The Asian Century White Paper poses a number of opportunities and challenges for Australian businesses.
Corrs Partner and CEO John W. H. Denton addressed the Law Council of Australia - Business Law Section Annual Workshop on ‘Asian century challenges for Australian business’.
As a member of the Asian Century White Paper advisory panel, John explores the opportunities and challenges for Australian businesses, highlighted during the paper's development.
Click 'text version' to read John's speech.
I’ve been asked to speak about Asian Century challenges for Australian businesses. This is, obviously, a topic dear to my heart given my prior work on the government’s White Paper
Firstly, I’ll talk a little today about what we found when developing the White Paper, and how the key areas from the White Paper can be used as a way forward for Australian businesses.
Then I’ll talk about the size of the opportunity Australian businesses face.
And I’ll finish up by talking about some of the difficulties we may face in making the most of the Asian Century.
The White Paper notes that right now, we’re doing well from the Asian Century. We have one of the strongest economies in the world. Unemployment is low. Inflation is contained. The terms of trade are high. Although commodity prices appear to have passed their record peak, considerable minerals and energy investment is still to come and large-scale production and exports are yet to flow.
So that’s a bit of a “good news story”. But we also need to look at what must be done to make the most of this current position, and to make the most of this Asian Century.
And, in response to this, the task force thought that now is the time to push for far greater reform.
In our view ‘more of the same but faster’ will not be enough for Australia. Why?: Because the scale of the opportunity is unlike anything we have seen before.
We sought to think not just of incremental change, but instead think of how we might raise the ambition, and change the mindset, of the nation. And we had to think though how we will do things differently.
This ambition lies in the five key areas listed in the Asian Century White Paper.
The first is building on our strengths, and reinforcing the things we already do well. Because we must keep our own house in order, as this is what makes us attractive to Asia.
The second is developing the capabilities of our people, and making sure we understand the region. We need these capabilities and this understanding in order to build stronger relationships and partnerships across the region.
The third is ensuring that the business sector develops strong relationships with others in the region as well. We'll need new business models and new mindsets to operate at our best in Asian markets, and to seize the opportunities in our region.
The fourth is keeping our region stable. It’s in our interest to build trust and cooperation in the region, and to secure a greater role for Asian countries in the rules-based regional and global orders. We'll do this while maintaining a strong alliance with the US, and encouraging China to fully participate in regional developments. This is not to down play ASEAN but to work with it as well.
The final key area is to strengthen Australia's relationships across the region at every level. A wide range of groups — from businesses, to educational institutions, to community groups, to unions, to cultural organisations and even to sports teams — can enjoy stronger relationships through Asia. It will be these relationships that form the base for future improvements in Australia's relations with Asia. This is the essence of what is known as Second Track Diplomacy.
These key areas are a good outline of what should be done. But what does this mean for business?
The first area I want to emphasise is that all of us — business, government and society — must welcome economic investment in Australia. Economic investment is good for us. It creates jobs. It boosts our tax base. And it lets us engage and interact with Asia.
Greater investment will be a great boon to Australia’s economic future. Foreign investment supplements domestic savings and provides additional capital for economic growth. It supports existing jobs, and creates new opportunities. It can bring in new ideas, help create new infrastructure and increase our productivity through knowledge transfer and exposure to more innovative work practices.
But this investment won’t come without effort. We’ll need to continue to argue for it. We’ll need better advocacy of the benefits investment can bring. And we’ll need to continue to argue for greater openness in our economy and society towards not just investment, but to investors as well. A successful investment climate is one that embraces and integrates investors into the community.
We also have a long way to go to reach our potential to invest with Asia. Recent estimates show that 76 per cent of Australia’s merchandise trade is with Asia, but only 20 per cent of our investments go there (BCA, 2012).
We need domestic reforms to improve our regulatory environment through bodies such as COAG and its Business Advisory Council. In addition Australia must play an active role in international fora to reduce barriers to investment and trade. We have to push harder regionally for ‘behind the border’ reforms, the reforms that research shows make the biggest impact on trade and investment.
But there’s a great deal that we can also do as a business community to help boost investment. We can boost our own investment stock in Asia. To facilitate this we can work together with colleagues in the region to guide and influence the formation of regulatory frameworks and capabilities to build greater transparency, predictability and accountability. This will minimise risk, build confidence and enable us to boost our own investment stock in Asia.
And we can work to deepen the region’s financial services sector through entities such as APFF. At present, like the other countries in Asia, we're much more financially integrated with other parts of the globe rather than other parts of the region.
Yet Asia's massive foreign exchange reserves, high savings rates and strong private investment flows have made it a major net exporter of capital throughout the world, and this will only increase. It is estimated that by 2050 Asia will account for as much as 45 per cent of global financial assets, and Asia will become the source of much of the world’s foreign direct investment. We have a role to play in helping decision makers in the region untap these opportunities and liberate the potential growth of the financial services sector.There are many other things we need to address:
This means business will need to know Asia’s legal institutions, political leaders, commercial practices, cultures and governance standards better across the board.
And this greater knowledge, and this push to make Asia our partner rather than simply our supplier or consumer, will need to come at all levels of society. This will require us to develop a raft of new capabilities.
For example: Should we successfully implement the capabilities roadmap of the White Paper, every Australian student will have the chance to engage comprehensively with Asian languages, history, culture and studies. They’ll have the chance to pair with Asian schools. And when they leave school, they’ll have university courses and commercial opportunities that will allow them to continue engaging with Asia.
Driving this is the knowledge that we, as a country, will succeed in the Asian Century through the quality of our people. And this is, and will remain a critical challenge for all Australians, including Australian business.
I raise the need for greater capacity to deal with Asia not to diminish the many advantages that Australia has. We already have a highly skilled, hard-working and creative population. We have many world leading research institutions in education, health, environmental management, science and design. But not enough.
I say this because the size of the opportunity of the Asian Century swamps our existing approaches. For example, while much of Northeast Asia has already experienced its demographic dividend and is rapidly ageing, the working-age populations of India, Malaysia, the Philippines, Indonesia and Vietnam as well as the rest of South Asia, have yet to peak.
These countries will experience rapid economic growth and social change as their demographic changes. And they will want to be educated, particularly in higher education. So while in 2009 there were 2.5 million international higher education students from the region. It is projected that the number will reach seven million international higher education students by 2020. Education, then, will be a vital market for our services sector.
Another area of great importance for Australian business will be our ability to access Asian supply and value chains. Supply chain integration has been critical to the growth of the Asian century. Intricate regional production networks have emerged throughout Asia. And this has greatly increased flows of intermediate goods between Asian economies, allowing Asian countries to specialise and increase the scale of production rapidly. Asia has profited handsomely from this powerful global advantage, particularly in manufacturing.
Australian business can add enormous value to cross-border value chains and regional production networks. We have the intellectual property frameworks and traditions to allow us to add considerable value to both the start and the ends of these supply chains in innovation and design. Access to Asian distribution through these long supply chains can allow for other export channels to be opened for Australian business.
So far, while Australia has achieved an increase in Australian-produced, elaborately transformed manufactures to China and commodity exports to ASEAN countries, the White Paper notes that Australian manufacturers have relatively low participation in these Asian value chains — something that can and must change.
We see huge opportunities for Australian services firms and manufacturers to become part of the region’s interconnected production networks. Of course some sectors of our economy will be unable to maintain existing industry structures — and so we will need to think about how best to position these industries for the future. Most importantly, we’ll need to act now so that our industries are ready for the opportunities that can come out of the Asian century.
Acting now is not a matter simply of us changing our practices to make them more ‘Asia-focused’. Acting now is a matter of rethinking how we work with Asia, as partners.
As partners, Asian nations will become an increasingly significant source of new ideas, technologies and leading-edge science for Australia.
And our population — more than a quarter of whom were born overseas — and our large diaspora can help to build social, business, and, cultural networks that help us work together with Asia to make the most of their new ideas.
These networks are vital. They bring with them many, often-unanticipated benefits. Today's students, tourists, and friends are tomorrow's investors, business partners, professors and political leaders. Being intertwined in Asia requires us to be intertwined through people.
Businesses can enjoy similar benefits. More sophisticated relationships between our firms and Asia will encourage us to share knowledge, and to specialise in the things we do best. To do this, we need more knowledge of Asian institutions and ‘cultural norms’. This is where the notion of one-third of all board members and senior public servants having a ‘deep knowledge of Asia’ has relevance.
But we also need to shift our mindsets. We need to look afresh at the opportunities that are happening before us, in our very region. We need to work now to build the relationships that will make us more effective there in 20 or 30 years time. And we need to figure out what we can create with and give to Asia, as well as what it can give us. Anachronistic thinking is to our peril.
Part of this mindset shift involves opportunities outside Australia, but another, oft-overlooked part can happen here in Australia. It can happen through us creating new ways to collaborate at national, and community, levels to make the most of these opportunities across society.
The benefits from this collaboration are difficult to quantify in the short-term, mainly because relationships can go in so many directions that it is hard to be prescriptive about the types of interactions we are likely to have with Asia. Interactions can occasionally be serendipitous. We just can’t predict events like the recent story of a Tasmanian cherry farmer discovering that the Korean gentleman visiting his farm with his student son was a senior Hyundai executive — and now a future major cherry importer!
What we can predict is that these sorts of rewarding interactions on the personal level are only possible from a steady increase of contact between Australia and Asia on the aggregate level. We need to link our activities with those of our education and tourism providers; we need more contact with Asia across all levels.
Former US Under-secretary of State Karen Hughes once argued that students ‘have been America’s single most effective public diplomacy tool in the past 50 years – there is simply no substitute for bringing people into our jurisdiction where they learn with us and from us and make up their own minds about us”.
Our position in the world as the Asian century develops gives us a great chance to similarly bring people here to Australia, and for us to visit them — not only as students, but as people wanting to learn from and about us.
It’s also important to note that service market opportunities and challenges aren’t just in tourism and education. The Asian infrastructure market is a good example of an opportunity that beckons.
Asia needs lots of infrastructure, and fast. The Asian Development Bank (ADB) recently estimated that the 32 ADB developing member countries will need almost US$8.2 trillion (in 2008 US$) to meet their infrastructure needs to 2020.  And most of this investment (around 68 per cent) is needed for new investments in infrastructure.
Yet the ADB developing member countries have committed to only US$330bn worth of these projects that are thought likely to be profitable or likely to succeed, leaving a gap of around US$8 trillion.
Australia has all the tools it needs to make the most of this infrastructure boom. Australian business has vast experience with infrastructure funding, with infrastructure building and with the many services that go with both of these activities.
Australian and state governments have also made infrastructure a priority. Actions such as the recently launched National Infrastructure Construction Schedule and the Victorian Government’s revised model for PPPs provide a path for business and government working together.
The former brings information on all major government infrastructure projects in Australia, and which if successful could be a stepping stone to an even bigger database of information.
The latter thinks through approaches to PPPs in a post GFC world.
Clearly, on the individual level, Australian firms could be very successful chasing this infrastructure pot of gold. But we can be more successful working together and seeking networked advantage. That is the adoption of an Australian PPP platform across the region.
This shows the promise of the Asian Century – that the biggest opportunities (and challenges) in the world are now in our region.
The challenge for all of us becomes how we all work together to make the most of it.
 Asian Century White Paper, (p. 200)
 Phillipa Dee; Andrew Elek
 (Altbach, Reisberg, & Rumbley, 2009).2009 Trends in Global Higher Education: Tracking an Academic Revolution. A Report Prepared for the UNESCO 2009 World Conference on Higher Education.
 Bhattacharyay, B.N. (2010) ‘Estimating demand for infrastructure in energy, transport, telecommunications, water and sanitation in Asia and the Pacific 2010-2020’. Working Paper Series, No. 248. Tokyo: Asian Development Bank Institute
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