Why ASEAN and Why Now_______________________

Insights for Australian BusinessA Joint Austrade and DFAT Project

David Landers General Manager East Asia Growth Markets

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Passage plan

• Context

• Drivers

• Play-to-strength

• Models

• Risks

• Prescriptions

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ASEAN is one of three spheres of Asian prosperity that are fundamental to Australia’s economic future

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Six major drivers accelerating ASEAN’s growth and creating new opportunities for Australian business

1. The development of the region’s economic architecture – the move toward an integrated ASEAN economy (the AEC), complemented by regional free trade agreements.

2. The growth of the services sector.

3. The emergence of regional value chains, driven by regional business leaders.

4. Productivity gains through education and training.

5. ASEAN’s status as a major foreign direct investment magnet.

6. Reducing ASEAN’s infrastructure deficit.

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The advent of the AEC represents a major milestone in the evolution of ASEAN’s evolving treaty network

Source: DFAT5

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An integrated ASEAN economy (the AEC), complemented by regional free trade agreements, is an enabler capable of igniting a new wave of growth• From fragmented and sub scale to defragmented with scale –

one market, but not characterized by homogeneity and uniformity

• Connectedness across ASEAN means diversity becomes its strength, blending capital and skills with abundant labor and resources

• Connectedness across Asia means a bigger role for ASEAN situated at the heart of an economically vibrant and growing region bounded by India in the West; China, Japan and South Korea in the Northeast; and Australia

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• Inbound FDI into the original ‘ASEAN 5’ was greater than that flowing in to China

• ASEAN sits on the ‘elephant’s toe’ of the globe’s single largest source of FDI outflow for the foreseeable future

• Ageing Japan (already ASEAN’s largest single country investor) and Korea now hunting higher growth in ASEAN

• EU already the largest bloc investor in ASEAN

• All indications are US will accelerate

• Sustained development assistance: AIIF, ADB, JICA

ASEAN’s status as a major foreign direct investment magnet

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Combining the shaping forces of regional trade architecture with FDI

Source: IMA Asia September 20148

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The growth of the services sector• Higher education• Vocational education and

skills training• Financial services• ICT and telecommunications• Tourism, recreation and

leisure

Excellent fit with Australian capability

Embedded manufacturing opportunities

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The emergence of regional value chains, driven by regional business leaders.

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The need for productivity improvement across ASEAN is acute

Source: McKinsey Global Institute: Southeast Asia at the Crossroads: Three paths to prosperity 2014

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Reducing ASEAN’s infrastructure deficit

ASEAN infrastructure gap is $8 Trillion, 600B per annum

Country Rank (out of 148)

Score

Singapore 2 6.41Malaysia 29 5.19Thailand 47 4.53Brunei Darussalam 58 4.29Indonesia 61 4.17Vietnam 82 3.69Lao People’s Democratic Republic

84 3.66

The Philippines 96 3.40Cambodia 101 3.26Burma 141 2.01

Source: Global Competitiveness Report 2013-201412

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Play to strength – Australia is good at what ASEAN needs

• Services into infrastructure development ($60B per annum)

• Education & skills training into human capital development (avg 6~ 8 yrs schooling)

• Food & agri into supply, safety and security requirements

• Advanced ETS into regional value chains: Aviation, Automotive, MedTech, Oil & Gas, Logistics

• Wealth management into ASEAN’s growing pool of savings

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How Austrade is approaching ASEAN opportunities’

• Identifying sectors in ASEAN where there is strong overlap in the commercial opportunities for Australian exporters.

• Building a coordinated and collaborative approach between Austrade offices in ASEAN, managed through one post acting as a Hub, to promote these opportunities.

• Ensuring that our work with exporters and education & training providers maximises their ability to act on these opportunities.

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Examples of Austrade’s approach to ASEAN

1. Workforce skills development initiative• Austrade’s work is based out of Singapore office.

• Aim: to capitalise on ASEAN program for skilled workforce mobility, and the rising demand for various workforce skills within the region.

• Austrade identifying new opportunities for delivery of skills and training across key sectors: agribusiness, health, building & construction, food & beverage; mining; advanced manufacturing.

• Desired outcome: increased number of courses delivered by Australian providers in these key sectors across the region.

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Examples of Austrade’s approach to ASEAN

2. ASEAN automotive supply chain initiative• Austrade’s work is based out of Bangkok office.

• Aim: to take advantage of global OEM manufacturing presence in ASEAN, due to move towards Economic Community.

• Austrade identifying capability gaps across regional automotive industries in key sub-sectors: auto components, technology and skills development.

• Desired outcome: supply of Australian capability to regional vehicle manufacturers; and R&D collaboration between Australian suppliers and institutions with counterparts in ASEAN.

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Examples of Austrade’s approach to ASEAN

3. Food and beverage initiatives in multiple markets• Aim: Coordinate Austrade’s market activities across individual

ASEAN markets for more consistent promotion of Australian F&B products.

• Focus is on key themes between markets:– ‘Premium Australia’ brand– Food safety– Food value chain/ cold distribution– Online sales– FDI into Australian agrifood

• Cooperating with agrifood industry stakeholders to deliver effective national message: MLA, HAL, AEGIC, Dairy Australia.

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Case study: CSIRO-SIMTech collaborative research agreement

• Singapore a gateway to regional aviation value chains• Australian capability in services and research and

development• CSIRO SIMTech partnership in additive technologies

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• Operations in seven ASEAN markets with plans to further expand

• Country-specific strategies are tied to regional and company wide goals

• AEC has been a factor in business planning for the region

Case study: Linfox on the road to success in ASEAN

“From our perspective, there are a lot of opportunities for growth when borders open up” Gabrielle Costigan, CEO Asia

• Operations in seven ASEAN markets with plans to further expand

• Country-specific strategies are tied to regional and company wide goals

• AEC has been a factor in business planning for the region

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Opportunity is not risk free

• ASEAN democracies are highly complex and may prove to be too slow in bringing about difficult but necessary institutional & policy reform

• Ease of doing business and transparency issues persist, particularly anti bribery & corruption

• Human capital & infrastructure deficits prove intractable

• Geopolitics get in the way

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Prescriptions for Australian Business

• Prepare for tectonic shifts to the ASEAN landscape• Integration is a process – the AEC is a (large) step in the

journey • Swim with the tide of regional agendas• Invest holistically in ASEAN, relationships and people• Think local and cater to the needs of the ASEAN

consumer• Maintain an Australian lens to governance and social

responsibility

Prepare for tectonic shifts to the ASEAN landscape

See the whole and swim with the tide

Invest holistically

Think locally about the market

Approach governance and CSR from an Australian perspective

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“Defaulting to corruption to do business in the region is not only naïve it is short-sighted and it is typically driven by a failure to understand the complex stakeholder structures and the way decisions are really made.”

Ian Buchanan, Booz&Co

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Austrade: an international agency with private sector focus

• We have 80 offices in 48 countries, with 44 of those offices across Asia.

• 60% of our overseas staff are based in Asia.

• More than 400 of our staff have one or more Asian languages.

• Two-thirds of our overseas staff and senior executives have private sector experience.

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