Opportunity knocks for Australian MSEs in Asia

| January 17, 2018

The rapidly expanding Asian economy offers unprecedented opportunity for Australia’s mid-sized enterprises. Business student Valentin Henrio considers the possibilities.

Numbering over 50, 000 companies, Australia’s medium-sized enterprises (MSE) are one of the most important, yet under appreciated, sectors in the nation. Mid-sized firms employ almost 2.5 million people and according to ABS figures generated over $717.3 billion in 2016. Above and beyond its importance to the domestic economy, mid-sized firms are increasingly extending their reach towards international markets.

While ties to Britain, the USA and Europe remain strong, Asian economies represent the largest source of potential revenue, with growth in the region averaging 5% in recent years, despite a number of temporary setbacks and fluctuations. While Australia’s population continues to grow, ambitious Australian mid-sized firms should be looking to tap into Asia’s vast and expanding middle class.

Despite the tremendous revenue potential the Asian market possesses, many Australian firms remain wary of internationalisation as considerable cultural differences still remain. Many Australian firms struggle to understand the Confucian aspect of Asian corporate culture, which requires the creation of long-term relationships with all partners throughout the value chain, and leads to the establishment of ‘guanxi.

Guanxi means “networks” or “connections” and comprises the web of personal relationships which offer support and foster trust and cooperation among parties doing business together. Organisations can minimise the risks, frustrations, and disappointments which some experience when doing business in China by creating the right ‘guanxi’. Sometimes in Asia, as in other countries, it’s not what you know, but who you know that matters.

While the creation of strong networks and personal connections is a fundamental part of successful trade in Asia in general, and China in particular, Australian mid-sized firms can struggle to achieve it alone. Constrained by their modest size and limited resources, and perhaps hamstrung by their foreignness if they lack employees abroad, they can fall short in their attempts to achieve the recognition and legitimacy they need to establish trade links in Asian countries.

In an effort to help Australian firms create trading relationships with their Asian counterparts, the Australian government offers a range of support. The Australia-ASEAN Council (AAC), launched by Foreign Minister Julie Bishop in 2015, is an example that generates opportunities for local businesses, education providers and research bodies to work with partners in South-East Asia.

A number of Free Trade Agreements (FTA) negotiated in recent years have improved access to foreign markets for mid-sized firms. The establishment of Austrade has helped business owners understand and implement cross-border operations, by providing user friendly guidelines and information that help them navigate the maze of foreign trade.

The need to expand and extend foreign trade in Asia and beyond is a pressing national priority as well as offering commercial opportunities for particular sectors and firms. Australia’s quarter century of uninterrupted growth has been driven in large part by the insatiable demand from fast growing Asian countries for our nation’s rich natural resources, from iron ores and concentrates of coal and natural gas.

However as China uses its considerable economic clout to secure a wider range of mineral sources around the globe, and the spectre of climate change hastens the eclipse of fossil fuels, Australia must diversify its exports towards more sustainable, value added industries and boost the service sector, as primary mineral exports decline.

Australia’s service sector has grown by up to 10% per annum in recent years, boosted by rapid expansion in the number of foreign students and tourists attracted to our shores. However, while services play an increasingly important part in maintaining the nation’s balance of payments, Australia’s more advanced service providers in the realms of IT, health, finance and legal services still struggle to penetrate international markets in a similarly significant manner.

The Commonwealth has therefore invested in a range of measures to boost high value service exports and encourage Australian providers to satisfy the growing demand of Asian middle classes for Australian-based education and personal and professional services.

Asia is expected to generate nearly two-thirds of global growth over the next decade, with China, India, Japan and Indonesia offering four of the largest five markets, in the world, in terms of purchasing power.

Australian MSEs are well placed to expand and flourish in such markets. The 2017 foreign policy white paper outlined the need for closer economic ties with our largest Asian neighbours and firms, with an eye to the future, will be making the most of the opportunities on offer in 2018.