Business 21C - Published by UTS Business

Economies in Asia are expected to represent over 40 percent of global GDP by 2020 – China’s contribution alone is forecast to almost double to 14 percent – and Australia is ideally placed to capitalise on the resultant opportunities.

Interview with Phil Ruthven

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The dominance of the resources sector in the Australian economy has tended to drown out the contributions of other world-class industries such as client services and tourism. But with resources driving the Australian economy for perhaps only another 15 years, it is service industries that will emerge as our dominant export earners in the longer term.

As China continues its rapid transformation from producer to consumer economy, its demand for financial, legal and other professional services will rise commensurately.

Tourism is an excellent example. An estimated 112 million Chinese will travel abroad annually by 2020, according to a recent report by Boeing. If Australia is able to capture just 20 percent of this projected market, it would contribute more to our export earnings than all the mining sectors combined.

Australia’s big-four accounting firms are among those that have realised that patience is essential for businesses that plan to see returns in Asia. Many have been operating in the region for up to eight years already.

Leighton Contractors, one of Australia’s largest construction companies, has successfully penetrated the Asian market, and now conducts a third of its business offshore. Their international activity is largely the sale of construction skills, rather than on doing the construction itself.

Fools rush in…

Nonetheless, while setting up shop in Asia has the potential to yield healthy returns, it is imperative that businesses enter the market with their eyes open. It’s certainly not a free-for-all.

A first consideration is the quality of what the business is offering. To be competitive, new entrants in the Asian market need to display world’s best practice or operate in unique or niche market segment. Competition for Asian business is highly competitive, and only the best performers or those with unique offerings will survive.

Firms considering a move offshore should also ensure that they are secure in their home market position before taking the plunge in new markets. It is counterproductive to invest in setting up overseas if competition is undermining your business at home.

One way to limit exposure when doing business in Asia is through strategic alliances. This has been the approach IBISWorld Market Research has taken to enter the Chinese market. We have shared our intellectual property with All China Marketing Research, the largest economic consulting firm in Beijing. They have the right to onsell that data to Chinese enterprises but we have the rights to the Chinese data for the rest of the world. It is a matter of sharing our respective strengths.

In our US operations we have taken a different approach. Here we are 100 percent Australian owned but have an alliance with RMA (Risk Management Association) which has opened the doors to almost every bank in America. Such an arrangement is vital to IBISWorld since banks are our biggest single client group in any given country, accounting for 20–25 percent of revenue.

Many Asian governments are concerned that unique aspects of their culture could be lost if they are overwhelmed by globalisation. One outcome is that many countries in Asia, such as Japan, do not allow wholly-owned foreign entities to operate. This makes strategic alliances a necessity. In Thailand, for example, foreign ownership of businesses in the telecommunications and energy sectors is limited to 49 percent.

Research published in November 2010 by Morgan Stanley suggests that to succeed in China, multinationals must learn to integrate with the culture. The report implies that businesses should make the target country their ‘second home’ rather than treating it like as another foreign market.

With over 55 percent of Australia’s trade now conducted with Asia, and with China well down the path to consumerism, opportunities in the region abound for firms in the services sector. But while returns in Asia can certainly be high, some essential elements must be in place before taking the plunge. Firms should ensure they are secure in their home markets, have established themselves as either a player with a unique offering, or display world’s best practice in their activities, and explore the opportunity to leverage off strategic partnerships in target countries.

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