Date posted: 1/12/2016 5 min read

Growing Asia's knowledge economies

Rising demand from Asia for management and consulting services provides a growth opportunity for Australian professional services firms

In brief

  • With the cooling of the mining boom, the professional services, like legal, accounting and management consulting services, are continuing their rise as key drivers of the Australian economy
  • Not surprisingly, the export of business services to Asia is growing at around 9 per cent, compared with growth of just 3.8 per cent to the rest of the world
  • And while opportunities are ripe for the taking, the research highlights they are not without challenges — from overcoming regulatory constraints, to managing and retaining local talent, pricing appropriately, building brand recognition and forging relationships with local governments and clients

By Mukund Narayanamurti

With the cooling of the mining boom, the professional services, like legal, accounting and management consulting services, are continuing their rise as key drivers of the Australian economy. 

Legal and accounting services now employ more than 250,000 people nationally, while management and related consulting services employ more than 100,000.

Rising demand from Asia is helping to power growth in these industries, with the region’s burgeoning middle class set to grow from 500 million people today to 3.2 billion people by 2030.

A sizeable market is emerging across the region for all categories of services, with an increasing number of individuals and businesses consuming professional services. Not surprisingly, the export of business services to Asia is growing at around 9 per cent, compared with growth of just 3.8 per cent to the rest of the world. When added to the value created by Australia’s legal and management consulting firms in facilitating other exports, Australia’s business services exports could be worth double the official statistics.

Understanding the untapped opportunities

Throughout Asia, countries are transitioning to knowledge based economies. With global strengths in financial, wealth management, legal and advisory services, Australian firms are well placed to contribute to this transition. But while growth in Australia’s services exports to Asia remains steady, it is off a small base and the overall volume of business services trade to Asia remains low.

New research commissioned by Austrade (with support from the Australian Department of Industry, Innovation and Science) and conducted by Asialink Business investigates these opportunities and the main hurdles holding professional services firms back.

The research looks at management consulting and legal services in four key markets: Singapore, Indonesia, Korea and Japan. It reveals broader insights and recommendations for Australian and New Zealand professional services firms throughout Asia.

And while opportunities are ripe for the taking, the research highlights they are not without challenges — from overcoming regulatory constraints, to managing and retaining local talent, pricing appropriately, building brand recognition and forging relationships with local governments and clients.

So what can businesses do to maximise their success?

Access gateway markets

For many of the most successful professional services firms, launching a business in one Asian market has served as a springboard to expand across the region and beyond.

The firms involved in the research said that repeat business and referrals had been key to growing their business. More than 80 per cent of operations in one Asian market had fuelled further opportunities in other markets.

With its world class infrastructure, excellent connectivity and strategic location, Singapore has emerged as a popular gateway. Firms that make the move to Singapore are attracting international clients, and gaining additional business when clients require services in another market such as in China, Korea, or further afield.

By using Singapore as a “hub and spoke”, firms are also capitalising on the growing trend for investment by Asian countries in other regions of the world, especially Africa, Latin America, and South America, as well as the rise in intra-ASEAN investment.

Know your niche

Especially when competing against larger, often more generalist firms, operating in a niche area and drawing off existing capability is proving to be a key to maintaining a competitive advantage in various Asian markets.

In Indonesia, for example the drive to attract international investment in agriculture, energy and infrastructure is fuelling a growing demand for professional services firms with existing expertise in these areas.

As one participant in the research summed-up:

“Identify what your [firm] is good at, then align this to the market’s needs.”

Establishing a permanent presence is increasingly regarded as a must, to allow firms to develop close relationships with local clients, regulators and stakeholders.

Capture Asia-bound business

For many Australian and New Zealand professional service firms that are new to Asia, getting started can seem daunting.

But often, the opportunity starts at home.

The research revealed that one of the best starting points can be to work with local clients that are themselves expanding into Asia, to capture the business before clients make the move offshore.

Working with export oriented clients in this way provides the added benefits of being able to develop long term connections and networks in Asian markets.

Make the most of free trade agreements

Australia’s recently signed free trade agreements, such as the KAFTA (with Korea) and the JAEPA (with Japan), as well as longer standing agreements with Singapore and ASEAN, are creating greater market access for services based businesses in a myriad of industries.

Under the trade agreement with Japan, for example, Australian service providers are guaranteed access to Japan’s sizeable and highly-developed market.

Financial services providers can supply a clearly defined list of products to Japan on a “cross-border” basis. And Australian law firms can now establish entities under Japanese law, and benefit from fast-tracked registration processes.

These advantages are set to expand even further when the new Trans Pacific Partnership (TPP), which covers 53 per cent of Australia’s services exports, enters into force.

Invest in relationships

Participants in the research unanimously cited the importance of building strong relationships as critical to success: from links with the local business community, government, regulators, local partners and clients.

Ninety percent of management consultancies and 70 per cent of legal firms said building these networks was in their list of top success factors.

While establishing long-term and sustainable relationships could be challenging, the dividends pay off. As one research participant in Korea observed:

“A lot of time needs to be spent on building trust and relationships in Korea. Spending extensive time doing this helps us to understand what a client is fundamentally looking for, which provides us with valuable knowledge, to have more accurate applications when tendering for work.”

Be in it for the long-term, but get in quick

Being in it for the long haul is crucial to achieving results in Asia and this resonated strongly with report participants.

One important theme to emerge was the decline of the fly-in, fly-out mode of doing business. With the possible exception of Indonesia, participants in Korea, Singapore and Japan said this was no longer a particularly viable business model.

Establishing a permanent presence is increasingly regarded as a must, to allow firms to develop close relationships with local clients, regulators and stakeholders.

Not surprisingly, this takes investment, long-term strategy and patience.

It also requires a dedicated commitment to building Asia capabilities – the skills, knowledge, and networks needed to understand Asian clients and customers, negotiate to achieve mutual gains, navigate culture and build trusted relationships.

Yet just as it’s important to be in it for the long term, for professional services firms considering Asia, it’s also essential to get started soon.

The playing field is becoming increasingly crowded and firms must compete to succeed.

The nature of this competition is also changing rapidly — It no longer just comes from British or US firms, but increasingly from smaller providers from countries like Russia, Canada, China and elsewhere in Asia.

So for Australian or New Zealand firms considering cracking into Asia, the message is clear: the sooner you make a start, the greater the opportunity to leverage your firm’s niche expertise and strengths and play an active role in building Asia’s knowledge economies.

Mukund Narayanamurti is the CEO of Asialink Business which partners with organisations in all sectors of the economy to develop the skills, knowledge and networks needed to achieve business success in Asia. asialinkbusiness.com.au

This article was first published in the December 2016 issue of Acuity magazine.