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Australian companies used to think of exporting in terms of making a better mousetrap, and having the world beat a path to their door. But the days of selling directly to wholesalers and end-customers have largely been replaced by finding a niche in the "value chain," the succession of activities that create or add actual value at every stage of making a product.

"We know that about 70 per cent of world trade is structured within global value chains (GVCs) of multi-national corporations," says Trade Minister Steve Ciobo. "Increased engagement in GVCs by Australian firms is therefore essential to boost Australia's relevance and competitiveness in an increasingly complex global economy."
The minister says Australian governments have worked hard to give the nation's companies supportive trade settings. "Our Free Trade Agreement (FTA) network allows Australian companies to compete across borders as never before. Australia's economy benefits strongly from Asian growth, which is why we have pursued such an active trade negotiations agenda."

Ciobo points out that Australia has successfully concluded the trifecta of North Asian trade agreements with China, Japan and Korea – to go with the ASEAN-Australia and New Zealand Free Trade Agreement (AANZFTA), which has been in force since 2010 – and has also signed the Trans-Pacific Partnership (TPP). Australia is back at the negotiating table with China, India, Japan, Korea, New Zealand and ASEAN in the Regional Comprehensive Economic Partnership (RCEP) negotiations.
And value chains are at the heart of this strategy. "Regional value chains are an important source of economic growth and a key contributor to ASEAN's efforts for greater integration," says Ciobo.

Andrew Watson, executive director of the SME (small to medium-sized enterprises) division at Australia's export credit agency, Export Finance & Insurance Corporation (EFIC), says Australian companies have been "thinking in terms of the value chain" for a long time.
"If you're a smart Australian firm, you've been thinking for quite a while about where you can find your niche. Look at the auto components makers: they were servicing the Australian car makers, but the writing was on the wall for Australian manufactures, so the smart ones looked around for where they could find a new market, and the ASEAN regional value chain was the answer."
Watson says car manufacturing has essentially been a global value chain for decades, and Asia's fast-growing vehicle makers are at the centre of that. South East Asia is becoming a global automotive hub due to the region's strong economic growth and burgeoning consumer class. According to the Economist Intelligence Unit, ASEAN car sales are projected to rise from 3.6 million in 2015 to 5.3 million by the end of 2020.

Watson says the cluster of Australian automotive components manufacturers that have established themselves in Thailand is a perfect example of how Australian companies can enmesh themselves in the regional value chain, which is in turn part of the global value chain. Companies such as ARB Corporation, MHG Plastics, Bolwell, Air International Thermal Systems, Futuris Automotive, Mackay Consolidated Industries and Gibbens Industries use Thailand as a regional manufacturing or supply hub for ASEAN markets.

"FibreKing produces packaging equipment in Thailand, it's part of a global supply chain in the FMCG (fast-moving consumer goods) industry. Australian companies are doing the same kind of thing in the mining equipment space, the health and medical space, the advanced manufacturing space. And there is also a lot of scope for Australia's services exports to plug into the regional/global value chain – what Linfox has built in Asia is a great example of an Australian business grabbing a niche in the supply chain," he says.

Gabby Costigan, CEO of Linfox International, says Linfox was no different to any Australian business that faced a mature domestic market. "We've been in Asia for more than 25 years, but four or five years ago we separated the business into Australia/New Zealand and international, with a very big focus on Asia. We simply saw the growth that was coming."
Virtually everything Linfox does in Asia within the supply chain "certainly make up a value chain," she says. "Everything we do, inbound logistics, outbound logistics, warehousing marketing, IT, operations, we're able to apply our skills and technology to do things differently, to add value to clients' business, to make us a more preferable option."

As connections between countries improve following major infrastructure and transport investment, particularly driven by China's One Belt, One Road initiative, opportunities will increase.
"The early direct beneficiaries are China and the recipient countries," says Sumeet Wadhera, Head of Client Insights & Solutions at ANZ. "In time, the build out of the logistics corridors and the consumer value chain will have positive implications for multinational companies."

Alan Oxley, principal at trade and geopolitics consultancy ITS Global, says there is also great scope for Australian services to find lucrative niches in the regional value chain. "Australian intellectual property and services expertise can certainly be an input in these chains, and that's an increasing part of the services component of our exports.
"Banking, insurance, financial services, transport, training, legal services, technical services firms, can certainly operate in those chains and provide high-value services, and we'll see more of this," says Oxley.

Click here for full article by The Australian.

Fibre King's manufacturing facility in Thailand

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