Australian business has its Asian awakening

Australian businesses are beginning to realise the advantages of our geographical proximity to Asia and the tremendous economic benefits it will bring.

Although a number of larger businesses have been active in Asia for years, the next stage of the relationship calls for greater engagement from the small and medium-sized enterprise community.

Interest is starting to stir. NAB’s customer base shows one in four of our Australian business customers are active in Asia (import, export or both), and over 40-50 per cent of our large corporate and institutional customers have operations in or active engagements in Asia.
Over 70 per cent of our SME customers international dealings are focused on Asia and many of those have well established relationships. This is crucial to ensuring regional success. Over half believe their activity in Asia will grow in the future.

China is by far the most popular Asian country that SME businesses are dealing with. Of particular significance are importers who are bringing in goods for sale in Australia.
For agricultural customers, over half of those with international dealings deal with Asia. For those without international dealings, many are considering it within five years. Asia remains the number-one destination, although numbers are relatively small.

These statistics are encouraging, but there is still a long way to go.

The time is ripe for Australia to capitalise on these business opportunities. Flows of trade, people and capital between Asia, Australia and New Zealand have grown remarkably over recent years, averaging 15 per cent per annum. Never before has the centre of the global financial world been so close to our shores, giving Australia a shot at becoming a central player in the region.

For its part, the federal government has committed to establishing free-trade agreements with China, Japan and South Korea. The booming economies of Indonesia and Vietnam have also emerged as important regional players. There is a growing appreciation of the need to deepen business, cultural and diplomatic ties with China and the rest of Asia.

Yet closer engagement with Asia is often a complex process. We recognise that we don’t fully understand all the nuances nor do we possess a full cultural understanding of the marketplace. We need to be mindful that Asia is not a monolith, but an incredibly diverse region with huge cultural, economic and political differences among countries.

When it comes to dealing with Asia, there is a clear imperative for businesses to do their research, develop a measured and thoughtful strategy and ensure they have the right people on the ground to execute it. Therefore, it is critical to build and maintain on-the-ground networks in Asia – with the Australian government, industry associations, professional service providers and your bank – to leverage experience and knowledge.

Three years ago, NAB introduced a successful Australian producer of high-quality fortified wines to a well-known Chinese wine producer.

Over this timeframe, the relationship between the two companies has strengthened considerably, and has created tangible benefits for the Australian producer.  There have been numerous visits between the two companies, with the Australian company sending a senior winemaker to China to assist and advise the company during the Chinese vintage.

The two companies have executed an Agreement of Strategic Cooperation – the only one the Chinese winemaker has entered into anywhere in the world.  The Agreement runs for five years and includes the Australian producer exclusively supplying large volumes of premium bulk wine, and distribution of their wine throughout China through the Chinese winemaker’s distribution network. In return, the Australian company sends its winemaking experts to China to provide knowledge and expertise. The benefits for both parties will be long-lasting.

Australian companies seeking opportunities in Asia must remember that adequate due diligence must be completed to fully understand counterparties, the proposed transaction, appropriate deal structure, regulatory requirements and any associated risks.

Business should spend as much time as feasible in China and wider Asia to understand the marketplace and build relationships. Face-to-face discussions and negotiations are extremely valuable in building a successful venture and are much more effective than interacting remotely.

Negotiations may take longer than expected; businesses must be patient. Time to develop relationships is needed before committing to a transaction or business venture.

It is also important to be flexible in discussions and expectations in relation to a transaction. The nature of activities and relationships may change over time.

Beyond banking and commodities, there are significant opportunities for businesses in health, education, professional services, manufacturing and tourism. Agriculture and resources are two sectors that receive strong support from NAB.

The demand for safe and nutritious food is expected to rise drastically in the next five years, with consumer spending predicted to rise from $US2.8 trillion in 2012 to US $3.7 trillion. The rise in demand provides multiple opportunities for Australian businesses, as Asia increasingly looks abroad to satisfy demand. Australia is perfectly positioned to satisfy this demand due to our enormous and safe supplies and strong bio-security focus.

Asian demand for commodities will continue to play a pivotal role in the health of the Australian resources sector. We believe that the super cycle is not over; perhaps it is not as super, but it is still strong. However, Australian resources companies will increasingly need Asian demand to generate revenue and growth. A business sector that is aware of the opportunities and equipped to respond to them will be critical in ensuring Australia’s future prosperity.

Joseph Healy is Group Executive, Business Banking at NAB. Along with responsibility for small, mid and large businesses, he is responsible for NAB's activities in the Asian region.