Get ASEAN’d! Position your SME for the opportunity on Australia’s doorstep

| August 27, 2014

There are lots of opportunities for First 5000 members seeking to expand their operations. Venturenauts managing director Peter McKenna shares his experiences in ASEAN and looks at how you can access this growing region.

If you are looking to do business in Asia, it’s not just about Japan, Korea, China or Indonesia. The ASEAN region is an exciting opportunity, being one of the world’s largest and fastest growing markets that sits right on our doorstep.

ASEAN member countries comprise Brunei Darussalam, Cambodia, Lao PDR, Indonesia, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

This diverse group has achieved incredible progress over the last 30 years, becoming an economic powerhouse in the region.

Collectively, ASEAN is the 7th largest economy in the worldwith:

•      Over 600 million people
•      Mostly young growing populations
•      Fast expanding middle class
•      GDP more than US$ 2 trillion
•      Economic growth over 5%
•      Trade over US$ 2 trillion
•      FDI over US$ 114 billion.

To put it in context, ASEAN’s population is 100 million more than the European Union, and GDP is greater than India but with only half the population.

So why should Australian SMEs and investors seriously consider an ASEAN business strategy? Attractions include:

Needs and demands in every sector– ASEAN ranges from a developed country like Singapore to developing countries like Lao PDR and Myanmar.

Accelerating growth in consumers and consumption– ASEAN has large, growing populations and a huge expanding middle class across the region.

A feasible alternative for manufacturing– ASEAN has a young, growing workforce and increasing cost competitiveness to other locations like China.

Free movement of goods, services, investment and labour across the region– ASEAN will launch theASEAN Economic Community in 2015 by economically integrating the 10 countries to achieve a single market and production base over time.

Free trade agreement with Australia– the ASEAN-Australia-New Zealand Free Trade Agreement was established in 2010, building on a number of bilateral agreements and increasing integration of the 3 economies.

Access to other major Asian markets– ASEAN is geographically located between China and India, with a range of free trade agreements, including China and India, that could be gateways for Australian businesses.

Are there challenges? Yes. There are different cultures, business practices, languages and regulations across ASEAN, with individual countries differing in their level of market maturity. More continues to be done on institutional reforms like good governance, rule of law, transparency and intellectual property rights to increase investor and business confidence.

I was recently in Lao PDR overseeing the launch of the Centre for Regulatory Impact Assessment that will support government in better consultation and assessing the impacts of draft legislation. This was part of an Asian Development Bank project supporting private sector and SME development.

Typically, SMEs and investors initially ‘dip their toe in’ by targeting specific country markets in ASEAN before moving to a regional strategy.

In developing your ASEAN strategy, it’s very much a relationships and trust approach to business. This is where you will need to invest early and includes building a pitch relevant to the market, finding valuable market connections, and building relationships that bring market success.

My experience is that business transactions in Australia are centred on documentation, whilst in some ASEAN countries, the preference is for discussion. So, whilst the glossy brochures and complex documents are important for ‘image’ and credibility, it’s likely they’ll be given polite consideration, then set aside for a discussion on anything ranging from your observations of their country, family, food and sightseeing. This is about exploring rapport and establishing a relationship and trust for the business to follow and could happen over several meetings before the actual purpose of the meeting is discussed.

During this time, keep your business discussion focused on a couple of key, brief messages. And reading body language is critical, for example, where often a direct ‘no’ is considered impolite and ‘yes’ does not necessarily mean agreement.

After years working with businesses and governments in ASEAN and Australia, I believe success in ASEAN depends on the ability to adapt and be flexible.  Yes, the business strategy must reflect the ASEAN way of business and differences across country markets, but also needs to reflect business models and expectations that will work. A business is likely to struggle if it adopts a ‘one size fits all’ or ‘business as usual’ approach in ASEAN.

Price levels are often not as high for some goods and services because of the general economic conditions. But the advantage of ASEAN is its large and growing consumer populations and income growth. Business models need to be clear on the target consumer and their ability to pay.

Australian SMEs and investors have generally shied away from an ASEAN business strategy. But now there is a lot of attractiveness about ASEAN, especially with the ASEAN Economic Community commencing in 2015. The return on investment is definitely tipping positive. It’s time to get ASEAN’d!

Peter McKenna is Managing Director at Venturenauts, an Australian consultancy company focused on international business development, specialising in the ASEAN Economic Community. In the AEC and Australia, Venturenauts helps businesses enter and grow in local and regional markets, and governments develop policies that encourage international trade and investment. The Centre for Economic Diplomacy Asia Pacific – a Venturenauts initiative with ASEAN partners – supports this.

 

Peter McKenna
Peter McKenna is the Managing Director of Venturenauts, a consultancy that assists SMEs break into the South East Asia (ASEAN) region.

6 Comments

  1. Affendy (final year law student National Uni of Malaysia)

    August 28, 2014 at 1:52 am

    I agree whole-heartedly with
    I agree whole-heartedly with Peter’s blog about the opportunity of the AEC and the need to be prepared.

    I first heard about the strength of ASEAN economy in one of my law lectures. My lecturer explained the importance of ASEAN as the next economic powerhouse through the formation of a new economic bloc called ASEAN Economic Community (AEC).

    She actively encouraged us to seize the opportunities from the AEC and was concerned about the lack of awareness among Malaysian industry players about AEC’s potential and strength in terms of resources and human capital.

    From my perspective as a final year law student in Malaysia, the formation of the AEC in 2015 will impact on the Malaysian legal profession. The competition among local law graduates to get a job will increase. For example, under the AEC, lawyers coming from other ASEAN countries like Philippines, Thailand and Singapore will be able to practise in Malaysia. In short, I would have to compete with foreign law graduates or lawyers who may have better legal skills and language mastery than I do. While AEC prospect is great, I think the government also needs to create awareness and prepare us Malaysians with practical skills to face AEC.

    Well, you cannot expect the job market to remain the same and whilst there will be greater competition, there will also be greater opportunity. Just as our legal market will be open to foreign legal professionals, likewise, their market will be open to me – I now also have the opportunity to practise in Singapore or Philippines!

    There is more to do in terms of promoting ASEAN and solving several fundamental issues, but ASEAN should not be overlooked by anyone – be it industry players or even a final law student like me in Malaysia who might have an opportunity to work in ASEAN through AEC. I think it’s great that Australia, though not strictly a part of the AEC, is having this conversation about how it can better position itself.

    • Helen Hull

      Helen Hull

      September 4, 2014 at 5:19 am

      Affendy, thank you for taking
      Affendy, thank you for taking the time to share your insights into ASEAN. I agree that it will be very interesting to see how this impacts on the job market and look forward to you sharing your experiences in the future.

  2. Stephen Hayes

    September 3, 2014 at 12:00 am

    I agree 100% with Peter’s
    I agree 100% with Peter’s observations about the growing economic strength and opportunities in ASEAN Countries.

    Having lived in Asia for a number of years, any potential investors need to pay particular attention to Peter’s comments about the culturally different aspects of doing business in ASEAN countries. Building sound relationships is key as is the notion of not being too aggressive in schedule expectations. Sound business relationships need to be built on discussion and careful listening.

    • Helen Hull

      Helen Hull

      September 4, 2014 at 5:32 am

      Thanks for your comments
      Thanks for your comments Stephen. Understanding the culture you are working with is a major challenge for Australian Businesses seeking to expand operations into overseas markets.

      This was highlighted in the Export Council of Australia’s, 2014 International Business Survey 2014 (AIBS 2014) – http://www.first5000.com.au/blogart/local-knowledge-major-challenge-exporters-survey.

  3. Roxane Horton

    Roxane Horton

    September 8, 2014 at 10:39 am

    Thanks for this illuminating
    Thanks for this illuminating article. I’ve written on mid-size business engagement with Asia in the past. Businesses in this segment are perfectly placed to enter the Asian market – large enough to have outgrown the domestic market and be seeking export partners overseas, yet small enough to be nimble and open in order to adapt to the requirements their trading partners demand. Feedback I have had is that Australian businesses are highly regarded in Asia – we are seen as honest and secure without the baggage of former colonial powers. Your points about ASEAN specifically are well taken and suggest exciting opportunities for mid size businesses

  4. Barend Frielink

    October 21, 2014 at 1:35 am

    Yes, the situation in ASEAN
    Yes, the situation in ASEAN is similar to AUS-NZ, in the sense that there is generally little interest in and knowledge of the AEC, and of the various FTAs. It is mostly government departments that are better informed in this case. I have seen articles where people argue that because companies do not experience actual integration, it is not on their radar. And in an environment where there is strong growth, there is of course little pressure to look outside your own territory.

    In Australia we are looking at a future with possibly lower growth figures (or at least growth mainly driven by population growth), and looking elsewhere as part of one’s business strategy makes good medium and long term sense.

    Your blog touches on a number of important issues and messages, and I propose to supplement those with the following points:

    Doing business in ASEAN requires similar skills to doing business in China. A long term perspective and good relationships are key.

    There are a few key factors to keep in mind:
    · Some have argued that doing business in ASEAN, in many ways is easier, more transparent and secure than in China (see link at the end). An important observation here is that ASEAN countries are problem-solving oriented and react to public assessments such as the World Bank’s doing business surveys. They are willing to improve.
    · The ASEAN countries have very strong trade links with China, and many countries could be viewed as a back door into China. Equally important is the fact that ASEAN countries have significant Chinese populations, who command a percentage of GNP that is larger than their share in the population.
    · In addition, there is ASEAN+3+1 providing potential access to Japan, Korea and India.
    · Finally, and I am not certain whether many companies are consciously aware of this, the ASEAN economies are network based, and not company centred. This has important implications of how you approach the market.

    Nature of the ASEAN consumer market

    The rising middle class and increasing affluence drives a strong wave of consumerism. There is strong and growing appetite for luxury, travel leisure, fashion and entertainment. In addition there are needs in the areas of higher education, skills development and financial services (private wealth management is only part of this and very well covered by players from around the region, including AUS).

    What do AUS companies to the table?

    Australian companies have much to offer of course, but it would be useful to provide some focus. Here are some thoughts:
    · Technology and know-how. Companies in ASEAN are craving this. Difficult for them to get access unless through joint ventures or take-overs. AUS SMEs can play an important role;
    · Food and food technology. There is a strong need to increase food production locally through improved technologies and know-how, AND to satisfy middle class appetites for western and above all safe food. As in China, the demand for safe food cannot be over estimated.
    · Skills. There is an enormous shortage of skills in the private sector; this varies by country and by sector. AUS companies have a strong skill set to bring to the table.
    · Governance. Many ASEAN companies would like to strengthen their governance and understand how to improve effectiveness and efficiency while at the same time adhere to international standards. AUS is know well in this area and is generally trusted.
    · Market access. Although this is about AUS companies in ASEAN, equally important is ASEAN access to Australia, which is an important market in the region. AUS companies can provide access to that market.

    Footnote on China: It has become clear that the operating environment for western companies in China is becoming more difficult. See today’s NYT:

    http://www.nytimes.com/2014/09/04/business/international/chinese-antitru