COVID or not, Asia remains a growth opportunity
The unfolding impact of the COVID-19 pandemic is clearly the largest disruption to ‘business as usual’ almost all of us have experienced. As the crisis continues to impact communities everywhere in different ways, it remains an uncertain time for many business owners.
For those with exposure to international markets, through import and export trade or service related business, the situation has been extremely challenging.
"ANZ encourages business owners to take a look at the big picture of how their industry can recover and the opportunities for growth that may be ahead if Asia can rebound well.”
During the COVID-19 pandemic many Australian companies have had to change their business model overnight, often to service customers via ecommerce, at a time when logistics capacity is stretched domestically and international flights have been reduced dramatically.
For others, the opportunity to produce alternative products locally, including hand sanitiser and fabric masks, has been met with a shortage of imported materials such as plastic bottles and elastic.
Big picture Every week there seems to be new challenges and rules to navigate, along with the tragic impacts of the extended outbreak in Victoria.
But looking beyond these recent shocks to the economy and supply chains, there is a chance to develop plans to support the recovery and growth of businesses across Australia. ANZ encourages business owners to take a moment to look at the big picture of how their industry can recover and the opportunities for growth that may be ahead if Asia can rebound well.
Our latest insight report, the ANZ Opportunity Asia Report 2020, aims to uncover what the future of business in Asia may look like and the ability for Australia to leverage existing relationships with our neighbors throughout Asia.
For some business owners, this might mean continuing with their commitment to Asian markets over the long term, for others, it might present opportunities to rebound.
Several key trends emerge from the report, including the rise of digital payments, increasing changes to supply chains, re-revaluation of different markets and their economic performance, and how investment in a range of diverse markets may help to reduce the impact of future disruptive events.
Growth markets For many years, the growth rate of economies across Asia has been significantly ahead of our Western trading partners in the UK, EU and USA. Research indicates Asia may be able to recover from the COVID-19 crisis relatively well and continue the previously strong appetite for Australian goods and services. If so, Australia may have the chance to weather the storm and recover from the impact of COVID-19 faster than other Western economies.
Over the six years we have conducted the survey for this report, ASEAN has continued to gain prominence as a region to do business in. The ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA) established in 2013 provides improved market access to the region with a combined population of almost 700 million consumers.
For those survey respondents who are planning to do business in Asia, 64 per cent are planning for ASEAN markets, compared with 54 per cent for Greater China. This has been a gradual change over time, due to various factors including increased regulations and operating costs. However, in comparison with the survey respondents who already have business activities in Asia, 69 per cent are with Greater China, compared with 63 per cent for ASEAN.
The ASEAN opportunity continues to evolve despite ongoing trade disruptions in different parts of the world. Australia has already established a new Free Trade Agreement with Indonesia this year and has also concluded the Australia-Singapore Digital Economy Agreement. These agreements will continue to support Australian businesses to participate and benefit from cross border trade.
Diversifying into multiple markets may help reduce business risks, such as a customer base and supply chain concentrated in the same region, which may experience natural disasters, economic shocks and political events.
Operating in multiple markets on the other hand brings increases in complexity, due to differences in compliance and regulations. However, this can be mitigated by leveraging relationships in trading hubs such as Singapore and Hong Kong. Of the exporters to Asia surveyed for this year's report, 30 per cent have already set up a hub in Singapore and or Hong Kong to help provide access into nearby regions.
Digital disruption It’s clear usage of ecommerce has spiked massively during the pandemic but a growth trend was already in place well before 2020. The recent need for companies to distribute products direct to other business customers or end consumers at home has sped-up the adoption of digital inventory and ordering systems for companies that previously had an on-the ground sales team travelling to meet clients and visit retail outlets.
However, the speedy creation of a ‘digital shop’ is not a magic solution - an ecommerce presence must be combined with marketing and social media in order for customers to be able to discover and engage with the brand before purchasing.
Our Opportunity Asia report delves into this topic and also explores the rapid rise in the adoption of digital payments for online purchases, against the background of increasingly cashless retail.
Cyber security can be an administrative headache that is often back of mind. However, this digital vulnerability is a pressure point hackers can exploit, especially during a crisis. Reports of cyber-attacks during the pandemic have increased, and the report explores this topic, along with key advice from our ANZ Cyber Secure guidelines.
Recovery factors Australia is well positioned to benefit from the rapid growth of Asian markets in recent years. Despite disruptions caused by the global pandemic and various geopolitical conflicts in recent years, opportunities for success, based on the demand for quality Australian products and services remain.
One in five jobs in the Australian economy was directly related to cross border trade activities in 2019. The recovery of international trade is vital for Australia to regain lost ground due to the impact of COVID-19. There is an array of Government support available and several of these measures may be extended or revised over time. But beyond the immediate economic stimulus and support, there are key ways Australian businesses can engage with Asia and provide the opportunity for continued success.
Seizing the chance Nick Henderson - Director China Practice for Asialink Business
Realising growth opportunities in Asia will be central to supporting long-term recovery from what is a profoundly challenging period for Australian businesses.
Through the pandemic, many Asian economies continue to outperform the global growth rate and ANZ’s Opportunity Asia report underscores the region’s long-term potential for new opportunities with 40 per cent of global consumption and 52 per cent of global GDP anticipated to come from Asia by 2040.
One common misconception about doing business in Asia is that the cost and complexity of market entry outweigh the ability to generate acceptable returns in a reasonable time. The findings of the report challenge this assumption by showing businesses surveyed, on average, took five years to achieve a positive return on investment (ROI) from Asian expansion while 45 per cent in fact achieved this in three years or less.
These findings are instructive and confirm many Australian businesses are adopting the business models and strategies required to achieve returns on their Asian investments in relatively short time. Building a strong understanding of the market is critical to success as well as recognising the importance of tailoring products and services to the distinct needs of that market. Having trusted offshore partners is another essential ingredient.
Research also consistently shows those businesses that have ‘Asia-capable’ talent at their disposal are better equipped to navigate Asian markets, understand and adapt to cultural differences and implement effective financial and risk management strategies.
Both the Greater China and ASEAN markets have substantial populations with a rising middle class as well as proven demand for key Australian exports such as agricultural products, consumer goods, and services. They also have vast digital economies with high levels of internet penetration, both fixed and mobile. Developing business models that incorporate digital elements, such as ecommerce, payment systems, social media and marketing, while tailoring offerings to the diverse needs of online consumers, is another key to unlocking opportunity.
It is clear China is Australia’s number one export market by value, accounting for 33 per cent of Australia’s total export of goods and services in 2018-2019. This concentration on a key market can pose a risk, due to economic or geopolitical factors – and we have seen that risk realised in recent times. It is important to consider if other markets are a suitable fit.
Still, the Chinese market provides significant opportunities for many Australian goods and services exporters. Diversifying beyond China’s more developed Tier 1 markets to Tier 2 and 3 cities offers new growth opportunities, serving new emerging middle class consumer markets.
But it is also prudent for businesses to investigate additional growth market opportunities elsewhere in Asia, all of which are different, and many of which can provide a unique appetite for products or services. Investigating more of these may be the best way for Australian companies to balance risks that may be experienced in an individual market.
The Opportunity Asia Report also examines a range of other important strategic considerations associated with doing business in the region but above all else, it is clear from the report the markets of Asia will remain crucial to our prospects as we chart a path to sustainable recovery from COVID-19. Australian businesses are pivotal to this proposition.
Nick Henderson is Director China Practice for Asialink Business
ANZ encourages Australians to remain resilient during this difficult time and we are here to support businesses and the community. We believe Australia will rebound and emerge stronger and better prepared to thrive in a global economy.
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Originally published: https://bluenotes.anz.com