Can Australia hold its ground in the Asian economy?
Australia is an exporting nation, consolidated by the use of an expanding network of free trade agreements that currently cover ten key markets.
Our economic fortunes are inextricably linked with Asia with eleven out of our fifteen largest trading partners from Asia, including four out of the top five and number one – China.
But there are fears in Australia of rising geopolitical tensions and economic volatility in the region. For those already grappling with opaque regulations and unique local cultures, these are outside of our control but provide an additional source of insecurity that can dissuade businesses from trying to establish or expand offshore operations. The “keep it in mind, do nothing” option is often the current book marker.
As the recipients of almost 60 percent of our goods and services exports, Asian consumers are fundamental to the Australian economy.
With 30 percent of the world’s GDP, half the world’s population and the highest growth rate of any region, the scale of the Asian consumer base can be hard to fathom. It’s not until you get into the region that you sense the ambition, the momentum of development and the hunger for higher standards of living. The transition of many countries from low wage, export-led economies to medium income, consumption-led economies has created new opportunities for Australian businesses to capitalise on changing spending patterns. What’s more, the emergence of a few dominant e-commerce platforms and development of new trade corridors is making these consumers much more accessible.
Yet despite these opportunities, Australia’s position as a leading economic participant through export and investment in Asia is precarious. Less than 20 percent of Australian companies are effectively using free trade agreements because of the complexity, overlap, lack of understanding even apathy and scepticism born out of the failures of others.
Businesses attempting to expand to Asia without assistance find the complexity of local markets and absence of information about them to be a significant barrier to entry.
The difficulties of finding the right market entry strategy, the right partners, to reduce risks and how to navigate through very the complex Australian FTAs, with over 26,000 product specific rules of origin can be daunting.
There are legitimate challenges and concerns. While travelling around this week talking to our clients as part of the launch of KPMG’s Access Asia trade solutions business, we have heard many stories: challenges in protecting IP, getting exported products through Asian ports, high turnover of local management, problems with local regulators, brand damage and ultimately financial stress. Most of these can be prepared for, some just need to be managed with experienced advice.
The impact of getting this wrong is not just brand and reputation damage, but also significant deterioration in export trade volumes as well as the deterioration of value that Australian businesses are deriving from their outbound trade and investment activities.
So how should Australia stay relevant as China and therefore much of Asia? I say this because we can’t take the current status quo for granted.
There are a number of things the Australian government can focus on. More practical outreach and assistance from Austrade, EFIC and others for Australian SMEs which need personal and practical help and advice with their trading activities in developing Asian markets is key. The completion of the Indonesia-Australia Comprehensive Economic Partnership Agreement and the Regional Comprehensive Economic Partnership should be a high priority. These agreements will benefit Australia and build our place as a participant in the South East Asian economic zone.
However, we need businesses to actively seize on agreements like these.
To best exploit our free trade agreements companies need to look at the Asian economy as a conglomerate comprised of many smaller markets, some as large as countries, some as small as cities. By isolating the target market, understanding the benefits of our FTA’s and accounting for changing consumer patterns, companies can profit from changes created by new trade corridors and new socio-economic trends.