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The case is clear: the “Asian Century” is upon us. That is the unequivocal message of the white paper by former Treasury head Ken Henry, Australia in the Asian Century, released yesterday.
“The report is a compelling argument for how Australia is part of the Asian region,” Tamerlaine Beasley, managing director of consultancy, Beasley Intercultural, tells LeadingCompany. “Doubt is farcical in terms of the scale of economic opportunity, the increase in Chinese tourism and the ‘Asianisation’ of the Australian population. Mandarin is the second most spoken language in Australia.”
Asia’s real gross domestic product (GDP) is expected to more than double to US$67 trillion by 2030, exceeding that projected for the Americas and Europe combined, a 2011 report found.
“Over the same timeframe, Asia will likely account for nearly 70% of the world’s capital stock and will lead capital exports,” the report, Developing An Asia-Capable Workforce, says. “Even sooner, by 2020, Asia is expected to have more middle-class consumers than the rest of the world combined, driving rapid growth in real private consumption across the continent.”
Expectation and reality
For leading companies, there is now much expectation to realise the opportunities from the sudden rise in economic prosperity of our near neighbours – but no financial help.
Beasley says: “The white paper makes the case, however, the government is not committing significant funds to enabling that because they don’t have it. What the white paper is doing is leaving it at the door of business and saying ‘it is up to you’.”
Businesses have been singled out to improve their performance. Among the 25 objectives outlined for the nation to reach by 2025 is the following: One-third of board members of Australia’s top 200 publicly-listed companies and Commonwealth bodies (including companies, authorities, agencies and commissions) will have deep experience in and knowledge of Asia.
The report also singled out the Australian Institute of Company Directors to integrate Asian cultural competency training into its company directors course.
John Colvin, CEO of the AICD, says this is a suggestion the institute will take on board, in addition to the work the institute is already doing in international training for directors.
Colvin is concerned about mandating diversity for the ASX200 boards based on anything other than opportunity and need. “I get nervous when people say we need so many red, blues, pinks or purples on our top boards in Australia. These are some of the best boards in the world, and they will work out their need for diversity.”
Reduce regulation to encourage risk
Colvin says the government needs to lift the regulatory burden off directors if it wants them to grasps the opportunities of the Asian century, which also come with risks. “If we are supportive of going to Asia, that means the risks increase. Risks grow outside own countries, culture, rules of law, politics, and we have to have a culture that comes out of Canberra that is entrepreneurial.
“Now, we have a culture of punishing people, of compliance-driven regulation that is out of control. That makes so much of our boards and managements’ efforts focused on conformance rather than performance.”
However, most leading companies are champing at the bit to get into business with Asian companies and countries: 74% of businesses surveyed in 2010 by Asialink and the Australian Industry Group indicate interest in expanding into Asia or expanding their existing operations there.
Here is a checklist to measure your progress:
1. Awareness of opportunities and deficits
The report has given a big fillip to this important element of building capacity in the Asian Region. The nine chapters of 312-page report have resulted in blanket media coverage, and provided companies with a clear call to action, raising awareness not only among companies, but among governments, students and parents.
A deeper challenge for companies is becoming aware of their deficits, Beasley says. “There is a lot of unconscious incompetence,” she says. “People do not know what they do not know.”
This is borne out by findings published last year by Asialink and the Australian Industry Group (AiG). The study found that businesses that have senior staff with some Asian experience or skills rate the importance of local knowledge to their business in Asia significantly higher than those that have no senior staff fitting these criteria.
Similarly, these businesses rated the importance of having cultural understanding and an understanding of local management practice significantly higher than businesses that have no staff with Asian skills and experience.
In other words, companies that know a little about Asian enterprise are more conscious of how much more there is to learn.
Board and senior management experience in Asia was noticeably lacking in the study, which covered AIG members that employed about 750,000 people in a wide range of sectors.
Of responding businesses, 65% report that none of their board members have worked in Asia.
Of businesses with Asian dealings, 32% say that none of their Australian-based board members or senior executives have any of the listed Asian skills or experiences.
LeadingCompany’s research has found similar deficits among the ASX100 CEOs. None, for example, has studied at an Asian university, as we report today: ASX100: Internationally experienced, except in Asia.
There are only 12 of the 100 who have had substantial experience as leader of a business operation in an Asian country, among them Mike Smith, the CEO of ANZ Bank, who previously worked for Hong Kong bank, HSBC.
2. Gap analysis
After becoming aware of the opportunities, the next step is to recognise possible risks in the current way of doing business.
The problem, says Beasley, is that companies can be unconsciously limiting their chances of success by failing to seek any specialist knowledge. “They learn from trial and error, but they wouldn’t go into any other space – legal or accounting – without any experience or understanding.
John Colvin, CEO of the Institute of Company Directors, says the institute can help. It has about 1000 international members (of its 31,000 total membership), and this cohort grew 20% last year.
Already, the institute is running courses for directors from overseas, including Asia, who want to work on Australian boards, and vice versa, Colvin says. These courses and several of the AICD’s annual conferences have been held in Asian countries in recent years including Singapore, Hong Kong, Malaysia and China.
Company leaders will need training in aspects of cultural difference, Beasley says. “What we do intuitively in business is actually based on very Australian assumptions, for example that contracts can be enforced, how meetings are run, the way that negotiations proceed. These are all very Australian. We need to know how this is done differently in China, India and Indonesia, for example.”
3. Buying in and building capability
Colvin says there is already a generation of managers working all around Asia who will, over time, step into senior executive and board roles to achieve the government’s objectives.
Beasley says some companies are progressing faster. “The ANZ bank has set that line in the sand of 20% revenue from international business, and if you look at their recruitment for 2012, 43% of their graduate intake speak an Asian language,” she says. “Seventy per cent of their senior executives have international experience.”
Joining business networks in Asia is another plank of building capacity. Beasley says: “It is critical not to just rely on one source of data. You need to make sure you are in business associations, talking to different people in the market and have your eyes and ears open.
“In Australia, information is readily available, but in Asia, information travels through networks.”
There are 11 critical capabilities for an Asia capable workforce, the Asialink report found, including:
Working with government-owned entities
Companies throughout Asia, and in particular in communist China, are either owned by government or closely controlled.
The recent issues faced by the Chinese telecommunications company, Huawei, which was classified by several countries including Australia as a national security risk, illustrate the issue.
Australia refused Huawei the opportunity to tender for national broadband contracts, but when companies are in China, and other Asian countries, they must deal with government-owned entities.
“They are a fascinating example of Asian business and what is happening,” says Beasley. “They started out in Africa, in a market where no one else would go, a low-price, high-volume market and came from what Westerners thought was nowhere. Nokia didn’t know what hit them. If you go through their showcase in Shanghai, the scale of their operations and their ambition is amazing.”
But the reality of doing business in Asia is that the government is involved. “The Chinese government is still the Communist party,” says Beasley. “The reality of the fact that the party is involved is a very different business model. You can get very burnt. I am not Pollyanna about doing business in Asia. It can be brutal and a tough environment. As China expert, Clinton Dines, says, it is like a rollercoaster ride. Be ready for the rough and tumble. It is at a different level to what happens in Australia. You need to know what you need to know.”
One point to remember
Amid the excitement of the Asian Century, a lone voice last week was visiting Australia to remind leading companies of the investment opportunities in London.
Gordon Innes, the CEO of London & Partners, which is the official, not-for-profit promotional agency for London, wanted to remind Australian companies “there are still opportunities in the old world”.
Innes wants to dispute the view that the United Kingdom, London in particular, is in the doldrums. He says that the economy in London itself has grown between .5% and 1% since 2009, and in the third quarter, the UK’s growth was 1%, up from -.3% in the second quarter.
Innes is charged with trying to take advantage of international showcase provided the London Olympics to herd opportunities back to the home country.
Innes says London & Partners helps companies with business introductions, partnerships, setting up headquarters, finding staff and executives, business networking and introductions to government ministers.
Innes wants to attract institutional investors into the city’s 30-year plans for infrastructure projects.