Doing Business in South-East Asia: Interview with Michael Lee (full transcript)
With a population of 625 million people, South-East Asia offers some enormous export markets for your company’s goods or services. But why is South-East Asia really so important? Which countries should you consider and how do you get started? I recently sat down with Dearin & Associate’s Michael Lee to discuss the ins and outs of doing business in South-East Asia.
Why is South-East Asia so important?
Michael: South-East Asia represents a very vibrant group of countries. The Association of South East Asian Nations (ASEAN) comprises of ten countries and each country has a slightly different culture. Largely, there’s a very strong ethnic Chinese background in the major cities. If you’re doing business in Malaysia, Singapore, Japan, Jakarta, Bangkok or Hong Kong, you’ll likely be dealing with Chinese business people as well.
ASEAN countries have a combined GDP of $2.6 trillion and that’s growing at 4.7 per cent per year, which in a way is much faster than the global growth. The population in ASEAN counties is about 625 million people.
What excites me is the growing middle class. Looking at ASEAN counties alone, there’s about 140 million middle-income class consumers – that’s a massive market. Compare that market to a country like Australia, with a population of 24-25 million, and you realise that Australia is a very small market.
Where should you start?
Michael: The opportunity is massive in South-East Asia. I’ve found that things like technology, bio-science in the chemical areas and car industries are really attractive. If you’re talking about food, then in Malaysia and Indonesia you’ve got halal food. Professional services, aged care, health care are also big – I’m aware that a lot of Australian health- and aged care companies are in Asia.
Dan: Can you tell us a little bit about how to build and sustain successful business relationships in South-East Asia?
Michael: Basically I’d exploit all the resources that I could get hold of. Off the top of my head I can think of at least ten different avenues that you could target. Whether it’s your suppliers, customers, your bankers or legal people, chartered accounting firms or industry groups. In my review of the Export Development Market Grant (EMDG) scheme I found state governments are helping companies to export and so is Austrade. Also foreign embassies that have a presence in Melbourne, Sydney and Canberra – if they have a trade office you can go up to them and drop in, they’re more than happy to help any companies (start doing business in South-East Asia).
The most important thing is not to just hop on a plane with a full suitcase of products and expect to sell overnight in those markets. I believe in a lot of research and planning. Do your market visits and meet people to identify some of the issues you’ll need to overcome.
To a lot of Australians, the cultural issue is the biggest thing they need to deal with. Dearin & Associates can of course help their clients: form strategic business connections, in negotiations, or just to give support and cross-cultural briefings.
When you’re dealing with Asian business it can sometimes take a long time to close a deal. A lot of it is about introductions and relationships. They might have a drink with you as a friend, but if they start inviting you home then you’ll feel like you’re part of the family! You’ll have a much better chance of doing business [if you can create strong relationships].
Dan: What would you identify as some of the key reasons Australian companies choose, or should choose, to enter South-East Asian markets? And what are some of the best avenues for market entry into those countries?
Michael: Our traditional markets have been England and the United States – English-speaking countries. But in recent years our export growth is now dominated by countries like China and Japan and in South-East Asia. The region is one of our closest neighbours and there are lots of English-speaking people: most people in business can speak English. Of course they have their local language, whether its Malay or Indonesian or Mandarin, but by and large most of these businesspeople speak English.
The other advantage is a lot of students that have come to Australia to study – and I wouldn’t be surprised if there was a few hundred thousand of them – they’ve all gone back to their own countries as graduates. You’ll find a lot of them are now business leaders and they tend to have a loyalty to Australian companies. With the exception that they hopefully had a good experience in Australia of course! So if I was to say “yes I’m an Australian company” then they do tend to be more willing to meet you.
Dan: What about the legal system?
Michael: In a lot of the countries in South-East Asia, like Malaysia and Singapore, they follow the British legal system. So if you have a problem, Australian law and British law are pretty similar. I find that quite reassuring for any Australian business trying to venture overseas. If you were trying to go to the Middle East for instance, the laws are slightly different and therefore you really need to have very good advice before you go into those countries.
Opportunities for Australian goods
Michael: You’ll find there’s a lot of attention from Chinese companies who are scouting in Australia to invest in skin care and health care companies, health food and vitamin companies. You’ve heard of companies like Blackmores and Bellamy’s both going over to China and South-East Asia as well. All these health food products are considered great quality and very well-branded products in the region and there’s a huge market for health care, skin care, aged care and even white goods.
Dan: Should companies entering South-East Asia consider a subsidiary or distributorship model?
Michael: There are different avenues you can use to go enter a market. You can appoint a distributor, set up a joint venture or start up a subsidiary there. You really need to get advice on that.
Setting up a subsidiary costs money: you’ll need an office, you’ll need to employ someone, you need to set up a company, you need to know the tax law and set up a bank account. A distributorship is a cheaper way of going in, but expect that distributors might be distributing five or ten product lines – and yours will only be one of those lines. I find usually that if you have the finance or working capital to back you up, opening up a sales office or subsidiary overseas is the best way to do it because you then have the passion and can look after your own destiny, so to speak.
Dan: In 2015, you were appointed by the Minister of Trade and Investment, Andrew Robb, to review the Australian government’s Export Market Development Grant scheme. Could you please tell us a bit about the scheme, what it offers, and how Australian business can find out if they’re eligible to use it?
Michael: In general, this grant provides companies with $150,000 a year towards what they spend in marketing and their promotional expenditure. So for every dollar you spend your company can claim back 50 per cent.
The Austrade website gives you some websites into EMDGs at a glance. It summarises who can apply, when you apply, what can and cannot be claimed etc. There are certain exceptions, so the film or education industries can also apply for EMDGs.
Inbound tourism and education can also be entitled to the EMDG: a lot of companies think it’s just exports but it’s actually for activities that generate foreign income coming into Australia that entitles you to the grant.
Dan: thanks for your time and valuable insights Michael.
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