Speech
Address by: Peter Grey, Chief Executive Officer, Austrade
Event: 48th AJBCC Annual Conference
Location: Brisbane
Date: 10-12 October 2010
Thank you. I am delighted to be able to attend the 48th AJBCC annual conference.
The Australia Japan relationship has broadened significantly in recent years, moving beyond the traditional focus on trade and economic issues to encompass a strengthened strategic security relationship. Nevertheless trade and economic relations have been the crucial and enduring link in the relationship - and Japan was, of course, for more than 40 years Australia‟s largest export market.
However while the rise of China as a trading partner has displaced Japan from its number one position Japan nevertheless continues to be crucially important to Australia with a mutually beneficial trade and economic partnership. But we do need to continue to look at new and creative ways to take maximum advantage from this extraordinary trade and economic relationship and I will have a few specific suggestions later.
Both Japan and Australia rely on open trade with access to growing export markets and we are fortunate that global economic weight has shifted to the Asian region with its rapidly growing economic opportunities. As Australia and Japan emerge from the global financial crisis there is an excellent opportunity to look at how best to enhance the bilateral relationship and explore further ways to work together.
The value of the multilateral trade system to both Japan and Australia was well illustrated during the recent financial crisis when the WTO and its system of rules played a clear role in preventing the widespread resort to protectionism. But it is important, as the new Trade Minister Craig Emerson has emphasised, that the Doha round be brought to a successful conclusion. This will provide benefit globally and to our region and open new commercial opportunities for both our countries.
Australia also welcomes Japan‟s hosting of APEC this year and the opportunity this provides both our countries to work closely together on a range of new and important measures. APEC has developed, since its formation, into the preeminent economic forum in the region and its focus on domestic economic reform and behind the border measures complements the work of the WTO and is of direct benefit to Japanese and Australian companies working in the Asian Pacific region. I am sure that John Denton who has been very active as one of Australia's members of APEC's Business Advisory Board (ABAC) will be discussing some specific activities of APEC shortly.
Australia also continues to seek a commercially meaningful FTA with Japan which will be supportive of our efforts in the WTO and through APEC. Clearly this is not an easy task and we recognise that there are areas of sensitivity but nevertheless we continue to believe that there are sufficient potential benefits to make this a worthwhile task. As you know Australia, along with New Zealand, completed a comprehensive free trade agreement with ASEAN and good progress is being made in our negotiations with Korea. It would be a pity if we couldn‟t make progress with our second largest trading partner.
Given the maturity of the bilateral relationship it is easy to assume that little new is occurring. And the focus in the last few years on the impact of the global financial crisis and efforts to manage its aftermath has dominated policy discussion and absorbed the attention of business. Of course one of the reasons why Japan was hit hard was Japan's increased reliance on exports as a source of growth during the 2000s, thereby increasing its exposure to a fall in global demand. This significantly increased reliance of Japan on external markets is not a temporary phenomenon and must have implication for Japan's engagement with the region including Australia. I note, incidentally, that two way trade between Australia and Japan, while affected, suffered nothing like the same extent as Japan‟s exports to the rest of the world.
But it is in the area of investment that the most interesting economic development between Australia and Japan has occurred in the last five years. Since around 2005 Japanese investment into Australia has grown strongly with the total stock almost doubling during this period. While total Japanese outward FDI stock fell by 8.9% during the recent financial crisis Japan's outward FDI stock directed to Australia continued to grow strongly recording an increase of 23% in 2009 and, at the height of the financial crisis in 2008, an increase of 18%. Indeed in 2009 Australia as a target for Japanese FDI was ranked just behind United States and ahead of China, India and European countries such as UK and the Netherlands.
Importantly over this period there has also been a significant broadening out of Japanese investment in Australia beyond traditional mineral and energy sectors into areas such as financial services, clean energy, property, food and agribusiness. This is something which has long been sought by Australia. In addition, as the domestic Japanese market reaches saturation in segments such as building, housing, retail and insurance, lesser known Japanese companies from regional areas are venturing abroad for the first time. They are making major investments in developed markets like Australia which offer both growth prospects and a transparent and stable operating environment.
Austrade, in response, will be looking at how we can best tap into or facilitate this 'new' potential source of investment.
While not of the same magnitude and still from a very small base, Australian FDI into Japan has also increased including in areas such as banking, legal services and logistics. These are welcome developments and show a greater degree of integration of our economies.
Another area of interest is in regard to services trade. The decline in Japanese tourist numbers is of course of concern and has been much discussed in recent years. I still look wistfully at the period 10 years ago when the only question seemed to be 'when, not if', Japanese tourism numbers to Australia would hit the one million mark! However even when the decline in the value of tourism is excluded Australian services exports to Japan are still sluggish.
Like any sophisticated economy, around 70% of the domestic economy in Japan is made up of trade in services. Whilst reforms to this previously rigidly managed sector were originally spearheaded by the influx of foreign capital and participation during the “Lost Decade” of the '90s, a strong need for productivity gains and intense competition in a shrinking market place has driven ongoing change. Whether it be through the Australian vision for an integrated ski resort at Niseko, the application of Australian expertise to the project management and logistics sector through the activities of companies such as Bovis Lend Lease or Toll, or the introduction of new financial products and services from Australian banks that offer retiring Japanese greater peace of mind, recent commercial success stories demonstrate that pathways to the Japanese market for innovative and new service models most certainly do exist.
The advances in broadband penetration and changing consumer behaviour in Japan have now made it one of the most dynamic on-line and value retail markets in the world. According to Japan's Ministry of Economy, Trade and Industry, (METI) the business-to-consumer e-commerce market was worth $110.4 billion Australian dollars in 2008, up 14% from the previous year. The market leader and on-line portal operator Rakuten is synonymous with a new breed of Japanese company, and the fully integrated product and service offerings available on line to Japanese consumers potentially provide an unprecedented window into the Japanese market for small-medium sized Australian firms.
As I mentioned at the outset, however, now is an excellent time to look again at how we can maximise the advantages of the Australia Japan bilateral relationship in a wider commercial sphere. In September 2009, the excellent report by Professor Peter Drysdale commissioned by Austrade and titled "Australia and Japan: a new economic partnership in Asia" was released. This report raised various questions, challenges and recommendations including a paradigm shift in the way Australian trade and investment interests are conducted with Japan. Professor Drysdale concluded that : -
“The Japanese market is a market no longer confined to Japan itself. It is a huge international market generated by the activities of Japanese business and investors, especially via production networks in Asia. More than ever, Australian firms need to integrate more closely with these supply chains and networks in Asia”.
Professor Drysdale also noted that there a number of features of the commercial relationship which would help to make doing business together elsewhere in the Asian region an easier and logical step to take. Amongst the points highlighted are:
- Infrastructure of institutional and commercial ties;
- Familiarity in dealings between our governments and official agencies;
- History of Japanese business dealings from an Australian base; and
- Japanese corporations in Australia being part of our national, commercial and social landscape.
And I would add the diversity of our people to people relationships through tourism, language education and other activities provides a further underpinning for Australia and Japan working more closely in the region.
In response to Professor Drysdale's analysis Austrade has sought to determine specific opportunities for Australian companies to partner with Japanese companies in the Asian region. This work has been spearheaded by Austrade's team in Japan headed by Elizabeth Masamune. What the analysis has focussed on is those areas where Australian industry has a particular capability which can be matched up with that of Japanese firms operating in specific Asian markets. This work has also taken into account the strategy released in June 2010 by Japan's Ministry of Economy, Trade and Industry (METI) which involves the promotion of 5 strategic sectors.
- Infrastructure
- Environmental products
- Medical services
- Cultural industries, and
- New fields such as robotics and space
Looking at METI's priorities there are a number of complementarities that Australia can offer that could lead to joint opportunities for our countries in the region. Understanding exactly where the synergies lie and facilitating the right linkages will be critical to capturing these opportunities for both sides.
Japanese firms have unique strengths to offer in terms of technology, sophisticated high-end products, and energy and environmental expertise. More importantly, Japanese companies possess the capital backing, brand awareness and existing platform of investment and distribution networks in Asia to position them well for expansion.
Australia has identified strengths and achievements across Asia in industry sectors such as food processing, mining services and management, logistics, HR and education, legal and accounting services, aviation and environmental management to name but a few.
One of Australia's strongest selling points as a potential partner for collaboration in third markets is its strong reputation for solid management in cross-cultural environments, depth of understanding, and transparent and reliable work ethic. In addition, Australia's image as a clean and green supplier of goods and services provides it with positive brand positioning.
As a number of previous speakers have noted, infrastructure emerges as a particular area of focus as the demand for new infrastructure across Asia is set to grow exponentially in the coming years. The Australian building, construction and infrastructure sector has well developed capabilities and is very competitive. Australia has the potential to be a leading regional provider of design, engineering and construction management, in addition to innovative financing offerings. There would seem to be a wide range of opportunities for cooperative activities with Japan in this sector, primarily in emerging markets such as ASEAN, China and South Asia.
The AJBCC and Austrade have also been undertaking valuable work with the JABCC in the area of private, public partnerships. (PPP's), where Australia has developed significant skills as a result of our experience in the privatisation process which began in the late 1980's. Australia continues to be innovative in structuring infrastructure funding and development solutions, including pioneering activity in public, private partnerships. This expertise covers the full spectrum of economic and social infrastructure.
The recent AJBCC / JABCC joint mission to India is an interesting and very welcome initiative, and a promising first step in pursuing joint opportunities for PPP infrastructure work in third markets, in addition to the possibilities that are also being investigated for working more closer together on PPPs both in the Australian and Japanese domestic markets.
Environmentally sustainable “green business” will surely be a global growth sector, and this is yet another area where both Australia and Japan have strong credentials and complementary skills. These encompass the water sector, renewable energy, environmental technologies and services, and energy efficiency as well as clean technology solutions such as green buildings and planning.
There may well be opportunities to form partnerships with Japan in the Asian region in these and many other areas spanning the full gamut from automotive components to food processing, retailing and logistics, medical and pharmaceutical products and services, and information technology services and solutions.
In seeking to broaden the horizons of our partnerships to even more competitive third markets, however, it will be important for us not to underestimate the need for human resources with appropriate international, language and cultural skills and experience. Japan is now coming to grips with the challenge of Global Human Capital Development as its own economy becomes even more dependent on external markets. Australia could usefully extend its partnership with Japan in the education and training sector, in particular, to grow and develop human resources that both nations will need to meet the global demands of the future.
One final point - a necessary element in terms of better engaging with Japan and improving trade relations is ensuring a broader understanding of each country's abilities. While Australia has a positive image and good brand recognition in Japan and Asia – recent research commissioned by Austrade confirms that perceptions of Australia are still largely limited to lifestyle, natural attractions and iconic buildings.
In May this year a new $20 million program, Brand Australia, was launched in Sydney and then Shanghai. The intent of the program “Australia Unlimited” is to ensure Australia is as highly regarded as a global citizen and global business partner as it is a holiday destination. In particular, it was designed to highlight Australia‟s sophisticated business strengths.
In conclusion, despite the changing dynamics of the global economy, Japan will continue to be one of the largest players on the world stage and Australia can only benefit by deepening its engagement with Japan.
The undeniable strength of Australia's relationship with Japan can deliver a prosperous way forward for both countries and ensure mutually beneficial opportunities in the region.
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