Case for critical thinking

Australian banks in Asia
In years gone by, Australian business connected mainly to Europe and America. However, the past two decades has seen considerable shift to Asia, and this is likely to gain even further momentum given weak economic conditions and over-gearing in the United States and Europe. You can see just how important trade with Asia is to Australia by looking at the tables at the beginning of this chapter. Also, some Australian businesses, particularly the National Australia Bank (NAB), have recently suffered considerable losses or experienced difficulties in the United Kingdom and Europe. The Wall Street Journal writes that ‘Glasgow-based Clydesdale Bank and the Yorkshire Bank, both relics of the UK’s once heavily regionalized banking industry, stick out like a sore thumb in NAB’s portfolio’.99 Perhaps this is the reason why NAB pulled the plug on its purchase plans for the Royal Bank of Scotland, and appears to be eyeing out opportunities in Asia instead.100
The idea of investing in Asia and China is not new. But it is not without controversy, as we saw at the beginning of this chapter. Brent Stewart, Austrade Commissioner stationed in Shanghai, has said that the Chinese market remains a challenging one for the Australian financial sector due to stringent regulatory limitations in many areas and a cultural and business environment considerably different from Australia.101 Conditions in the Chinese market have been difficult for other companies too. For example, Foster’s brewery reportedly lost AU$1 billion during its 13-year investment in China.102 If a brewery finds it hard to cut it, why should things be any different for Australia’s ‘big four’ banks, as well as Macquarie Bank, which is also now present in China?
China’s massive population makes it a very seductive market — something Chinese business delegations to Australia are not shy of pointing out. The last of the big four Australian banks to actively promote its presence in China is NAB, and its brand new office in Shanghai’s financial district suggests it wants to be there for the long-term. However, it will need to be patient, as all foreign banks in China have to obtain a currency license, a process that takes at least three years. Australia and New Zealand Banking Group (ANZ) has been in China the longest. ‘Doing business in China isn’t easy’, says its Chinese CEO Dr Charles Li, who stresses that you have to exercise lots of patience.103 Only time will tell whether the Australian banks succeed in China. Dr Li is optimistic, because ANZ also has a presence in Taiwan, Laos, Cambodia and Indonesia.104 He feels, therefore, that it is well-placed to take advantage of inter-regional trade across these countries and with Australia. Indeed, ANZ wants to increase its inter-regional trade, and is seeking a license to set up its own wholly owned subsidiary in Thailand following talks between the ANZ CEO and Thailand’s prime minister. Meanwhile NAB, ANZ and the Commonwealth Bank have also entered India, presumably because of the huge market potential there too.105
There are other causes for optimism that the Australian banks should succeed in time too. Notwithstanding the difficulties mentioned in this case, several Australian companies have enjoyed success in China. Australia–China Gateway is an organisation with offices in Melbourne and Shanghai that offers assistance to firms interested in trading with, or establishing operations in, China. They note on their website that the huge Chinese market is attractive, but that culture is a major issue. They suggest that two keys to success are relationship building and networking, and dealing with ethical, trustworthy
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people. They also provide several testimonials and client success stories on their website; for example:
We have now been in China, thanks to your efforts and skills, for 12 months. Our trust in you has been well rewarded and our new [Shanghai based] Chinese partner shares your integrity and values. We can now look forward to further expansion in China and to tackling the US market. (Gerry Mussett, Sprockett Design, St Kilda Victoria/ Xa Multimedia Technology Pty Ltd, Shanghai.)106
The Australian Trade Commission also lists several success stories on its website. These include an Australian agribusiness company The Woods International, which produces fertiliser made from earthworm droppings; and MtM, an Australian automotive manufacturer that established itself in Shanghai in late 2008. MtM had to achieve technical certification in order to assure the Chinese market of the quality of its products.107

This is similar to the banks requiring a currency trading license. Another similarity is that NAB has set up in Shanghai where several of these success stories are to be found. However, Neuplex, a South Australian-based company, has enjoyed success developing and installing solar energy generating systems in Shaanxi Province, one of China’s most remote and poorest regions.108 Establishing a relationship with an ethical joint venture partner seems to be the key. Menzies and Orr note that:
Foster’s Brewing Company’s joint venture (JV) in the Chinese city of Tainjin had a much better relationship with the local government than the JV in Shanghai … As a result, Foster’s were more successful in Tianjin than in Shanghai.109

Questions
Notwithstanding challenging business conditions in China, do you think Australian business needs to exit Europe and America and focus on Asia? Justify your answer.
How would you set about building relationships with Chinese counterparts in order to establish a business operation there?
Would it be better to invest in other Asian countries like India (with just as big a population)?
What are the best investment strategies for Australian companies in China given the above case?

(Schermerhorn 117-118)
Schermerhorn, John, Paul Davidson, David Poole, Peter Woods, Alan Simon, Ellen McBarron. Management: Foundations and Applications, 2nd Asia–Pacific Edition, 2nd Edition. John Wiley & Sons Australia,, 08/2013. VitalBook file.