by Tim Gilkison, Managing Director of the In-House Community
Sitting in a coffee shop in downtown Sydney on a recent trip to Australia, a look around at the diversity of faces discussing business, the price of coffee (and last weekend’s ‘footie’), it was clear that Australians of Asian descent are very much part of the fabric of the country. But whilst Asia has come to Australia, is Australia investing in Asia, and are Australian businesses taking full advantage of their geographical proximity to either the region’s mature or fast-emerging markets?
Whilst Asia is well established as Australia’s biggest trading partner, mostly in the areas of bulk commodities, the level of direct investment by corporate Australia into Asian companies and markets is surprisingly low. According to a market survey report published by PWC in 20141, less than 10 percent of Australian businesses were operating in Asia at that time, and of Australia’s largest companies, less than 25 percent had staff on the ground anywhere in Asia.
Recent research by the Center for International Development at Harvard University showed that countries that display the greatest potential for “growth of GDP to 2023 are those that ‘accumulate productive knowledge by developing their respective capacity to make both more products, and products of increasing complexity’”. So India and Indonesia top the list for Asian countries – while Australia, having been dependent on commodities export, is in the bottom 10.
On a recent visit to Australia, I sat down with Chong Ming Goh, a Melbourne based partner with Australian law firm Maddocks. With more than 20 years’ experience in corporate and commercial law across the region, including over 10 years working as an in-house lawyer at a major listed Malaysian financial services group, Chong Ming has advised clients on both sides of the Asia-Australia dynamic.
ASIAN-MENA COUNSEL: How much of your work is helping Australian clients investing into Asia and vise-versa?
Chong Ming Goh: “Most of our Asia-Australia work is helping Asian clients making inbound investments into Australia. Over the last two or three years particularly, this has been into the property sector, with clients from Singapore and Malaysia investing in new developments. This is a trend we’re seeing increase. In Singapore for example, after many years of growth they’ve put in place various measures to cool the property market, so developers there have needed to look elsewhere to make their property investments. At the same time, we’re also seeing an increase of Chinese investors in the market. Apart from the Chinese property market having also slowed down, many Chinese investors just want to find a suitable way of moving some of their money out of the country, and the Australian property market provides a safe option for them.”
AMC: Why are Australian companies not taking advantage of their geographical closeness to Asia and investing more in the emerging markets. Are there legal and regulatory issues behind that?
CMG: “I don’t think it’s really so much to do with legal issues. It’s more to do with a reluctance to come out of their comfort zone. Partly, Australian companies are just not aware what is out there in terms of opportunities, and perhaps a fear of the unknown also plays a part. Where Australian companies have invested, things often have gone very well, for example an Australian manufacturing company we advised recently opened operations in Malaysia, and that investment has gone from strength to strength.”
AMC: Is corruption an issue that puts Australian companies off of investing in certain Asian jurisdictions?
CMG: “In some jurisdictions, yes. Australian entities may feel they will be put into a position where they will be expected to do things, or asked to make payments they would not at home to get the deal through, and obviously they don’t want that.
“But often, it’s more a matter of getting comfortable with how you might reasonably be able to proceed with business in a particular jurisdiction. Malaysia and Singapore are actually pretty straightforward places to do business these days, China, relatively less so. Apart from issues of transparency, you need to allow time to build relationships in China … you often have to meet with the other party many times before you actually start talking business, and this is a different experience than Australians are used to. It should be remembered though, that even for Asians doing business in Asia, there are differences for them from one country to another, so time has to be invested to learn these things.”
 |
AMC: Going in the other direction, what are the areas that Asian companies need to be aware of when investing in Australia that may not be a consideration in their own jurisdictions?
CMG: “The first is the Foreign Investment Review Board (FIRB), which depending on various criteria their investment activities may have to go through. There are regulations governing not only the purchasing of a property itself, but also acquiring shares in a company that owns land, or unit trusts. This has to be kept in mind as in a number of Asian jurisdictions these restrictions do not exist.
“Again, for investors from countries such as Singapore and Malaysia there are perhaps less differences than for those from other jurisdictions, but even then, there are still important variations. For example, even if a retail lease in Australia is only set for a couple of years, unless you obtain a waiver, the tenant has a right to occupy the property for up to five years. If you’re a property developer who buys in this market unaware of such conditions, you may find yourself disappointed. Another restriction Asian investors into the Australian property market should be aware of is that foreigners can only buy new builds. Recently a Chinese investor bought an existing property in Sydney through a subsidiary business, and was later forced to divest (though not without making a reasonable profit on the transaction in the interim!)
“For inbound Chinese investors, there is the challenge of adapting to the differences in how business is done in Australia from how it is carried out in China, as it is vise-versa. Even simple issues such as how a company gets incorporated in Australia, how you make resolutions and go about share transfers, filings etc must be carefully explained. It’s even more complicated when you have two Chinese parties involved, as they are very comfortable with how such things are done in China, but that doesn’t exactly translate into how things are done here.
“Chinese clients also have a different approach to negotiation, and are concerned as to whether they, or the other party should be taking the lead, etc, whereas, Australians tend to be more open in their approach to such discussions and often simply say what they think.
“In addition, whereas in Australia, there is a clear differential between ‘the company’ and the ‘individual’ behind the company, sometimes Chinese management struggle to distinguish their company from themselves. This is a cultural difference, where for Chinese people, if it is your company, it is felt you should honour you company’s liability.
“All this being said, business still gets done, but it does require more explaining and handholding than with domestic clients. Even though I myself am ethnically Chinese, having grown up in Malaysia – where for example, company incorporation regulations are based on those here – and now living in Australia, working through these differences is a learning experience for me as well.”
Exporting Australian legal services
Whilst the export of services in general from Australia to Asia lags behind those to Europe and the US, the export of ‘legal services’ is a different matter. According to a report prepared by the Law Council of Australia2, as of 2010-11, exports of Australian legal and related services were valued at over A$900 million, with Asia standing as the largest regional market for these, accounting for more than 34 percent of total legal service exports from the country.
The top four areas of work cited in the report were corporate law; intellectual property, information technology and telecommunication work; litigation; and banking and finance, with the most significant growth for Australian legal and related services being in Indonesia and Singapore. Recent free trade agreements (FTAs) executed with China, Japan and South Korea ought to provide Australian legal service providers further opportunities in the region also.
 Debra Woodman, Director of Business Development, Asia Pacific at global law firm K&L Gates, says that the firm she works for has also seen an increasing number of transactions involving collaboration between lawyers in Australia and lawyers in Asia in recent months: “With a lower Australian dollar, investment into Australia is attractive, and we’ve assisted a number of clients to enter the market or expand their operations in Australia. We continue to see opportunities in areas such as agribusiness and real estate investment, and retail is also very strong. A return in activity in Asia’s capital markets, the liberalisation of emerging economies across South East Asia and a burgeoning middle class have meant that many Australian companies have been busy assessing how they can best capitalise on opportunities in the Asian century.” Woodman, who lived and worked in Japan for 10 years, and is currently taking part in a nine-month Asialink Leader’s Program run by Asialink Business, which seeks to assist leaders in Australia to build Asia capabilities, commented that she has definitely seen more of a commitment to increasing Asia-Australia collaboration in recent years: “The ‘Australia in the Asian Century’ White Paper3 released by the Gillard Government in 2012 accelerated this and the FTAs with countries in Asia will also lead to greater connections between Australia and Asia.” Counseling for successful collaborations ___ Endnotes:
|
