Connectedness: The key to unlocking Asia?

13 May 2015

Asia is not a monolith. It is heterogeneous, diverse ethnically, culturally, politically, in religious beliefs and in emotional behaviour.

Given this we have spent a lot of time thinking not only about how we as a firm engage with China and more broadly Asia, but also thinking about how Australia as a nation should engage with Asia.

If we ask the C-suite and boards of organisations what they’re worried about: they may reply – the global competitiveness of Australia? Whether India is finally on a path to reform? How do we work with China? Can we invest with confidence in Indonesia? And on and on.

A common misconception is that there’s only one strategy for dealing and engaging both globally and with Asia. We reject that. There are a multitude of models for engaging globally. Only one of which is through bricks and mortar.

We have chosen a strategy that deals with global and regional engagement through “connectedness”, deep relationships and building international capability. It reflects our view of globalisation in its contemporary meaning which is all about wide connections and deep local engagement. 

It is all about the current challenge of market integration versus the ‘90s’ challenge of market access. It requires a different approach and the ability to access deep local knowledge when needed.

A simple example is opening an office in China. Where would you open it? You might assume the best location is in Shanghai, Hong Kong or Beijing.

But this ignores how China, and indeed much of Asia, works. The tasks of governing, ruling, and regulating in Asian states usually fall to sub-national – that is, state or provincial - governments. China, for example, has a higher percentage of public spending at sub-national jurisdictions than any other country.

Competition between provinces is an opportunity for Australia

Throughout the region we see provinces that have their own language, not to mention culture and identity and often, a dominant ethnicity or religion. These provinces also attract considerable levels of regional pride. Sometimes the obligation to the province is stronger than that to the nation.

In our experience, provincial leaders in most Asian nations are often senior decision makers within the central government as well as in their own jurisdictions. These leaders control populations larger than Australia. They are free to make their own rules as long as they do not conflict with central regulations.

This policy flexibility gives sub-national governments considerable discretion in launching policy initiatives.

Central governments have a complicated relationship with sub-national governments. They wish to control these governments and stop regional fiefdoms developing — but at the same time, they need to delegate many of the tasks of governing to these jurisdictions. The method used by most central governments to deal with this dilemma is to encourage competition between different sub-national jurisdictions. This is vital for example, to the development of modern China.

We see this in the way that Beijing has allowed its new banking strategy to roll out at the provincial level as a test bed for the development of a wider strategy.

We believe that this sub-national competition is a major opportunity for Australia. Sub-national leaders will be far more motivated to engage with Australian firms as they compete with other provinces.

This doesn’t just apply for China. India and Indonesia have also undertaken considerable reform in sub-national governance in the past few decades.

Genuine engagement requires a focus on relationships at the local level

Understanding this provincial level competition is vital for Australia. A sophisticated provincial engagement strategy allows a relatively small global player to have more clout than we might have under ‘normal’ conditions.

At Corrs our China strategy is acutely focused on key provinces where we think we have something to offer. We are working hard to build strong and deep connections. It is a process that may take years.

Australian business needs this greater clout. BCG predicts that in the next five years China, India and Indonesia will have 3,000 new billion-dollar revenue companies. These companies will be different to what we might expect.

Of the 200 biggest companies in India more than 70% are family-owned. Most are conglomerates. The businesses in our region are developing business models that meet their own needs, not cookie-cutter copies of the standard western model.

Dealing with these companies will require sophisticated sub-national strategies. That includes being good at dealing with the governments in their many manifestations. It requires knowing these governments and the regional and local context in which they operate.

Returning to our question about where to open our office in China? If we are only doing business in Beijing and Hebei, then maybe we open in Beijing. But most companies are not just doing business in Beijing.

As changing overseas investment patterns shift from the centre to the provinces, from State to companies, we need to be nimble enough to follow. Bricks and mortar won’t help.

Companies that are succeeding in China are riding this dragon through intelligent and focused relationships. We can do this through being entwined in the region and being efficient in how we do business.

At Corrs we believe the way to do this is to build better knowledge of the region through engaging point-to-point, person-to-person. Rather than rigid structures, we spend time thinking about how to help our clients by having a deep international capacity. We are building strong networks and finding ways to link these networks together. It’s connected and dynamic: it gives us and our clients a networked advantage.

As a country, it is this deep understanding of how Asia operates that we need. But it takes time and commitment.

We can spend inordinate amounts of time talking among ourselves about what we should do, but engagement can only be achieved through doing. It takes time and comes through genuine relationships built on caring about what is important and unique about each other.

It’s this ‘popular diplomacy’, this collection of different interests and networks that each individual can bring from their time in the region, which is the future of Australia’s integration with our region.

The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.

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Andrew Lumsden

Partner. Sydney
+61 2 9210 6385