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The Newest Player In Asia Is Down Under


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THE NEWEST PLAYER IN ASIA IS DOWN UNDER

As he cruises the congested waters of China's Pearl River, Australian shipbuilder Garry Heys is getting excited. Amid patrol boats, barges, and creaky wooden fishing boats, General Manager Heys proudly points out the sleek ferries made by his Perth-based company, Austal Ships Ltd. Over there is the Shun Jing, a 40-meter catamaran ferry on its way to a Guangdong boomtown. "There goes another one!" he shouts. It's the Gao Ming, crowded with passengers from Hong Kong. Since 1991, Austal has sold 23 ferries in China--worth $5 million each. "Our order books are full," says Heys. "We never expected this business to be so big."

After years of recession and reform, companies such as Austal are making Australia one of the Pacific Rim's most unlikely trade powers. This year, merchandise exports should leap 17%, to $36 billion, predicts DRI/McGraw-Hill. Australia seems poised to end its overreliance on commodities--and the pattern of booms and busts that came with it. It is doing so by focusing on Asia's thriving markets. "There is no retreat for Australian business," says David T. Smart, general manager of Tubemakers of Australia Ltd., an $860 million Sydney-based maker of specialty steel and plastic tubing that is setting up joint ventures in China. "If we don't build an Asian base, our growth will be limited."

GOOD TIMES. The most dramatic success is from small and midsize companies that are charging into myriad niches. Australian startups are finding Asian buyers for everything from blood analysis equipment to beachwear. Big companies are enjoying good times as well. Steel and resource powerhouse Broken Hill Proprietary Co. and financial giant Australia & New Zealand Banking Group Ltd. are emerging as global powers. The strength of Asian export markets may help the high-profile campaign of Prime Minister Paul J. Keating to reposition Australia as an "Asian" country. Keating wants to break ties with Britain, whose Queen still serves as Australia's head of state. Instead, Keating vows to make his country of 17 million people a republic by 2000.

A decade ago, Asia didn't matter much to most Australian manufacturers, who were protected by some of the highest tariffs in the industrialized world. Tariffs on most imported goods averaged about 35%. Australians believed they needed massive protection because of their small market and geographic isolation. Meanwhile, workers enjoyed long vacations, automatic wage hikes, and lax work schedules. "The only thing labor and industry could agree on was that manufacturing could not compete in a free market," recalls William Mountford, director of the Australian Manufacturing Council.

When the economy couldn't recover from the global collapse in commodity prices in the 1980s, many Australians realized the need for change. The government phased in sweeping reforms that included privatizations, antimonopoly laws, capital market liberalization, and labor-union reform. Most important of all was a step-by-step reduction of tariffs. By the end of the decade, tariffs on almost all goods will be between zero and 5%.

Companies big and small found that to survive, they needed to adjust. In its heyday in the 1970s, Sydney-based conglomerate AWA Ltd. had 6,500 employees and $600 million in revenue from 124 businesses, including hospitals and defense contracting. When the government started lowering tariffs, AWA's electronics unit was overwhelmed by Japanese competitors. Defense contracts dwindled after tougher procurement rules were imposed. Near collapse came when AWA lost $35 million in the 1980s through disastrous foreign exchange dealing. Says John P. Dougall, managing director of AWA: "We had to get competitive or die."

The company now is finding its most promising growth in sophisticated technologies it developed for government jobs. Three Chinese cities have purchased its traffic-sensing devices, which allow computers at intersections to adjust traffic lights based on traffic flow. AWA also has landed contracts to supply 55 Chinese airports with advanced microwave navigation systems, and is negotiating with hundreds of other airports in China. Thanks to such deals, Dougall hopes to boost AWA sales from 1993's $163 million to $370 million in three years.

NEWLY STEELED. One of Australia's highest-profile turnarounds is BHP. During the 1982 recession, it almost abandoned steelmaking, but the government agreed to protect the industry for five years if BHP invested at least $400 million and the unions renegotiated unwieldy work rules. A brutal downsizing followed as the company slashed the workforce by two-thirds, to 7,500. After investing more than $3 billion in new steel mills, BHP now ranks among the world's most efficient exporters. Last year, earnings at its steel division more than doubled, to $397 million, on sales of $5.1 billion. In three years, exports have tripled, to nearly 3 million tons, 40% of output.

Now, BHP is unfolding a strategy to boost its global presence by investing billions more. It has 25 small rolling mills and a number of coating plants in Asian countries such as China, Indonesia, and Malaysia. For the past six years it has been working with Japan's IHI Inc. in a race to perfect "thin-strip casting," a process that would make it possible to convert molten steel directly into strips. This would eliminate expensive plants required for intermediate steps, making it economical to build smaller minimills rather than billion-dollar integrated steel complexes. If BHP's technology is commercially viable, it hopes to erect minimills across Southeast Asia and the U.S.

Steel is just part of the overseas expansion of the $12.2 billion group. BHP also will pour $5 billion into developing a huge oil and gas field off Vietnam's coast, adding to its extensive offshore reserves in Britain.

In some places, overseas markets are spawning major new industries. Perth has become a booming shipbuilding center. Six-year-old Austal, one of many thriving shipyards along Perth's Jervoise Bay, employs 300 and is expanding rapidly. It sees a growing market in China as coastal cities expand ferry services.

Even the financial-services industry is finding it can compete globally. Corporate raiders such as property and media barons Alan Bond and Christopher Skase have long since faded, replaced by firms such as Sydney's EquitiLink Ltd. About one-third of the $400 million EquitiLink manages for retail customers comes from Taiwan. In all, it manages about $4 billion, much of it from institutional investors in the U.S. In banking, ANZ is trying to carve out a place as a regional player. The Melbourne-based bank is the largest foreign bank in India and has been among the first foreigners to open branches in Shanghai and Hanoi.

Now the Asian connection is starting to bring home benefits to the domestic service sector. A surge in visitors from Singapore, South Korea, and Taiwan was behind the 15% rise in tourist arrivals last year, to a record 3 million. Some 46% of the tourists flocking to the Great Barrier Reef and the Queensland beaches are from Asia, compared with 10% from Britain and 9% from the U.S.

BASES COVERED. Australia still has a long way to go to ease its dependence on volatile commodity markets for foreign exchange. Coal, gold, beef, wool, and iron ore remain its biggest exports. But most analysts think the eyes of industry have been opened for good. While manufactured goods account for just 14% of exports, notes Chris N. Caton, chief economist for Bankers Trust Australia Ltd., they made up one-third of export growth for the past seven years. What's more, the export drive has a remarkably broad base. "It's happening in all industries and to all destinations," Caton says.

Australian industry will need to keep looking to fast-growing markets in Asia, since the government is committed to making Australia virtually tariff-free by the end of the decade. With the end of protectionism, Australians may have lost a bit of their laid-back lifestyle. But they also may be able to enjoy the economic g'days a good while longer.Pete Engardio in Melbourne, with Stephen Hutcheon in Sydney


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