Australia’s New FTAs – A Great Opportunity (If You’re Smart)

Australia’s New FTAs – A Great Opportunity (If You’re Smart)

By on Dec 20, 2014

scalability group container shipThis week, Australia’s Department of Foreign Affairs and Trade announced a January start for the implementation of the Japan-Australia Economic Partnership Agreement, one of three free trade agreements signed this year by the Australian government. The Korea-Australia Free Trade Agreement came into effect this month, and the China-Australia Free Trade Agreement should take effect from 2015.

Each of these agreements is significant, and together they represent a great opportunity for Australian business across a range of industries. But taking advantage of these agreements isn’t simple.

These agreements open doors into the three markets, but moving through the doors requires a lot more work. Simply put, the culture, business environment and business practices in each of these markets are very different – not only to Australia, but also to each other.

To use two examples, each market has what Tarun Khanna and Krishna Palepu of Harvard Business School call “institutional voids” – there are big gaps between what Australian businesses are used to and what is available in these markets. In Japan’s case, it is more often a lack of accessible information on which to base decisions, but also a completely different physical distribution system (closer to “western” markets than it used to be, but still very different). In China’s case, it ranges from lack of data through to issues with the legal system and financial restraints. Korea’s issues are different again, and the market slides on a scale closer to China or Japan, depending on the issue.

The second issue is around culture and business practice, and dealing with this requires a bit more than quick lessons in etiquette (although these do help). There is a fundamentally different approach to business partnerships, contracts, commercial dealings – and even conversations – between North Asia and Australia. While each of these three markets is very different to each other, there are also similarities. Understanding similarities as well as differences is extremely helpful in working through issues. To succeed in these North Asian markets:

Rule 1: get expert advice – and hire experts who can understand the markets but also understand you. They need to communicate what they know in a way that makes sense to you.

Rule 2: do not assume an expert in one of these markets is an expert in all three – people learn and are transferable, but the biggest (and most expensive) mistakes come when companies assume that their expert in market A will be equally successful in market B. Additionally, with these three markets, remembering that there are significant tensions between them is critical when appointing someone across markets. (This is not an issue about an appointee’s ethnic background – but it is absolutely one about his or her sensitivity.)

Rule 3: understand you will not get the visibility to information, or certainty, you are used to in your home market – and work out how to plan around this.

Rule 4: understand that some information you get will be counterintuitive – to you. If something feels wrong, it might be, but it might also be because the environment around it is completely different. “That’s not how we do it” moments can identify “gaps” that lead to opportunities – but they can also be the result of fundamental differences.

Rule 5: allow “space” for learning. More access to these markets represents enormous opportunity, which should be grabbed with both hands. Plan and enter (or expand) with your eyes open. Accept that there will be some deviation from your plan – learn from it and adjust. Most issues with companies’ expectations in these markets are a result of misjudging the time required to deliver results. (A strong NPV should encourage a little patience.)

Above all, utilise the resources that are out there. For every Australian firm, Austrade should be the starting point (and Scalability Group isn’t too bad a resource, either.)

The opportunities the Australian government has opened the door to are enormous. Do your homework, and reap the rewards.