The size of the Asian opportunity has doubled
Extract. Full article published in ANZ bluenotes
By Mark Hand, Managing Director Corporate & Commercial Banking, ANZ
Challenging local and global environments mean many Australian businesses are looking to diversify and they’re focused on where the world’s long-term growth is – Asia.
ANZ’s Opportunity Asia 2017 report indicates if Australian businesses act on their intention to expand into Asia they could gain an additional $A278 billion in revenue. This is astounding growth given the 2016 report showed a $A138 billion opportunity – in one year that’s a $1A48 billion increase in estimated revenue.
Australian businesses hired around 670,000 staff to support their Asian export demand in the past three years. They forecast a need to hire over one million more to support expansion.
Around 56 per cent of Australian businesses operating in Asia believe profit margins derived from Asian operations are higher than Australian based operations.
In terms of what drives success in Asian expansion, businesses see two key drivers.
- the quality of their products and available markets; and
- the importance of good relationships with partners and local customers
We know the middle-class expansion is a global trend, resulting from globalisation and international trade, however the highest growth of middle-class populations will be concentrated in Asia. The majority (88 per cent) of the next billion people entering in the middle class will be from Asia.
The agri opportunity
Bulla is an Australian success story - a family owned company with over 100 years of experience which is now competing with multi-national dairy giants on the world stage.
Established in 1910, Bulla Dairy Foods has been run by the same three families for six generations. The company now exports to 20 countries and is one of Australia's largest dairy manufacturers, with about 700 employees and annual sales of over $A500 million.
But like all agricultural groups, Bulla now faces stiff competition from multinational dairy giants such as Unilever, Nestle and Fonterra, well established in emerging markets, including in the Asia-Pacific.
“We need to be smart about our products and our marketing,” CEO Allan Hood told bluenotes. “We can’t compete on the scale of the major players, so we need to add value – something unique for the market we are targeting.”
The signing of ChAFTA has eliminated significant diary tariffs over the last two years, placing Australian dairy companies in a much-stronger position to New Zealand, which has enjoyed a competitive advantage with lower tariffs in China since 2008.
“The progressive elimination of tariffs means we’re able to compete more on pricing with New Zealand and the European Union. The quality, taste and reputation of Australian products is well regarded and continues to drive demand in the market for us.”
Demand in Asia and particularly in China for cheese, yogurt, cream and ice cream has increased in recent years. Middle-class consumers are open to trying more dairy products and exporters have leveraged this trend with added-value products.
Bulla made the most of that trend, but cautions against rushing into the market with an array of new products.
“We’ve had a wide variety of SKUs (stock keeping units) in Asia in the past and it’s been a challenge if there’s a regulation change or a new labelling requirement. We’ve streamlined and simplified that now and we can supply a higher volume with less variation. That seems to be working well for us now and we can differentiate more with the marketing.”
If Australian companies aim to deliver the volume and quality that importers in Asia are demanding, it will support job creation for businesses across the country. Bulla has a dedicated team in Victoria who manages exports to Asia and Allan has seen the value of employing the right staff at Bulla.
“You’ve got to have people on the ground. That’s been a big lesson for us. We’ve brought more of that capability in-house to handle export demand. You can’t just rely on an agent to do it for you in a new market. It shows commitment when you get in there with your own people.”
In 2016 China overtook the United States in purchasing power parity and is the number-one market for Australian businesses operating in Asia, and Shanghai is the number one city
Chinese demand for Australia’s quality products and unique branding, particularly through ecommerce channels, is providing lucrative opportunities for Australian businesses across a number of diverse industries
The demand for premium meat, dairy products, fresh fruit and seafood continues to increase and just last year, Australian wine exports increased 44 per cent - a sure sign discerning consumers enjoy the health benefits of Australian wine!
The China/Australia free-trade deal has created easier market access and unlocked unprecedented growth in Australian wine exports to China. For the first time ever, China has overtaken the United States as Australia’s key destination for wine exports, with sales of $A607 million in 2017.
This trend shows no sign of slowing. From a consumer perspective we are now seeing people demand higher-quality products and niche services, in everything from meat, wine, health and beauty services to technology, medical expertise and education.
We know Australia has a strong reputation for quality products and services and the opportunity to access a growing middle class of 500 million consumers in Asia is significant.
The ANZ Opportunity Asia report reaffirms the positive outlook for Australian businesses operating in Asia and those planning expansion into the region. Building knowledge and connections here – meeting people, building relationships and networks across industries and markets - is the first step to expansions success.
Mark Hand is Managing Director, Corporate & Commercial Banking at ANZ