Your guide to the latest business trends in Southeast Asia

Garreth Hanley:
This is With Interest, a business, finance, and accounting news podcast brought to you by CPA Australia.

Gavan Ord:
Welcome to CPA Australia's With Interest. I'm Gavin Ord, and today we're diving into Asian business landscape with Rob Law.

Rob is the Director of Advisory Insights at AsiaLink Business and an expert on Asian business, trade and investment. He advises businesses on Asia growth strategy and political and regulatory risk and is a trusted advisor to the Australian federal government and state governments on trade and investment.

Rob began his career as a diplomat serving with the Australian Embassy in Jakarta and was the first foreign diplomat to be seconded to the Indonesian Foreign Ministry. Our focus today is on AsiaLink's Year of the Snake Report, which offers a view of current and future business conditions across the region for the start of the Lunar New Year.

Welcome to With Interest, Rob.

Robert Law:
It's great to be with you.

Gavan Ord:
Well, let's get straight into the question. And it might be worthwhile if you can share some background.

For our listeners, this year is Year of the Snake. So that might sound a little bit ominous. But should people be worried, what is Year of the Snake?

Robert Law:
Yeah, it's really interesting, Gavin, because in Western culture, snakes don't often have a good association. But in the context of the Lunar New Year, snakes are actually associated with wisdom and agility and transformation. So it has the potential to be a really auspicious year. We talk about Lunar New Year, which is celebrated across a number of countries in Asia. So not just China, but also Korea, Malaysia, Singapore, Indonesia, Vietnam as well. In Vietnam, it's known as Tet. So, it’s a great way for us to kick off the start of Lunar New Year and provide some insights to businesses. And it is a really big holiday in those countries as well.

Gavan Ord:
And it is a really big holiday in those countries as well.

Robert Law:
That's right.

Gavan Ord:
So it sounds like the Year of the Snake is a potential year of opportunity. Now, you've just done a report on business in the Year of the Snake. Can you give an overview of the key findings from the report? And how is it different from your reports from previous years?

Robert Law:
So what we've done is we've gone out and surveyed business and government representatives. I would note that we did this survey after the US election. So, at the time it was done, we knew that Trump was going to be president. We got all the results together and we took a look at them. We asked the respondents three things: what they thought would be the biggest challenges, what they thought would drive the most opportunity, and which markets they thought were most attractive in the Year of the Snake.

So on the opportunity side, a couple of things came through really strongly around digital economy and around rising consumer demand. So digital economy was 55% and rising consumer demand was 54% in terms of respondents who thought that was an opportunity. I would note that people could pick multiple things and that's why the numbers won't add up to 100% as you hear them.

Digital economy, really not surprising to hear that as an opportunity. We are seeing massive growth in the digital economy in Asia. You know, for instance, in the payments and infrastructure space really taking off. If you just take the example of data centers, Australian companies like AirTrunk and NextDC, they're establishing data centers across a range of different countries in the region, including Hong Kong, Japan, Malaysia and Singapore. So that's a booming sector. And also in the payment space, there's a lot that's happening in the region. It's advancing really rapidly.

Many people might be surprised to know that India accounts for half of real-time payments globally. So again, huge growth there in the payment space. So across the board, digital economy seen as the biggest driver of opportunity. And then very closely followed by rising consumer demand. Again, this one isn't that surprising because Asia is home to 60% of global consumers. Over the next decade, it is expected to add another billion more dollars in value to reach $15 trillion in consumer spending. So those two things taken together are seen as the biggest driver of opportunity.

Gavan Ord:
That's really interesting, particularly the India result of real-time transactions. That's definitely what we're ever seeing is the digital economy is very large in Asia, as you said. And I think many Australian companies might even be a bit surprised that in Asia, they're often a lot more advanced in digital economy space than in Australia, particularly around new payment technologies, as you said.

Robert Law:
That's right. Payment options, such a huge range of payment options. In a number of Asian markets, we get these sort of all-in-one apps, where you can do all sorts of transactions in one place. And that's something we don't actually have in Australia.

Gavan Ord:
That's right. I think we'll get to it later on, about some of your tips for Australian businesses.

Robert Law:
Yeah

Gavan Ord:
Interesting to hear your tips around how to take advantage of or be prepared for this digital economy in Asia. What were some of the other growth drivers? You mentioned digital economy and rising consumer demand. Were there other growth drivers that came through in the survey?

Robert Law:
Yeah. So, the third-ranked growth driver was supply-chain diversification at 38%. Again, not something that would be too surprising to many listeners, given that there has been a real diversification push by business and government as well over the last few years. Some of that's driven, of course, by geopolitics, which we'll get into in a bit. But of course, a lot of businesses looking at what are the opportunities in Southeast Asia and India to diversify their supply chains and their markets away from China. So, not surprising to see that one come through.

I think, I was a little surprised to see artificial intelligence in fourth place at only 26%. And maybe that's a little bit to do with businesses and their perceptions not yet catching up with the hype of artificial intelligence.

Another one that was a little bit surprising was we had a very low response for ESG and sustainability at around 18%. So, businesses indicating that they don't see that as a big driver of opportunity in Asia in 2025. It's a little hard to know what's behind that result. It may have something to do with the fact that this survey happened after Trump's election and there was already a lot of sentiment creeping in around ESG and sustainability around those areas. So, an interesting result there.

Gavan Ord:
But still, 18% seeing it as an opportunity. So, there's still maybe a niche opportunity rather than a broad opportunity.

Robert Law:
I think that's right. The energy transition is happening in Asia. The question is around the pace and the scale and the details of it. So, there's still going to be opportunity in this space. Particularly as a lot of countries in the region have made net zero pledges, they're going to need to invest significant amounts. So, we will still see momentum in the energy transition and sustainability space.

Gavan Ord:
And I haven't heard any country in Asia step back from their net zero commitments.

Robert Law:
Not yet Of course, Trump just withdrew from the Paris agreement. So, we'll have to keep that as a watching brief to see whether other countries in the region stay within the agreement. We did see China come out quite strongly and indicate they would be staying in the agreement so that'll be one to watch.

Gavan Ord:
So, we mentioned the opportunities. Obviously, there's another side, we’re accountants so there's the other side of the equation, which is the challenges.

What are the biggest challenges that Australian businesses will face in Asian markets? And also, what are some of the strategies that they can adopt to manage or overcome these challenges?

Robert Law:
Yeah. Well, let's start out with were the top challenges. So, number one, 50% of respondents indicated that geopolitical risks would be the top challenge in 2025. Again, for anyone who's been following the news over the last few months or year or so, nothing greatly surprising there. I would say across the board, the geopolitical risk is rising.

We are seeing intensifying competition between the US and China. Outside the region, there's, of course, ongoing conflict in the Middle East. There's the conflict in Ukraine. You've got North Korean troops fighting in Ukraine. And back in the region, there's other issues that are continuing, like tensions in the South China Sea and North Korea's missile program and other things like that. So, not surprising that geopolitical risks top the list.

The next one after geopolitical risks, at 49%, so just slightly below, is competition from local and international businesses. And I think this is one that probably doesn't get a lot of attention in the media and in commentary but is certainly something that I hear time and again, from businesses as they are looking to compete and grow in Asia. It is a really intensely competitive space. Business innovation and speed to market is really fast and businesses need to be quite agile and compete. And it's not just the other international businesses that they need to focus on. It's also in markets in Southeast Asia and in India. It's the homegrown businesses as well that are so sophisticated.

What that means is that businesses looking to grow in these markets really need to be innovative and creative and bring their A-game when it comes to competing. So, a few big concerns there.

The third one was around regulatory and compliance complexities. Again, we know that many of these markets do have challenging regulatory landscapes. And that's something that can be tough, when an Australian business is venturing into Asia for the first time, or even if you're a business based in Asia and you're going from one market growing into another. Navigating that regulatory landscape can be a bit of a challenge.

Gavan Ord:
Normally, people would seek advice from experts on the ground or partner with somebody local. How would they manage that regulatory risk?

Robert Law:
So we'd suggest they do a few things. Firstly, market intelligence is absolutely vital. So much market intelligence, you can gather some from doing research or having someone do research on your behalf. But in some of these markets, there are limits to how much you can find out through that. And you need to be on the ground in the market and go out and engage people and understand the complexities. Because sometimes the way a regulation is written isn't the way it works in practice. So that's a really critical component. And you mentioned partners as well.

That's often a really important decision and it depends on the market. But if you have a good local partner, then they can really help you understand the nuances around regulation and how to navigate it. The last thing I'd say is I don't work for the Australian government, but I should put a good word in for Australian government and the state governments as well can often help businesses understand regulations and the complexities there.

Gavan Ord:
At the start of the podcast, you mentioned that the respondents came from the government sector and private businesses. Did you notice any differences between the responses from people in government compared to people in business, particularly around the challenges and opportunities?

Robert Law:
Yeah, we did see some interesting results. So particularly on geopolitical risks, 67% of government respondents identified that as a concern. So around two thirds. That compared to only 37% of business respondents. So quite a significant difference there in perceptions. And I'd emphasize that 37% of business respondents indicating they're concerned about geopolitical risks is still quite a significant result.

But why is there this difference? I can only hypothesize, but I'd have to guess that for people in government, they focus on these issues around geopolitics really on a day-to-day basis. So it's probably front and center in their thinking.

For businesses, we know how busy anyone working in business is and how many things they need to navigate. They are so hands-on grappling with business-related challenges. It might just be that businesses, while they see geopolitical risk as important, there are other things that are a little more front and center in terms of their particular business operations that rank higher in their minds.

Gavan Ord:
Yeah, I would agree with that. And it’s also something out of their control.

Robert Law:
That's right, that’s right.

Gavan Ord:
Just going to the next question, which markets in Asia are considered the most attractive to Australian businesses in 2025? And how has that changed? How has that perception changed over time?

Robert Law:
Yeah, we asked respondents what markets they thought were the most attractive ones. I'll give you the top four in order. So number one was India, followed very closely by Vietnam, then Indonesia, and in fourth spot was China. So there are really interesting results there. I think we've been hearing a lot about the Indian growth story over the last few years, and it might be that some of that message is starting to percolate through to business. We know government has been really focused on the opportunities with India and had a trade deal a couple of years ago. So government's certainly trying to do things to encourage businesses to look towards India. That might also explain why India came through so strongly.

And of course, the opportunity in India is huge. So that might be something that businesses have looked at.

Vietnam is a really interesting result with coming in in the second spot. We are seeing Vietnam as a really dynamic economy in Southeast Asia. And as businesses have looked at their diversification strategies relating to China, a lot of them have been relocating to Vietnam.

There's also been Chinese businesses that have relocated their operations to Vietnam in order to try and get around trade restrictions and tariffs in the US. So all of that means that Vietnam's been growing really quickly and is trying to put in place business-friendly policies.

Indonesia came in third. The interesting thing about both Vietnam and Indonesia, they both have new leadership. So there was new leadership in both countries last year. Indonesia, of course, is a huge economy. It's the largest economy in Southeast Asia and is growing strongly. And the new president there, Prabowo, has made a range of promises about really turbocharging economic growth and a range of initiatives that he's going to roll out. So you can understand why that continues to be an attractive market.

I think the result around China in fourth position is an interesting one. Australia, of course, had its challenges with China in the bilateral relationship over previous years. Those have been mostly resolved and that relationship has stabilised. But there are, of course, other challenges relating to China. But equally, it's impossible to ignore the size and dynamism of the Chinese market. The economy is still recovering post-COVID and the government's moving away from really higher growth to more high-quality growth. So there's a range of challenges to navigate there. But it's still a very big and very sophisticated market. So unsurprising to see that it comes in the top four.

Gavan Ord:
So, what strategies would you suggest for businesses looking to expand into Asian markets?

Robert Law:
Yeah, answering this question is really tough because I know that businesses have all sorts of particular circumstances. What's going to work for a small or medium-sized business is going to be very different to what works for a big corporate. The sector you're in also will have a lot of influence on how you approach things. But there's a few things that I'd really say just as sort of general advice.

The first is do your homework before you get on a plane. It's absolutely essential that you go to the market and that you spend time in the market, and you visit frequently, more than just one visit. But I'd say you will get a lot more out of any visit to a market by doing your homework first. That's really about researching and planning your visit and identifying who you want to meet.

The second thing I'd say is really think through what your strategy is going to be. Now, if you're a small business compared to a very large corporate, the level of effort and detail you put in that will vary considerably. But as we were talking about earlier, these are incredibly dynamic and competitive markets. And you need to be really clear on what your value proposition is and how your product or your service can compete in these markets. And then you need to work through all these other aspects around your business and your go-to-market strategy.

How do you get your product to market? What's your marketing strategy? Who are your customers? What partnerships do you need? What things do you need to do from an operational and logistics perspective and so on? That's really important to sort of have that clear strategy in mind.

We do see from time-to-time businesses that go into the region, they get an opportunity, and an email arrives. It's from some company in the region and they say, "We'd love to sell your product." And they go into that and they haven't necessarily done the preparation and homework.

Then we see problems down the line. So, getting that preparation side is really important. Then there's the risk equation. This is something that will often be more relevant for larger corporations and particularly if businesses are making investments. But, we see working through political and regulatory risk as a really crucial step that businesses should do.

There's a range of ways you can do that. You can commission external advice. But one of the things I think is really powerful and really important can be getting your board and your senior executive together and talking through what scenarios might look like that might affect your business. And going through an exercise where you develop a detailed understanding of the impact of different scenarios on your business functions is a great way to understand and mitigate risk.

Gavan Ord:
I just want to emphasise how important that preparation and being on the ground is. That's from my experience as well. I would also say that by doing the work, you may not come across an opportunity. And that happens. But what I see, particularly for smaller businesses, is that by going out to different markets, you will pick up different ideas that you may in fact bring back to Australia.

So it may not necessarily lead to a direct trade relationship, but you could pick up ideas. You could influence your business back in Australia as well.

Robert Law:
That's right. A lot of this is about shifting the odds of success in your favor, doing the preparation and making sure you go in. Let's say you visit a market for two weeks. If you've really planned out who you want to meet and what you want to look into, you're increasing the chances that you'll actually land a commercial deal. You're also increasing the chances that that commercial deal will be sustainable.

Just to give you an example, we worked with a business that went into India. That business came to us a couple of years after they'd been into the Indian market. And their first venture had failed, and they wanted to speak to us and get advice about how to do it again but do it properly this time. As we unpacked what had happened the previous time, we found that they had identified a partner and they had got a verbal agreement and even signed a contract to a deal. But actually what happened was there were cultural factors at play and that partner wasn't fully on board. That deal started to unwind pretty quickly.

So, understanding the cultural factors and how they can affect you doing business in a market is really important and it will save you a lot of pain down the road.

Gavan Ord:
Thank you, Rob. And thanks for sharing some really interesting insights into AsiaLink's Year of the Snake report.

Robert Law:
It's been a real pleasure to join you, and I hope it's been useful for your listeners.

Gavan Ord:
Well, for the listeners eager to learn more, please check out the show notes for links to both the full report and additional information and resources from AsiaLink and CPA Australia.

And don't forget to subscribe to With Interest and share this episode with your colleagues and friends in the business community. Until next time, thanks for listening.

Garreth Hanley:
You've been listening to With Interest, a CPA Australia podcast. If you've enjoyed this episode, help others discover With Interest by leaving us a review and sharing this episode with colleagues, clients, or anyone else interested in the latest finance, business, and accounting news. To find out more about our other podcasts and CPA Australia, check the show notes for this episode, and we hope you can join us again for another episode of With Interest.