Aus service and consumer goods top Asia demand

Isaac Rankin

Managing Director Commercial and Private Banking, ANZ

The outlook for Australian businesses trading with Asia remains positive - even in the face of ongoing global trade and political volatility.

Click image to zoom Tap image to zoom

The well-documented Asian middle class and the evolution of ASEAN’s economic power suggest the next stage of growth has arrived.

" In a world of fake news, businesses must also consider product imitations and risks to intellectual property.”

Australian businesses exporting to Asia are set to generate $A393 billion of additional revenue according to the latest ANZ Opportunity Asia report.

This could create windfalls across industries such as food, beverages and premium consumer goods, as well as healthcare, education and tourism.

Over a third of businesses surveyed which are active in Asia are already generating 40 per cent of their revenue from the region - and half of them are making a positive return on investment within three years.

Typically, for an Australian business to be successful in Asia, it required a combination of three things: international demand for high quality products or services; understanding the market – including regulation, practices and culture; and building solid relationships with customers, partners and distributors.

Walking off virtual shelves

Fast-Moving Consumer Goods (FMCG) spending in Asia grew 3.8 per cent in the 12 months ending June 2018 and Australian tea company T2 is experiencing the demand, having opened 100 stores in five international markets since entering Asia last year.

One of its biggest challenges was adapting its range to suit the taste of local consumers who already had a wide appreciation of specialty teas. This led to the introduction of its Singapore Breakfast blend with the company pointing to the importance of understanding local consumer preferences.

Alongside its bricks and mortar investment, T2 quickly realised the significance of ecommerce, opening an online storefront on Alibaba’s Tmall Global marketplace in December last year.

Click image to zoom Tap image to zoom

T2 online store on Tmall

While ANZ’s report pointed to Ebay and Amazon as the two most preferred online sales platforms among businesses operating in Asia, these platforms have made few inroads in countries like China. Here Alibaba and JD.com remain the leading ecommerce platforms commanding 58 per cent and 16.3 per cent market share respectively.

Now that’s service

Today more than 1.1 million Australian workers are engaged in exporting services including tourism, education, professional services and accounting. Last year, services accounted for 21.8 per cent of total exports from Australia, compared with 30.5 per cent of New Zealand’s exports. This suggests, despite the relative difference between the countries, Australia’s services sector has the chance to increase trade with Asia.

Australian job ads juggernaut Seek Limited expanded internationally in 2005 and now has a presence across Asia. Recognising the growing opportunity, the company plans to invest further in Asia in 2019.

Seek’s experience points to the rise in trade provided by a digital economy and online platforms. International connectivity can create cost effective reach beyond local borders.

Important considerations for service providers looking to export include accessing or undertaking market research and finding ways to protect a brand’s intellectual property.

Bumps in the road

Despite the opportunities Asia presents, it’s important to fully understand the potential barriers. Firstly, operating costs in Asia continue to climb. Among other things this can be attributed to regulatory and compliance costs, tax liabilities and access to capital and logistics.

One of the other major cost drivers is labour. China’s manufacturing workers’ average hourly wages reached $A3.60 in 2016, a 64 per cent increase since 2011, according to Euromonitor.

These challenges can be mitigated, however, by identifying and working with the right partners and collaborating with like-minded local businesses.

In a world of fake news, businesses must also consider product imitations and risks to intellectual property as recently experienced by iconic wine brand Penfolds. Reputations built on long-standing, high quality products and service can quickly deteriorate.

But companies like New Zealand’s Fonterra and vitamin supplier Blackmores are fighting back, working with e-commerce giant Alibaba to pilot blockchain technology to improve supply chain traceability and transparency.

Brand and intellectual property protection from IPH Limited

Consider in-country IP protection, including patents, designs, trademarks and copyright.
Consult an IP professional with expert knowledge in the region.
Be careful not to infringe on the IP rights of other businesses by searching your local competitors’ IP rights in export destinations.
Consider registration of trademarks, patents, registered designs or copyright (where available) in export markets including foreign language equivalent trademarks.
Enter into appropriate agreements with your distributors or other service providers in export markets governing use of your IP.
File applications to register trade marks in the countries where you are looking to do business, even if they are in the early stages of business.
Remember, if you sell or discuss your product in public before your application for patent or design registration is filed, you may lose the chance to obtain IP protection.

Neighbours

Asia continues to offer unparalleled prospects when compared with traditional markets like the USA, the UK and the EU, with the major share of future growth predicted to come from five key Asian countries: China, Indonesia, Thailand, Singapore and India.

North Asian markets Japan and Korea together with ASEAN nations are also growing as trading partners. The ASEAN Free Trade Agreement has been a crucial tool in enabling Australian businesses to expand and gain international success.

With close to $400 billion in revenue up for grabs, backed by a discerning and increasing Asian middle class, it’s important for businesses to examine the potential demand for products and services.

Scrutinising each of the individual marketplaces, including the cost of doing business, preferred delivery channels and intellectual property risks, are equally important. The region is not without complexity but there are many Australian businesses reaping the rewards.

Isaac Rankin is General Manager, Business Banking at ANZ

International Insights

The 2018 ANZ Opportunity Asia Report is a survey of 1,000 Australian business decision-makers across a variety of industries. The annual report is designed to capture sentiments around international growth to identify best practice, share insights and highlight opportunities for businesses in Asia while providing guidance on how to navigate the many challenges in the region.

Download the report from ANZ Be Trade Ready from October 25

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.