By Keith Rodwell, Chief Executive - Asia Pacific, The Alta Group

For decades we have heard so much about the potential for Australia stemming from the proximity to the developing nations of the Asia Pacific region. Yet we only see successes in a few predictable industries – minerals, agriculture, education, and tourism. Australia has some exceptional businesses and management talent in other sectors. That begs the question why we do not see more engagement across Asia. 

Any international expansion requires an understanding of the applicability and competitiveness of your product. Unfortunately, for most companies the starting objective is to get additional revenues from existing capability with minimal additional investment. This only works if you can sell your product “as-is” into the foreign market. If this is possible, your product can be described as a “global” product. For example, Australian iron ore may have different technical qualities to other countries, but we do not customise iron ore for different markets.

Taking an ‘Aussie’ product abroad 

Alternatively, products that need to be customised to suit the local market can be described as “local” products. In the case of “local” products, the reality of local customisation is at odds with the initial simplistic objective of many companies to international expansion. This provides a basis to consider the success of Australian businesses in Asia as they try to expand offshore with a  “local” product:

1. Appoint a salesperson (based in headquarters) reporting to the head of sales, to sell your product in new markets;  

2. Create an “International Department” within the sales department and move the salesperson (typically a native of the company’s home location) to the foreign market. 

3. Establish an “International” business and appoint a senior leader to the region with a long-term plan.  Locate them in region and appoint local nationals to the sales and marketing roles.  Amend the product to meet local standards.

4. Appoint foreign nationals to the senior leadership role and design products specifically to meet the market. Invest in local manufacturing or acquire local competitors.

This journey can be seen across businesses from many countries and across many industries. Australian companies are no exception. Without understanding the local nature of your product, expanding relationships with Asian neighbours will be limited to global products.

To explore this further, I will focus on an industry where Australia has some exceptional talent but with limited activity in Asia – non-bank financial services. The problem should be considered in terms of why the private sector has not succeeded and how government action could assist. 

Private sector impediments to exporting financial services

Whilst bank regulation is different in each country, governments do have access to global bank regulatory standards that provide the basis for in-country regulation. The bank regulations and resulting decisions of bank management, provide product and distribution gaps for non-banks to deliver value-add solutions. 

Non-bank lenders are not regulated as banks because they do not raise deposits. Non-bank lenders are subject to laws around lending (such as trade practices, various consumer / small business protections etc) to meet society’s expectation. Before a non-bank lender can fill these gaps, they need an ability to assess risk and they need clarity and confidence around the necessary legal, tax and accounting treatments and enforcement infrastructure. There is an increasing dependency from non-bank lenders on data from credit referencing, cloud accounting and bank statements (and by extension data security infrastructure). 

At a minimum, non-bank lenders require knowledge of things including the operation of courts; lender liability; anti-money laundering; enforceability of securities; and insolvency laws.

The Asian region, and particularly Southeast Asia, is only a region in the sense of physical proximity.  Each market has different laws and levels of maturity. Therefore, product design and market entry strategies need to be customised for each country. Non-bank lending is very much a “local” product.

Even if the prerequisites for a non-bank lender were in place, the skills and investment required to understand the risk, and meet the market in each country need to be justified purely by the size of that market. An initial screen would very quickly eliminate many markets (and by default the Southeast Asian region as a whole) for an international expansion strategy. In comparison, the United States or European Union offer a large market with relatively consistent regulations that allow each to be considered a single market. 

Opportunities for government support

In looking at non-bank financial services, standardisation of lending laws, infrastructure etc across the region, would allow companies to more easily assess the opportunities and spread any investment in product development across a bigger available target market.  The Australian Government can assist by championing the need for co-operation and the mutual benefits for each country that will result. The Australian lending landscape has been the result of many years of development, that would be beneficial to countries still developing. The benefit to developing nations is also linked to the role of non-bank financial services in providing SME’s with access to capital. As developing nations move from public to private sector drivers for growth, access to capital for SME’s will be critical. 

Finally, Australia has a well-developed network of industry associations. One of the roles of the associations is to provide a combined voice to government for the benefit of the industry rather than self-interest of one company.  The associations have well established links to bureaucrats and politicians and can provide the link between the objectives of all parties.  There is an opportunity for these associations to work with respective industries across Asia to share experiences and achieve industry wide development, including the consistency across the Asian region.

Keith Rodwell is Chief Executive of The Alta Group Asia-Pacific Region and has more than three decades experience as an executive in global finance.

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