Pitcher Partners Property Breakfast Speech – South East Asia: South Australia’s Largest Export Market

The Asian Century is often discussed in terms of China and India, as is fair due to the large population size and market capacity. However, far too often our government and business leaders have failed to realise that there are in many cases strong, established and emerging business opportunities in South East Asia, in markets where we have traded successfully for more than a century. With the Asian Century upon us, it is time we returned South East Asia as a market of focus and started to realise the real and tangible opportunities that are rapidly emerging.

Former US Secretary of Defence – Donald Rumsfeld famously said about the search for weapon of mass destruction:

“There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don’t know. But there are also unknown unknowns. There are things we don’t know we don’t know.”

I will go so far as to suggest that many of you here this morning are in the latter category of knowledge about Asia, and indeed South East Asia – that is; there are things about South East Asia which you don’t know that you don’t know.

This is not surprising, for our local market has for many years been the primary focus of many businesses in Australia. However, with a modestly growing and tight economy in the non-mining sector, there are now plenty of reasons to broaden our knowledge of our closest Asian Neighbours – South East Asia.

South East Asia has a population of 600 million people, less than half the population of China or India, but more than 25 times larger than Australia. It comprises a dozen or so countries, and is united by ASEAN – The Association of South East Asian Nations. If ASEAN were a country it would be South Australia’s largest export market, with export trade for 2011/12 of $2.3Billion, surpassing export trade to China of $2.2Billion, and well in front of export trade to India of $759 million. This is an important distinction when our governments focus almost exclusively on China and India.

South East Asia is where four of Australia’s seven Free Trade Agreements have been ratified, including; Singapore, South Australia’s 4th largest trading partner; Malaysia, SA’s 3rd largest export destination; and Thailand, SA’s 10th largest export destination. In addition to these bilateral FTA’s, Australia has ratified an FTA with ASEAN, and is currently in formal negotiations with Indonesia to achieve a Comprehensive Economic Partnership Agreement. Should this agreement be achieved as hoped over the next 12 months, it will be Australia’s most outstanding agreement, effectively opening the floodgates to trade and investment between Indonesia and Australia. Indonesia, with a population of over 250 million, provides perhaps the most outstanding growth market for South Australia. It has been a member of the WTO since 1995, and has sustained positive GDP growth trending at greater than 5% over the past 10 years, with 6.3% GDP growth forecast for 2013. This growth figure compares favourably with forecasts for both China (8%) and India (6.2%), and is being sustained by strong domestic demand.

Indonesia is the forgotten market for Australia and South Australia. Export trade from South Australia is coming off a low base but has grown from $132 million export sales in 2009/10 to $603 million export sales in 2011/12. It is now SA’s 6th largest export market. That’s almost a five-fold increase in export sales. Indonesia is the powerhouse market of South East Asia, and with political and economic stability it is rapidly emerging as one of the most import economies in the world. Standard Chartered Bank has predicted the Indonesian economy will surpass the Australian economy in terms of size to become one of the top 10 global economies by 2020, and top 6 by 2030.

There is a rapidly emerging middle and upper class developing across South East Asia, from Indonesia to Vietnam. Jakarta is indicative of this emerging new wealth in South East Asia, characterised by an eclectic mix of street vendors and luxury malls, Maserati’s and Scooters, Mercedes Benz taxis, and motorised rickshaws. An diverse mix of rich and poor, with a rapidly emerging middle class. It’s home to ALL of the big luxury brands. There are 3 Luis Vuitton Stores in Jakarta alone, and they sit side by side with Prada, Mont Blanc, and Cartier. These high-end retail stores are filled with buyers, local Indonesian buyers, paying global prices for genuine luxury clothing and accessories. Indonesian shopping malls are filled with local Indonesian consumers paying global prices for genuine luxury goods. To walk through the shopping malls of Jakarta is to be fully aware of the emergence of the middle class consumer in Indonesia, if not South East Asia.

The Jakarta skyline is replete with high-rise office and residential apartments. The rapid and sustained economic growth in Indonesia has seen the population of Jakarta swell to upwards of 25 million people during the week, and the city sprawl out and absorb the surrounding manufacturing cities of Bogor and Cikarang.

This growth has pushed up the price of quality office and residential accommodation in Jakarta. Colliers International has forecast office vacancy rates in Jakarta of less than 2% for 2013. While Jones Lang Lassalle have forecast residential rental occupancy rates at between 85-90%. This demand for high quality accommodation in Jakarta has seen residential rental agreements requiring between 2-5 years rent upfront to secure an apartment.

This picture of Jakarta, is replicated across South East Asia, in Singapore, where admittedly there is a lack of the ramshackle housing; Kuala Lumpur where the Petronas Towers take centre stage, through to Bangkok, Hanoi and Manila. The middle class is arriving fast across the region and has started to demand products and services, the very products and services that South Australia can supply. I paint this emerging picture of Indonesia and South East Asia to demonstrate that our closest Asian neighbours have developed the capacity to pay, and more and more people are joining the middle class.

The key drivers in the South East Asian economies are based broadly around four core factors:

1. Food Security,
2. Mining, Oil and Gas,
3. Capacity Building and
4. Tourism and Infrastructure

Food Security – There is increasing demand for food, agricultural products, and beverages. This demand has resulted in SA food companies finding new markets in South East Asia. Indonesia for example was South Australia’s largest wheat export market in 2011/12, surpassing even China.

Mining, Oil and Gas – South East Asia is a centre for mining, oil and gas exploration and drilling, benefiting from the same mining boom we have witnessed in Australia. The core minerals being exploited in Indonesia, East Timor, Malaysia and Myanmar include Thermal Coal, Oil, LNG, Coal Seem Gas, Copper, Gold and Silver. The growth in the mining sector in markets such as Indonesia, East Timor, Myanmar and Malaysia, have provided opportunities for Australian engineering, design, and construction companies to help develop the infrastructure needs of these markets. East Timor has for example upwards of $4 Billion in infrastructure projects in the pipeline related to the growth in the oil and gas industry.

Capacity Building – Constraints in terms of skills have seen all governments across the region talk about the need to up-skill their workforce. There is a need for higher educated workforce throughout the region, in both vocational and higher education. Middle class families are looking to education providers in Australia to provide this skilled advantage to their children. As a result, more students from South East Asia, including Indonesia, will be seeking to come to Australia to undertake vocational and higher education studies in the coming years. These students often come from wealthy middle class families and seek accommodation close to the universities in Australia.

Tourism Infrastructure – Tourism is one of the traditional economic opportunities for the region, with resorts from Bali in Indonesia, through to Phuket in Thailand. However, the climactic conditions of the region mean that tourist infrastructure requires constant redevelopment, including hotels, villas, roads, marinas and airports. There are also new tourism sites being developed across South East Asia, from East Timor to Vietnam. South Australian property developers and urban planners are already looking at how they can enter this market.

The key message I would like to impress upon South Australian business is not to ignore the huge market opportunities in South East Asia. Our business leaders should be embracing the many emerging opportunities. Indonesia and South East Asia, provide the greatest opportunity for South Australian businesses to take advantage of the rapidly growing demand for Australian commodities, products, and services. South Australian business should be establishing strategies to leverage these very opportunities.

A Critical Review of the Hartley Review of SA Government International Investment Attraction Strategy

Austrade Logo and branding “Australia Unlimited” really captures the folly of South Australia adopting an AUSTRADE strategy for international promotion. The logo is about all of Australia not SA. South Australia runs the risk of being left behind if an Austrade strategy is activated in isolation.

The Hartley Review of the South Australian Government international office strategy has made recommendations that the State Government outsource the role of investment attraction in international markets to AUSTRADE. Recently however AUSTRADE has released a review of their own operations and come to some important conclusions on their future strategy. This new AUSTRADE strategy discusses the need to promote Investment in a Generic manner, How is this going to be in the best interests of SA? and if investors are identified, how will the SA government be placed to facilitate the next phase, if there are no representation on the ground in these home markets?  The AUSTRADE focus is on federal objectives, and most companies that are requiring the assistance form AUSTRADE are from the Eastern Seaboard, how will the competing interests from SA be managed if this proposal is activated? The objectives available in the 2011 AUSTRADE review suggest that the new leaner AUSTRADE model that is focused upon Asia and emerging economies.  The use of AUSTRADE to promote SA companies and industries in key markets can be compromised in certain industry sectors, due to perceived conflicts of interest. One core example would be in the defence industry, AUSTRADE are compromised in their support of defence contractors due to their perceived geopolitical conflict of interest. The State Government would be better placed to facilitate introductions and assist local companies as they are not the procurers of defence materials themselves. This is just one example where an AUSTRADE representative strategy would be seriously compromised.

In relation to the Investment focus of AUSTRADE the 2011 review recommends:

Investment activity will be focused in markets where there are sources of investible funds, predominantly established markets, but increasingly, growth and emerging economies. However, a sharper focus for investment activity is also required.

Generic promotion of Australia’s attractiveness as a destination for foreign direct investment in target markets will remain a core element of the investment program.

• Proactive investment attraction priorities will be determined through structured consultation across Government.
• The facilitation of investors who have made a decision to consider Australia, requires close cooperation across levels of government and Austrade’s role will be concentrated in the delivery of targeted information and navigation through the Australian policy and regulatory landscape. A key goal for Austrade will be the delivery of strong investment leads to states, territories and other providers for facilitation activity, at the earliest opportunity.

Qingdao is a city of immense potential to South Australia and we are currently not leveraging our strong connections in this city to achieve the best outcomes for South Australian companies.

The recommendations to close the current offices in each of the emerging markets is poorly conceived, the arguments put forward in the review that SA needs to withdraw from these markets will affect our image in these markets in a negative manner. SA already invests less than the other states in Australia on their international strategy, and this could well be the reason that we have not achieved the outcome that the State Government would seek. I find it strange that a proposal to close everything other than the Jinan Office should be made, based on the available evidence. If anything the office in Jinan should be moved to Qingdao in Shandong, China’s third largest port city, and which has a longstanding trade relationship with SA through agricultural exports.

The proposal to move away from trade and inwards towards investment is a short-sighted and backward move, that is more in keeping with the strategies of emerging and developing economies, not mature economies such as South Australia. Pursuing this strategy in a global market, where the investors have choice, not only amongst Australia, but more broadly across Asia, Africa, the Americas and Europe, suggests that SA will be lost to the world. What benchmarking has the SA government done for our Investment potential against similar key investor markets? The Hartley Review ignores the South Australian geographic isolation from the western world, and with the macro economic factors currently leaving Australia as a poor investment location for industry and manufacturing, it is unlikely that substantial inward investment would come into the state for anything other than mining. In recent weeks the folly of the expected Mining investment boom is becoming evident, and there may not be the appetite to invest in SA, given the current macroeconomic issues and policy positions in Australia, and South Australia.

Indonesia provides a large opportunity for South Australia in trade and investment, yet the South Australian government has failed to grasp the opportunities presented.

The Investment strategy proposed will consign large components of the South Australian economy to waste, including our leading export sectors of agriculture, and education. Given the current state of the manufacturing industry in SA, how will this review address the needs of the manufacturing sector transition to advanced manufacturing? The Hartley Review does not provide any tangible way of addressing this issue, and how better use may have been made of the international offices to help our manufacturers rationalise their operations more effectively. An example SA can aspire to is Germany, which has moved its bulk manufacturing industry to an advanced manufacturing sector, through taking advantage of their international networks in Eastern Europe, and Asia. There is nowhere in this report which raises this as a value adding proposition to our current overseas offices.  An Investment Strategy which seeks to pitch SA directly against our emerging economy neighbours such as Indonesia, PNG and Burma in regards to mining investment is short-sighted, and compromised in my opinion, particularly if there is no complimentary engagement to assist our neighbours achieve economic goals, through economic partnerships and bi-lateral investment. The economic principle of comparative advantage has been ignored in this recommendation.

The recommendation that the service sector be employed in those circumstances where the “representative” title was not critical for obtaining access to investment targets ignores the cultural factors that are common to most other countries in Asia, that being the respect for status and hierarchy. In Asia particularly the title is critical, this review is culturally ignorant of these factors, and could position South Australia at the back of the queue for a generation, should a short term and reactive cost cutting measure be enacted.  Overall, the Hartley review is a dangerous document, which would fundamentally damage the South Australian Brand overseas in our key emerging markets. At a time when there is a debate about the recognition and identification of Brand SA, it is amazing that there is a parallel discussion about the removal of our international trade offices. Once a company/or government withdraws from a market, there is tangible loss of brand equity, political and social capital, and network connectedness. Such a change in direction would seriously damage South Australia’s long term trade and investment engagement in global markets, and consign us to a small corner at the bottom of Australia.

Comment on the Hartley Review of South Australia’s Overseas Representation

The proposal to close the South Australian Government Trade offices is flawed, and fails to understand the complicated needs of local SME’s in finding trade and investment opportunities in new Asian markets.

The Hartley Review of South Australian International offices unfortunately fails to adequately address the needs of South Australia in promotion of trade and investment throughout a global network. There seem to have been some fundamental errors in recommendations which have the potential to greatly impact on the ability for SA to effectively develop trade and investment for the South Australian economy into the future. I therefore would advocate a reconsideration of the approach recommended in the Hartley Review as if it is implemented it will have a serious detrimental effect upon the SA economy to engage in global markets, compete for effective investment in a global environment, and will disadvantage SA industry when they are desperately needing government assistance to transition to succeed in the “new economy”. The report does not identify which markets should be a priority based on trade, investment or the KPI’s of the existing international offices. This is a concern as it does not present an cognisant argument as to why particular markets should be retained or discarded.

Santos is a great South Australian success story, and has successfully entered the Indonesian market. This is not the only SA company to have succeeded in this emerging market, and it wont be the last.

There is also no mention of other markets around the world that SA currently does not have a market presence, which suggests the intent of the report was always to downsize, rather that objectively review the international office strategy. There is absolutely no mention of Indonesia anywhere in the Hartley Review, despite Indonesia being Australia’s closest neighbour, our favourite tourist destination. Indonesia is the world’s 4th Largest country by population, is rapidly expanding, and has a consistent positive growth rate commensurate with China and India in excess of 6%. Indonesian is also actively being approached by major SA companies as a target market from companies such as SANTOS, and HillGrove. Yet there is zero mention of this market in the review. This is also despite our state neighbours in WA expanding their representation in Indonesia to Two representatives, and Victoria recentlyt engaging an Indonesian Representative in the past 6 months. These examples seem to be at odds with the findings and recommendations of the Hartley Review.

The recommendation to partner with AUSTRADE is a strange proposal due to the 2011 AUSTRADE review mentioned in the Hartley Review, does not mention the promotion and embedding of State representatives in their operations, but does instead discuss the need to focus solely upon “Internationally Ready Firms” and states:

Succeeding in Asian markets is no easy objective, and for a state government it takes perseverance and patience to succeed. It is not about getting by on a wing and a prayer, but more to do with lighting many candles so that the investors can see the way to the South Australian economy.

“Because Austrade’s greatest value lies in international markets, Austrade services will be more clearly directed to those companies ready to tackle international business opportunities. Where companies are not ready for export, Austrade will make referrals to alternative enterprise development programs (government or private sector).”

This may pose some challenges for many SA companies in developing their market preparedness for international markets, and more so there is an expressed expectation from AUSTRADE that these services will be provided by state governments. The Hartley review fails to review the current international strategy objectively, and ignores the market potential of South Australia’s large Asian neighbours. If South Australia is to succeed in these global markets and adequately compete against companies from around Australia and the globe there is a need to expand our involvement in international markets, and not withdraw from these markets. The future of the South Australian economy depends upon the export and trade success of our companies, and we must ensure that we provide the necessary tools to help our SA based companies to succeed in the global market. In the next article I will outline how the Hartley review has failed to adequately address the opportunity to attract investment on a global stage.

Australia: we need to reassess our manufacturing needs

Australia needs to accept the challenges of the Advanced manufacturing future

Australia and the traditional manufacturing states of South Australia, Victoria and New South Wales have struggled in recent years to help their traditional economic drivers transition to a new comparative and competitive advantage. In Australia we are still under the “illusion” that we can compete broadly as a manufacturing centre with the rest of the world. This illusion is unachievable due a variety of factors, and there are some key community expectations which mean maintaining our manufacturing heritage as it was in the 1970’s, 80’s or 1990’s is just not possible. The goal of maintaining this bulk manufacturing base is not compatible with our Australian standards of living and expectations. In Australia we have mortgages, rent payments, spending and consuming expectations which mean that any reduction in our labour costs will come at a substantial societal cost to the broader Australian community. Australia can compete on a global scale if we increase productivity. This would require increased output compared to cost of labour. We can achieve this in a couple of ways in Australia. The first is if we lower the minimum wage to levels like the US – $5 per hour for example, this would allow our productivity to increase to a comparable level to our competitor manufacturers in North and South America, although still putting us at a disadvantage compared with our regional neighbors in Asia. The alternative would be to reduce our workforce numbers through increased investment in automative manufacturing. These two options would neccessarily result in reduction in the manufacturing workforce, and more than likely see adverse reactions from Unions, not to mention the political difficulties associated with these moves. There is also a significant cost expenditure associated with the up-tooling of the manufacturing facilities for bulk manufacturing. Australian manufacturers do however need to address the reduction in productivity on the global platform, and corporate boards, management teams, and state and federal governments should be seeking to help their home grown manufacturers rationalize their investments, operations and manufacturing into areas where we in Australia can maintain our competitive advantage.

Low cost manufacturing from Asia has meant that it is no longer cost effective to manufacture in Australia in bulk products. We must transition to a high technology, advanced manufacturing future.

An alternative option for Australian manufacturers to address the issues of reduced manufacturing productivity and cost effectiveness should be to strategically manufacture in Advanced High technology sectors. Australian state and federal governments should bite the bullet and help our manufacturers rationalize their bulk manufacturing to our Asian neighbors in a manner that allows us to focus on the advanced value adding and R&D components of Manufacturing. Outsourcing and relocating bulk manufacturing will lower our cost burden in Australia, and allow Australian manufacturers to remain competitive on a global scale. It has the added benefit of helping these same manufacturers to rationalize their operations so that they have control over the intellectual property and R&D components of there businesses. This is the realistic path to maintaining a sustainable manufacturing industry in Australia. Our friends in Asia should be seen as our partners not our foes when it comes to our manufacturing future.

The main issue we have across Australia at the moment is that our political leaders at both a state and federal level are risk adverse and in the main lack the leadership and strength of conviction required to help our economies transition to a new advanced manufacturing and sustainable level. The sooner we realise this the sooner our Australian economy, and manufacturing industry will become a strength once more.

Indonesia: disappointing the optimists and disappointing the pessimists….

Australian Ambassador to Indonesia – Greg Moriarty Addressed the Australian Indonesian Business Council in Sydney to describe the opportunities on offer to Australian Business….a message that was not yet clearly understood.

On Tuesday I had the good fortune to be in Sydney for the Australia Indonesia Business Council (www.aibc.com.au) business luncheon with Australian Ambassador to Indonesia His Excellency Greg Moriarty.  The event was another great example of the ability of the AIBC to bring high profile business and government leaders to the Australian business community to detail the latest information, opportunities and challenges that confront Australian business when they look to Indonesia. I have been a member of the AIBC for the past four years, and a National Director and Chairman in South Australia for the past two years, and over this period of time I have seen the business, investment and trade situation in Indonesia transform. This was exactly the message that Ambassador Moriarty was here to tell the Australian Business Community in Sydney. The Event was attended close to 100 of Sydney’s elite business community attended this luncheon to hear the good news story Ambassador Moriarty had to tell about Indonesia. The question and answer session after the speech was an indication of the increasing interest in Indonesia as a trade and investment destination for Australian business, however it was a joke that Ambassador Moriarty relayed about Indonesia in the early stages of the speech which tells the real story about the opportunities in Indonesia.

Coca Cola Amatil have succeeded in Indonesia where many corporates have failed to tread.

Ambassador Moriarty started his keynote address with a joke about Indonesia being both a disappointment to optimists and a disappointment to pessimists. He put this down to the solid improvement and advancements that have been made in the Indonesia, that have exceeded many expectations and failed to meet the best case scenario. Anyone who has done business in Indonesia, will attest to this challenge. Indonesia is indeed a great opportunity, but it has its challenges. The message however from Ambassador Moriarty was that Indonesia was a great opportunity for Australian business, and that there were indeed many businesses that were succeeding in a large way. The point was made that Australian businesses should be broadcasting their involvement in Indonesia, and specifically the Corporate Social Responsibility programs that many companies are engaged in as part of their Indonesian Investment. This particularly point was picked up later in the presentation by a representative of Coca-Cola Amatil (CCA), who described how their investment in Indonesia over the past couple of decades had been effectively ignored by Australian investors until very recently. Coca-Cola Amatil have of course in recent years made large investments in excess of $100 million into Indonesia and have attributed these investments as a key driver of corporate profitability. The representative at this event lamented the ignorance of the stock market, and hoped that the message to the Australian investor community was indeed to open their eyes to the Indonesian potential.

Indonesia is Australia’s closest neighbour, and the business opportunities are immense. The time is right to take the opportunity at hand and be ready for the Indonesian Century.

Indonesia is indeed widely misunderstood by Australian business, and indeed by many western business and the Ambassador described the strength of the economy, and the rapidly emerging middle class, which was actively engaged in social media, consumerism and business. The often mentioned Indonesian social media numbers were once again raised as an illustration of the advanced state of the Indonesian market, third largest facebook population amongst others. The overall message was that Indonesia is here, and Australia has a direct interest in the future of Indonesia. Australian business needs to increase its awareness of the Indonesian market, and change its outdated perspective of Indonesia as a backward and third world economy. As many of the people in the room would have known, the challenges of establishing, and running a business in Indonesia can be substantial. However, the emergence of Indonesia as a market of opportunity for Australian business means that if corporate Australia does not realise the opportunities presented, they will miss one of the best opportunities to emerge from the Asian Century. Failure to change our perception of Indonesia, will be a failure of our politics, our business and our perceptions. As Ambassador Moriarty reinforced during the AIBC event in Sydney, the time is right for corporate Australia to make the most of the Indonesian opportunity and grasp it with both hands. It is up to Australian business to re-asses Indonesia as an investment, trade and business destination to ensure that in the future the disappointments are not that we let the greatest opportunity of our generation slip through our fingers. The Indonesian Century is indeed upon us.

The Indonesian Wine Market: Exploring Wine Export Opportunities Beyond China

There is an emerging export opportunity in Indonesia for Australian Premium Wine.

The Australian wine industry was for many years concerned about export markets eroding in the traditional wine markets in Europe and North America, particularly as a combination of rising Australian Dollar, Increased competition from other “New World” wines from South Africa, South America and North America started to compete at the lower price point with which Australian wines had been successfully marketed in the UK and Europe.  This challenge for shelf space, market share and profits was further impacted by the growth in grape output, and consolidation of wine companies in Australia through companies such as Treasury Wines (Formerly Southcorp, and Fosters) and Constellation Wines which standardised the Australian wine industry, and helping to entrench Australian wine industry perception of international export markets as low-end consumers. This industry perception and attitude was a short-sighted and a recipe for disaster. Something had to change, to snap the thinking of the Australian Wine industry.

The Indonesian Wine Market is open for business. Ignore this market to your detriment. The time is ripe for a new investigation of the wine export opportunities in Indonesia

In recent years there has been an explosion of wine sales/exports/ and investments in China. There is undoubtedly a great opportunity in China as the 1.3 billion people start to develop a taste for wine. This is not to say however that wine is saleable to all of the 1.3 billion people, as the favoured alcoholic drinks are still beer and spirits ( rice and barley wine drinks such as MaoTai, Beiju etc). Wine consumption is rising, and taping into the 5% of the population that currently drink wine is a boon for the Australian wine industry, and many successful Australian wineries are now exporting good and profitable volumes into China. There is of course a growing Chinese Wine industry, which is increasing in quality and exposure throughout China. This will likely become a competitive force in the future, for which Australian Wine Companies will need to strategically prepare. So what alternatives are out there in Asia?

There are obvious opportunities throughout South East Asia, in markets such as Vietnam, Thailand, and Singapore. These markets are in the main receptive to wine, and Australian Wine companies should be looking to export into these markets. However there is another market that Australian and other Western Wine companies overlook – Indonesia. There is  broad perception that Indonesia as a predominantly Muslim country holds no opportunities for Australian wine. This is a short-sighted view in my opinion and Wine Companies need to broaden their perspective.

A Wine Store in Jakarta is not uncommon, and increasingly provide premium wine to a rapidly developing domestic wine market.

Indonesia is a challenging place to sell wine, not least because of the Muslim cultural influence. There is however, a large opportunity emerging in Indonesia for wine sales in the right market segment. Opportunities in bulk wine and low-cost wine sales to Indonesia are non-existent. These price points do not work politically for Indonesia. This is not the same for premium wine  sales, for the US$15-50 price point on an Australian wine shelf . In Indonesia these wines would be sold at an added premium of between $40-150. People pay for these wines, and they are consumed by the emergent middle class in cities like Jakarta, and are sought after in restaurants and Hotels across Indonesia. It must be remembered that Indonesia is a moderate Muslim country, and there is no ban on alcohol sales. There is however some restrictions on the number of importers allowed to bring in wine. My main message here is that, Indonesia is a market of opportunity for the Australian wine industry, and it should not be ignored out of hand.

If your company is looking to tap into the increasing demand for wine in the Indonesian market, please feel free to send me an email (nathan@asiaaustralis.com), and we can have a chat about how AsiaAustralis can assist your company meet the needs of the Indonesian market. Alternatively come along to the Australia Indonesia Business Council Business Forum – “Identifying opportunities for primary industries in the Indonesian market”  in Adelaide on Friday 30th March, to learn more about the opportunities for food exporters in Indonesia.

Tapping into Western Food Success Stories in Indonesia – An Emerging Success

Last week I wrote a blog about the emerging and real examples of successful western beverage brands moving into the Indonesian market. I presented only a couple of examples, however it is a clear demonstration of the success that is present in the market. This success, is equally and in many cases more so evident in the food and agricultural sectors. I have written a lot of the disaster that has confronted the northern Australian agricultural industry and associated complimentary industries due to the arbitrary banning of Live Cattle exports to Indonesia in mid 2011. Despite the damaging effect this federal government decision has had on the Australian Agricultural sector, there are still plenty of positive news stories.  As I forecast in earlier articles, the Indonesian government initially lowered the quantity of import permits for Live cattle. This can be seen through the lens of a reactive response to the Australian government action, however it is not sustainable, and as such in recent weeks there has been a doubling of the import permits granted. Despite these increases, there is still negative press  about the Indonesian Government’s reticence to increase permits to similar levels of pre-ban imports. The Indonesian Government, perhaps with justification, is insisting and encouraging Australian investment in the Indonesian farming and agricultural sector. And it is companies who have made this investment that are in the best position to maintain solid market share moving into the future. The Australian Agricultural Company, recently announced their yearly profit had increased despite the cattle ban, and despite the ban costing them between $5-8million in profits. It is interesting to note that they have however not abandoned the Indonesian cattle market….it is just too large to ignore.

Another  example include Elders, which have been able to manage the supply chain throughout the Live cattle chain, with large farming investments in northern Australia, which can raise the cattle from young to the import permit weight threshold of 350kg’s, then move them into Elders feedlots in Indonesia for six-nine months where individual cattle will increase in weight towards 500-700kg’s. Elders are then in a position to manage the slaughtering process (it always feels a bit strange using this technical term “slaughter” however that is what occurs in an abattoir). The Elders abattoirs use world best practice, and are regarded as one of the best facilities in the region. Consequently Elders have been able to  make large investments in the Indonesian food market and make a success of the venture. They are in the same position as AACo in not pulling out of the Indonesian market…it is too lucrative. The key to remember here is that their investments in the supply chain are vertical and as such they have made investments in Indonesia, and are not solely exporting.

San Remo Pasta provides a great example of an Australian (South Australian) company that has made a great success of the food industry in Indonesia. Indonesian Hyper, Super, and mini markets in Indonesia stock San Remo pasta. It is clearly one of the market leading pasta brands in Indonesia. They have great penetration, which in large respects is related to their choosing the right Indonesian partner, and investing appropriately in their marketing promotion strategy. San Remo provide an example of the packaged food products that can succeed in the Indonesian market with a little persistence and taking a calculated risk. The past two blogs I have produced have clearly demonstrated only a few of the good news stories that are evident in the large Indonesian food market. This is a large market that is growing on a daily basis. Indonesia is a country of enormous potential and it is important for Australian food, agricultural and beverage producers to acknowledge, understand, and realise this great opportunity.

If your company is looking to tap into the increasing demand for food in the Indonesian market, please feel free to send me an email (nathan@asiaaustralis.com), and we can have a chat about how AsiaAustralis can assist your company meet the needs of the Indonesian market. Alternatively come along to the Australia Indonesia Business Council Business Forum – “Identifying opportunities for primary industries in the Indonesian market”  in Adelaide on Friday 30th March, to learn more about the opportunities for food exporters in Indonesia.

Tapping into Western Beverage Success Stories in Indonesia

I am often asked to describe market opportunities in Indonesia, and when it comes to the food, agricultural and beverage industry there is a general disbelief that there could possibly be any real market opportunity in Indonesia. This assumption made by many western food producers is wrong, and this is clearly demonstrated by the many food and beverage success stories in the Indonesian market. In recent weeks I have described the demand issues in the Indonesian market for Australian food, and how the emerging Indonesian middle class is driving demand for premium food products. I have also described the increasing need for Indonesia to meet the food security demands of the large Indonesian population approaching 250 million people and beyond. Indonesia is a large complex market, with a highly stratified food market, that provides ample opportunity for Australian and other western beverage producers to enter the market and make it a successful venture.

So who are these success stories and what can other companies learn from their success?

Coca Cola Amatil have invested heavily into the Indonesian market, which included an increase of investment in late 2010 of upwards of $100million. Clearly this investment is large and beyond the scope and capacity for many small and medium sized Australian beverage producers, however, the dedication to the Indonesian market is driving profits and company growth, and it is this lesson that other companies can aspire to achieve. A strategic decision has been made with Coca Cola Amatil to ensure that the Indonesian market is captured, which is so far proving to be a success. This success in the non alcohol sector has been replicated by Berri Juice, owned by Lion (formerly Lion Nathan who has a parent company in Japan – Kirin Holdings). Berri Juice is branded as “Australia’s favourite Juice”, and has strong market penetration throughout food service sector in hotels and restaurants and broadly across the hyper, super and mini market distribution chains. The success of these two large Australian branded products demonstrates the potential success for other Australian beverage brands to leverage. Companies such as Bickford’s are one such company that are increasing market penetration following the same distribution channels as Berri. There is an opportunity for other Australian beverage companies to take the leap of faith into this huge Indonesian market.

Indonesia is not the first market that wine producers think of when they seek export markets, however, there is increasing opportunities for Australian Wine producer. Despite the clear disadvantage of penetrating a traditionally non-alcohol consumption population (due to majority Muslim population), there are some emerging examples of Australian wine brands appearing in food service and supermarkets. It would be folly to assume that there are no distribution channels in Indonesia for Wine. Wine is available through supermarkets, Hypermarkets, dedicated wine shops and of course in the large food service industry. I will write of these specific opportunities in the coming weeks, however, I will provide one unique example of “wine” exports to the Indonesian market. In meeting the challenges of wine production in Indonesia, some Indonesian companies have been importing Australian grape crush, and converting to wine in Indonesia. This is not a super cheap method of developing wine, however, it does in the main avoid issues of excise tax, and import duties on alcohol. Additionally this example provides an indication of the market demand for Australian wine. The advice I would provide to Australian Winemakers is that the Indonesian market is a premium and super-premium market, if you seek to provide quality “expensive” wine you are more likely to succeed.

So my advice is for Australian and Western beverage producers to seriously consider the Indonesian market, with 250 million people it is a great market opportunity. Emerging opportunities exist across the beverage industry, and those companies that take advantage of the opportunities in Indonesia will make a great success…..those that don’t may miss the opportunity. Indonesia is an emerging consumer giant, and Australian beverages can help feed the Indonesian population.

If your company is looking to tap into the increasing demand for food in the Indonesian market, please feel free to send me an email (nathan@asiaaustralis.com), and we can have a chat about how AsiaAustralis can assist your company meet the needs of the Indonesian market. Alternatively come along to the Australia Indonesia Business Council Business Forum – “Identifying opportunities for primary industries in the Indonesian market”  in Adelaide on Friday 30th March, to learn more about the opportunities for food exporters in Indonesia.

Is Australia Ready for a Rich Contemporary Relationship with Indonesia?

The Lowy Institute Report provides a snap shot of Indonesian perceptions and attitudes towards the World. The Good News is Australia is viewed positively and in Australian investment and trade is welcomed.

The Lowy Institute released a report on Indonesian Public opinions and attitudes towards foreign policy on Tuesday 20th March, and alongside this report was an opinion piece in The Australian by Fergus Hanson – Program Director for Polling at the Lowy Institute. The results of the Lowy institute report – Shattering Stereotypes: public opinion and foreign policy reveals an Indonesian public that has in general a positive and forward thinking view of foreign investment, western engagement, and Australia. Fergus Hanson in his opinion piece provides a short overview of the findings before asking at the end of the article:

“These poll findings are a wake-up call, a reminder Indonesia is ready for a rich, contemporary relationship. The question is, are we?”

This is an interesting question and goes to the heart of what has been a fundamental problem with Australia’s relationship with Indonesian over the past decade. A relationship still encumbered by perceptions of chaos, financial collapse, terrorism and perhaps a little colonialism. Australia’s relationship with Indonesia has failed to live up to the opportunity presented over the past 7 years of President Yudhoyono’s Presidency despite strong encouragement from our Indonesian friends. 

 Over the past few months I have described some of the barriers and hurdles that Australia has imposed upon our relationship, particularly in regards to business and trade (such as with our agricultural policies). However, our perception of Indonesia and our engagement policies that go beyond business and move into the AID realm seem to equally be missing the opportunity. Australia is currently the largest AID donor to Indonesia, yet the projects that Australia funds, are not branded successfully as  “Brand Australia”. The Lowy Institute Poll demonstrates this when it details how only 14% of those surveyed could identify Australia as being the largest donor, in comparison to 33% who identified the US as the largest donor, or 24% who identified Japan as the largest donor. This is despite Australia donating nearly 25% more that the US, and 50% more than Japan (US$324 Australia compared to US$263, and $170 Million). Australian government engagement in Indonesia is not hitting the mark.

Australia's Foriegn Policy must evolve to be more supportive, encouraging, and contemporary if Australia is to take advantage and expand upon the opportunities that exist in the Indonesian Market.

 The good news for Australia in this Lowy Institute Poll, is Indonesians are in general supportive of closer ties and relationships with Australia, particularly in relation to trade and investment. The message here is that Indonesia wants Australian investment. Possibly one of the interesting components of this poll is how Indonesians view their role in Asia, in comparison to China.  Indonesians expressed a greater preference for Australia over China in this poll, and additionally viewed themselves as a leader in the ASEAN region. The good news for Australia here is that the Indonesian public have a lot of good will towards the US and Australia, which has been increasing over the past six years since the previous Lowy Poll in Indonesia.

 So what can we possibly do about these findings?

 The Australian government needs to adopt a more progressive and supportive stance towards the Indonesian relationship, and shed some of the colonial attitudes that seem to have clouded our engagements in recent years. Most business leaders I speak to who are invested in the Indonesian market express hope that Australia’s new Foreign Minister Bob Carr will be able to move our relationship to a new level. In addition to this macro – government response, there is a need for Australian business to realise the opportunity that exists in Indonesia. Australia is viewed as a positive presence and partner, and there are opportunities for Australian business to leverage their Australian branding to take advantage of the economic partnership opportunities that are increasingly presented in the Indonesian market.

 So is Australia ready to build a rich contemporary relationship with Indonesia? The answer should be yes……but that is dependent upon Australian government and business awakening to the partnership opportunities emerging in our closest neighbour.

Asia: More than the Sum of its Chinese Parts

There is more to Asia than China - To succeed in the Asian Century it will be important to look beyond the Forbidden City.

Too often in Australia we think and talk of Asia as being China. Government strategies, political rhetoric, journalistic commentaries, and in many cases business strategies look to China as the be all of Asia. This is a simplistic and dangerous view to hold. China undoubtedly is a thriving and impressive market with somewhere around 1.3 billion people, including over 250 million in the middle class. It is the world’s largest country by population and will soon overtake the US as the world’s largest economy. China is a vast country stretching from the pacific coast in the East to Central Asia in the West, Russia and Mongolia to the North and India and the Himalayas to the South. Mega cities are abundant seeking to buy and sell all the worlds fare, while the resource potential is emerging anew with exploration and exploitation of rare earth minerals, and shale oil and gas reserves. China is clearly a behemoth, and it is important for any business and sovereign western government to plot a clear strategy for engagement with China. Asia however is more than just the sum of its Chinese parts.

Unfortunately I hear and see too often “Asia” being used as a proxy descriptor for “China”, which it clearly is not. We must remember that Asia is a vast continent which includes South Asia: Pakistan, India, Bangladesh (1 . 5 billion), Central Asia: Uzbekistan, Kazakhstan, Tajikistan, Kirgizstan, Iran etc (500million), and South East Asia: Indonesia, Vietnam, Thailand, Malaysia etc (600million). The rest of Asia dwarfs the population and labour resource potential of China. Asia makes up around half the world’s population. It is important to place this scale of opportunity into perspective.  The trade opportunities in these other Asian markets are equally impressive. Central Asia and Indonesian have abundant oil and gas resources, while in many countries there are rare earth minerals amongst other mineral resources readily sought on global exchanges. Indonesian for example is now the world’s largest exporter of Coal.

We should remember also that in addition to China, India and Indonesia make up three of the four most populous countries in the world…..and two of these markets are democracies ( India 1 billion, and Indonesia 250 million). The population size of other countries in Asia provides a renewed opportunity for manufacturing in the region from a non-Chinese market. The labour supply in Asian Countries such as Indonesia and India provide an opportunity for international manufacturers to tap into location benefits that can arise from proximity to sales markets and global supply chains.  The market opportunities in Asia are indeed more than just China and many successful companies are developing strategies to tap into these emerging market opportunities. So when you next hear a politician, businessman, journalist or man on the street talk of Asia….ask them which part? If businesses are to truly succeed in the Asian century they will need to actively build a strategy that goes beyond solely a China Strategy, as Asia is a big place, and increasingly likely to be the economic super region of the future.

f you would like to meet with me to discuss how I can help you and your organisation achieve success in the broader Asian markets, or you would like to discuss new opportunities emerging in the near future, please send me an email (nathan@asiaaustralis.com). Alternatively check-out my LinkedIn Profile and the website of my company AsiaAustralis.

Emerging Indonesian Middle Class Creating Opportunities for Australian Food Producers

The Indonesian Middle Class is increasingly demanding premium food choices, this can be a boon for Australian food producers.

In November 2011 my business partners and I travelled to Indonesia to test the market demand for South Australian premium food and agricultural produce. I touched upon this trip in an earlier blog last week, where I talked of the food security needs currently facing Indonesia and its policy makers. As I described last week the demand we received from Indonesian importers, distributors and producers was exceptional. The message was received loud and clear that Indonesia was seeking premium Australian and South Australian food produce.

Our success and the market demand was illustrated by the sheer volume of meetings we had while in Jakarta and Bali. In five days in Jakarta we had 30 meetings, and a further 10 meetings were held in Bali, with importers, distributors and food producers. The main concerned raised in these meetings was not how much would it cost, but more how much can be supplied! The Indonesian premium food market is expanding rapidly, with new supermarkets, mini markets and specialty food grocers catering to the emergent wants of the Indonesian middle class. These food outlets are modelled upon the same format as many high end and premium grocers from the west. The brands and products on the shelves are a good match for similar lines found in supermarkets across Australia, UK and the US. The Indonesian middle class is arriving and they want our food!

The success of this trip in awakening the awareness of Indonesian importers and distributors to the vast food offering in South Australia was demonstrated soon after our return to Australia in late November. An inbound trade delegation from Indonesia was hosted by my AsiaAustralis business partner Todd Shone in Pt Lincoln and the Eyre Peninsula where our Indonesian guests were able to view firsthand the market potential to supply across multiple product lines. These two trade trips, the Outbound to Indonesia and the Inbound to South Australia ultimately has resulted in new export opportunities for a couple of South Australian food producers, while additionally generating new interest for business partnerships across complimentary agricultural industries.

The main message to take from these experiences is that Indonesia with a growing population growing beyond 250 million, and with a middle class of 80-130 million, the Indonesian market provides a substantial market opportunity for Australian food producers. It is time government and business leaders acknowledged this opportunity and put in place strategies to access this market opportunity.

If your company is looking to tap into the increasing demand for food in the Indonesian market, please feel free to send me an email (nathan@asiaaustralis.com), and we can have a chat about how AsiaAustralis can assist your company meet the needs of the Indonesian market. Alternatively come along to the Australia Indonesia Business Council Business Forum – “Identifying opportunities for primary industries in the Indonesian market”  in Adelaide on Friday 30th March, to learn more about the opportunities for food exporters in Indonesia.

First Signs of a Global Economic Orientation Towards Asia

Are we witnessing the re-emergence of Asia as the centre of world commerce again? has the thaw begun?

In the past couple of weeks there has been some interesting developments emerging from China, and increasingly interesting reactions from share market investors. The first development has been the announcement that China  has reset growth targets to 7.5%, which has been accompanied by investor concern around the world. The second major development has been the announcement that China has become a net importer for the first time in many years. This development too has led to falls in the share market and currencies such as the Australian Dollar, which is now seen as somewhat of a proxy for Chinese economic success. The reaction of the share market to each of these developments has been perhaps one-dimensional and not thought out or considered.

So what can we read into these developments?

Well firstly, these announcements do have a lot to do with the global economy and both developments are linked. Economic growth in both North America and Europe has been low, and there has been a parallel fall in demand for Chinese exports. This does not necessarily mean there is a fall in export growth from China, as there was still growth of exports in the last reporting period (17%), it was just that import growth well exceeded exports (35+%). This led to a net import position.  Chinese exports are still in demand, but the growth phase may now have slowed.  This slow down has been replicated in the new growth figures announced.  It appears the market is unhappy with the lower growth targets, after nearly a decade of growth above 10%. Any follower of economic commentary on China over the past five years will remember the often stated concerns about China overheating due to unsustainable growth targets.  These commentators suggested a target approaching 8% was much more sustainable in the long-term. So the growth target announced in China is still in this acceptable band. In my view the markets and China watchers should be rejoicing the sustained levels of growth in China and it’s resolute strength in withstanding the economic crisis in North America and Europe.

The Chinese middle class is emerging and they are increasingly seeking premium products. This presents a great opportunity for those international businesses with a capacity to supply

The effect of these developments on geopolitics is probably mostly related to the relative  value of the Yuan (RMB), which many western politicians particularly in the US have criticised for being undervalued. The trade deficit just posted demonstrates to the Chinese that the currency positioning is about correct (despite a small depreciation in the Yuan against the $US in recent days). I would expect the Yuan to remain around this level for the foreseeable future and not appreciate further against the $US in the manner that we have seen in the past 5 years (which has been around 30%).

So What does this mean for the everyday business engaging with the Chinese market?

Well I would suggest it is not bad at all. Chinese government forecasts are moving towards an inward and domestic focus. The  incoming Chinese leadership will most seek to expand the domestic economy and lift more people out of poverty and into the middle class. This will have a positive effect upon most businesses in countries such as Australia and the US. The emerging middle class will have a greater capacity to purchase foreign products, particularly in premium segments. This is all part of the global transition to the Asian Century, where a structural change is occurring in the global economy. The years to come will see China become a net consumer of products and services from the west. So if your business is geared towards selling value added products, then the Chinese market could well be the place to market your products in the years (or months) to come. If you are seeking to source low-cost labour for manufacturing….well I would be seeking other markets in the region. The Asian Century is here to stay and the rules of engagement are changing. These recent developments in China may well be the first signs of the global economic transition towards Asia.

The Path to Success in the Asian Century is more than just a China Strategy

Premier Weatherill identified the importance of Asia to South Australia, and identified a number of markets throughout Asia.

On Thursday I attended the Australian British Chamber of Commerce Luncheon: Succeeding in the Asian Century. It was an opportunity to hear from South Australian Premier Mr Jay Weatherill and the British High Commissioner to Australia Mr Paul Madden About their visions of the current and future trading, business and Investment opportunities in Asia. Both speakers were engaging and spoke of both the long held cultural values and business links between South Australia and Britain, and how there were opportunities for collaboration and partnership between British companies and South Australian companies to take advantage of the Asian Century. There was however a striking difference in the outlook of the two speakers.

The South Australian Premier perhaps constrained by domestic political considerations had a conservative outlook with regards to Asia. He spoke of the need to increase the export growth to Asia, and made particular mention of opportunities in China. South Australian export growth had grown by a larger percentage over the past 12 months than the other Australian states. The specific industry sectors that lead the export growth were described as the Wine and agricultural exports, and of course the future mining boom which will undoubtedly lead to further export growth in the decade to come. There was however a limited future vision of Asian expansion and future business engagement. Indeed the British High Commissioner perhaps provided a greater insight into the logical future movements into Asia.

The British High Commissioner spoke of his time as High Commissioner to Singapore, and of the enduring British legacy in the Asian region. But perhaps the surest insight into South Australia, and Australia’s future business outlook was contained in an answer to an audience question. The luncheon was attended by just short of 100 business leaders. One businessman asked of the speakers, why there seemed to be no strategic focus upon Australia’s largest, closest Neighbour – Indonesia. Unfortunately the Premier was unable to discuss a specific trade focus upon this country, other than to remind the audience that Indonesia was an important regional market. The High Commissioner, however spoke of the important business links between Indonesia and the rest of South East Asia, and how British business had entered Indonesia through their exposure to the Singaporean and Malaysian markets. He spoke of the obvious geographic proximity to Australia, and the undoubted market and population size (upwards of 250 million people) which should prove attractive for Australian and indeed South Australian business.

The luncheon provided a good opportunity to hear of the opportunities in Asia, and the success that was already occurring with Australian exporters in the region. The great pity of the luncheon was that it took a British Diplomat whom has a home market the other side of the world to truly identify the opportunities that exist right across the Torres Strait and Timor Sea in Indonesia. Let’s hope the Premier is able to grasp the market opportunity that exists in South East Asia and specifically Indonesia to help South Australian Companies succeed in this Asian Century.

If your company is looking to tap into the increasing demand for food in the Indonesian market, please feel free to send me an email (nathan@asiaaustralis.com), and we can have a chat about how AsiaAustralis can assist your company meet the needs of the Indonesian market. Alternatively come along to the Australia Indonesia Business Council Business Forum – “Identifying opportunities for primary industries in the Indonesian market”  in Adelaide on Friday 30th March, click the link to register and for more information.

Realising an Export Market Opportunity and Helping Meet the Food Security Needs of Indonesia

Gita Wirjawan - Indonesian Trade Minister discussed the importance of Food Security at various events including the Indonesia Australia Business Council Conference

In November 2011, I travelled to Indonesia with my business partners from AsiaAustralis on a multi focal trip. We had been invited to take part in the East Asian Forum as Business Guests, and as part of this trip we attended other business events such as the Indonesia Australia Business Council National Conference and the Australia Business Asia Conference.  The other focus points for AsiaAustralis were to gauge interest and demand for Australian products in the Indonesian market.  Despite the multi focal approach, we were encouraged by the overwhelming interest in Australian food produce. There was clearly substantial demand in the Indonesian market for premium priced Australian food products. The key issue here is to help this clear demand for Australian product translate into business and trade matching with Australian suppliers.

At both the East Asian Summit and the Indonesian Australian Business Council events, government trade ministers such as Dr. Craig Emerson (Australia) and Pak. Gita Wirjawan (Indonesia) discussed the clear and present issues of food security facing Indonesia. Food security in Indonesia is not just a case of maintaining domestic ownership of farming land, but indeed practically feeding the growing Indonesian Population approaching 250 million people.  The food security issue in Indonesia ties in with poverty reduction and economic growth. Indonesia is a country of enormous potential and alleviating poverty amongst the urban and rural poor in Indonesia is critical to Indonesia’s economic, political and security stability.

Australian Wheat Exports can help Indonesia alleviate poverty

This demand for food and meeting the food security challenge in Indonesia creates an opportunity for Australian agricultural companies and food producers to jump into the breach. Food security at the low-end of the Indonesia translates into rice and noodles. Indonesia has in the last couple of years opened their market to imported Rice which has had a positive effect on the price of rice and helped feed 10s of millions of people living in poverty. Indonesia also has a hunger for noodles, and Australian grain and flour are helping feed this same impoverished population. Indonesia is increasingly becoming a country of noodle eaters and Australia is perfectly positioned to help provide the flour needed to produce noodles that Indonesian’s like to eat. Flour for noodles requires different mixes to ensure bonding is successful, and to keep the cost low to help meet the food security and market needs. Australian grain and flour producers have ample scope to increase their involvement in this Indonesian market.

Wheat - Noodles, helping to meet the food security needs of a rapidly growing country.

The emerging middle class in Indonesia which has been identified at representing between 80-130 million people (according to World Bank definition of middle class), has seen increasing demand for more diverse food choices than solely rice and noodles. This is reflected in the growth in high-end restaurants from North America and Europe, not to mention China and Japan. There is also a developing demand for fresh bread and baked products such as bread and pastries. As the middle class in Indonesia expands, so does the demand for premium high quality food. Australia here too is filling the breach, with the often discussed live cattle trade, which helps local farmers participate in the wealth generated from the growing demand in meat. Similarly there is demand for high quality boxed beef and lamb, which is the pre-slaughtered high quality meats Southern Australian Farmers are great at producing.  Restaurants in Jakarta emphasize the ‘Australian Beef’ on their menus as a stamp of quality.

The demand for Australian food products is substantial and we should be jumping at the opportunity. Unfortunately we often only hear of the bad news stories associated with Indonesia. Australian farmers, Australian politicians and Australian government bureaucrats need to reassess the opportunities in the Indonesian market. Our closest northern neighbour has enormous market potential for Australian food producers and there is an opportunity for Australia to help Indonesia meet its food security needs, while at the same time building strong business and community partnerships for the future.

If your company is looking to tap into the increasing demand for food in the Indonesian market, please feel free to send me an email (nathan@asiaaustralis.com), and we can have a chat about how AsiaAustralis can assist your company meet the needs of the Indonesian market. Alternatively come along to the Australia Indonesia Business Council Business Forum – “Identifying opportunities for primary industries in the Indonesian market”  in Adelaide on Friday 30th March, click the link to register and for more information.

Taking Advantage of a Unique Knowledge Base on the Indonesian Business Environment

Nathan H. Gray - has undertaken PhD research into Indonesian Business Behaviour over the past three years, and has developed substantial knowledge on the Indonesian Business Environment

On Tuesday 6^th March (Tomorrow morning), I will present a paper to the School of Commerce at the University of South Australia as part of the Centre for Accounting Governance and Sustainability Seminar Series. This paper is nominally titled “Perantara: The Javanese Way of Managing Business Relationships in Indonesia”, and will comprise the principle findings of the PhD research that I have undertaken both in Indonesia and Australia over the past three years.  This presentation will be a culmination of my work over this period where I have actively engaged with government and business, developed strong relationships and learnt a great deal about the conduct of business in an Indonesian environment. As it stands now the PhD is almost complete and when I submit in the coming weeks it will be time for me to move onto a new chapter in my life…..and I intend it to be a successful chapter indeed. 

Over the past three years, I have developed a strong network of business and government contacts in Indonesia and Australia that are principally concerned with investment, trade and business between Australia and Indonesia. The PhD research I have undertaken, required a qualitative approach to data collection, whereby I actively engaged in interviews and discussions with over 55 executives and senior managers in Indonesia and Australia. In addition to these interviews I was able to participate in 49 negotiation events, which endowed me with firsthand experience of the Indonesian negotiation style and how it effects and affects international business negotiations.  In the academic world there is often a debate about the relative merits of qualitative (ie. Interviews, observations, document analysis etc), and quantitative (Statistics and econometric orientated analysis) methods. In the case of my research, I actively decided upon pursuit of a qualitative methodology due to the challenge of gaining trustworthy data in the Indonesian business environment.  As a consequence of this qualitative approach, I have been allowed a unique insight into a multitude of experiences related to Indonesian negotiation and business behaviour.  If I add up the collective years of experience in the Indonesian business environment of the 55 senior executives, then I have built up over 300 years of collective knowledge of the business environment, across agribusiness, banking and finance, engineering, mining and education.

The Indonesian Business Environrment is rapidly developing and there is a need to understand how your business, and government can be part of this changing enviornment.

The knowledge I have attained through the course of this PhD research process has allowed me to achieve a full appreciation of the Indonesian business environment, and identify the true potential that Australian business and government leaders have often failed to grasp in recent years.  Upon starting the PhD research, I discovered a serious lack of research into the Indonesian business environment, and I have attempted to address this lack of academic literature through publication of academic and referred journal articles and conference papers, and contribution to the professional business community through publication of professional orientated articles. As I approach the final stages of my PhD journey I am seeking to re-enter the business community and help Australian and or International organisations make greater inroads into the Indonesian business environment.  I have found the PhD process to be a rewarding process, and I anticipate the next stage of my life will be just as rewarding.  I look forward to utilising this unique knowledge of Asia’s third largest country, and one of the world’s most important emerging economies to further develop business, community and social relationships in Indonesia.

If you would like to meet with me to discuss how I can help you and your organisation achieve success in the Indonesian market, or you would like to discuss new opportunities emerging in the near future, please send me an email (nathan@asiaaustralis.com). Alternatively check-out my LinkedIn Profile and the website of my company AsiaAustralis.

The Negative Effect of Australian International Agricultural Policy on Australian Agricultural Exports

Animal Cruelty is inexcusable, and there needs considered policy responses that are not knee-jerk and business destroying

Australia has a long-standing reputation for producing high quality agricultural produce, and in many cases these different crops are unaffected by disease and parasites which affect the same crops. Protection of these crops from unwanted disease has been one of the key reasons for restricting agricultural imports. This has been the case up until quite recently with apples (from New Zealand and China), and Mangos from Indonesia. In the case of apples, their import restriction had to be lifted under risk of WTO retaliatory action, while mangos are still currently prohibited from being exported from Indonesia to Australia. There have also been ad hoc responses to other domestic political issues such as the live export of cattle to Indonesia and subsequent suspension of the trade. Ultimately Australian policy responses in these cases have affected or risk effecting Australian agricultural exports in the future, and it is important that Australia see itself as part of a global trading system, not isolated and insular.

Animal cruelty is a terrible thing, however, the reaction of the Australian Government, and its handling of the Indonesian Live Cattle issue has been less than satisfactory. The live export ban of Australian Cattle to Indonesia announced in June 2011 has been disastrous for the Australian Cattle industry, and more broadly to agricultural industries looking to expand their export exposure to the Indonesian market. Additionally there are important questions that need to be asked about the impact of this unilateral trade sanction upon the future trade relationship between Australia and Indonesia, and the Australia – Indonesia Comprehensive Economic Partnership Agreement that has been under negotiation for the past 12 months.

Unfortunately the Live Export ban was implemented unilaterally, without consultation with the Indonesian Government, and as such the Australian Government has made a crucial political ally in our region to look foolish and inept. The Australian Government effectively got on a very high horse and was determined to take a high moral stand, irrespective of the international political, and trade repercussions. This unilateral response has been made to appear xenophobic due to the lack of consistency in the reasoning for the ban. The Australian Government banned live export of animals to Indonesia, while allowing live trade to other countries which had similar animal welfare standards. The ban included abattoirs which did adhere to World Standards and Australian Best Practice, such as the Elders run Abattoir in Indonesia. And, most damning was that the moral standard the Australian Government was enforcing upon a sovereign country, were the same standards not enforced inside Australia – there are multiple Abattoirs in Australia (including SA) where stunning of animals prior to slaughter is not mandatory. How could the Indonesia Government not feel there was an underlying xenophobic reason for the Ban?

So what are the repercussions of this ban to the broader business community?

Since the re-opening of the live cattle trade, the export numbers have cut substantially by Indonesia. This effects Australian Farmers

The Indonesian Government subsequently announced a reduction in the import permits awarded to Australian Exporters. This has an immediate effect for the cattle farmers in the north of Australia, as it means they will not be in a position to sell all of their cattle. Losses are to be made. We have seen a number of large agricultural companies such as Elders announce profit downgrades and potential losses as a direct result of the ban. These large agricultural companies in many cases are diversified and so can pass on the cost to other parts of their business in the Southern Australia, but what about smaller companies and farmers? The ban may result in small farmers leaving the industry. There are also flow-on effects to complimentary industries such as transport in the north of Australia. This experience has been very damaging for the Indonesian Government, and has demonstrated the danger of being over reliant upon one trading partner such as Australia for vital food supplies. Australia has for many years leveraged its close geographic proximity to Indonesia to sell grain, meat, seafood and other agricultural products to Indonesia. The Indonesian Government will now reassess if this trade is in the best interests of the people of Indonesia. If the Australian government was prepared to cease all cattle exports to Indonesia over a small issue could they do it again but with a different resource, such as Grain? I would not be surprised if Indonesian agricultural importers looked to other markets in North and South America to diversify their imports, and secure supply. If this was to occur, then the net effect would be negative for farming communities in Southern Australia.

There have also been recently announced new restrictions on the import of Australian fresh food to Indonesia. This may seem a little strange given the food security issues at play in Indonesia, however, it is a case of Indonesia playing the global trade game well, and essentially playing the Australian game of arbitrary restrictions on imports. The restriction on import into Australia of Indonesian Mangos is great concern from Indonesian farmers and politicians, and when this is combined with the Live Cattle Trade debacle it is easy to see how the Indonesian government could see Australian policy as being biased. Ultimately these policy decisions affect the export ability for Australian farmers. Australian farmers therefore are punished for the policy decisions of ‘protectionism’ from the Australian Government. So when we think about the effect of the international agricultural policies, we should consider the broader impact upon the Australian business community. Let’s hope, now that Australia can mend some of the bridges it has been burning in the past year. The export success of Australian business relies upon it.

Consider the Risks before developing your future International Manufacturing Strategy

Manufacturing is complicated, make sure all your manufacturing cogs are lined up to maximise the returns

Australian manufacturers are facing high costs of production, and a high A$ beyond parity with the US$, which has resulted in a loss of competitiveness in international markets. If Australian manufacturers are to survive then the need to address these cost of production and regain the international markets. It is not in Australia’s long term Interest to have the manufacturing sector just get up and leave, as companies have developed years of knowledge and expertise, and in many cases have created substantial intellectual property invested in manufacturing in Australia. Manufacturers planning for the future need to consider how to effectively manage the international markets in which they will manufacture, and addressing the cost pressures and protecting intellectual property will be fundamental to developing a sustainable and effective international manufacturing strategy.

 Australia can no longer compete in low cost manufacturing with other countries in our region such as China due to our comparative high costs of production. As a consequence many Australian manufacturers have looked to China as the answer to cost of production issues, and moved manufacturing to China in recent years. This can be a great way to lower production costs, and many Australian companies have managed their Chinese operations successfully, however there are some downside risks to manufacturing in China. It is important to consider that the cost of production in China has been rising consistently over the last few years, with labour costs rising in excess of 10% a year for the past couple of years. To add to these cost pressures is the gradual appreciation of the Chinese RMB, which is making Chinese made products more expensive. These cost pressure, alone, suggest that China may not be the medium to long-term answer for absolute low cost manufacturing. Additionally another risk to manage is a loss of your intellectual property, which could result in either a competitor product entering the market, or a direct replica of your product which may erode brand confidence.  Can you be certain that your product designs won’t reappear around the corner for a fraction of the price? I know of many manufacturers who have been confronted with this very issue. Be careful.

Investing in Advanced manufacturing may allow your company to maintain its competitive advantage

One way of managing this risk is through maintaining the advanced manufacturing phase of production in Australia. In order to make Advanced Manufacturing work it is important to undertake Bulk manufacturing abroad while at the same time protecting your intellectual property. Assembling the bulk components, and installing the high technology components of the product in SA will go a long way towards protecting the most important assets Australian manufacturers possess: Intellectual Property. This can be a complicated task, particularly in relation to Australia’s geographic proximity to the low cost manufacturing centres in Asia. If manufacturing is undertaken in China it is important to consider the logistics time to freight components from China to Australia. It can take up to 5 weeks to get products from manufacturing facilities in China to the warehouse in Australia. Can your business cope with that time delay? In order to make Advanced Manufacturing work for Australian companies it is important to undertake bulk manufacturing of components in geographic locations that do not pose a substantial time disadvantage. 

The growing costs of production in China in recent years, and the need to protect intellectual property mean that manufacturers need to look beyond a reliance on the China solution if they are to find sustainable low cost manufacturing to compliment the advanced manufacturing in Australia.  I would advocate a look at other markets in South East Asia to undertake bulk manufacturing, and reduce the freight time.  The advantage South East Asia possesses is that the freight transport corridor stops in Singapore on the way to and from Australia. The closer the manufacturing centre to Singapore the faster it can be on a ship heading to Australia, where advanced manufacturing can then be undertaken.  Australian companies planning their international manufacturing strategy must plan for an Advanced Manufacturing future if it is to manage the intellectual property risks, while it is important to look north and consider the bulk manufacturing opportunities on Australia’s relatively closer northern doorstep.

Finding a Good Agent Is Critical To Navigating Your Way to Business Success in Indonesia

Use the "bridge" to move accross great divides at the negotiation table.

Indonesia is an emerging Asian market which is attracting increasing investment from Australian and other western companies.  Indonesia and its business environment can be confusing, daunting and challenging, but in many cases this is due to a lack of understanding of the Indonesian management behaviours that influence business relationships. If Australian companies want to succeed in this emerging Asian market, then they will need to develop knowledge and awareness of the Indonesian business culture, much the same way as Australian companies have succeeded in China now that there is a growing understanding of the Chinese business culture and etiquette. The latest research from UniSA has identified the use of third party agents as one of the important Indonesian management practices that influence business. These third party agents are referred to in Javanese (an Indonesian dialect commonly used amongst the business and government elite) as Parantara or ‘the bridge’, and acts as a conduit between the negotiating parties behind face to face negotiations, where issues of conflict can be raised without disrupting the harmony of the negotiation.  

 Maintenance of harmonious relationships between negotiation parties is critical to successful business engagements in Indonesia, and is grounded in the Javanese court traditions established prior to Dutch colonial rule. In Indonesia today, there is a renewed focus upon an independent, national identity, free from the western influence of Dutch colonialism. This nationalistic identification has seen many of the Javanese cultural behaviours re-emerge in the postcolonial period in Indonesia, and this has been driven by the political, governmental, and business elites which in many cases identify themselves with the Javanese culture. 

The Parantara is characteristic of a postcolonial Indonesia that has re-discovered the cultural norms of the pre-colonial Javanese court structure that favoured relationships, networks, and a system of favours and rewards. Utilising agents to further business relationships and aid negotiations is not a uniquely Indonesian experience, as it is common experience in other parts of Asia, in particular China with the use of the Zhongjian Ren or the Intermediary.  However, there are distinctive differences between the Zhongjian Ren and the Parantara in their level of involvement in the negotiated deal. The Zhongjian Ren will often be a part of the deal, as a partner, stakeholder or direct benefactor of any business agreement. Whereas the Parantara is bounded by the cultural traditions of the Javanese court system that places importance upon the network. As a consequence the Parantara is more of a broker, who operates in the background, for the betterment of both parties and who is rewarded for success.

Understanding Indonesian management behaviours is vital if Australian companies are to develop successful Indonesian investments in the coming years.  So if your company is looking to invest in the Indonesian market, then you would be best advised to find a good agent who can help navigate a harmonious relationship and build a strong deal. Fore without a good agent, you may find yourself in a sea of conflict, and on the path to investment failure.

Addressing Australia’s Reactive Asian Engagement Strategy

Australian needs to proactively and strategically engage with Asia, not watch passively and reactively.

I had the opportunity last week to attend a business community consultation session with the Department of Foreign Affairs and Trade and the message I delivered to them was that Australia’s foreign policy position is fundamentally wrong. Australian governments in the recent past have adopted a reactive strategic approach to international trade and engagement with Asia, and ‘we’ run the risk of missing the major opportunities that will arise through greater integration and engagement with Asia in the 21^st Century. There are a number of examples that I can draw upon to emphasise this reactive policy position, and many of these policy positions are driven by domestic political imperatives, that have little use to an Australian economy that operates in a global trading and information system.

The current challenge posed to the manufacturing sector in Australia has been a long time coming, and we have had ample opportunity to address the productivity, skills and technology gap over many years. Unfortunately, the rising Australian Dollar has created an uncompetitive environment for Australian manufacturers and they will need to adapt quickly to this new environment, or disappear completely.  Politicians on all sides seem to fail to understand this new global paradigm we exist in, and so we still see the usual responses of cash handouts, to maintain the existing jobs in bulk manufacturing. There is no linkage of these grants to high technology and research and development. This must change if Australian manufacturing is to be maintained. Australia’s manufacturing future if we are to have one must be in high technology and advanced manufacturing, and we only have to look to Germany to see the template for success. If we do not engineer political policy to allow for this manufacturing transition to occur quickly many companies will cease to exist and, Australian manufacturing will come to an end.

Another example of the reactive policy thinking is through the constant debate about overseas investment in Australian resources. This is primarily a concern based on future needs, and at the moment Asian investors from China, India and other parts of Asia are placing a pricing premium on Australian resource investments.  The resources and profits generated from these investments are primarily repatriated to the home country markets in Asia, and there is rightly a concern that Australia is selling our resources for too low a price. Australian investors are choosing not to compete, and subsequently they are missing out. However, our International perspective appears to be stuck in a bubble where we see every action in isolation as if we are not operating in a global trading environment.  

Australian governments should be encouraging Australian companies to be increasing their investment exposure in Asia, to compete, and to help hedge against costs that have been affecting the viability of wholly Australian operated ventures.  An approach that seeks to encourage outward trade and investment from Australia will have multiple positive effects for the Australian economy. If we look to the manufacturing sector, there is an opportunity for these businesses to transition their operations to high end and advanced manufacturing in Australia, while offshoring the bulk and low tech component manufacturing to nearby Asian markets. This will allow increased investment in technology rich manufacturing helping to build our advanced manufacturing competitive advantage. Equally we need to remember that just as our political class and media lament the repatriation of profits back to home countries in Asia, we have this same opportunity. Australian owned investments in Asia, will allow for repatriation of profits back to Australia. A case in point would be a company such as BHP Billiton, which is utilising its vast profits collected from around the world into developing the large Olympic dam mine expansion.

So my message to the Australian Government is to take a proactive policy approach to Asia, and create an environment where Australian companies are encouraged to engage, interact and invest in Asia. Our future depends upon this investment.

Demand in Indonesia is Outstripping Supply for High End Consumer Goods

The Jakarta Skyline

Indonesia is a country many Australians feel they “know”, and have experienced through their travels to Bali. Indeed in 2011 there have been close to 600,000 Australian visitors to Bali. So it is reasonable to assume that Australians should have a good grasp of how Indonesia is tracking right? Well, if we base our perceptions of Indonesia off a small snapshot that is Bali, then we will be sadly mistaken. Indonesia is a diverse country, stretching across approximately 13000 islands and extending at the heart of South East Asia. Bali is just one small island, with a focus upon tourism and the holiday trade. Indonesia is a country of more than 250 million people, and the latest estimates (from the ANU Indonesia Update) are that the Indonesian Middle Class is represented by up to 130 million people. That is half the population with middleclass incomes with middle class aspirations, and well and truly engaged in consumption of middle class products.

But surely Indonesia a poor country? What could they be buying?

Silverbird taxis cater for the status conscious consumer in Jakarta

Indonesia is pumping right now, and many of the regional cities in central Indonesia (Java, Bali and Southern Sumatra) are embracing modernity with renewed vigour. Jakarta is the centre of government and business in Indonesia, and the drive for high end consumer goods is in full flight. This is best illustrated by the taxi service offered from the airport. Most taxis are small Toyotas, however for a 30% premium a fleet of late model Mercedes will drive you around Jakarta. A look at the streets will give you a great indication of the importance of high end car brands, particularly if you visit some of the top shopping malls in Jakarta. Mercedes, BMW, Porsche and Ferrari are in abundance. A visit into shopping malls such as Plaza Indonesia will show a great demand for luxury consumer items, with brands such as Louis Vuitton, Cartier, Jimmy Choo, Gucci, and Mont Blanc just to name a few. The uptake and availability of counterfeit brands in Jakarta although still present, is by no means the norm, and is in stark contrast to the streets of Bali where the proliferation of fake products for the tourist market. Brand and Status is what matters here, so buying or owning the real thing is a main motivator for Indonesian middleclass consumers. The impressive thing with these branded stores is that they are full of shoppers, actually buying these high end products. I am told there are seven Luis Vuitton shops in Jakarta, which is surely an indication of the sales potential of high end products in Indonesia. Last week I visited a Louis Vuitton store for a look at Plaza Indonesia in Central Jakarta, and this store would have been around 200 sqm, and had more than 20 shoppers in store looking at items.

So what does this mean for Australian companies with premium brands?

Well it suggests that the appreciation of the Australian Dollar shouldn’t be an inhibitor to success in the Indonesian market. Australian companies need to look to Indonesia as a market of opportunity, and place Indonesia at the top of the list for potential export markets, alongside China and India. Its time to re-consider Indonesia as a market opportunity, and think of Indonesia as more than a holiday destination. If you are prepared to enter the market now then you will be primed to reap the rewards.