As the centre of the global economy shifts to Asia, many are looking for opportunities to get a foothold in the new powerhouse region.
Over the next 25 years, SAP Asia Pacific Japan president Adaire Fox-Martin expects the region will add the equivalent of three eurozones to the global economy.
“We’re currently in an era of unprecedented change,” she says, but there are important pieces of the puzzle people are overlooking when looking for opportunities.
“When most people think of Asia they think of China at the top and India at the bottom,” she says.
But she added that they should also be focusing on what’s in the middle — South East Asia.
“The truth is that from a South East Asia perspective there are 600 million people that now live in the ASEAN Economic Community and it’s a $US2.4 trillion economy. When you break down the economy you look at Vietnam, the Philippines, Thailand, their GDP on a per country growth basis is actually faster than the dragon at the top, but they get overlooked.”
Fox-Martin sees potential for Australia to benefit from this and these other growth drivers in the Asia Pacific region right now:
Family held businesses
“The first is the role of family held businesses. When I look across the region, excluding Australia, so much of the wealth in Asia resides in the hands of so few,” she says. “Often a huge proportion of the GDP of these countries relies on a company’s success, such as Samsung in Korea which is 25% of the country’s GDP.”
“Now, most of these companies are on the third generation of the business. Globally the statistics are that only 25% of these companies survive to third generation and what is interesting about this transition is the role of professional managers. Most of these third generation have been educated overseas, they have an MBA, they bring in professional managers.
“I think this is a big opportunity for Australia to bring skills around people and management into these organisations. The second thing is the implementation of systems to manage the business, like what Samsung has done. They took all 70 companies and have them run off one environment so that you have one view of the business, for this systems are required.
“Again, I think a skill base that a lot of these companies don’t have is a huge opportunity for Australian talent. I think that we should be filling this talent pool with Australians, not with Americans or Europeans. For my goal in Asia, Australia is my talent pool.”
“The second growth driver in this region is the state-owned enterprises,” she says. “Our region is very diverse because we have a mixture of mature economies and low income economies, and that’s what makes it very exciting.
“But for the vast a majority of them, especially in the low income countries, their running the infrastructure of a country. This is typically the utility companies, the energy companies, the oil companies, the telcos and so forth.
“In most of the South East Asian countries and in India there are major modernisation programs that are underway. These are either infrastructure bills, modernisation of processes and procedures and a lot of this has an IT requirement.”
She said others in more mature markets of the region are going through process of deregulation, whereby the governments are taking state-owned enterprises and deregulating them, making it a free market, or they are going through privatisation.
“Everywhere around the region, all of these state-owned enterprise are going through massive transformation. Some of it involved construction, some of it involves physical infrastructure, software infrastructure – all of it presents enormous opportunities for Australian businesses to participate.”
The ASEAN economic community (AEC)
“The third growth driver on a geopolitical basis is South East Asia’s AEC,” she says, explaining it as being similar to the European Union without having the one currency.
“The precept is that there should be free trade, that there should be the free movement of labour, intellectual property and to some extent the free movement of capital between the member countries.
“There are 16 countries that sit under AEC. When most people think of Asia they think of China at the top and India at the bottom, and actually in the middle is South East Asia. The truth is that from a South East Asia perspective there is 600 million people that now live in AEC and it’s a $US 2.4 trillion economy.
“When you break down the economy you look at Vietnam, the Philippines, Thailand, they’re GDP on a per country growth basis is actually faster than the dragon at the top, but they get overlooked.
“Now, why is this important for Australia? Because a lot of these countries have a commonwealth background. They have a very close affinity to Australia’s political structure, and again a big formidable force in South East Asia is the family health businesses, World Bank, or Asian development bank infrastructure projects.
“Many of the businesses are going to use this as an opportunity to move across the boarder. It opens opportunities for them but it also open challenges.
“I think the jury is still out about how much of an impact it will have but certainly the precept of it has created a compelling force of the Asia economy.”
“The fourth is the role of SMEs and there are lot of startups in this region, and a huge number of small companies that are going to become meaningful,” she says.
“In Asia, 77% of our customers are SMEs. And they might be an SME today, but I see them as a MNC of tomorrow.”
According to the Asia Pacific Economic Cooperation, SMEs account for 97% of all businesses and employ half of the workforce in the Asia-Pacific region. They are widely recognised as Asia’s engines for growth and innovation, contributing 20-50% of the region’s GDP.
By 2020, the region’s population is anticipated to increase from 500 million people to 1.75 billion people.
Fox-Martin says this new hyper-connected consumer class in Asia will be an opportunity for disruptors to take advantage of the next economic revolution: the digital economy.
“Because technology is at such a low entry level now (in Asia), we’ve seen so many business models that are disrupting traditional businesses,” she says, using Uber as an example. “Startups are using technology to create business models where they don’t own any element of the supply chain.”
“The sheer magnitude of youth in the region I think is an amazing opportunity,” Fox-Martin says, adding that youth make up 60% of the 500 million population right now, and that by 2025 millennials in the region will constitute 25% of the workforce.
“From an Australian university point of view, if you go to any university in Australia the campuses are hugely mixed with a number of overseas, particularly Asian students, who are there on a 100% uplift of their fees because they’re not Australian citizens.
“It’s a huge revenue source for Australian education, but I also think it’s a source of talented labour, potentially. Who knows what this next generation could actually achieve in the region?
The author traveled to Singapore as a guest of SAP.
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