Banks' retreat from Asia a worrying example

The retreat from Asia of Australia's big banks would seem to be in full swing. The Australia and New Zealand Banking Group is selling its 20 per cent stake in Shanghai Rural Commercial Bank and exiting banking operations in Malaysia and Indonesia while more broadly there have been substantial drops in Australian banks' exposures in key Asian markets.

While these moves are doubtless based on sound business considerations and have been positively received by the investors, it's hard not to view this contraction to focus on domestic operations with some level of disappointment.

Watching some of our biggest, best resourced, most capable and profitable businesses withdraw from the markets that are generally accepted as essential to our economic prosperity is disheartening.

It will certainly influence smaller Australian businesses with significantly less capability and resources than the big banks to think twice about their Asia strategies.

The examples of Foster's and Lion Nathan's retreat from China and other overseas markets were sometimes used in Australian boardrooms in the previous decade as a reason, rightly or wrongly, to not expand into Asia.

However, the experiences of these two companies should represent a cautionary tale to our business leaders as both were ultimately bought out by competitors that successfully transitioned from large domestic players in their home markets to global companies.

Modest opportunities

As a nation of just 24 million people and with a slower growth rate that may become the "new normal", opportunities for organic growth in many Australian market sectors will be, for many businesses, modest. Growth for most will come from taking market share in Australia.

For our banks, resorting to being a big fish in a small pond and relying on the four pillars policy to keep predators at bay may not be enough to deliver strong growth in the long-term.

The alternative strategy is to look to new markets. This is the strategy promoted by successive governments for many a year and now facilitated by a suite of free trade agreements and the preferential market access opportunities they provide.

It was a particular focus for financial services, with the government-commissioned Johnson report in 2009 finding that "the opportunities for leveraging off our financial services skills and expertise, in the region and beyond, are potentially enormous."

Yes, such a strategy can be difficult with mistakes bound to occur, and it should be noted that the very high growth rates experienced throughout Asia in recent years is fading. However, Asia's increasing wealth and its growing middle class make them the obvious markets to target – and worth sticking with.

A recent American report put a number on that potential in China, finding that increased access to financial services will generate up to $US950 billion ($1.3 billion) in consumer spending by 2025.

Presumably it's this sort of potential which prompted our recently retired trade minister, and chief architect of the China-Australia Free Trade Agreement Andrew Robb, to join investment bank Moelis and Company, with a role focusing on deals with China.

Plan or fail

ANZ's chief executive Shayne Elliott is right in saying "just turning up in those markets and having a go is a terrible idea," his remarks hinting at a tendency in business circles for overrating managerial and company capabilities. If you don't have a plan and the resources in place to execute the plan, offshore ventures will likely end in tears.

As CPA Australia's report on Australia's international competitiveness identified, there is a need for Australian executives to build a greater knowledge of international markets, particularly in Asia. If we can enhance our "Asia readiness" then it is a terrible idea not to have a go in these markets.

As another ANZ executive, Andrew Geczy, said when the China FTA was signed last year, China will "continue to shift towards a consumption-driven and increasingly service sector-led growth model" which "will provide many Australian businesses with the chance to evolve and diversify".

For all our stellar efforts to pivot towards Asia – Australia appointed its first trade commissioner to China in 1921 and to Indonesia in 1935 – the withdrawal of our banks from these markets reflects a reluctance amongst many but not all Australian businesses to embrace the risks and opportunities that exist in these diverse markets.

When you consider that China's middle class is expected to expand to 550 million people by 2022, and that China's household debt-to-GDP ratio is just 40 per cent (compared to 125 per cent for Australia) that's a lot of new consumers with a lot of money to spend on Australian goods and services.

So for the sake of the high-paying jobs of the future for our children, we'd do well to hold our nerve and continue to engage with Asia with all our might so we don't find ourselves stuck on the periphery of the Asian Century.

Alex Malley is chief executive of CPA Australia