ACTION THE KEY TO SUSTAINABLE GROWTH · business in the region is attractive for their specific...

ACTION THE KEY TO SUSTAINABLE GROWTHANZ OPPORTUNITY ASIA REPORT 2016

could gain $138 billion

in revenue from

Asian expansion

with operations

in Asia have a 16%

higher turnover

say doing business in Asia

makes sustainable growth

more achievable

with Asian operations are

planning to further expand

in the next three years

A U S T R A L I A N B U S I N E S S E S :

CONTENTS

Foreword 2

About this report 4

Executive summary 6

Sustainable growth is within our grasp 10

‘Low growth’ doesn’t need to be the new black 14

Case study: Ambition 18

Getting ready for take off 20

Case study: Transtar 26

Mountains and molehills 28

Case study: Ingredients Plus 32

Stronger, brighter regional Australia 34

Case study: Harcourt Apples 46

Conclusion 48

About ANZ 50

Survey demographics 52

In order for that reputation and level of success to continue, we want to help more organisations find opportunities and realise their potential across the Asian export market.

The ANZ Opportunity Asia report is designed to do just that. By capturing insights and sentiments around international growth from companies who have already made their mark in the Asian Century, we can increasingly see the size of the prize, as well as identify the best practices behind how they got to where they are today.

The size of the prize is significant.

This report identifies that businesses that have existing operations in Asia have a turnover 16 per cent higher than those who were domestically focused. Nearly three quarters of the businesses we spoke to acknowledge that their profit margins from the Asian region are higher or comparable to their domestic profit margins.

That’s good for business.

However, we believe that more Australian businesses can benefit from all that Asia has to offer. Today, the level of investment into Asia from Australia, accounts for close to six per cent of Australia’s foreign direct investment1.

But this could change.

There are a growing number of Australian companies planning to do business in Asia2 - almost all of them plan to do this within three years.

If these plans come to fruition, Australian businesses could gain $138 billion in revenue, while also taking their innovations and products to a broader audience.

At ANZ we know growing a business

in Asia is not a set and forget strategy,

but one that needs constant monitoring,

and ongoing adjustments.

Australian businesses

have an enviable reputation

around the world –

particularly across Asia.

FOREWORD

1 Passing us by, PWC, www.pwc.com.au, August 2015 2 Australian Bureau of Statistics, abs.com.au

2 | ANZ OPPORTUNITY ASIA REPORT 2016

We established our Asian presence more than 40 years ago. We operate in 34 markets, with 10 times as many bankers on the ground across Asia as our Australian competitors.

We are continuing to enhance our Institutional business in Asia to connect our customers across the region and provide unique local and industry insights.

Our regional network provides a strong differentiator based on capabilities in trade foreign exchange, debt capital markets and cash management.

Whether you already conduct business in Asia, or you’re considering it, I encourage you to review the insights in this report and speak to ANZ about your export goals. We are here to help your business thrive in Asia, building on your strong and sustainable capabilities.

1 Passing us by, PWC, www.pwc.com.au, August 2015 2 Australian Bureau of Statistics, abs.com.au

Fred Ohlsson Group Executive, Australia ANZ

Mark Whelan Group Executive, Institutional ANZ

ANZ OPPORTUNITY ASIA REPORT 2016 | 3

Australia’s GDP growth is likely to remain under 2.5% and below global trends throughout 2016, full-time unemployment levels are increasing, wage growth is plateauing, living costs are high and business confidence is low.

Australia’s transitioning economy is leading to increasing numbers of Australian businesses looking to growth opportunities in offshore markets – and expanding into Asia is a logical and potentially attractive option.

However, there remains a number of consistent concerns that continue to hold many companies back.

In 2015, we surveyed more than 1,000 small to medium enterprises (SMEs), right through to large corporates to capture their sentiments about doing business in Asia.

The results showed that those who

are doing business in or with Asia have

a far brighter and more optimistic

outlook than those who are not.

Companies that are either active or planning to be active in Asia, believe that they will be better positioned to achieve long term sustainable growth and profitability than their counterparts whose operations remain domestically focused.

These findings are encouraging for the many Australian businesses considering their growth options in Asia and the opportunities they present.

This year we embarked on a similar survey, focusing on not only capturing sentiments of SMEs doing business in Asia, but also some of the quantifiable and tangible benefits.

We again surveyed more than 1000 businesses and have considered responses from businesses with well-established Asian operations, through to those who are yet to start their Asian journey.

We know that taking a business across borders is a big decision.

However with help from the right people with the experience, ‘know how’ and with the right connections on the ground, making the move can be made a lot easier than it may appear.

ABOUT

THIS REPORT

Achieving sustainable

growth domestically

is no small feat.


EXECUTIVE SUMMARY

82% 26%

ANZ surveyed more than 1,000 Australian businesses to understand

their sentiments on doing business in Asia and the findings revealed:

50%said that doing business in Asia

substantially increases their profits

said that doing business in Asia is not a ‘set and forget’ strategy

doing business in Asia said they achieved ROI within 12 months

is what Australian businesses could gain in revenue from Asian expansion

59%planning Asian expansion

are considering joint ventures

16%higher than those who were

domestically focused

Australian businesses with existing operations in Asia had a turnover

$138 billion


65%50%

55%said that they recruited additional staff

when they started doing business in Asia

from regional Australia said they were drawn

to Asia as a result of the good opportunitieswith established Asian operations

are planning to further expand their business dealings

STAFFWANTED

57%planning on doing business in Asia are targeting China

87%who are planning to embark on Asian expansion say they

will do so within three years

said that doing business in Asia makes sustainable growth far more achievable

57%


from regional Australia who are doing business in Asia said that doing business in Asia makes sustainable growth far more achievable

said that accessing capital for their Asian expansion was no more challenging than

securing funds for other markets

60% 64%

62%from regional Australia who are doing business

in Asia said they were not impacted by the downturn

in Asian economies

75%from the agricultural sector

said they received substantially larger profits from their

Asian operations than from their domestic markets


Asia intention

The intention of Australian businesses has never been clearer. They see valuable growth opportunities in Asia and they plan to capitalise on them.

The ANZ Opportunity Asia report shows that on average, businesses that had existing operations in Asia had a turnover 16% higher than those that were domestically focused and 73% of respondents acknowledged that their profit margins from the region are higher or comparable to their domestic profit margins.

SUSTAINABLE

GROWTH IS WITHIN

OUR GRASP

Growth within our grasp

Asia is increasingly becoming a popular destination for Australian businesses seeking to expand and diversify their operations. Sixty per cent of Australian businesses in the survey acknowledge that doing business in the region is attractive for their specific sector, 57% say that it makes sustainable growth far more achievable and 50% state that it does or will substantially increase their profits.

This positive sentiment is helping to drive an increasing number of Australian businesses to either expand or embark on doing business with Asia. The report shows that 65% of businesses with established Asian operations are planning to further expand their business operations and 87% of those planning to embark on their initial Asian expansion say they will do so within three years.

said that Asian profit margins are higher or comparable to

their domestic profit margins

73%


Future of Asian operations

Contract 4%

Stay about the same

30%

Expand 65%

37%

31%

51%

56%

9%

9%

2%

4%

0%

1%

In the next12 months

In the next2 – 3 years



11 or moreyears from now

Contract

4%

Stay about the sam

e

30%

Expand

65%

Sentiments: Doing business in Asia

Establishing business operations or dealings with Asian markets does not require a very substantial amount of capital

33%

Exposure to currency exchange rate fluctuations is a barrier to doing business in Asia

39%

Asian expansion is a viable option for all businesses 46%

Doing business in / with Asia substantially increases / will substantially increase our organisation’s profits

50%

I´d like to know more about the benefits of Free Trade Agreements with Asian countries

52%

My organisation has not been impacted by the downturn in the China economy

58%

Doing business in / with Asia makes / will make sustainable growth of our organisation more achievable

57%

Doing business in or with Asia is attractive in our sector 60%

Base: Total sample (n=1,019) Base: Businesses with established operations in / with Asia (n=357)


Likely timing of businesses planning Asian operations

2016 2015

Contract 4%

Stay about the same

30%

Expand 65%

37%

31%

51%

56%

9%

9%

2%

4%

0%

1%

In the next12 months




11 or moreyears from now

Contract

4%

Stay about the sam

e

30%

Expand

65%

Base: Businesses planning to establish operations in / with Asia, 2015 (n=203), 2016 (n=240)


The size of the prize

There are a growing number of Australian companies planning to do business in Asia – almost all of them plan to do this within three years.

If all of these plans come to fruition, Australian businesses could gain $1383 billion in additional revenue, while also taking their innovations and products to a broader audience.

Even if only half of these businesses execute against

their plans, the future returns will be significant and provide

a material contribution to Australia’s future prosperity.

Don’t set and forget

Australian businesses expanding into Asia need to be agile and nimble.

Sixty seven percent of Australian businesses surveyed said that they tweaked or changed their Asia strategy numerous times, while 80% acknowledged that they were conscious they needed to constantly monitor and assess their businesses strategy.

Seventy two percent of survey participants with Asian operations said that changing economic conditions abroad meant that their Asian business strategy was constantly being reviewed and 82% stated that doing business in Asia was not a ‘set and forget’ strategy, but one that needed proactive and timely reviews.

72%

82%

Doing business in Asia is not a set and forget strategy, it needs constant

reassessment and proactive and timely changes to strategic direction

80%It will be important for us to assess

and monitor, and consequently tweak and amend our business strategy in Asia

Changing economic conditions abroad meant that we constantly needed

to assess our Asian business strategy

67%My organisation has tweaked

or changed strategy numerous times to ensure success in Asia

Dynamic Asian operation strategies

Base: Businesses with established operations in / with Asia (n=357)

3 Among businesses that we surveyed that are already doing business in / with Asia, the average revenue derived from their Asian operations / dealings is $0.58m for small businesses, $4.21m for medium sized businesses and $62.85m for large sized businesses (as reported by them in the survey). If all of the businesses that are currently considering doing business in / with Asia moved forward with their plans and achieved similar levels of revenue as those already there, this would result in around $138 billion of collective revenue p.a. These extrapolations are based on ABS data for the number of businesses and the revenue estimates provided by the survey respondents currently active in / with Asia. The estimates were tiered for small, medium and large businesses and then summed.


Challenging domestic conditions

A move towards Asia couldn’t come at a better time for many Australian businesses that are navigating a path through a challenging domestic environment.

Australia’s recent history of economic expansion was initially a result of opening the economy to global trade in the 1980s, regulatory reforms in the 1990s, and the commodities boom in the 2000s.

The impacts on the broader economy of each of these have slowed and the International Monetary Fund’s latest forecasts show GDP to remain under 2.5% and below global trends in 2016 before a slight recovery over the next two years4.

This trend, coupled with rising unemployment levels, stagnant wages, a higher cost of living and low business confidence (with a flow on effect on investments and trade levels) in Australia, has created an incredibly tough environment for businesses.

‘LOW GROWTH’

DOESN’T NEED

TO BE THE

NEW BLACK

4 IMF, www.imf.com, August 2016

said their Asian operations were driven by good opportunities and high demand for their products

43%


24%

13%

14%

19%

6%

8%

9%

2%

43%

14%

13%

10%

6%

4%

3%

3%

Good opportunities in market /demand for our product

Expansion / investment /distribution in Asian market

Asia is growing / market is strong

Business / industry is growing /things are going well currently

Growth (In general)

Import / export / turnover growth

We are advertising / marketing /targeting the region

Free trade agreements /reduced barriers to trade

Drivers of Asian expansion

2016 2015

Base: Businesses with established operations in / with Asia who expect to expand,

2015 (n=235), 2016 (n=234)

Driving change

These challenging conditions mean that Australian businesses are increasingly looking for other revenue streams – and more and more we are seeing business owners turning their attention to overseas markets, particularly Asia.

This time last year, 19% of survey participants with existing Asian operations said a key driver behind offshore expansion was their business’ success and strength of the industry. It’s most likely that these businesses had a significant operating surplus and thought it would be worthwhile trying their luck – rather than going overseas out of necessity.

In 2016 we see significantly different motivators

for those looking to expand their business overseas.

The number of businesses in the survey expanding into Asia as a result of strong business and industry growth has halved – and the number of businesses driven by anticipated demand for their product or service has almost doubled.


Market entry strategies

36%

39%

Export to Asian countries

25%

33%Joint ventures

24%

30%Greenfield investment

17%

18%Mergers and acquisitions

2016 2015

There has also been a change in the way Australian

businesses are entering Asian markets.

This year 63% of the businesses surveyed have ‘skin in the game’, up from 51% last year, forming joint ventures (2016: 33% vs 2015: 25%), undertaking mergers and acquisitions activity (2016: 18% vs 2015: 17%) or embarking on greenfield investments (2016: 30% vs 2015: 24%).

This shift away from traditional trade business (i.e. importing and exporting) suggests that Australian businesses are getting serious about capitalising on the opportunities in Asia. Australian businesses are now entrenching themselves within Asian markets, positioning for greater returns and showcasing a greater willingness to invest capital, extend ROI and take on complex exit strategies.

Base: Businesses with established operations in / with Asia, 2015 (n=353), 2016 (n=357)

said they recruited additional staff when preparing for international expansion55%


50%Human resources

44%Logistics, such as supply chain

33%Marketing and advertising

26%Information technology

18%Insurance

17%Real estate

15%Legal fees

8%IP protection

7%Accounting fees

17%Other

65%We had to increase the time spent

working on the business

57%We needed to consult extensively

with external resources

55%We needed to recruit additional staff

37%The time taken to focus on growing

our domestic operations reduced

50%Human resources

44%Logistics, such as supply chain

33%Marketing and advertising

26%Information technology

18%Insurance

17%Real estate

15%Legal fees

8%IP protection

7%Accounting fees

17%Other

65%We had to increase the time spent

working on the business

57%We needed to consult extensively

with external resources

55%We needed to recruit additional staff

37%The time taken to focus on growing

our domestic operations reduced

Asian operating costs

Planning for Asian operations

Base: Businesses with established operations in / with Asia, excludes those with

0% of operating costs attributed to Asian activities, ‘Don’t know’ not shown, (n=346)

Base: Businesses with established operations in / with Asia (n=357)

Jobs and growth

The increase in the number of Australian businesses investing in building their businesses in Asia is having a positive impact on employment and investment levels – and while there is clearly an upside for Asian economies, the benefits for Australia are also significant.

When it came to planning for cross-border business, 55% of Australian businesses (with Asian operations) in the survey said that they recruited additional staff. In the initial stages of their expansion, this predominantly included hiring staff in Australia to build capability and manage the process of becoming “Asia Ready”.

There are flow on opportunities of this activity for other industries. The services sector is a main beneficiary, with increasing demand for professional services, consultancies, lawyers, recruiters, technology developers and logistics companies to support the expansion of Australian businesses in Asia.


Big plans

From inception, Ambition worked smarter, harder and faster than their competitors.

Their relentless passion for talent meant they quickly established a reputation as the go-to HR firm with in-depth knowledge, expertise and deep relationships.

Institutionalising a winning formula

Ambition listed on the ASX within 12 months, opened an office in Hong Kong the following year and since then has expanded to the United Kingdom, Singapore and Malaysia.

As a true believer of “not reinventing the wheel”, Ambition institutionalised their winning formula and embedded the same structures, businesses process and operational models in each new location.

This tactic of promoting best practice consistency paid off - resulting in increased customer satisfaction, internal efficiencies and a well-regarded organisational culture and brand.

Same, same, but different

As all global businesses know, expanding across borders can be challenging.

The key to Ambition’s success was to truly appreciate the unique characteristics of each target market. In each destination they were sure to fully immerse their business into the local culture and community and had the utmost respect for thorough due diligence when it came to navigating the regulatory and legal environment.

Ambition is a true believer of not

reinventing the wheel

“

CASE STUDY A M B I T I O N

Ambition was founded in

1999 in Australia. True to

its name, from the very get

go the company had big

ambitions to go global and

become the world’s leading

boutique recruiting firm.

Diversity is key

Ambition’s passion for talent not only relates to the work they do recruiting for their clients, it extends to the people they hire and train.

While expanding into new countries, Ambition was selective in appointing in-country leadership that had the right experience on the ground in that chosen market.

They also hired the majority of their employees locally and implemented graduate programs to not only teach staff the trade, but to teach and embed Ambition’s culture and vision.

Management were focused on continually upskilling and providing new experiences for staff and as a result, in each market Ambition has a cohort of budding new local leaders in the wings ready for succession.

Testing the water

In 2014, Ambition made a move into Tokyo and as a result of their strong belief that you can’t run an international business by remote control, leaders were always on the ground while trying to establish operations.

This constant presence allowed leaders to have holistic visibility of how the new entity was travelling – which was incredibly beneficial when market conditions became extremely challenging.

Leaders quickly and accurately came to the decision that market entry was going to take longer than originally anticipated, and this responsiveness meant that Ambition could swiftly redirect investments to existing markets thereby mitigating risk.

Strength to strength

From this day, the company continues to go from strength to strength and has significant growth aspirations.

Australia currently accounts for 70% of Ambition’s operations, but leaders expect big things from emerging markets over the next decade, especially in Asia.

The future is bright for Ambition.

Their unique business model and their diligent and thoughtful approach to international expansion means that they will be in high demand by clients across the world for many years to come.

Leaders expect big things from emerging markets over the next decade,

especially in Asia

“


Championing diversity

In the business community, the spotlight has been on gender diversity for more than two decades – with corporate Australia making significant strides towards achieving gender equality. A growing number of women are taking leadership roles at universities, in workplaces, in boardrooms and in government, delivering stronger business outcomes, diversity of thought and forging pathways for other women and girls to follow.

Gender equality will continue to be

an important issue, as will ensuring

our society and business communities

foster and embrace diversity in all its

forms, including cultural diversity.

The GDP throughout Asia is expected to more than double to US$67 trillion by 2030, exceeding that projected for the Americas and Europe combined and to successfully unlock these opportunities, Australia will have to raise the bar on developing and retaining Asian capabilities5.

GETTING READY

FOR TAKE OFF

5 Australian in the Asian Century, http://www.defence.gov.au/whitepaper/2013/docs/australia_in_the_asian_century_white_paper.pdf6 Diversity Council of Australia, https://www.dca.org.au/dca-research/cracking-the-cultural-ceiling.html, August 2016

said that being more culturally diverse would better position them for success

when it came to Asian expansion

59%


72%Our business has female representation

at leadership or board level

63%Our business growth aspirations are

supported by being culturally diverse

59%Having a more culturally diverse

leadership or board would make us more successful doing business in Asia

51%Our leadership or board is culturally diverse

45%We strategically recruit culturally

diverse leaders to assist in reaching our business goals

43%Having more female representation

at leadership or board level would make us more successful

Diversity Culture matters – Australia has a long way to go

While 9.3% of the Australian labour force is Asian born, only 4.9% make it to senior executive level and across the ASX 200, only 1.9% of executives have Asian cultural origins6.

Our survey shows a similar story, while pleasingly 72% of businesses said they had female representation at leadership or board level, only 51% could say this was true for different cultural representation.

Despite 59% of surveyed businesses acknowledging that being more culturally diverse would better position them for success when it came to international expansion, only 45% said they were strategically recruiting to achieve better cultural diversity ratios to support business outcomes.

Base: Total sample (n=1,019)


Destination China

The survey shows China remains the key market of interest for Australian businesses with existing operations in Asia and also for those who are planning their expansion.

Despite a slow down in China’s GDP growth, strong double-digit growth in Chinese consumer spending is attractive for many Australian businesses7.

Chinese household income is estimated at $5 trillion8, which is approximately three times Australia’s GDP and the country’s transition to more consumption growth has opened up significant opportunities for Australian businesses.

The recently signed China-Australia Free Trade Agreement is also a game changer for Australian businesses from financial services to aged care industries and there are many niche areas of export opportunity such as honey, pearls, nuts, rock lobster and various fruit juices.

7 The rise of China, KPMG, August 20168 McKinsey & Company, http://www.mckinsey.com/, August 2016

18% 20%

14% 12%

South Korea

24% 25%

13%

19%

Thailand

23%22% 22% 22%

India

25%27%

19%

16%

Japan

22%

28%27% 27%

Indonesia

26%

32%33%

34%

Malaysia

26%

30%

34%

36%

Hong Kong

34%

39%41%

40%

Singapore

57%

65%

69%

52%

China

Planning 2016 Active 2016Planning 2015 Active 2015

Destination Asia

Base: Businesses with established operations in/with Asia, 2015 (n=353), 2016 (n=357); Businesses planning to establish operations in / with

Asia, 2015 (n=203), 2016 (n=240). Note: Top 9 countries amongst businesses with established operations in / with Asia shown


Game changers

Last year 18% of surveyed participants with Asian operations said that having a product or service that was in high demand underpinned their success.

However sentiments have changed in 2016. Possessing “knowledge” was the number one driver of building a successful business in Asia, closely followed by having good relationships with partners and customers.

Knowledge is king

Knowledge is the ultimate competitive advantage when it comes to international business. Markets throughout Asia vary greatly from country to country. They can be volatile and are always evolving, and Australian businesses need to think beyond traditional business models if they want to succeed.

Businesses need to be able to anticipate market trends and competitor behaviour.

Partnering for success

Having the right local partner

on the ground with the right market

insight is a great way to execute

a business plan.

Businesses should look for partners who can help navigate bureaucracy, red tape and cultural nuances.

Building robust and solid relationships with customers is equally important. In order to successfully connect with target markets, businesses need to understand the cultural context in which their customers are based.

said that having the right knowledge was the key success factor to

doing business in Asia

20%


Knowledge

Good relationships with partners / customers

In demand / high quality product or service

Good management / the right personnel

Good contacts / partners (i.e. knowing the right people)

Communication (e.g. knowing the language, good translator)

Favourable economic conditions (e.g. market / industry growth industry)

Local management / personnel / presence

Clear business model / direction / KPIs

Hard work / honest dealings

Cheaper costs (e.g. services, labour, equipment)

Marketing / advertising

Cheap / low cost product

Australian reputation / banking/ industry efforts 4%

5%

5%

5%

6%

6%11%

12%

11%8%

14%

14%

18%

19%

20%

16%

4%

4%

6%

6%

8%

9%

6%

4%

1%

2%

2%

2%

Key success drivers of Asian operations

2016 2015

Base: Businesses with established operations in / with Asia, 2015 (n=353), 2016 (n=357)

said they were doing business in China

65%


The future is bright

“We knew from the get-go that Asia was not only going to be our ticket to long term success, but also for our Australian customers.

As more and more Australian businesses started to do business with Asia, we knew we could add value and support them with the complexities and challenges in doing cross-border business”, said Mr Meyer.

Innovation ideologies

It is evident that the company prides itself on doing more than just servicing their clients.

David Morris, Transtar Finance and Strategy Director was drawn to the company for its passion for innovation.

“I love that Transtar forms partnerships with each and every one of our customers.

As a growing innovative company, we want the ability to grow and innovate with like-minded businesses. Our relationship with our customers is truly unique. We not only help them to prosper by streamlining logistics and supply chains – we help them reinvent business operations”, said Mr Morris.

Growth agenda

As their clients grew, so did the opportunities for Transtar.

Their operations went from strength to strength and today they have a robust presence around the globe with headquarters in Melbourne and Hong Kong, and a network of 18 offices located throughout Asia, Australia, New Zealand and Europe.

“Our significant growth for the last three decades can largely be attributed to our unique service offering. We have a fully integrated business model where our people and facilities can control and manage cargo movements across the entire supply chain – we go way beyond port-to-port; we can take you door-to-door”, said Mr Meyer.

Value add

Over the last five years Transtar opened for business in nine new markets across Asia, including Ningbo, Qingdao, Singapore, Bangkok and Kuala Lumpur – however their aspirations don’t stop there.

“Our vision is to be the leading provider of freight and logistics services in the Asia-Pacific market.

And we can do this by continuing to eliminate third parties from our business, removing cost from supply chains, improving processes and delivering a real competitive advantage to our customers”, said Mr Morris.

Freight and logistics

company Transtar was

founded in Australia in 1986

by Hank Meyer who may

have started humbly, but had

a big vision for the future.

CASE STUDY T R A N S TA R

And if industry recognition is anything to go by, Transtar is surely on the right track to reach their goal.

Last year Transtar won the Business Excellence Award for Business Services at the Australia China Business Awards and was awarded Freight Forwarder of the Year in 2013. Transtar also continues to climb IBISWorld’s Top 500 Private Businesses list.

Digital leaders

Transtar continues to raise the bar in the way they service their customers, not only in regards to core freight forwarding services, but also around cutting edge technology that they have pioneered to make it easier to track and manage the movement of goods.

“The release of e-STAR was extremely well received by our customer base. It offers real-time shipment visibility, with mobile, web and app compatibility. We were the first to market with this service and we will continually look for new ways to improve business for our customers”, said Mr Morris.

People are key

The key to Transtar’s success was not a stroke of luck, it has been the result of careful and meticulous planning and smart tactical moves.

The Board of Directors have strategically established operations in 10 out of 12 of the world’s top container ports and now have over 70% of their work force on the ground in Asia.

“Getting things from point A to point B in Asia can be complex – especially if you don’t know the market, the regulatory and customary hurdles – so hiring local talent is absolutely fundamental for us.

We have also implemented reward and recognition programs for our people. This has led to high employee satisfaction and in turn high retention levels.

Each year we take some of our highest performers to our Melbourne headquarters and show them exactly what business, life and our Transtar culture is like in Australia. This has had a tremendous impact on our offshore locations as they go back to their local office and share their learnings and experience”, said Mr Meyer.

The opportunity is up for grabs

Given Transtar’s unique service offerings, bolstered by its people, culture and innovative approach, it’s no wonder they have a large and diverse customer base, including long-term relationships with blue chip retail, wholesale and industrial companies.

However, the flow of trade is largely in-bound from Asia with Australian companies capitalizing on the ability to import low cost, high quality goods, to sell on to our population of 23 million.

“I do think more Australian companies should be looking at Asia as an opportunity to increase sales and reach revenue targets – just as we did. There is no doubt that it can be challenging, but if you partner with the right people and make sure you structure your organisation to succeed, the gains could be significant”, said Mr Meyer.

Our recruitment strategy to build a robust Asian workforce, which is predominately female,

has undoubtedly been a key success factor

“


MOUNTAINS

AND MOLEHILLS

Preconceptions

There is no denying that growing a business internationally is hard work. However, many Australian businesses consider Asian markets to be much tougher and more challenging than more familiar markets.

All businesses face challenges when

growing across borders, irrespective

of which market they are targeting.

Our report suggests that doing business in Asia is comparable to, and in some cases more straight forward, than it would be to seek growth in other markets.

Sixty per cent of businesses surveyed said that accessing capital for their Asian expansion was no different than securing funds for other markets – while 57%, 63% and 56% said that the challenge of predicting demand, mastering eCommerce and deploying marketing strategies in Asia respectively, was on par with other international experiences.

Doing business in Asia is the same or easier than in other markets

Access to capital funding

Finding on-the-ground partners

Predicting demand for products and services

Marketing

Access to local knowledge

Setting up e-commerce solutions

60%

52%

57%

56%

54%

63%

Base: Total sample (n=1,019)


Looking for growth in the wrong places

Despite the many opportunities, the preconception that doing business in Asia is too challenging is hindering the number of Australian businesses expanding to Asia.

The total value of outward investment from Australia was more than $2.1 trillion at the end of 2015, with the United States and the United Kingdom being the two largest recipients9.

You’ve got this

Australian businesses who participated in our survey have embarked on their Asian strategy with relative ease. Seventy one per cent had no issues with securing appropriate levels of funding and 64% said that they had no difficulties in developing the right Asian strategy for their business to succeed.

Sixty four per cent of businesses said the capital requirements for their Asia expansion were lower or in line with their expectations, while 61% achieved positive ROI within three years.

9 DFAT, www.dfat.gov.au, August 2016

Less

In line withexpectations

Greater

6%

7%

57%

59%

29%

28%

Asian capital requirement expectations vs reality

2016 2015

Base: Businesses with established operations in / with Asia, ‘Don’t know’ not shown,

2015 (n=353), 2016 (n=357)


A helping hand

For a country like Australia, foreign investment is critical for supporting economic development and sustainable growth.

Given Asia’s proximity and the growing wealth and investment capability across the business community, it would seem logical and realistic that Australian businesses would look to partner with investors from the region – however there seems to be significant reluctance.

Eighty seven per cent of Australian businesses surveyed

say they do not receive funds from international investors,

and a further 83% said they would not look to do

so in the future.

Of those businesses that remain domestically focused, the willingness to collaborate with international counterparts to drive sustainable growth remains low. Eighty two per cent said they are not currently participating in a joint venture with an international organisation and 84% said they wouldn’t be seeking to embark on a partnership in the future.

18%

17%

16%

13%

Participating in a joint venture arrangement in Australia with an international organisation

Seeking new investment from aninternational organisation

Seeking a joint venture arrangement inAustralia with an international organisation

Receiving investment from aninternational organisation

Partnering with Asian counterparts

Base: ‘Don’t know’ not shown, Total sample (n=1,019)


An importer and distributor of specialty raw materials for the personal care and pharmaceutical industries, Ingredients Plus’ early expansion into China was opportunistic.

CEO Graeme Love’s previous experience in the industry and in key Asian markets gave his new venture all-important contacts, and within a year he was fielding calls from Chinese companies keen to collaborate.

He quickly realised that an Asian regional presence would position Ingredients Plus at an advantage to their competitors in terms of sourcing materials from local suppliers. And with pharmaceutical companies increasingly shifting their manufacturing into Asia, Ingredients Plus knew that a regional presence would allow them to service a growing number of key multinational buyers.

“China’s important to us because it’s important to our buyers – having an office there put us on their radar. Without it, we wouldn’t be talking to the buyers that we are”, said Mr Love.

Protecting the home ground

Mr Love believes that if it wasn’t for their Asian operations, the Australian business would not be where it is today. The offices across Asia crucially allow Ingredients Plus to supply a larger number of global buyers across multiple markets.

“In Australia, you’re very exposed to factors outside your control, but having the offshore presence gives us a seat at the table with the best buyers and cushions our Australian business as well”, said Mr Love.

Big fish in a small pond

It wasn’t long before Ingredients Plus realised they were taking on some of the giants within the global industry.

“In Australia, one container goes to 20 customers, but in Asia we’re selling 20 containers to a single customer – the scale is massive”, said Mr Love.

While the size of the opportunity in Asia is impressive, it is essential to approach any expansion with a clear plan and ensure that you do your research.

Ingredients Plus has always been conscious of recognising what they could afford to put into each offshore office without affecting their domestic business in Australia.

CASE STUDY

I N G R E D I E N T S

P LU S

Ingredients Plus was

founded in Australia in

2005 but it wasn’t long

before they had opened

offices right across Asia.

Growth isn’t always easy

Ingredients Plus’ original expansion into China has now led to a network of offices across 10 countries with around 50% of group revenue attributable to the Asian offices.

But it’s important to note that growth of this magnitude has not been straight forward or without challenges.

While the offshore offices are significant revenue drivers, margins on contracts can be considerably lower, so there is pressure to move volume.

Mr Love’s advice to other Australian companies looking to take advantage of opportunities in Asia is to start out gently and to be clear on your own business’ risk and investment appetite before starting out.

People are key

Mr Love’s other key learning is around the importance of recruiting and retaining talented management personnel.

Mr Love notes that for Ingredients Plus, identifying key target markets has been the easy part, however getting the right people has been a more time consuming and challenging process.

“We simply won’t embark on expanding into a new country or opening a new office until we’ve found the right people”, said Mr Love.

And when it comes to retaining talent, Ingredients Plus has found that offering a small stake in the business to local management has allowed them to keep staff within their overseas offices – and it’s this consistency and high quality talent that has largely led to their success.

Strength to strength

There are big plans in the pipeline for Ingredients Plus and it’s expected that their offshore operations will only grow more important to the overall company’s success.

Mr Love expects that offshore revenue will increase from 50% to around 60% or even higher over the next five years.

“I honestly believe that the future looks bright for this great Australian company on the world stage. Our long term plan is to continue capitalising on our Asian regional strategy, while sustaining and protecting our domestic operations”, said Mr Love.

In Australia, one container goes to 20 customers, but in

Asia we’re selling 20 containers to a single customer – the scale

is massive

“


STRONGER,

BRIGHTER

REGIONAL

AUSTRALIA

10 The Regional Institute of Australia, The Rise of Asia, August 201611 The Regional Institute of Australia, The Rise of Asia, August 2016

On the rise

While representing a relatively small proportion of Australia’s total exports, exports from regional areas to Asia have increased by more than 85% over the last eight years, far outpacing that from metro areas10.

This trend is likely to continue.

Forecasts are showing that the majority of our export growth over the next decade will originate in regional Australia11 and the agricultural sector has a significant role to play.

The growing middle class in Asia and their ever increasing demand for clean, green and high quality food sources, means that Australian agricultural produce is and will continue to be in high demand.

Australian agricultural producers are in a prime position to supply Asia’s growing demand for quality food, and it’s not surprising therefore that 89% of agribusiness survey participants said that doing business in Asia was an attractive option for their sector.

of agribusiness survey participants said that doing business in Asia was an attractive option for their sector

89%


It’s all coming up agribusinesses

In comparison to other sectors, more agribusinesses are doing business with Asia.

And while they are not only more likely to engage in off-shore operations, agribusinesses are also driving sustainably larger returns from their Asian operations than from domestic markets (Agriculture: 70% vs Other industries: 50%) and are more optimistic about achieving sustainable growth (Agriculture: 76% vs Other industries: 57%).

The majority of our agribusiness survey participants also said that their success in Asia was a result of growing demand, with 69% acknowledging their produce was highly sought-after (compared to only 43% from other industries).

Key drivers of Asian expansion

Asia is growing / market is strong

Asia is growing /market is strong

Good opportunities in market /demand for our product

Business / industry is growing /things are going well currently

Import / export / turnover growth

We are advertising / marketing /targeting the region

Free trade agreements /reduced barriers to trade 3%

3%

8%

6%

8%

3%

10%

3%

4%

7%

13%

6%14%

69%43%

0%

Growth (In general)

Agriculture All industries

Base: Businesses with established operations in / with Asia who expect to expand,

All industries (n=234), Agri (n=38)


Regional rules

Optimism towards Asia and the opportunities it presents is growing in regional Australia.

Fifty per cent of regional Australian businesses participating in the survey said that they were drawn to Asia as a result of good opportunities, compared to 42% of their metro peers.

Sixty six per cent of regional survey participants also said that they plan to expand their business in Asia and nearly two thirds of regional businesses doing business in Asia said they were not impacted by the slow down in some economies.


Key success factors of Asia operations Collaboration with Asian Investors

In demand / high qualityproduct or service

Good relationships withpartners / customers

Knowledge

Good management /the right personnel

Communication

Favourable economic conditions

Local management /personnel / presence 5%

7%

15%

9%

13%

6%

12%

3%

7%

9%

14%

22%18%

10%22%

3%

Good contacts / partners

Base: Businesses with established operations in / with Asia; Metro (n=273),

Regional (n=84)

Base: ‘Don’t know’ not shown, Metro (n=695), Regional (n=324)

Regional Metro

Regional Metro

53%

16%

69%

6%

18%11%

20%11%

20%13%

None of these

Receiving investment froman international organisation

Participating in a joint venturearrangement in Australia withan international organisation

Seeking new investment froman international organisation

Seeking a joint venturearrangement in Australia withan international organisation


Driving success

When it comes to the key factors underpinning success in Asia, regional businesses were half as likely to value “knowledge” of the local market conditions and culture (regional businesses: 10% vs metro businesses: 22%).

They did however place more importance on having good relationships with partners (regional businesses: 22% vs metro businesses: 18%) and having a product or produce that was in high demand (regional businesses: 15% vs metro businesses: 14%).

While product demand and good relationships with partners are important factors, acquiring the right level of understanding of target markets should not be underestimated.

Doing business in Asia is the same or easier than other offshore markets

Regional Metro

Base: Metro (n=695). Regional (n=324)

Setting up e-commerce solutions

Access to capital funding

Marketing

Access to local knowledge

Finding on-the-ground partners55%

54%

62%

58%

54%

52%

61%58%

57%

44%

64%

52%

Predicting demand forproducts and services


ANZ’s Asian Delegation programs bring together groups of industry participants for a focused week of market insights.

The program aims to develop industry participants’ knowledge of trade opportunities, deepen their understanding and appreciation of global food supply chain and provide them with a first hand opportunity to experience business, life and culture in key markets in Asia.

Importantly, participants spend time meeting with local producers and industry players, gaining practical knowledge on how to do business in specific Asian markets, and making vital connections to support their international ambitions.

Our most recent delegations have focused on protein (beef and chicken) and grain (wheat and barley) and have explored markets in Vietnam, China and Hong Kong.

In which Asian countries does your organisation currently have business operations


25%

28%

27%

28%

34%17%

36%27%

40%28%

65%70%

Japan

Indonesia

Singapore

China

Hong Kong

Malaysia

Base: Businesses with established operations in / with Asia; All industries (n=357), Agri (n=60)


Sentiments about doing business in Asia

Regional Metro

35%

41%

28%

32%

46%46%

53%44%

54%47%

57%62%

60%47%

63%51%

Establishing business operations or dealings with Asianmarkets does not require a very substantial capital investment

Exposure to currency exchange rate fluctuations is a barrierto our organisation doing / doing more business in / with Asia

My organisation has not been impactedby the downturn in the China economy

I´d like to know more about how the Free Trade Agreements with Asian countries could greater benefit my business

Doing business in / with Asia substantially increases / willsubstantially increase our organisation’s profits

Doing business in / with Asia makes / will makesustainable growth of our organisation more achievable

Doing business in or with Asia is attractive in our sector

Asian expansion is a viable option for all businesses

Base: Metro (n=695), Regional (n=324)


Like a bull in a China shop

As the largest food importer in the world, it is not surprising that China is the top destination for Australian regional businesses participating in the survey, with 76% saying it was their number one target market.

China was also the top destination for

agribusinesses, with 70% already doing

business there and 64% saying they

have plans to start operations there.

According to the Chinese Bureau of Statistics, the average annual growth rate of food and beverage imports in China is forecast to increase by 20% p.a until the end of the decade12.

Contract

The same

Stay about the same

Higher

Expand

12 Chinese Burearu of Statistics, http://www.stats.gov.cn/english/, August 2016

Future plans for Asian operations

How does the level of profit margin from your Asian operations compare to your profit margins from Australian based activities?

34%66%

1%

30%65%

5%

Regional

Metro

30%43%

42%33%

Allindustries

Agri

Base (above): Businesses with established operations in / with Asia (n=357)

Base (below): Businesses with established operations in / with Asia, All industries (n=357), Agri (n=60)


The need to size and scale

Asia is home to 60% of the world’s population and cities throughout the region are transforming faster than ever, with populations doubling in the last 10 years13.

The opportunities are significant and

if Australian regional businesses want

to secure a larger piece of the Asian pie,

they will need to start considering

how to size and scale their operations.

In order for regional businesses to increase their capacity and cater for growing offshore demand, they will need investment and potentially need to consider different funding options or models.

Fifty four per cent of regional businesses participating in the survey said that logistics and supply chain expenses were their largest operating costs, compared to only 36% of their metro peers.

13 The organisation for Economic Co-operation and Development, www.oced.com


However, the report also shows that regional businesses, especially those in the agricultural sector, are more likely to use their personal funds to support their offshore business, and much less likely to have appetite to partner with international investors.

In fact, 87% of regional businesses said they would not participate in a joint venture with an international organisation and 89% said they would not seek new investments from an offshore partner.

Despite regional businesses being twice as likely to seek Government and industry grants as other sectors, only 13% said it was a source of capital.

Last year only 9% of survey participants said they would look to government for support when it came to doing business in Asia but this year 47% of regional survey participants with established offshore operations said they wanted to know more about how their business could benefit from Free Trade Agreements.

Top three outlay for Asian business operations

15%

17%

7%

6%

18%12%

26%9%

33%31%

44%50%

50%46%

Legal fees

Real estate

Marketing andadvertising

Logistics, such assupply chain

Human resources, such as hiring employees

Informationtechnology

Insurance


Base: Businesses with established operations in / with Asia, All industries (n=357), Agri (n=57)


Key drivers of Asian expansion Drivers of Asian operations

10%

13%

3%

8%

14%6%

43%69%

Business/industry is growing/things are going well currently

Asia is growing/market is strong

Good opportunities in market/demand for our product

Expansion/investment/distribution in Asian market


2%

7%8%

8%

1%

13%

18%

26%

24%29%

28%

18%

8%11%

35%

24%

Don’t know

Other

Success of similar businesses

Operating cost savings

Existing or expected demand

Existing business relationships

Perceived easeof doing business

Regional Metro

Base: Businesses with established operations in / with Asia; Metro (n=273),

Regional (n=84)

Base: Businesses with established operations in/with Asia who expect to expand,

All industries (n=234), Agri (n=38)


Lean on me

When it comes to selecting Asian target markets, 24% of regional businesses said that they choose countries where they have existing business relationships (compared to 29% of their metro peers).

Metro based businesses who participated in the survey were also more likely to determine the location of their Asian business based on the existing or expected demand for their products. They also considered the success of other similar companies in the market.

These differences in planning offshore market entry are likely the result of differing perceptions around the ease of doing business in Asia.

Regional businesses found it more challenging to find on-the-ground partners, predict demand for their products or services, and access local knowledge, and are therefore more likely to consider markets where they have existing connections.

13%7%

16%

27%13%

39%

15%18%

23%

9%20%

7%

37%38%

66%

50%42%

46%

Government assistance such asexport grant etc.

Personal funds

Private equity or investors

Bank funding overseas

Operating surplus

Bank funding in Australia

Agriculture Regional Metro

Funding Asian operations

Base: Businesses with established operations in / with Asia; Agri (n=57), Metro (n=265), Regional (n=81)


Investing where it counts

Simon and Vicki Frost realised quite quickly that in order to grow the business they would need to invest.

So that’s what they did. They invested in a new and improved production facility and worked hard to extend their product line to include a huge range of products all based around apples and pears that were available locally. This not only benefited Harcourt Apples but also gave local farmers a market for their second grade fruit that was wasted in the past.

And the decision paid off for Harcourt Apples. Big time.

The efficiency improvements in production allowed the business to increase their supply and cater for the growing demand for their products.

Seeing results

In fact, soon after the upgrades they began to do deals with large domestic retailers, extending their product reach across the nation.

This was a great result for the Frosts and they were pleased with the rate of growth within the business.

But little did they know that global opportunities

were just around the corner.

Going global

“It seems silly now, but exporting our products, especially to Asia was never a part of our plan. When we were approached directly by a Chinese buyer who was interested in our cider products, we were truly shocked”, said Mr Frost.

Similarly, not long after Harcourt’s discussion with China, they were once again approached by an Asian buyer, but this time a Malaysian group of pharmacies.

“A Malaysian pharmacy group sent us an email, enquiring about our apple cider vinegar products as there is a growing demand world-wide due to the health benefits of apple cider vinegar.

They didn’t believe us at first that our products were 100% natural, but once we showed them how it was made, they quickly started negotiations”, said Mr Frost.

CASE STUDY

H A R C O U R T

A P P L E S

When Simon and Vicki Frost

bought a small apple juicing

business near Harcourt in

2002, they had no idea that

they would soon become

an international supplier of

natural fruit juices products,

sparkling juices, ciders

and cider vinegars.

Crossing ‘t’s and dotting ‘i’s

Harcourt Apples took a diligent and careful approach when it came to dipping their toe in the Chinese market.

Five years ago they embarked on a couple of small contracts with the Hong Kong Jockey Club, however since that time their footprint has grown substantially, and the future outlook is bright.

More recently, the negotiations with the Malaysian pharmacy group have come to fruition. Harcourt Apples now export white-labelled apple cider vinegar products, which are repackaged and relabelled in Kuala Lumpur and available in more than 30 pharmacies.

The future is bright

“We do see huge potential for our business in China and Malaysia, and throughout Asia more broadly. In fact I think there is tremendous opportunity for all Australian producers of fresh, clean agri products”, said Mr Frost.

It terms of opportunities abroad, not only is the increasing volume of exports changing the business trajectory for Harcourt Apples, but so is the potential to manufacture or source high quality, low cost goods that are involved in production such as glass bottles and jars.

“Believe it or not, once we started to scale our operations, finding a local supplier who could provide the number of glass bottles we required at an affordable cost was tough. That’s when we started to expand our thinking. If we’re selling in Asia, why can’t we manufacture there too”, said Mr Frost.

This part of the business is in the early phase for Harcourt Apples but they will pursue looking for JV opportunities, especially with partners with robust distribution connections to really take the business to the next level.

“Pardon the pun but it’s apples and oranges – if we hadn’t been brave enough to take our business global we would be in a completely different position to where we are today”, said Mr Frost.

There is tremendous opportunity for all

Australian producers of fresh, clean agri products

“


The ANZ Opportunity Asia

report shows that Australian

businesses that are doing

business in Asia are far more

profitable and have better

growth prospects than their

domestically focused peers.

CONCLUSION Businesses in regional Australia, especially in the agricultural sector were a standout – with a significant proportion exporting produce to Asian markets and many with plans to ramp up their capacity to expand on their off-shore operations.

Nearly all businesses who were doing business in Asia acknowledged that they need to constantly monitor their business strategy to navigate dynamic market conditions. However, overall there was consensus that businesses generally were benefiting from the multitude of opportunities as a result of the speed and size of growth across Asian economies.

The report also reveals that a growing number of companies are planning to do business in Asia, which will have a positive flow on impact for the Australian economy.

The majority of Australian businesses who participated in the report said they accessed capital for their offshore development with relative ease and that doing business in Asia was no more challenging than growing in other offshore markets.

In many cases they hired additional staff, with many saying their profit margins and overall returns increased significantly.

The key to success for those starting their Asian journey will be accessing and maintaining the right ‘Asian capabilities’ and recalibrating risk appetite so as to reap the rewards.


ANZ International

Business Development

E: [email protected]

W: anz.com

CONTACT US


ABOUT ANZ We can help your business grow in more markets

ANZ is the only Australian bank that allows you to leverage the strength of your business operations at home to grow in more markets abroad.

We are in 34 markets which means we support you in more countries than any other Australian bank.

Gain business confidence

Our dedicated Australian desks in seven major markets provide you with expert banking and business advice. No matter where you want to grow, you’ll have access to someone on the ground, who knows the market, understands your business and speaks your language.

Our unique trade desk supports more than 1,000 customers every month, and can help you to make better informed decisions, giving you trading confidence.

Our regional network provides a strong differentiator based on capabilities in trade foreign exchange, debt capital markets and cash management.

We invest in our people, so we can serve you better. More than 400 of our Bankers have joined our Asia Delegation Program, gaining insight and the ‘know how’ to better support you.

Keep your banking personalised and simple

Growing your business across borders is challenging so we keep your banking simple. Your Relationship Manager, who already knows your business, remains your primary global contact, saving you months in establishing new relationships.

Our dedicated international on-boarding team makes the experience seamless and helps you to get your business up and running faster.

Experience you can trust

We have been building our presence in Asia for more than 40 years and we are the largest Australian bank in the region.

We are recognised as the best placed bank to support Australian businesses with their international needs14.

We discuss international growth plans with Australian businesses every month and actively support thousands of businesses to grow across borders each year.

Grow in more markets,

keep your banking simply.

14 DBM, Peter Lee


SURVEY DEMOGRAPHICS

Audiences

ActivitiesAlready have operations or business dealings with Asia

PlannersConsidering operations or business dealings with Asia

PotentialsNot considering operations

or business dealings with Asia

Sample size (unweighted) #

Percentage of sample (weighted) %

Total 1,019 100

Segment

Activities 357 35

Planners 240 20

Potentials 422 45

Business size (by annual turnover)

Small $250k-$4.9m 459 37

Medium $5m-$39m 328 39

Large $40m+ 323 24

Sector deep dive: Agribusiness (Agriculture, forestry & fishing)

Activities 60 2

Planners 44 1

Potentials 18 1

State

NSW / ACT 328 34

VIC 289 29

QLD 174 17

WA 85 8

SA / NT 108 9

TAS 35 3

Sample Profile


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