APEC 2017: Tapping the growth economies

Managing the risks, securing talent, utilising technology and developing partnerships.

The APEC region is the world’s fastest growing with eight member countries projected to be in the top 20 global economies by 2030 (China, United States, Japan, Indonesia, Russia, Mexico, South Korea, Canada and Vietnam). By this time, Australia is expected to drop out of the top 20 global economies, from 19 currently down to 23.

In the lead up to APEC 2017 (Da Nang, Vietnam), we asked Australia’s C-Suite for their views on doing business within the region.

“What we see is a buoyancy in confidence towards APEC, which includes 12 Asian countries, three North American, Russia, two South America and three in Oceania (Australia, New Zealand, Papua New Guinea). Our concern though is that Australian business is not focused on the 12 Asian economies, where growth is occurring,” says Andrew Parker, PwC Asia Practice Leader.

Australia has done tremendously well over the last 25 years exporting our commodities to Asia. Our agricultural products and mineral resources have benefitted from economic growth in the region and fed a rapidly growing middle class.

In the next 15 years, four of the world's five largest economies in purchasing power parity terms will be in Asia: China, India, Japan and Indonesia, with only the United States interrupting Asia’s economic dominance.  By 2030 two-thirds of the world's middle-class consumers – a staggering 3.2 billion, technologically enabled consumers – will live in the region.

“But if Australia is going to be part of those markets, Australian firms will have to be where the consumers are – and that is increasingly in Asia,” said Andrew.

An encouraging sign is the growing confidence of Australia’s c-suite when it comes to expanding operations in Asia Pacific economies outside of Australia: in 2017 29% are more confident, up from 18% in 2016.

While positive, our experience is Australian businesses are struggling with the question of how to invest in Asian markets.

Australian companies are confident investing in other APEC countries such as Canada, United States and New Zealand but are not so sure about managing the risks associated with Asian, especially emerging, economies.

“If you add up all of Australia’s direct investment into Asia, it is still less than the $A60 billion we’ve invested in New Zealand.”

Andrew Parker, PwC Asia Practice Leader


We look at four aspects to support entry into Asian markets:

Source: PwC's 2016 APEC CEO Survey

Trade, a free flow 

Australia’s C-Suite are increasingly feeling that progress has been slow towards free trade in the APEC region:

  • 2014 - progress has been slow - 41% (APEC 55%)
  • 2016 - progress has been slow - 47%  (APEC 53%)
  • 2017 - progress has been slow - 55% (APEC 53%)

Yet they are loud and clear about the role APEC should be playing; taking the lead in addressing free trade among APEC economies (51% Australian C-Suite and 60% APEC - say APEC’s lead role should be free trade among APEC economies).

Over the past 12 months 1 in 6 of Australia’s C-Suite has experienced an increase in barriers to moving goods across borders. Looking ahead to the next 12 months 1 in 4 expect this to be an issue.

Still, organisations are forging ahead, utilising existing agreements (21% to a great extent) such as India and Indonesia to increase their business activity.   

In the last 12 months 17% of Australia’s C-Suite has experienced an increase in revenue opportunities due to a new trade agreement, while in the coming 12 months over a quarter (27%) expect to experience an increase in revenue opportunities for these reasons.  

There is confidence among Australia’s C-Suite about increased revenue opportunities but they have also told us their top five key concerns about entering APEC markets:

  • Regulatory environment 1st
  • Geopolitical and macro risk profile Joint 2nd
  • Legal environment Joint 2nd
  • Lack of transparency 4th 
  • Currency volatility Joint 5th 
  • Cultural differences Joint 5th 
  • Lack of a skilled talent pool Joint 5th

The APEC region isn’t homogenous though and trade deals don’t open the flood gates to markets, especially in the growing Asian economies. In these economies, companies must be aware of behind the border regulations, cultural nuances and country specific requirements to move goods and services.

Free trade agreements will continue to change and evolve. For Asian markets, once these are in place, forging strong relationships will further arm business for success. But issues such as regulation, risk and the legal environment still weigh heavy and remain fundamental concerns to negotiate when entering new markets in Asia.

Businesses serious about the Asia opportunity should:

  • Develop long-term relationships with local leaders and governments to help understand cultural nuances and ways of doing business outside of formal regulation

  • Build relationships with Australian Government diplomatic missions, Department of Foreign Affairs & Trade and Austrade to help open and cultivate working relationships within chosen markets.

  • Take full advantage of new trade agreements to build new markets into your strategy



Talent, Australia needs it

Australian businesses entering new markets rely on attracting skilled talent, whether that’s Australian talent, bringing talent to Australian shores, moving talent to the markets they’re needed or employing local talent on the ground in the chosen market.

With recent Australian visa changes it is not surprising that during the last 12 months over a quarter (27%) of Australia’s C-Suite have seen an increase in barriers to employing foreign labour.

Looking towards the next 12 months this jumps to over 1 in 3 (35%) who expect to experience an increase in barriers to employing foreign labour.

Meanwhile, Australian C-Suite confidence to secure the talent and skills needed to perform globally keeps dropping:

  • 2015 - More confident 19%
  • 2016 - More confident 14%
  • 2017 - More confident 12%

Further, 1 in 5 Australian C-Suite say the lack of a skilled talent pool is a top 5 barrier to investment in APEC countries.

Whether Australia’s C-Suite is blind to the talent that lays before them was discussed in our report Our Diaspora’s Got Talent  where we showcased how local talent with experience, knowledge and skills are available in Australia. The problem is that their skills are not being utilised or recognised by Australian companies.


Executive Skills

But what are the executive skills required for Asian success? Australia’s C-Suite tell us Risk Management, Leadership, digital and analytical skills, emotional intelligence and adaptability are the skills most needing to be developed in order to conduct business in China.

A poor understanding of Asia in executive teams is a concern when doing business in Asia. The recent Match Fit (authored by AsiaLink Business, with support from PwC and the Institute of Managers and Leaders) report showed that only 19% of directors and 14% of senior executives (of ASX 200) have the knowledge, skills, networks and experience required to be effective in Asia; business leaders are yet to take seriously the need to build knowledge of and skill in doing business in the region.

The number one concern Australia’s C-Suite has about entering APEC markets is the regulatory environment, so, it is clear why the number one skill C-Suite believe their executive teams need to develop to do business is risk management.

Upskilling in this area is important and relies on a combination of locally grown and internationally tapped talent. But it takes time.

Businesses serious about the Asia opportunity should:

  • Engage the available Australian diaspora with skills in Asian markets and an understanding of local business practices and etiquette

  • Empower the local diaspora to train and develop colleagues and the broader workforce

  • Upskill current executives to develop a deeper understanding of local nuances, discard unconscious cultural biases and develop more experience managing risk and developing strategy for the region

  • Encourage secondment opportunities in the region to build workforce knowledge of and skills in doing business in the region

Technology, rage with the machine

The automation signs are clear: the number one workforce strategy Australia’s C-Suite believe will be most effective for their organisations to adapt and profit in an increasingly digital age is automating functions.

Australia’s C-Suite is confident the top way they can help workers adapt to automation and jobs rebalancing is to increase business investment in employees’ continuous learning.

Automation is happening across all industries yet company’s feel responsible for the displacement of current employees. A number of industries are committing to help train and support employees affected by automation with re-learning and re-training.

The type of training and investment is clear: wholesale training of the workforce in ways to use data, identifying workers who are skilled at using new automation tools and investment in machine learning and emerging technologies are key.

Automation and digital transformation has the potential advantage of freeing up staff. Companies can look at ways to redeploy employees not just in the automation arena but to value adding work; innovation, quality and customer experience. 

C-Suite also say they can help workers adapt to automation and jobs rebalancing, by expanding policies that support labour market flexibility.

This includes moving to new structures of employment such as more contract, independant, temporary, short-term engagements or freelance work; ‘gig’ talent and outsourced labour as an effective way for organisations to adapt and profit in an increasingly digital age.

The positives for workers on these short term, task orientated type work assignments are increased flexibility, better work life balance and increased autonomy.   

The negatives could be moving towards lower incomes, zero hour contracts and job insecurity while outsourcing could impact domestic talent and opportunities.  

Businesses serious about the Asia opportunity should:

  • Invest in machine learning and emerging technologies

  • Develop workforces with the right skills required for the future of work: retrain workers to use data and to use new automation tools or redeploy employees into value added aspects of the business

  • Use Government relationships to explain needs for labour market flexibility and reduced employment barriers


Togetherness, Frenemies + collaboration

Collaboration, co-creation, partnerships and joint initiatives haven’t always been synonymous with business success; going alone is no longer de rigueur, especially when entering Asian markets.

Australian companies can embrace the opportunities of ‘frenemies’ (an enemy that can also be a friend) in two ways:

1. Local Partners

Local partners are based in the chosen Asian market. They bring local expertise such as talent, customer knowledge, an understanding of risks and ways to navigate regulations. Australian organisations bring valuable products (fresh food, wine, health supplements) or services (health, education, tourism and professional services) where their expertise is in high demand.

2. International partners

‘Rival’ firms can leverage unique talents with other international companies by finding ways to put aside differences to work as one to break into chosen Asian markets. If they share the burden of risk, combining talents and resources between them they can create cost-saving opportunities.   

But confidence is still an issue when it comes to identifying a suitable strategic partner/joint venture. Only 14% of Australia’s C-Suite are very confident about being able to identify a right fit.

This is not surprising considering Australia ranks just 27th in the OECD when it comes to collaboration. Only 7.7 percent of Australian businesses are collaborating while improving or creating products and/or processes. When Australia is benchmarked against other OECD countries, our analysis found Australia’s gross domestic product (GDP) would increase $8 billion over the next 10 years if Australia reached the OECD average for collaboration.

Again, there is a need for the right talent, which is why Australia’s C-Suite tell us they rank managerial talent as the joint number one factor for selecting a strategic partner/joint venture.

They also say enhancing industry driven collaboration is one of the top three ways they can help workers adapt to automation and jobs rebalancing.

Currently, Australia has neither the industry systems nor the management capabilities to facilitate it, looking for collaboration or frenemies beyond the domestic market is where a great payoff can be found.

Businesses serious about the Asia opportunity should:

  • Look beyond traditional partnership opportunities and collaborate with a suitable partner

  • Take the time for careful due diligence carefully

  • Take a long term view on the investment and development of managerial talent

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Contact us

Andrew Parker

Partner, PwC Australia

Tel: +61 2 8266 0218

Sung Lee

Director, PwC Australia

Tel: +61 2 6271 3539

Scott Gillespie

National Thought Leadership Leader, PwC Australia

Tel: +61 2 8266 3229

Kieran McCann

National Thought Leadership Manager, PwC Australia

Tel: +61 (2) 8266 0252

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