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Expanding into Asia Pacific

Posted by: on 8 September 2014 in Compliance, Legislation, Multinational & Globalization, Payroll, Superannuation

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Despite the global downturn, economies across Asia Pacific are going from strength to strength. According to the World Bank developing countries in the East Asia Pacific region will see stable economic growth this year, at 7.1 per cent. That’s largely unchanged from 2013. While growth is down from the average rate of 8.0 per cent from 2009 to 2013, East Asia remains the fastest growing region in the world. In China, – Asia’s engine room – growth will ease slightly, to 7.6 per cent this year from 7.7 in 2013. Excluding China, the developing region will grow by 5.0 percent, slightly down from 5.2 per cent in 2013.

Compare that to the growth rate in Australia which, according to the United Nations which forecasts economic growth for Australia of 2.8 per cent in 2014, due to falling mining investments, fiscal restraint and fragile private consumption.

Clearly, the Asia Pacific region will offer good economic growth opportunities for Australian companies. Indeed, Asia Pacific has become a driver of the global economy and as international businesses look for expansion overseas, the entire developing region presents some of the best opportunities for growth worldwide.

Apart from the growth, Asian Pacific companies are more or less able to compete with lower cost economies because they are innovative and technologically advanced.

Many Australian grown businesses are now moving into the region. Companies like HASSELL, which after entering the Asian market in 1991, is now China’s largest foreign design firm. Another is Ballantynes which has been selling Australian butter to Thailand for over 60 years. Australian automotive components manufacturers have established themselves in Thailand. MHG Plastics, Futuris Automotive, Bolwell, Air International Thermal Systems, and Gibbens Industries use Thailand as regional supply hub for ASEAN markets. Other Australian auto components makers have set up in India, the Philippines, Malaysia and China. Indeed, over 150 Australian components and aftermarket companies are exporting their products into global automotive supply chains.

A Boston Consulting Group study looks at the strategies used by several Australian companies that have made big inroads in the Asia-Pacific. The companies are ANZ, Craig Mostyn Group, Crown Limited, HASSELL, the Jetsar Group, the Leighton Group, Linfox Logistics, Navitas Limited, RMIT, Sedgman Limited, SEEK Limited, Tangalooga Island Resort and tna Australia Pty Limited.

Australian firms expanding to Asia must place a higher bar relative to their domestic businesses, on prioritising market entry, building relationships and gaining advantage from intellectual property and expertise,’’ the report says. “And finally, Asian markets are diverse and dynamic, so Australian firms need agile, adaptive operating models.”

The Asia Pacific region however has its challenges, it is incredibly diverse, with wide cultural differences in each country and varying levels of political maturity, governmental regulation and technological infrastructure.

To begin with, the demographics are a huge issue. The population of Asia Pacific is divided between extraordinary wealth and chilling poverty. All this depends on political and cultural factors, such as health and education and just how these differences will be resolved remains unclear. Also, there are two sets of economies in the region. On one level, there are the advanced economies, such as Australia, Japan, Singapore, Hong Kong, Taiwan and Korea. Then there are the developing economies like Indonesia, Malaysia, Thailand and Philippines. That diversity presents a challenge to western businesses looking to operate in Asia Pacific, and Asia today needs to be seen as a discrete set of countries they are not homogenous. Vietnam for example is currently seen as having vast potential for growth, but it’s at an early growth stage. This can also present huge risks to businesses that lack practical knowledge.

Australian businesses looking to engage and expand with communities in markets across Asia Pacific must be aware of these factors. They can only go in there with local knowledge and getting cultured is the key.

And then there is China. China expert Mona Chung, who wrote Shanghaied: Why Foster’s Could Not Survive China, says Australian businesses find China a hard market to crack because they don’t read the nuances. In a market where Chinese companies don’t give yes or no answers, Australians often fail to read what’s being said between the lines. And she says it’s not a market where you negotiate hard.

“It’s not a preferred method to use the hard approach,’’ Chung says.

“It’s a culture where people simply do not like conflict. So in negotiations, if people see the potential for conflict, the general method is avoidance. They would much rather not do business than have a conflict and argument.”

“That could be at a cost of profit as well. The fundamentals of the market economy are that if there is a profit to be made, you go for it. The Chinese could forgo profit in order to avoid conflict.”

Chung says many western companies don’t understand that China, for all of its impressive growth, is not a market economy. China is the leader in state-directed capitalism, it’s a planned economy making the country a hard market to crack. The Chinese think they have redesigned capitalism to make it work better and they see it as a sustainable model that provides stability and growth.

Expanding into Asia is a massive opportunity for Australian businesses. There has never been a better time for businesses to expand into Asia. To make the most of it, they need to go in there believing that they have something to learn from the blend of people, cultures and economies they will find there. More importantly, they need to be prepared to alter the way their business works to fit in. After all, they will not get 4.3 billion people to alter “their way” to fit in with an Australian business.

Author: Leon Gettler
Leon Gettler is a seasoned independent journalist, and a regular contributor to a long list of respected business and finance publications and blogs in Australia and in the United States.

Originally published – September 2014 on the ADPInsider.

 

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