Indonesia, Malaysia, Singapore.

Great Gateways to Asia… and the Globe

The total stock of Canadian direct investment in Southeast Asia now exceeds that in China and India combined.

Canadian businesses, constantly urged to go beyond the United States to the fast-growing Asian economies for trade opportunities, need almost look no further than Indonesia, Malaysia and Singapore.

The three members of the Association of Southeast Asian Nations (ASEAN) not only provide a gateway to that 10-nation free trade region – with a total consumer market that rivals that of India or China – but also easier access to those giants and other Asia-Pacific countries.

The ASEAN trading bloc, in a “very strategic approach,” has negotiated free trade agreements with China, India, Korea, Japan, Australia and New Zealand, explains EDC’s regional manager for Asia Chia Wan Liew. “So if you choose an ASEAN member nation as your base, you can access all these markets.”

Even without that preferred access, setting up shop in any of the SEA nations – which also include Cambodia, Laos, the Philippines, Thailand, Vietnam, Myanmar, and Brunei – provides full access to a diverse market of more than 600 million consumers.

Many Canadian firms are already there, Liew notes, pointing out that the total stock of Canadian direct investment in the ASEAN countries, at more than $6.5 billion in 2011, exceeds the $5 billion of Canadian direct investment in China and India combined.

“People are starting to see that if you want to sell into China, you do not need to be in China, but can use the ASEAN as a gateway,” Liew says, noting that 95 per cent of the products flowing into China from ASEAN countries do so with no or little tariffs (up to five per cent).

What makes Indonesia, Malaysia and Singapore especially attractive is that they offer a whole spectrum of export and investment opportunities for companies in all sectors and are in close proximity to one another, allowing for easy mobility.

“You also have access to a vast labour force,” Liew says. Indonesia alone has the fourth largest labour force in the world, and one that is “very young and trainable.”

“Malaysia, on the other hand, has a very developed manufacturing sector,” he continues. “Singapore, meanwhile, has very developed high-tech and financial sectors, and the world’s fourth largest port, which is very good in managing the logistics for the region.

Traits of a superior supply chain

“What you have when you put all three together is a very superior supply chain, the ability to mobilize the labour force to fill any gaps, and to move goods easily through Singapore.”

“All three countries are also very much plugged into global supply chains, particularly in the manufacturing industries,” adds Yuen Pau Woo, president and CEO of the Asia Pacific Foundation of Canada (APF). This presents opportunities for Canadian expertise in important industries in the region, such as aerospace, ICT and biotechnology.

The three countries, however, are at very different stages of economic development, which also present singular challenges, as companies working in the region describe (see pages 2, 3, and 4).

“There are many sources of assistance that they can tap into,” Woo says, citing EDC, Canada’s Trade Commissioner Service, Canadian Chambers of Commerce located in all three countries, the Southeast Asia Canada Business Council, and other Canadian firms already operating or selling into the region.

Indonesia: Wealth of Resources for Hatfield Consultants

Indonesia: Wealth of Resources for Hatfield ConsultantsFisheries biologist Chris Hatfield, founder of Hatfield Consultants, an award-winning global environmental services firm, realized the opportunities offered by Indonesia’s huge population and wealth of natural resources a quarter century ago.

Indonesia key imports:

Machinery, equipment, chemicals, fuels and foodstuffs

Canadian exports:

Fertilizers, pulp & paper, cereals, mechanical and aerospace products

Largest import partners:

China 15%, Singapore 15%, Japan 13%, U.S. 7% (2010)

The Vancouver-based company, which entered the Indonesian market in the late 1980s, saw a growing need to provide international-standard environmental consulting services for companies with mining, oil and gas, fisheries, and agriculture operations in the region, says Andy Dean, a partner who joined Hatfield eight years ago.

“We realized that if Indonesia’s resources were to be extracted, we wanted to be there to help companies do that in a responsible way,” says Dean, who spent the past four years managing Hatfield’s Indonesian operations.

To meet increasing demand for its services in the region, it opened a joint-venture company in 1990 – PT Hatfield Indonesia – with a local partner.

“We now have three Indonesian partners who all work for the company and have for some time,” Dean says, noting that they made the connection to the original partner through an event organized by Canada’s Trade Commissioner Service.

“So, get the support and advice of the Canadian Trade Commissioner Service,” he advises any company thinking of doing business in the region, “and if possible, find a good partner.”

Rising demand for Hatfield’s services in the region, which Dean says is the strongest of any of its foreign operations, has generated a 25 per cent annual growth rate in its business there, compared with 15 per cent in Hatfield’s Canadian operations.

To help manage that strong growth, Hatfield turned to EDC.

“EDC support is one part of making sure that this is sustainable growth and that the risks are well managed,” he says. “We’ve taken advantage of the export guarantee program to help us maintain strong cash flow to finance that growth.”

Dean also notes foreign firms can face four broad challenges in Indonesia. Corruption is still a major issue, despite recent reforms and progress in reducing it, and bureaucratic uncertainties can be a barrier to efficient operations. Transportation and communications infrastructure needs improvement, and competition for qualified and experienced workers is intense.

“However, if you go into Indonesia with the long term in mind, which is what Hatfield has done, there are fantastic opportunities,” he says.

“Hatfield has stuck through some pretty tricky times in Indonesia, where the economy was very difficult and many other companies in our field closed and left,” Dean says, citing as an example the regional financial crisis that erupted in the 1990s. “We’ve earned a lot of good will from clients by maintaining our presence in the good years and the bad.”

Malaysia: Tourism Boom Plays into Hunter Amenities

Malaysia: Tourism Boom Plays into Hunter AmenitiesKnowing your market and the business culture is essential to successfully entering and operating in the Asian market, says Berny Amiel, CEO of Hunter Amenities International Ltd., another award-winning Canadian firm, which produces and distributes personal care products for the hospitality industry and has production facilities in Malaysia.

“Growth is huge, it’s rampant,” Amiel says, adding that it is reflected in the rapid growth in the hotel industry in Asia, and in the Middle East, both of which are serviced by Hunter’s Malaysian operations.

Malaysia key imports:

Electronics, machinery, petroleum, plastics, vehicles, chemicals, iron, steel

Canadian exports:

Fertilizers, aerospace products, mechanical appliances, electrical equipment

Largest import partners:

China 13%, Japan 13%, Singapore 11%, U.S. 11% (2010)

Hunter’s growth in those regions, at 25 to 35 per cent a year, is much stronger than in a mature market like the United States. In the U.S. most of its growth comes from increasing market share, rather than from a big rise in the number of hotels owned by existing clients – as in Asia and the Middle East.

The Burlington, Ontario-based company produces and distributes its soaps, creams and other products to hotels and spas in more than 100 countries. It began its expansion into foreign markets by forming strategic alliances with similar companies, which already knew the local business culture. This allowed it to consistently provide its high-quality brand-name products to hotels globally.

Hunter recently acquired, with EDC’s financing services, former partner Woleco Hotel Supplies Pte Ltd., giving it a well-established Asian and Middle Eastern distribution network. Headquartered in Singapore, this affiliate has manufacturing plants in Malaysia and China.

“Simply put, we purchased our way into Asia,” says Amiel. “EDC was instrumental in opening that door for us” by providing the export guarantees that the company needed to obtain bank financing for the purchase.

One of the benefits of the Malaysian market is the “reasonable labour rates.” However, the country has a shortage of skilled workers in its industry and it can be a challenge to bring in such employees when you need them, he says, because it can require advance notice to the government.

Despite its growing global reach – supplying hotel amenities to clients such as Fairmont, Westin, Club Med, Hyatt and Sheraton – Hunter hasn’t neglected its Canadian roots. It recently won awards for being “Best Manufacturer in Burlington,” where it launched a major expansion, and “One of the 50 Best Managed Companies in Canada.”

Singapore: Port of All Callings

Singapore: Port of All CallingsMalaysia’s proximity to the busy and virtually duty-free port facilities in Singapore, where Hunter Amenities International has an office and warehousing facilities, gives Hunter a global competitive advantage, Amiel says.

Singapore key imports:

Fuels, chemicals, foodstuffs and consumer goods

Canadian exports:

Mechanical appliances, plastics, electrical equipment, optical/medical devices, nickel

Largest import partners:

Malaysia 12%, U.S. 12%, China 11%, Japan 8% (2010)

“Historically, of course, the port was the raison d’être for Singapore’s economy,” says APF’s Woo. “But it has gone well beyond being just a place where cargo is shipped in and out, to being a global financial centre, a centre for education, ICT, R&D, life sciences, and so on.”

“It’s really a global metropolis that’s plugged into international business in all corners of the world, so that’s the characteristic of Singapore that Canadian companies should think about,” he says, noting that with its domestic market of fewer than five million people, it is not usually the ultimate target for exporters or investors. “It’s an excellent platform for accessing markets in the region and globally.”

Singapore is also ranked first in the world, by the World Bank, for ease of doing business. This index is based on an average score from 10 indicators, including trading across borders, dealing with construction permits and protecting investors.

As for challenges, EDC’s Liew notes that the most pressing are the escalating costs of doing business in Singapore, owing to high land costs and a tight labour market.

“The business environment is also very competitive, as Singapore attracts many industry-leading companies into the country, many of which are multinational corporations.”

Categories Asia & Pacific, Infrastructure & Construction

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