advised to have a formal strategy in place. HSBC states that 73 per cent of Australia’s exports go to Asia and estimates that by 2020, it will increase to 80 per cent.

Many SMEs find it difficult to determine where the best point of entry for their products is. The best approach is to do your homework, undertake research and then approach Asian countries that have the right market conditions and infrastructure aligned to your products and services.

Risks and operational challenges

Cultural differences are also an important factor in effectively approaching business engagement in Asia. Even within a single country, markets conditions are incredibly diverse and present their unique operational challenges, having a strong cultural understanding will prove beneficial and minimise the risks.

According to TEC Chair Max Robertson, “the risks in most of Asia will be from the ‘unknown unknowns’ or the things you are oblivious to. SMEs need to get educated about the characteristics of the individual countries they are interested in. For example, within Indonesia, pork has a good market in Bali but not in Java due to the different religions in the two areas.”

“You need to be aware of the differences between countries and that most countries are not homogeneous. There are enormous cultural and linguistic differences you need to understand. You need to be sensitive and aware of the differences and how they can impact upon business opportunities.”

Cultural factors aren’t the only risks that organisations will need to overcome when approaching a foreign market either – there are also bureaucratic obstacles for companies to navigate.

Tax is just one example. Even as western taxation and accounting standards become widespread in the Asian region, these areas are still less developed than SMEs will be used to in Australia and New Zealand. The same is true for legal practices and many other structural factors that underpin a successful business.

“Get advice from accounting firms on tax and don’t make assumptions about the rule of law and payments. You can’t generalise.”

“There are terrific opportunities in Asia, but there are also major risks if you get the wrong joint venture. There can also be problems in some countries with repatriating profits, as some of the universities have found. Companies need to be acutely sensitive of how difficult it is to move money around,” explains Max.

TEC member and Managing Partner of WMS Chartered Accountants, Aaron Lavell is an example of how Australian expertise is training Malaysia’s accountants. “As Malaysia is currently rolling out the implementation of a new GST, we’ve found there is a market for Australian expertise and training on this topic,” Aaron explains. The training covers areas such as tax rules, legal requirements, cash flow and system issues that arise when a country transitions to a GST regime, as Malaysia will in April 2015.

Businesses looking to address strategic risks when entering Asian markets must remember to expect the unexpected. Often the best way around this is to build partnerships with local companies and embark on joint ventures in order to enter Asian markets.

Not only does this make financial sense for Australian companies, it is also a good strategy for reducing the risk posed by entering a new market.

Offshoring for cost reductions

The potential of Asian markets isn’t limited just to exports – SMEs can also benefit from moving their business processes to East Asian markets in order to become true multinationals.

Currently manufacturers have been the most prolific users of outsourcing to the Asian region, with mainland China firmly established as the ‘factory of the world’. However, the next step is going to involve moving services and other business processes to overseas markets in order to make the most of lower input costs.

While lower costs might be a major advantage, this shift in labour will also allow Australian companies to invest more in their local staff, keeping high-value processes in Australia, while moving low-skilled work overseas.

Many SMEs may never have considered the possibility of outsourcing their processes to another country, especially if they are still focusing on building a strong business. But, with cost pressures rising, it is now more important than ever to look for new growth opportunities.

Here are some of the core benefits:

  • Lower costs
  • Accessing skilled experts
  • Reduced overheads
  • Greater flexibility among staff
  • Increased efficiency

Shorter turnarounds

Of course, offshoring part of a business isn’t a process that can be completed overnight. SMEs in Australia and New Zealand will need to invest time in understanding everything that’s involved and finding partner organisations that can assist with their outsourcing efforts. As with any major development, a strong plan and comprehensive risk management strategy are essential.

There are clearly obstacles that organisations will need to undertake, regardless of whether they are looking to export to Asian markets or outsource their business processes. However, companies in Australia and New Zealand are better placed than many in other countries to capitalise on the coming Asian Century.

For those who commit to this process and truly engage with these markets, the potential for future growth is virtually limitless.

About the Author

David is well known in Asia Pacific for his experience, credibility and passion for identifying, building and facilitating business and investment relationships between developed and emerging countries. David brings personal insights, anecdotes, stories and observations to every presentation to show business leaders and forward thinking organisations how to profit from a fast changing world.

The Opportunities and Challenges Facing Australian SMEs in 2015

Australian businesses are facing increasingly difficult conditions, as fluctuations across both international markets and the local economy create a persistent challenge that companies will need to address.

For CEOs and other senior executives, understanding these developments and positioning their business to make the most of new opportunities will be essential for realising strong ongoing growth. As the economic situation continues to fluctuate throughout 2015, CEOs are going to see even greater demand on their core leadership skills to navigate these changes.

This has been reflected in the most recent confidence index from The Executive Connection (TEC). In the research, we asked both C-suite executives and SME owners what they felt were the largest issues they saw affecting the market, along with how confident they were about the future.

Our survey revealed that although business leaders are confident about the future, 37 per cent feel the biggest barrier to future growth will be their ability to develop new innovation. A further 35 per cent are worried about finding the right staff, while 20 per cent cited difficulty in securing funding and access to capital.

“Uncertain economic conditions and the ability to access capital present SMEs with a challenging business environment. CEOs must rethink their current strategies to find new ways to grow and thrive in a competitive and unsteady market,” says Stephanie Christopher, CEO, The Executive Connection.

“In today’s challenging environment, the day to day management of running an enterprise can often leave business leaders feeling isolated, undermining their confidence. CEOs and business owners are faced with daily make-or-break decisions that could have significant implications on their business; and many leaders without a support network  feel they are making these big calls in a vacuum.”

To get a better understanding of the major trends affecting SMEs, Warren Hogan, the chief economist at ANZ Bank has given TEC an exclusive insight into the trends that will affect business performance in the next 12 months.

TEC ANZ Warren HoganThe Economy and Australian SMEs in 2015 – Warren Hogan, chief economist ANZ Bank

Cheap energy, money and low wage rates mean 2015 is a great year to get ready for growth.

We believe that the business operating environment will improve gradually through 2015, thanks to favourable trends in labour costs and energy prices, lower interest rates and the weaker Australian dollar. Indeed, we have already seen hints of these trends in recent surveys of small business. Eventually, we expect these factors will feed into stronger growth in most sectors outside of mining and related services, so SMEs should already be preparing themselves for a cracking 2016.

Overall, 2015 will continue to be characterised by the transition to a post mining-boom economy. There will be progress and some sectors will do extremely well in certain states. Businesses linked into the NSW construction market seem set for a good year, for example.

However the fallout from the end of the mining investment boom is taking the Australian economy along a lumpy path and 2015 could continue to see some bumps. Conditions are likely to be stronger in 2016 and so this is a good year to get prepared for better times ahead by taking advantage of relatively low costs for staff, energy and money. ANZ remains confident the Australian economy will make the transition from the mining boom back to what we call ‘business as usual’. A steady expansion of the economy lead by business spending, housing investment, consumer spending and employment growth across a wide range of sectors is still the most likely outcome.

The political scene will remain difficult, with the commonwealth and most state governments reluctant to spend – due to their ambitions for fiscal consolidation. There is also pressure for governments to find additional revenue and the GST is vulnerable to being broadened or lifted.

However there is unlikely to be much progress on taxation or Industrial Relations (IR) reform this year. Any big bang on the policy front that might make a material difference for businesses will likely have to wait until the Abbott government’s second term, although a second term for the Abbott government is looking less likely than it was a year ago. Two of our biggest three states will be disrupted by elections, but these will be over and done by the end of March. Both the Baird Government in NSW and Newman Government in Queensland seem likely to hold onto power according to opinion polls and betting markets.

Labour Costs

There are two main components to labour costs; the wage rate and the administrative elements of hiring and firing. We think that overall labour costs will remain steady (or only grow a little bit), driven by softness in wages.

The administrative costs around labour will not really change. The government has stayed away from IR thus far and we can see very little relief from taxes or regulations in the short-term. The labour market remains soft despite some evidence of rising hiring intentions. Ongoing job losses in some sectors and strong labour force growth are pushing the unemployment rate higher. This is hurting consumer and ultimately business confidence.

But the unemployment rate is drifting up and the wages of Australian workers, which were the most expensive in the world a few years ago, are slowly adjusting. Some of that change is happening via the weaker Australian dollar but it is also occurring through wage restraint. Australian wages have failed to keep up with inflation in recent years due to weakness in labour demand. With inflation likely to edge lower this year, and the labour market to remain soft, wage growth will probably remain weak for another year.

The really weak spot for employment is for young people. The unemployment rate for under 25s is now as high or higher than the early 1990s recession. This could be used to strategic advantage by business. Targeting the young and training them for medium-term growth is worth thinking about over the year ahead. Older workers too are a potential source of talent and provide business with a wealth of knowledge. Population ageing can advantage those businesses willing to invest in maturity and experience and the data plainly illustrates that older workers – particularly older women – are keen to stay in the workforce for longer.

In the presence of a soft labour market, a lower headline inflation rate is more likely to filter through to wages and then core inflation as well. We now expect the consumer price index (CPI) to trough at around 1.5 per cent in mid 2015 from 2 per cent previously. Core inflation is now expected to be near 2 per cent in late 2015.

Energy Costs

Global oil prices have started 2015 at about half the level they were a year earlier. Most of this declined occurred over the last six months with the oil price falling by more than 30% in December and early January. This means that energy costs will fall in the early months of 2015 and will likely stay low for much of the first half of the year. We think oil prices will remain low over the course of 2015 and will trickle through the energy complex, putting downward pressure on all energy costs. This is not good for energy producers (countries and companies) but is great news for everybody else. It puts more money in the pockets of consumers to spend elsewhere and it lowers business costs, enhancing profitability and freeing cash flow for investment or debt reduction.

If the fall in energy costs is sustained, we believe it will support confidence across the economy and increase the pace of the non-mining recovery.

Interest rates

The big fall in global energy prices means lower than previously expected inflation in 2015 which then provides scope for lower interest rates.

Interest rates are at historical lows and have been steady for much of the past 18 months. We think that will continue in 2015 with little chance of a significant rise in rates. Indeed, long-term rates have declined in early 2015 and there is a growing probability that the Reserve Bank of Australia will lower the cash rate again in 2015, given the weak inflation outlook and a sluggish non-mining economy. Interest rates and the availability of credit are highly favourable for business in Australia at present, making it a great time to invest.

Australian dollar

The Australian dollar started 2015 at the lowest level in five years against the strong US dollar. At USD0.80, the AUD is well below the five year average level of USD0.97.

Weaker growth and lower inflation in 2015 will provide the Reserve Bank of Australia with a reason and the scope to take the cash rate down 50 basis points to 2.00 per cent over the first half of the year. In our view the Australian dollar is providing support to the economy, encouraging companies that were choked by the mining boom to expand investment and export activity again or compete more easily with imports. This will help growth in the economy.

However, the Australian dollar has not fallen as much against other currencies. The Yen and the Euro have been weak as their central banks continue to expand unconventional policies which are ultimately aimed at weakening their currencies. This is likely to continue. The Australian dollar is a little weaker against most Asian currencies – importantly those of Indonesia and India – but not by much. The other big move has been against the NZ dollar, where the Aussie is at its weakest level in decades.

While the weaker currency helps the competitiveness of Australian companies, it does make imported goods more expensive. With the currency likely to continue to fall through the course of 2015, this suggests companies considering significant capital goods purchases from overseas should lock those in, or at the least the exchange rate, as soon as possible.

Demand in the economy

All these factors should support growth in the economy over the course of the year ahead even if that growth is still a bit below historical norms. The key is that the non-mining economy will continue to improve as headwinds abate and the factors discussed above exert a positive influence on activity. For SMEs it is going to be important to get in ahead of the crowd and take advantage of these positive conditions.

The exception is the mining sector, which is suffering from a wind down in investment activity and weaker international prices. The mining sector will continue to shrink over the year ahead. We do however expect commodity prices to stabilise over the first half of the year, helping the economics of mining down the track.

At the other end of the spectrum, the residential property market – and to a lesser extent the non-residential construction sector – should continue to do well.

Construction approvals suggest that building activity in most of the major cities will remain strong in 2015. This should increase employment in these sectors and have positive spin-offs for related manufacturing activities.

The great bulk of the economy is still just muddling through with business confidence once again softening in late 2014, it may take until mid-way through the year for an improvement in momentum to show up in business spending and employment.

About the Author

Warren Hogan Chief Economist, ANZ Bank

Warren runs Economics and Global Markets Research and is responsible for ensuring a globally coordinated ‘ANZ View’ for internal stakeholders and customers. He has worked as an economist and strategist with Australian and international banks for nearly two decades, joining ANZ in 2005 before becoming chief economist in 2010. Warren’s research focus is on global macroeconomics, monetary economics and financial markets. He is also the Secretary of the Australian Business Economists (ABE) as well as a member of ANZ’s Regional Investment Committee.

Identifying opportunities in the Asian Century

Asia has experienced rapid growth in the 21st century, which has driven a need for goods and services as its burgeoning middle class begins to expand.

Australia is well placed to take advantage of this growth. In fact, the country has already enjoyed a steep rise in demand for its natural resources over the last decade, helping to strengthen the mining sector.

However, as the resources boom begins to taper off, Australian companies must shift their efforts in order to continue benefiting from the multitude of opportunities available in Asia.

A 2012 whitepaper by PricewaterhouseCoopers (PwC) noted that while the majority of Australia’s trade is with Asia, the country only spends 6 per cent of its overseas direct investment in the region.

PwC said this figure is far too low for businesses to take full advantage of potential growth opportunities.

Similarly, a Deloitte report last month urged organisations to become ‘first movers’ rather than ‘fast followers’ when it comes to commercial deals abroad. This means firms must establish themselves as innovators rather than settling for second best.

Selwyn D’Souza, lead strategy partner at Deloitte, said: “Strengthening our already strong relationships with the new global giants such as China and India will become more important than ever as we seek to establish a stronger presence in their markets and their companies continue to enter ours.”

Opportunities in Asia

According to Deloitte, a billion people are expected to enter the middle-class globally within the next 20 years – and a significant proportion will be in Asia.

The OECD estimates 66 per cent of middle-class people will be Asian by 2030, compared with just 28 per cent in 2009.

This increase in consumption provides opportunities to Australian companies across a wide range of sectors, particularly financial services, telecommunications and retail.

Businesses that seek cross-sectoral collaboration between other companies, governments and non-profit organisations are likely to perform better, as this creates a greater social impact.

“It will be the forward-looking Australian businesses that proactively take opportunities to innovate and serve the needs of low-income consumers in the Asia-Pacific region which will enjoy the benefits of increased market share, profit growth and brand differentiation,” Ms D’Souza stated.

However, PwC said organisations must be willing to invest in Asia to have the best chance of gaining market share and forging ongoing relationships with businesses in the region.

Australian CEOs will also require a keen understanding of the many different Asian cultures in the region. The conflict between Western and Eastern values could be a stumbling block unless enterprises are adequately prepared.

Building an Asian presence

Despite the challenges businesses will face growing market share in Asia, the positive outcomes and expansion opportunities are significant.

Here are some strategies that PwC noted could help your company make the transition a little easier.

Invest in human capital: Recruiting or promoting people with extensive Asia expertise is vital.

Not only will this help your business to better understand the marketplace, it also facilitates relationships with Asian firms, which are typically built in person rather than over long distances.

Assess market potential: Review your existing growth strategy through an Asian perspective and identify the best opportunities for your particular business.

Isolate risks, re-evaluate existing brands and products, and strengthen any existing ties you may have in Asia.

Select appropriate market entry options: Entering new international markets can be a challenge, so consider different investment vehicles.

Whether you opt for a joint venture, export-only model, licensing arrangement or other operating structure will depend on your specific commercial objectives.

What next?

Given that the resources sector is already beginning to slow in Australia, the need to build further economic drivers in other sectors becomes more apparent.

Organisations that fail to cater to growing Asian demand could find themselves struggling to succeed against more forward-thinking competitors.

However, CEOs must move fast. These changes are already underway and building for the future must begin as soon as possible, particularly when it comes to attracting and retaining the right staff to excel in new market conditions.

“While many organisations understand the need to recruit resources with the necessary skill set, the demand for this key talent far outweighs supply,” PwC stated.

“It is imperative that companies start planning now how to position their organisations and their people for the Asian Century.”