There goes the Asian Century?
Rather than concentrating on broad economic data, Australian companies must build agile, adaptive models to take advantage of opportunities the Asian Century will bring.
These figures are no surprise. Indeed, one would hope that the government's soon-to-be-released white paper on 'Australia in the Asian Century' doesn't spend much time informing us of the broad macroeconomic opportunities of Asia. Instead, we should be focusing on whether Australians are prepared to engage with the opportunities the Asian Century will deliver.
The story of extraordinary growth in our resources sector, driven by Asian growth, is well known. Unfortunately, despite decades of talk highlighting vast Asian opportunities, Australian firms outside of the resources sector remain cautious on Asia. In fact, non-resource exports to Asia once adjusted for inflation have barely grown in Australian dollar terms since 2001 and our non-resources share of the Asian market has declined.
Clearly, the high exchange rate has an impact in suppressing non-resource exports. Yet paradoxically, even as investors are getting more value from the Aussie dollar in overseas markets, Australian business investment through direct and portfolio stock in Asia still only represents under 10 per cent of our total investments overseas. We could wonder whether Australia is taking Asia seriously as a market.
For businesses there are some reasons for caution. Asian markets have intense domestic competition, government regulation can play a heavy and often unpredictable role and large uncertainty exists around the prospect of Australian success.
In addition, as Treasury economist David Gruen recently pointed out, firms often find it difficult to adapt to new markets and innovations. To succeed in Asia firms will have to shift long-established business models, enter new contracts and hire new workers from different cultural backgrounds. Existing profitable operating models will be moved into unknown and unproven territory. Given the change and challenges required you can understand why some Australian firms have been slow to move.
But there are success stories of Australian exports outside of the resource sector. In a new report entitled Imagining Australia in the Asian Century, Boston Consulting Group has studied 13 such companies and identified the common themes that other firms can use to follow their lead.
We've found that firms capturing the Asian opportunity leverage the natural strengths of Australia’s sophisticated services sector, geographic location and valuable natural assets, and match them to the three key Asian transformations: growing consumer demand, increasing business and network sophistication and high levels of investment in private and public sectors. They include businesses such as Jetstar, education provider Navitas and the food producing Craig Mostyn Group.
For Australia, the obvious question is can firms replicate the success of these companies and ensure Australia's competitiveness into the next century?
There is no easy answer. Every country and market in the region is different. But three common themes emerge from successful Australian companies operating in Asia: specialisation, relationships and adaptability.
On specialisation, Asian customers value local knowledge in concert with regional advantage – successful Australian firms have the ability to specialise a product or service to meet local preferences while offering a regional capability through distribution networks, variable manufacturing hubs or a portfolio of assets.
Similarly, relationships are critical in highly competitive Asian markets. 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.
And finally, in the face of the diversity and dynamism of Asian markets Australian firms need to build agile, adaptive operating models that can fluidly respond to changing market conditions.
Ultimately, Australian business should not need a government white paper to spur them into action when money can be made. It is time for Australian businesses to reassess their caution in light of the inevitability of Asia's rise and the opportunity provided to match its transformation with our natural strengths. If not opportunity, then surely the threat of increasing regional competition and declining market share should stimulate a response.
Success is not guaranteed, no one owes us a living. Yet businesses, and Australia, must conclude that Asia can be taken seriously as a customer and market. The prize, after all, could be the opportunity of a century.
Ross Love is managing director of The Boston Consulting Group.