Seven of Australia’s top 10 trading partners are in Asia and a significant proportion of investment, international students, tourists and migrants are Asian. Over the past 50 years, successive Australian governments have nurtured deep economic relationships with Asian countries.
Going forward, the long-term performance and returns of Australian companies will be even more dependent on Asian markets. Winning in Asia’s highly competitive markets will be central to sustaining our per capita income levels, adding sustainable jobs to the workforce, and growing our long-term pool of national savings. Our largest companies will be central to this proposition.
Two years in the making, Winning in Asia: Creating long-term value, is a project that seeks to dispel many of the commonly held perceptions of the challenges of doing business with the region. It provides fresh, evidence-based analysis that makes a compelling case for why our largest companies should increase their exposure to Asian markets.
A partnership between Asialink Business, AICD, Chartered Accountants Australia and New Zealand, the Commonwealth Bank and the Sid and Fiona Myer Family Foundation, Winning in Asia considers major questions posed by Australian business leaders, policymakers and investors.
For instance, does offshore expansion lead to superior returns for the shareholders of Australian companies? Which companies — Australian and non-Australian — have grown market share, profitability and returns in Asian markets? What are the capabilities Australian boards and senior executive teams need to enable their respective organisations to succeed in Asian markets? And how can Australian companies best manage the risks associated with doing business in the region?
To succeed in the biggest and most dynamic markets in our region, Australian companies need to compete for consumers, capital and talent. As Asian markets recover from the COVID-19 pandemic, business leadership which understands the need to build knowledge and skills relevant to operating in Asian markets is more urgently needed than ever. To measure these qualities in Australian business leaders, Asialink Business developed a methodology to capture the experiences of ASX 200 board members and senior executives. This data — which covered experience in Asian markets as well as linguistic capability and educational background — enabled measurement of the six Asia capabilities individuals need to build successful business relationships in Asia. Asialink Business provided an overall Asia capability score for 1705 board members and senior executives of ASX 200 companies (as of 1 January). The findings highlighted the following:
- Capability remains low
In 2017, Asialink Business, PwC and the Institute of Managers and Leaders released Match Fit: Shaping Asia-capable leaders, a report that measured the individual Asia capabilities of senior executives and board members of ASX 200 companies. Three years on, our research finds that Asia capability among senior leaders of the ASX 200 has not improved. The average Asia-capability scores for board members and senior executives are 13.8 per cent and 13.5 per cent, respectively. Only seven per cent of board members and senior executives would qualify as Asia-capable (a score greater than 50 per cent). This means more than 90 per cent of senior leaders (board members and senior executives) in the ASX 200 would not qualify as Asia-capable. These results are concerning as our research has consistently found that companies with an above average level of Asia capability in their senior leadership generate a greater proportion of their revenues from Asia.
However, we did find that the vast majority of board members and senior executives had worked for companies that export goods or services internationally. This suggests that while most business leaders possess the general skills to work across borders, few have the specific Asia skills to fully capitalise on opportunities in Asia.
- Market awareness vs cultural understanding
We found leaders were, on average, strongest in their knowledge of Asian markets and weakest in their ability to adapt to Asian cultural contexts. 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.
- Growing exposure
We found financials, consumer staples and materials were the sectors with the highest number of Asia-capable board members. Consumer discretionary, materials, financials and consumer staples had the highest number of Asia-capable senior executives. What these results indicate is that, subject to industry dynamics, there is significant upside potential in our consumer staples and consumer discretionary companies assessing and executing opportunities with Asian markets. They are underweight with their international revenue exposure, while they have among the highest number of Asia-capable senior leaders.
Australian materials and diversified financial companies are already strong with their international revenue exposure. Our banks and insurance companies are very low with their international exposure, but they have had significant experience already in evaluating opportunities with Asian markets across a range of products and services. The value of Asia-capable senior leaders to our banking and insurance sectors may lie in their understanding of international best practice in governance, risk management, technology and management.
The results indicate that for as long as we remain export-driven in commoditised sectors, the relative need for Asia capabilities in board and senior executive teams may be lower. As we transition to more outbound investment, typically in more services-driven sectors, the relative value of Asia capabilities will increase. Consequently, as we seek to export a greater proportion of services to the Asian region, Asia-capable senior leadership will be critical to successful offshore expansion.
Consultations with senior leaders highlighted several constraints impacting the pursuit of long-term opportunities. These include the increase in geostrategic risks, significant growth in expectations on boards, low risk appetite in a low-growth environment, a lack of Asia-capable leadership and negative public perceptions. Recommendations to improve the level of Asia capabilities in senior leadership teams included identifying, recruiting and retaining Asia-capable leadership, taking a strategic approach to engagement with Asia, building awareness through evidence rather than anecdotes, and creating a tripartite agreement between business, peak bodies such as the AICD, and government to make the low levels of Asia capabilities on boards a strategic priority.
AICD was a partner in the research. Access the full report through Asialink Business.
Directors on engaging with Asia
“A lot of boards are shaken by COVID-19. Risk maps are now key. There is a risk lens rather than a growth lens. Practically, it is very hard to get trade done.” – Christine Holgate MAICD, CEO/MD Australia Post, chair Australia-Asean Council
“ASX-listed companies have people leading their Asia markets who may not necessarily have Asia capabilities. They may have experience in other Western international markets, but those skills are not necessarily transferable. Having Asia capabilities matters, and knowing how markets in Asia differ is critical.” – Kee Wong FAICD, director Carsales.com, AICD
“The long-term attitude of Australian institutional investors is that you can’t be successful in Asia. Public companies have worn that quite a lot, but then you see private and family companies being successful in Asia. This has partly been spurred along by the fact that when investing in Asia, you’re nearly always going to have to have a strategic dividend rather than an earnings accretive one.” – Peter Yates AM FAICD, deputy chair AIA Australia, director Linfox
“While there might be concern on how we engage with those markets and the risks, if you have the right advisers and partners the risks can be navigated as in any market. But it does take skills and more specialist expertise in the area, especially if you don’t speak the language or understand the regulatory or policy frameworks.” – Sue MacLeman FAICD, director Anatara Lifesciences, Palla Pharma, Tali Digital, Oventus Medical, MTPConnect
“Asia-capable is not just about being able to speak a particular Asian language. It is about being able to navigate the local system and being comfortable with dealing with people from that culture.” – Nicola Wakefield Evans FAICD, director Macquarie Group, Lendlease, BUPA, AICD