Fletcher Building CEO on doing business in Asia

Fletcher Building CEO Jonathan Ling outlined his thoughts on doing business in Asia at the latest Action Asia Business Leaders seminar at KPMG’s Auckland office on 18 March.

Last week I was in New York and London presenting our half year results. As I travel around, I get to see how others view the world.

It’s very easy to only see the world from the perspective of where you live. In New Zealand we must overcome this so we can form decisions in a rapidly-changing environment.

In London it was clear the Europeans are facing a tsunami of issues. They have troubles with Greece, Spain and Ireland. Over the next few years the European Union runs the risk of falling apart.

In the US they are facing their own long list of issues, including unemployment, pension plans and questions around where businesses are going to make money in the next decade.

In contrast, when last year the Australians declared they wouldn’t have a recession, no-one believed them. Now they do.

There’s huge potential in Asia and Australia. It’s right on our doorstep. But this will also bring large numbers of people flooding into the region and competition will rise accordingly.

What will all this mean for New Zealand?

About Fletcher Building

In 2001, Fletcher Building split from Fletcher Challenge. For us, 2009 was the worst year in the middle of the recession. Yet still our revenue rose from NZ$2.3 billion in 2001 to $7.1 billion in 2009.

Our operating profit (EBIT) climbed from $94 million to $558 million.

And our market capitalisation rose from $780 million in 2001 to $5.1 billion in 2009.

Over the same timeframe, the number of employees rose from around 7000 to around 16,500. Around half of them are in New Zealand.

In 2001, nearly 100 percent of our revenue was dependent on New Zealand. In 2009 that fell to just under 50 percent.

Around 31 percent stemmed from Australia and 4 percent from Asia. The figure for Asia is small but growing. View Mr Ling's slides in this PDF document.

Fletcher Building in Asia

Over the past four years we have built revenue from our Asian operations to $300 million.

Most of our products are commodities and are therefore not conducive to being an export business. So we have to find market niches and comparative advantages for our products.

We pulled out of MDF, for example, because we couldn’t compete. On the other hand, our formica business is very profitable and is growing rapidly.

People often say ‘all Asia is going well’. That’s simply not true: not all Asia is the same.

Southeast Asia is characterised by lower volume niches. These can be high margin and this area is performing very well for us.

Some Asian countries implemented reforms in response to the 1997 economic crisis. Southeast Asia, in particular, took the punch on the nose and is now benefiting.

Many countries in North Asia are struggling now because they didn’t implement reforms years ago.

We have a policy of local employment with strong backing from others, as necessary. Until about a month ago we had no expats managing our Asian operations.

Rather than using expat managers we focus on teaching our leaders to run businesses well.  I believe it is the only way you can run a business in Asia.

Don’t underestimate the cultural differences between Australia and New Zealand.

I’ve worked in a lot of different places round the world. In my experience, the cultural differences between Australia and New Zealand are greater than those between Malaysian and Australian businesses.

Asia and Australia will be the out-performers in the world. This will probably hold true for the next decade. Fletcher Building has to be part of that.

You must invest to move forward and you have to invest to grow. Why is there an aversion in New Zealand to investing in Asia? Lots of people in New Zealand just don’t get it.

New Zealand could have a great future in the region but on its current path it’s not going to get there.

Mr Ling also made the following points in response to questions from the audience:

On public private partnerships (PPPs): New Zealand companies have to learn to master them. While there are both good and bad PPS around the world, there are, admittedly, probably more disasters than good ones.

I’ll focus on what’s good about them. On the design side, the real advantage of PPPs is they encourage innovation and best practice. Service providers like us must innovate to secure the job.

PPPs can fall down when customers pick away at suggested solutions.

PPPs are here to stay. Start learning about them quick smart.

On investment:  If you want to get into Asia you have to invest over there. I don’t think the New Zealand Government gets that.

Around four percent of our investors are in Asia and around 4 percent of our revenue currently comes from our Asian activity. You can grow one without the other but we have tried to spread our investor base roughly in line with our revenue profile.

A by-product of having investors around the world is that they give us a fantastic snapshot of what’s happening in the world.

To make good business decisions you need good data.

We’ve noticed that when we get business proposals from our New Zealand businesses they tend to be light on competitive dynamics and the long-term picture. I think that’s because life in New Zealand is very stable.

Business proposals from Australia tend to be more thorough due to the more competitive nature of their business environment.

The same proposal from a Chinese or US business would be an order of magnitude better again.

We’ve noticed that business proposals from our New Zealand businesses are improving as they are learning from the others.

On his own background:  My looks are deceptive. I’m a fifth-generation Australian. One of my children can’t even use chopsticks. I speak no Asian languages.

On competition: In Asia we may have 30 competitors. In New Zealand we may have only one. The issue is not just going to Asia but investing there.

The New Zealand Government has got to figure out how to encourage investment offshore.

And we need to invest in education so New Zealand business people get out into the world. We especially need to educate people who can win business deals - not just accountants and lawyers.

Read more:

View Mr Ling's slides in this PDF document.

Fletcher Building website