by Peter Church
During my years spent in Indonesia and then Singapore in the 70’s and 80’s, I acted for many large Australian companies investing in the individual countries of ASEAN. In those early years, ASEAN did not have any of the current schemes to promote ASEAN manufacturing, such as letting a company manufacture in one ASEAN country and export tariff-free to the remaining ASEAN countries.
Australian Companies in ASEAN
Such companies included Monier, which dominated the roof-tile market in Australia; Rheem, which dominated the home and industrial water-heater market; EMAIL, which licensed many key products in the gas-, electrical- and petrol-metering sector; CSR, which had concrete “readymix” businesses; Boral, which produced building materials; Rocla, which made pipes; Australian Industrial Gases, which produced gas for industrial use; Transfield, which exported bridges to Indonesia; James Hardie which produced building materials in Indonesia; and BRC Lysaght, which established steel sheeting businesses in ASEAN.
And, of course, we had several forays by our big banks into Asia, with the likes of Westpac and ANZ. Our insurance companies such as MMI also explored the ASEAN markets and several of our large construction companies, such as Concrete Constructions, established businesses in ASEAN. Large mining companies, such as Rio Tinto and BHP, along with smaller Australian mining companies, invested in Indonesia and explored other ASEAN markets.
What happened to these companies? Many were taken over by multinational corporations (MNCs) or their local partners bought them out, but many, too, gave up and came back to Australia with their “tails between their legs”. But “why” these companies left or disappeared is a question that someone should research on and find the answer. Glen Robinson, one of my AFG colleagues, had a shot at exploring this, but it is a question which cries out for significant research.
Successes and Challenges Faced by Australian Companies
So which Australian companies have succeeded in ASEAN? I mentioned BRC Lysaght above. It eventually morphed via BHP ownership into BlueScope, which produces its successful “Colourbond” products in a number of ASEAN countries. I believe it has succeeded due to the longer term view taken by BHP, one of its key shareholders in the important early years when it was growing the business. And importantly, it also had (and possibly still has) a significant Japanese partner that understood the importance of investing for the long term. Orica would also be another example of a successful long-term investor in ASEAN. Orica is a spin-off from the global ICI chemicals group so it inherited the Australian and many of the Asian markets. Another example of success would be Linfox, which has the benefit of a family shareholder that can invest for the long term.
Setting aside those businesses which were taken over by MNCs or their local partners, my own view is that many Australian-listed companies had fallen afoul of the quarterly reporting cycle, and their shareholders and particularly the stockbroking sector have shown little or no patience for Australian companies with long-term projects in Asia. A chairman of a large listed company, who himself was an Asiaphile, told me he could report an inferior project in Australia and the market would not react but if he reported making an investment in Indonesia, no matter how small or promising, the market would “cane” his share price. That said, it does seem Australian manufacturing presence in ASEAN is historical and the future of Australian presence lies more in services, such as the education sector.
Provision of Professional Services
The presence of Australian professional services companies and firms is growing significantly in ASEAN and most of those businesses are based in Singapore and run their ASEAN businesses from there. By way of example, lawyers based in Singapore often sell their services in other ASEAN countries on a “fly-in fly-out” basis. Service sector companies by and large have no large investment in fixed plant and machinery and can easily ply their services throughout the ASEAN markets. However, I would like to make two observations. Firstly, a number of the large Australian law firms failed in their ASEAN plans due to the investment patience and horizon of the Australian partners. In many cases this was resolved when the Australian firms merged with larger English or American firms. Secondly, a number of these professional service firms tend to be “fair-weather” friends; when the Australian market is depressed they head to Asia and, when it is booming, they reduce their Asian focus.
I would like to make one other observation and which particularly applies to lawyers and perhaps others in the professional service sector. And that is, time in ASEAN is not seen as a possible career move. I know of few lawyers who had spent significant time in Asia and have successfully returned to practice in Australia. This is not just limited to lawyers. A country manager of one of my manufacturing clients told me in his first week in the ASEAN country to which he was posted, he was already looking for the next role back home. I found that a rather depressing and sad outlook.
Australian Investment Presence in ASEAN
Australian foreign direct investment (FDI) is highly concentrated in three countries (Singapore, Thailand and Indonesia), which accounted for more than 90 per cent of Australian investments in ASEAN in 1995–2017 in value terms. However, Australian companies are present across the region. Cambodia, Lao, Myanmar and Vietnam receive a proportionately small (less than $175 million annually in 2015–2017) but rising amount of Australian FDI. Among these countries, Vietnam receives the most. Australian companies operate in a wide range of industries in ASEAN but are concentrated in services (mainly in banking and finance) and mining activities. This concentration reflects the strengths and internationalisation aspirations of Australian companies in these industries. As mentioned earlier Australian manufacturing-oriented FDI in general is less significant. Other services industries such as healthcare, information technology, business-process outsourcing, and activities related to the digital economy are attracting growing attention from Australian companies.
Some 60 per cent of the 100 largest Australian companies have an investment presence in ASEAN, a testament to the importance of the region as an investment destination for these firms. Among the other 40 per cent, some have connections with the region through export or sourcing of materials. Of the 75 largest Australian MNCs with a presence in ASEAN, 46 have operations in two or more ASEAN countries. The list is dominated by mining companies (15) followed by banking and finance corporations (13). The latter group has the most extensive regional footprint in ASEAN. However, 29 of these top 75 Australian MNCs operate in just one ASEAN country.
While much of the commentary above relates to Australian presence in ASEAN from the “big end of town”, Austcham ASEAN makes the important point in its 2019 report that almost half of Australian investors in ASEAN turn over less than $5 million annually and one-third of these investors have fewer than 10 employees. Australia is a country of small-medium enterprises (SMEs) and it is not surprising our investments in ASEAN reflect that. I do not have evidence for who these small Australian companies are and why they invested other than my own experience. I believe they would fall largely into three categories: those SMEs who were exporting to ASEAN and saw by moving there they could make more profit, those individuals working for Australian and international companies who saw an opportunity to develop their own business, and those Australians who were traveling for business or pleasure in ASEAN and saw an opportunity. Owners of surf-and-dive businesses, restaurants, bars and smaller accommodation providers would fall into this category. An important side effect of this development is that an increasing number of Australian-educated ASEAN students are finding employment with Australian and regional SMEs and MNCs.
As mentioned at the outset, while ASEAN is and will continue to be a hugely important organisation to its member countries, to many Australian investors it is not ASEAN that is of prime importance. Rather, it is the individual markets of ASEAN that matter. Free Trade Agreements between ASEAN and Australia are all well and good but indirect tariff barriers often remain. Indeed Austcham ASEAN’s 2019 report observes that less than half of respondents to their survey believe ASEAN integration is important for them.
Engaging ASEAN: Australian Education Sector
I know ASEAN is placing emphasis on mutual recognition of education qualifications. I agree this is important, but from the point of view of employers in an ASEAN country, they can form their own view on the qualifications of a potential employee. In most cases the employer can find a way around the problem. Clearly this is not the situation where a trade or professional licence is required by the particular ASEAN country for an employee to perform the role.
So what does all this mean for the Australian education sector engaging with ASEAN?
- Take a long-term view;
- Make sure your market research is reliable, both in terms of which country and what courses you plan to offer;
- Take a conservative view on the likely profits (undersell, not oversell, or it may “come back to bite you”);
- Adequately resource the business. Don’t starve it;
- Own the operation where possible and recruit good local people to run the business–this is where Australian-educated ASEAN students will likely play an increasingly important role;
- Where this is not possible (and in many cases it may not be) make sure you do your due diligence on your proposed partner or licensee;
- If transferring people from your Australian business send your best people, not those who are expendable or do not fit into the Australian business;
- Protect your brand at all costs, which is related to building quality assurance, one of the key themes of this Dialogue;
- Accept there is more than “one way of skinning a cat”. That is, just because you have done things a certain way in Australia does not mean that is the right or only way to do it in the country of your proposed operation;
- Be aware of the importance of friends and relationships rather than just relying on a legal document.
Finally, despite what I have said about ASEAN being of less importance than an individual country for an Australian investor, ASEAN is an extremely important institution and of crucial importance to Australia’s future; not just from the macro view of being a market for Australian goods and services but, as H.E. Jane Duke, Australia’s Ambassador to ASEAN, mentioned in her foreword to Austcham ASEAN’s 2019 survey: “Australia and ASEAN are critical partners at a time of historical change. Our close cooperation and warm people to people ties position our businesses well to maximise inclusive growth opportunities”.
Peter Church is the Chairman of the AFG Venture Group. AFG Venture Group organised the ASEAN Australia Education Dialogue, which The HEAD Foundation is pleased to support and from which arose this issue of HESB.