- A new joint CA ANZ and Asialink report looks at insights on doing business in Asia.
- Among larger Australian firms, those that are more internationally diverse generate greater returns for shareholders.
- Having Asia-capable senior executives and board members is increasingly important.
By Amity Delaney
What does it take to succeed in Asia? And why would Australian companies want to try? The Winning In Asia: Creating long-term value report by Asialink Business and partners including CA ANZ provides some answers.
Launched on 11 August, the 108-page report has been two years in the making and is a joint project between Asialink Business, the Australian Institute of Company Directors, Chartered Accountants Australia and New Zealand, the Commonwealth Bank of Australia, and The Sid and Fiona Myer Family Foundation.
The report reveals that ASX 200 companies that are internationally diversified create more value for shareholders than companies that are domestically focused.
But it also shows that only 7% of board members and senior executives of ASX 200 companies could be rated as “Asia capable” – more than 90% are not.
“We found that leaders were, on average, strongest in their knowledge of Asian markets and weakest in their ability to adapt to Asian cultural contexts,” wrote the report’s authors.
“This suggests that while Australian business recognises the need to understand the market opportunity presented by Asia, this knowledge is not yet matched by an appreciation of the cultural skills needed to execute on those opportunities.”
The report’s research also shows that companies with an above average level of Asia capability in their senior leadership generate a greater proportion of their revenues from Asia.
Australian business still has an Asian future
Although border closures and a lack of international line haul are currently affecting both imports and exports, Asia will play a big role in Australia’s recovery from the COVID recession.
For one thing, the potential markets are massively larger than Australia’s. In 2020, the number of middle class consumers in Asia is expected to outnumber the middle class consumers in the rest of the world combined.
Asia has been flagged as a business opportunity for Australian companies for decades. Seven of Australia’s top 10 trading partners are in Asia.
That’s reflected in ASX 200 companies gaining 34% of their revenues from foreign sources, more than the largest listed companies in the UK (29%) and US (26%), but less than Japan (42%).
That foreign focus also delivers for shareholders. Medium-size internationally diversified companies (market cap A$2-5 billion) achieved 82% more total shareholder returns from 2014 to 2019 than their domestically focused counterparts, states the report.
Over the same period, large ASX 200 companies (market cap above A$5 billion) that were internationally diversified delivered 36% more to shareholders than large companies with a domestic focus.
“As companies increase in size… conditions in offshore markets relative to domestic markets and ease of executing offshore expansion – tend to skew in favour of offshore expansion,” the report says.
Larger firms often have a higher incentive to expand offshore as well as a greater ability to do so, as a company only operating in a domestic market is constrained by domestic demand, which makes foreign markets increasingly attractive.
Is there a blueprint for Australian companies in Asia?
Winning in Asia looks at the business models of companies that are succeeding in Asia, but warns there is no “one size fits all” answer to international expansion.
Business leaders should assess geographic expansion against other growth opportunities on a case-by-case basis, the report’s authors advise. Offshore expansion is just one of many avenues businesses should look at when deciding on growth strategies.
However, there are some common characteristics of companies that do succeed in Asia. They include taking a long-term view and employing local staff who know the market and can help build long-lasting relationships with stakeholders.
“Learning from Asia rather than teaching Asians best practice will increasingly become the norm,” states the report.
“Learning from Asia rather than teaching Asians best practice will increasingly become the norm.”
And having Asia-capable leaders in a company will be increasingly important.
Click image to enlarge.3. Match fit Asia-capable senior leaders are essential to enable successful Asia expansion strategies. 4. Strengthen external affairs to manage stakeholders, brand and reputation in Asia.
Winning in Asia: Creating long-term value
This landmark report seeks to provide answers to many of the questions from business leaders, policymakers and investors about what it takes to succeed in the competitive markets of our region.Download the report