Adapting to a changing business environment in Asia
As part of the Action Asia Business Leaders seminar series in Auckland in late March, John Palmer, Chairman of Air New Zealand, spoke about the impact of the global economic downturn on Asia markets and how this is affecting Air New Zealand and Solid Energy.
The effects of the economic downturn in Asia are diverse, with some economies affected more than others as a result of a decline in demand in the West for manufactured goods from Asia. The economies which had been built on demand for exports are now looking for recovery from investment in infrastructure.
The domestic economies of countries like China and India are not as affected by the causes of the economic downturn, which is centred on the financial system in the United States and Europe.
“Because economies in Asia such as India and China don’t have the same dependency on the banking system or access to credit from Western banks, their economies are likely to recover more rapidly and the recession is likely to be shallower than that in Western economies. Some parts of Asia are already in recovery,” said John Palmer.
Solid Energy is the dominant coal mining and coal exporting company in New Zealand and its oldest customer relationships in key markets in Asia have been in existence for 30 years. Slightly less than half of its exports are hard coking coal, 100% of which is exported to Japan, China and India. Recently, however, prices for coal on world markets have dropped and some agreed shipments have been delayed or cancelled, which has had a huge effect on cash flow of business. In mid-2008 prices for coal were around $US300 per ton but by mid-December 2008 the spot had fallen to below $US150 per ton, and is currently around $US120 to 130 per ton.
According to John Palmer, Solid Energy’s business partners have indicated that it is important for them not to be constrained in recovery by lack of resource supply, a different message from what the company has been getting from other economies. “Getting that kind of message from a key customer is important to us,” said Mr Palmer.
Operating in Asia has also been difficult for Air New Zealand as premium traffic flows out of Asia have declined in this part of the world more than in others, suggesting a more prudent response among consumers in Asia.
Both Solid Energy and Air New Zealand think it is important to have an understanding that business is done very differently in Asia compared to other markets.
“There is no such country as Asia and it’s important to understand differences between China, Korea, Japan and Southeast Asia. But they do have in common an understanding of the value of long-term trusting relationships, ” commented John Palmer.
Kiwi heart with a Chinese understanding
For customers in Asia Solid Energy is perhaps the smallest international supplier. While the company has encountered difficulties over the last three or four months as prices have dropped dramatically, it has been able to preserve contracts intact with no cancellations.
John Palmer explains: “We’ve had cases where shipments were very down to a small fraction but we were able to get shipments away in preference to much larger suppliers in other parts of the world. So the question is: why are we able to do this?”
These are long-term relationships which have endured during good times and bad. Sometimes prices are satisfactory, and sometimes – terrible. But more importantly the company has fostered personal relationships that go alongside business relationships, which is absolutely critical to doing business in most parts of Asia. “You need to be in Asia with a long-term strategy,” notes John Palmer.
Those long-standing relationships go beyond just doing a deal to affirming the need to understand those businesses at all levels. Junior officials in the Chinese government today may be senior officials in 10 years’ time and in many cases that is how business is built. As a result of fostering such key relationships early on, Air New Zealand and Solid Energy now have access to government in China at the ministerial level. In India, too, Solid Energy, which deals with a state company, has a high-level access because of long-term, deliberately fostered relationships.
Air New Zealand has found assistance from various quarters in China in developing its business in that market. Through the New Zealand Embassy and contacts on the ground, Air New Zealand has been able to develop a service in a way that makes cultural sense in that market. Air New Zealand’s provision of a Kiwi experience the moment passengers get on the plane is crucial to that success. “A lot of airlines provide good service,” remarks John Palmer, “but with no heart in it that is not a good recipe for success.”
Similarly, in the coal industry, doing business with a ‘Kiwi heart’ in Asia has also been important. Despite exporting much smaller volumes than Australian competitors and despite the coal business downturn, by applying the formula of developing personal aspects of doing business with customers in key Asian markets Solid Energy has been able to dispatch shipments when others haven’t.
The main message according to John Palmer is that you have to be prepared to stay the course. “It is difficult to do business in many parts of the world at the moment and we take a conservative approach so that when the downturn comes, those that are strongest are best placed to take advantages of the recovery when it happens. For both Solid Energy and Air New Zealand that’s where we plan to be.”
The presentation was followed by a Q&A session and networking. Asia:NZ would like to acknowledge Bell Gully's contribution in hosting this event.
If you would like to find out more about this or other seminars in the series, contact James Penn on (09) 368 1435.
