Harnessing opportunities in South and South-East Asia looking beyond China for the next wave of Asia s growth Andrew Geczy CEO, International and Institutional Banking, ANZ Good afternoon everyone. It s a great pleasure to have the opportunity to address the Business Circle - it s a particularly important opportunity for me. That is not just because the Australia-New Zealand relationship is at the heart of ANZ s name and our business. but that the nature of Circle s audience encourages us to think outwardly. and to cast off some of our more parochial concerns. Today, I want to use my address to give another perspective on the enormous shifts that are occurring as a result of the Asian Century - on how they are reshaping the Australian and New Zealand economies; and how they are reshaping our businesses. 1
That perspective is to look at the Asian Century opportunity through the lens of south-east Asia - something that I believe is underdone in Australia given the intense focus we have on our largest trading partner China. For Australia and New Zealand, strengthening our ties with Asia means more than just exporting to China, sourcing from China or trying to attract Chinese investment. It involves Australian and New Zealand firms looking at the many individual markets that exist in Asia to gain local knowledge; to build management capability and experience; and to develop new markets that tap broadly into Asia s growth. Obviously ANZ is one of those companies extending its reach to grow in Asia. We are doing this by building our capability and presence to benefit from increased regional trade, capital and wealth flows. Let me start though by sharing three reasons why I believe we need to give more attention to south-east Asia. 2
First, as the growth drivers for south east Asia shift away from the US and Europe toward China, new opportunities are being created in our nearest neighbours in resources, agriculture, infrastructure and in manufacturing. Since 1995, trade between China and the ASEAN economies has grown at an average of almost 20 per cent a year, reaching around $400 billion in 2013. For example, around 25 per cent of China s coal imports originate from Indonesia, more than from any other country. This growing integration is leading to significant changes in the composition of trade and regional investment flows in Asia which has important implications for Australian and New Zealand business. Second, while China continues to be the engine for Asian growth, its growth pattern is shifting to a more moderate and sustainable level of around 7%. 3
At the same time strong consumer confidence, domestic consumption, urbanisation and growing intra-regional trade is driving grow rates of 5-6% in south-east Asia which continue to create attractive opportunities. For example, the largest country in south-east Asia - Indonesia - is the 16 th largest economy in the world with an emerging middle class of 45 million people. By 2030 though, it is expected to be the 7 th largest economy in the world with an emerging middle class of 135 million this growth in middle income consumers is greater than any other country except China and India. Many other countries in south-east Asia are also young, optimistic and growing fast. Vietnam is experiencing growth of 7 per cent a year, Malaysia 6 per cent and Thailand 5 per cent. Within ASEAN, Gen Y accounts currently for over 27 per cent of the population, and by 2030 over half of its 650 million people will be under the age of 30. 4
And their rates of consumption are higher than those of Brazil, Russia, India and China, at 53 per cent of GDP. Being a young demographic, they are also highly connected and countries such as the Philippines and Indonesia feature in the top 10 countries worldwide in terms of internet and social media penetration. The final reason I want to give you for paying more attention to south-east Asia is that its role in the world economy is at a watershed. Recently south-east Asia has been quietly working on a number of regional trade deals including the Regional Comprehensive Economic Partnership, the Trans-Pacific Partnership and the ASEAN Economic Community. While these deals still have some way to go before they are finalised, for me they highlight the more central role ASEAN is playing in Asia s economic integration. 5
The Regional Comprehensive Economic Partnership for example would represent 49 per cent of the world s population and accounts for 30 per cent of world GDP. It also makes up 29 per cent of world trade and 26 per cent of world FDI inflows. Anticipation of the ASEAN economic community alone is creating business activity, with many companies in the region engaging in acquisitions to improve their market position. It is significant to note that Australia and New Zealand are working hard on this opportunity together. The agreement establishing the ASEAN-Australia-New Zealand Free Trade Area is the first time Australia and New Zealand have been involved jointly in negotiating an FTA with third countries. It is also the first time ASEAN has embarked on free trade negotiations covering all sectors including goods, services, investment and intellectual property simultaneously. This agreement creates an improved environment for Australian and New Zealand exporters and investors through tariff reduction and elimination commitments, and through certain legal protections for investment in ASEAN territories. 6
So there are strong reasons for Australia and Australian business to be paying more attention to south-east Asia. Now I am a relative newcomer to Australia so it seems a little forward to for me talk about what we should be doing about it. But I have been working hard to listen to our clients and staff throughout the region and I d like to share a few ideas that I ve picked up which have resonated with me. At a national level, there are a number of additional things we can do to better facilitate our engagement with Asia generally. For example, building greater community support for engagement with Asia including a more compelling but everyday narrative which better recognises south-east Asia s importance to Australia s future. We also need more Australians with awareness of Asian cultures and who learn Asian languages so that young people are prepared for the realities and the exciting opportunities of work in the century ahead. 7
Having this local knowledge through local personnel, your own experience or through research is crucial for success in the region For example our Country Manager in Vietnam mentioned to me that the CEO of a local hypermarket was surprised to learn that the average spend per customer was very low. As it turned out, this is because most people in Vietnam travel by motorcycle and so they can not carry large quantities of groceries. Compare that with McDonald s their local insight informed a decision to set up a motorcycle dedicated drive through. Already though, we are seeing progress. Overseas study programs such as the New Colombo Plan are a good start, encompassing many countries in the Indo-Pacific region and shifting the focus away from a sole reliance on China. My view however is that the opportunity in south-east Asia is there for business to grasp. We need more focus on increasing scale throughout the region. 8
Companies within Asia are already looking at modes of expansion within ASEAN, and there has been a 10 per cent increase in M&A activity in 2013. Most of this increase has taken place in Malaysia, and throughout ASEAN in the energy, mining, utilities and financial services. Business also needs to increase its focus on the next wave of goods and services that the rapidly expanding middle and upper classes in ASEAN will demand. For example, wealthier consumers are demanding premium brands creating opportunities for businesses with a reputation for quality. At the same time, business needs to invest in building secure supply relationships, developing systems for certification and ensuring staff are adequately trained. 9
We recently worked with an Australian Corporate in The Philippines to acquire a company in New Zealand. Their aim was to grow exports into Vietnam, Thailand, Indonesia and China. This company had just prior to this transaction purchased a healthy food brand providing alternatives to the popular cookies and sweet snacks available. The transaction reflected the growth opportunity that exists in premium, healthy foods south-east Asia as incomes rise. We also need to recognise the importance of marketing. Tailoring marketing campaigns to the region and ensuring a strong digital presence will help to capture the youth of south-east Asia for ongoing success. In a survey conducted by AT Kearney, nearly 40 per cent of companies valued at less than $100 million in south-east Asia did not have a clear brand proposition. This is a risk when the lowest cost product is no longer the primary concern of consumers. Start to build Asia-centric networks and recruit those with Asian experience. Perhaps even more importantly, don t limit the progress of staff with an Asian background. 10
Even though 9.3 per cent of the Australian labour force is Asian born, only 4.9 per cent make it to senior executive level and that data is worse still in ASX 200 companies. According to the Diversity Council of Australia, only 17 per cent of leaders with Asian backgrounds believe that their organisation is making the most of their Asia capabilities. So there is much to do to broaden our horizon and to take advantage of the south-east Asian century. Opportunities like this are rare, and even rarer to find them on our doorstep. As a nation and within our businesses, I believe we need to look beyond China and tap more broadly into the many individual growth markets that exist in Asia and in particular to the opportunity in south-east Asia. Many thanks for the opportunity to speak to you today. 11