We are pleased to be able to share an extract from Asialink's special report "Winning in Asia- Creating Long-Term Value" (www.winninginasia.com.au). The below extract is written by Penny Burtt, Group Chief Executive Officer, Asialink and Mukund Narayanamurti, Chief Executive Officer, Asialink Business, with input from our CEO, People Advisory, Asia Pacific, Anna Whitlam.
Capabilities in external affairs are vital for both navigating risks and creating value in Asian markets. Too often Australian companies focus on the issues of bribery, corruption and regulatory complexity in Asian markets, the impact these issues could have on their corporate brand and reputation without adequate consideration of the strategy and structure of their external affairs function – the very function essential to manage these issues. Understanding how the best multinationals organise and execute their external affairs is core to managing stakeholders, brand and reputation in Asian markets. Focusing on and bolstering the external affairs function is the most robust approach to managing issues and crises in Asian markets, and the possible impact on market perceptions and the share price of companies committed to business engagement in the region.
One of the region’s leading external affairs experts, Anna Whitlam, says: “The discipline of external affairs has changed so much in the last 10 years – from a tactical crisis response to playing a significant role in mitigating risk and enabling market access. Today’s external affairs leader is also the organisation’s Chief Sense-Maker! They are experts in synthesising data, news and information in the internal and external environment, using their judgement to feed into group executive, CEO and board to enable sound decision-making.” In an insightful discussion with Anna Whitlam, Alan Butler, the former head of Diageo’s centre of excellence for policy and public affairs, said: “Hope that the current volatility passes is simply not a strategy. Organisations dependent on a global view must have a geo component to their business strategy".
To ensure a business is prepared for the complexities it will undoubtedly face, it must develop its own version of corporate foreign policy and ensure there is an external radar influencing business decision-making”. Recent research by Weber Shandwick has confirmed that reputation makes a meaningful contribution to business success. Global executives attribute 63 per cent of their company’s market value to their reputation. In Australia, this is at 58 per cent, Indonesia 73 per cent, Singapore 53 per cent, China 65 per cent, Hong Kong SAR 47 per cent, Japan 58 per cent, the Republic of Korea 63 per cent, and India 69 per cent. These findings highlight that for Australian companies expanding into Asian markets, carefully managing their reputation with a range of stakeholders will be critical.
This section focuses on the value of establishing the external affairs function as a top priority, priority stakeholders to engage with in the region, how the best companies structure their external affairs function, and understanding the role of the media and its influence on Australian companies doing business in Asia.
ESTABLISHING THE EXTERNAL AFFAIRS FUNCTION AS A PRIORITY
In the most effective multinationals operating in Asia, the external affairs function is not perceived as a cost centre – it is seen as a revenue enabler. Core to the role of the function is promoting the role of the company and its value to the Asian markets where it operates – both in market and in its home base/headquarters, protecting the company through anticipating and managing risks (regulatory and reputational), and finding opportunities to partner in-market (with government, NGOs, industry associations and other key stakeholders) on issues of mutual benefit.
Those global companies that are committed to managing external engagement, including reputation, as a key organisational priority have C-suite executives and board members who are focused on the issue.
A recent global survey by McKinsey & Company on external engagement found that senior executives recognised the need to engage stakeholders and were increasingly focused on their companies’ efforts in this area. Nearly 60 per cent of respondents said the topic ranks among their CEOs’ top three priorities. Just over half of the survey respondents said the topic has been a top or top three item on their boards’ agendas, up from 31 per cent in 2013. CFOs have also been investing time in stakeholder management: one-third of respondents said external engagement is among the top three priorities on their agendas. The emphasis that CFOs have put on external engagement is consistent with other research indicating the potential for strong external engagement to create business value.
Leaders’ increasing focus has come amid growing evidence that addressing societal issues and stakeholders’ priorities creates long-term value. Some respondents – particularly those at organisations that excel at external engagement – said they view external issues as an opportunity.
SHARED VALUE AND SOCIAL IMPACT
Shared value and social impact projects are an important tool for companies investing and operating at scale in Asia. As part of their wider ESG efforts, many major multinationals use social impact or shared value projects in Asia to:
• Create development impact in the communities where they operate;
• Build reputation;
• Engage key stakeholders in government and the community; and
• Extend their consumer base and drive business.
For example, in the case of banks or financial services companies in emerging Asian markets, many of the US multinationals deliver programs to support inclusive growth. These are normally designed to support government efforts to drive financial inclusion and/or financial literacy, entrepreneurship, and micro and small and medium enterprises. They are delivered in partnership with local NGOs or community groups to create social impact through providing access for the unbanked. These programs have a direct business benefit for the company involved through raising their profile and extending their customer base.
A strong example is the work done by the Mastercard Centre for Inclusive Growth in Asia. Their programs include:
• Supporting Women Entrepreneurs in India; and
• The Strive Program for micro-business in Indonesia (with Mercy Corps Indonesia).
WHICH STAKEHOLDERS MATTER THE MOST?
In doing business in Asia, the most important stakeholders include government and regulators, industry and business associations, other businesses, local community and NGOs (in the case of investment) and media. Their priority differs significantly from country to country. The ability of foreign companies to successfully execute business in most Asian markets depends overwhelmingly on having a well-developed understanding of the destination market’s policy and regulatory environment. That means not only trade and investment policies, but sector-specific regulations and national development plans and priorities. Companies who can position themselves to contribute on the latter are more likely to succeed over the long term.
For example, a digital payments company that intends to operate in an Asian market needs to understand, at a granular level, data regulations (including on data storage, classification, security, transfer). It also needs to respond to the host government’s digital economy policy aspirations – for example the national digital payments road map or digital financial inclusion targets – to align its impact with national priorities. That means having strong links to government and good access at appropriately senior levels. Our consultations with senior external affairs executives have highlighted that US and Japanese multinationals were generally more effective at shaping the agendas of governments in the region. Australian companies were generally considered to lag behind but were perhaps on par with Chinese companies, who over the last decade in particular have become increasingly more present across the region.
Local industry and business associations can support foreign companies in three important ways: with access to government; information and insights on regulatory issues and industry developments; and networks. They can also provide a platform for messaging and marketing to increase in-market visibility to suppliers and consumers.
While media is an important means of messaging to key stakeholders, it has significant limitations and narrowcast (not broadcast) options are often better platforms for stakeholder engagement. As in Australia, the trend in many Asian markets has been a decline in consumption of mass media in favour of more specifically curated and targeted sharing of insights. While company announcements on major initiatives or company performance are still often made through mainstream media, more targeted communications to shareholders/investors, stock market analysts, government or key industry or community players are more likely to be effective. In some Asian markets, use of the mainstream media for stakeholder messaging is complicated by levels of government control and questions over independence and credibility.
THE SIZE, COMPOSITION AND FOCUS OF AUSTRALIAN EXTERNAL AFFAIRS FUNCTIONS
In most cases US and European multinationals invest significant resources in building their external affairs teams, with a mix of capabilities including communications and media, policy and regulatory, government affairs, corporate social responsibility/social impact, and stakeholder engagement. The external relations team (or teams if the external relations function is split across several teams) is usually represented in the regional and country leadership teams, with members in the Asia headquarters and on the ground in key markets. The team is usually recruited with a broad mix of capabilities and in-country expertise (including language skills). Many companies recruit ex-government officials with either diplomatic or trade policy experience and countryspecific expertise and relationships.
The external relations team usually has dual reporting lines – to headquarters in the US or Europe and then within Asia, both functionally and geographically. That, of course, also varies significantly from company to company.
In addition, many US and European multinationals supplement their external affairs capability with additional, market or function specific consultancy support. There are many specialist consulting firms delivering support for multinationals in Asia, ranging from public affairs to specialist regulatory advice. US examples include the Albright Stonebridge Group, who describe themselves as “commercial diplomats” offering strategic advisory and The Asia Group, specialising in serving leading companies wanting to “excel in Asia”. While there are some limited offerings by Australian consulting firms, few provide the in-market expertise and networks of their US and European counterparts. Australian companies are often reluctant to invest in the cost of additional expert advice.
Most Australian companies operating in Asia have a limited external relations presence in the region, including at the individual country level. Of the larger Australian companies, some have external affairs representation in regional headquarters. However, the size of the external relations presence is often smaller than US or European company teams.
Many Australian companies, however, try to manage the external relations portfolio from Australia on a fly-in/fly-out basis. That detracts from their ability to build in-market relationships and networks, have ready and timely access to information on policy and regulatory developments, and an understanding of and contacts in the media. Few Australian companies deliberately identify Asia capability as a core competence in their external relations teams (or wider leadership teams).
Likewise, few Asian multinationals have well-developed external relations teams. Many rely on networks of senior advisors or external consulting support in target markets to assist with navigating communications and stakeholder engagement opportunities and challenges – rather than in sourcing the capabilities. The increasingly notable exceptions are large Chinese companies that have encountered significant reputational, regulatory or governance challenges in key markets. Those companies have started developing external relations capabilities, modelling themselves on the US multinationals, albeit with a more limited in-market presence.
MEDIA ENGAGEMENT AND ITS INFLUENCE ON AUSTRALIA –ASIA BUSINESS ENGAGEMENT
A strongly held view among Australian corporate leaders is the negative sentiment represented in the media on doing business with Asia. Match Fit highlighted that this may be due to the negative sentiments of sell-side analysts and the risk aversion expressed by boards and senior executive teams.
Our research highlights that, over the last three years of media reporting on economic and business issues, there is limited evidence to suggest that the media is more or less positive, negative or neutral on Asia than other regions, in particular the US. The election of Donald Trump as the US President has dramatically changed the sentiment towards the US. As figures 1, 2 and 3 highlight, reporting on Asia has generated almost as much positive sentiment as the US in 2017 and 2018, but is below Europe. In 2019 and the first half of 2020, positive media sentiment in respect of Asia is ahead of the US. Reporting on Asia has generated similar levels of negative media sentiment compared to the US over the last few years. In the first half of 2020, media sentiment in relation to the US is more negative than Asia.
Some themes that have dominated media reporting on Asia include:
• More recently Asia coverage has been dominated by Australia-China tensions, including over COVID-19 and trade.
• President Trump has remained a fixture within the news regarding Asia since his election in 2017. This is in part due to his hawkish stance towards China, which has only increased in intensity.
• Much of the media’s attention in relation to China has been focused on the tit-for-tat between the two leaders (from China and the US) imposing tariffs and the flow on effect to the global economy. This see- sawing of relations between the two countries has often precipitated rises and falls in various stock markets.
• Investor sentiment was improving in 2019 compared to 2018 in light of the commitment towards completing phase one of the US-China trade deal.
• Several events in 2020 precipitated a sharp decline in investor sentiment, none more than the advent of the novel coronavirus and its rapid spread. Increasing tensions in Hong Kong, Australia’s push for an independent inquiry and the increasing reservations over the Belt and Road Initiative have all dominated reporting.
• There has been some traction towards a push for increased focus on ‘safer’ alternative markets such as Vietnam and India.
There are five ways Australian companies can more effectively organise their external affairs function to deliver greater value in engaging with Asia, including through media engagement.
1. Asia-capable talent and a distributed organisational structure
Recruiting Asia-capable talent should be an absolute priority. This includes Australian expatriates with deep Asia experience, Asian-Australians with continuing business links to the region, and Australian executives more broadly who reflect the essential capabilities to succeed in Asian markets. We recommend against treating Asian market opportunities as merely a reward for talent to develop in-market experience. Recruiting in-market talent and building teams on the ground in key markets is vital. We also recommend that there is more of an onus placed on strengthening in-market teams, where leaders of these teams sit on the regional leadership team and partner with regional executives (for example the regional CEO) on executing the organisation’s Asia strategy. We recommend a lesser focus on a fly-in/fly-out strategy. As previously highlighted, a fly-in/fly-out strategy detracts from the ability to build in-market relationships and networks, have ready and timely access to information on policy and regulatory developments, and an understanding of and contacts in the media.
“In some markets where it is difficult to secure experienced external affairs talent, many multinationals use local agencies to access local governments and media, however if your organisation has a long-term plan to invest in a particular market, look to invest in the community by developing local talent and capability. If you make a choice to start investing in key markets today, in time, your in-country external affairs leaders will be superstars.” Anna Whitlam, Founder and Managing Director, Anna Whitlam People (stakeholder consultations)
2. Involve the C-suite with active media engagement in Asian markets
Our consultations with leading journalists based in Asia highlighted that the companies that engage the best with the media create a culture of their senior leaders working in close partnership with their public relations and communications teams. These senior leaders engage with the media confidently when they visit an Asian country. They share the story of their company, their purpose, and the value they seek to deliver to the host country’s development, consumers and broader communities. They also seek to share updates over time, enabling the media to build a continuous narrative that converts to a coherent one for both the local audience and home country audience. This sophisticated approach also recognises that while narrowcast options are best to influence particular stakeholders in a targeted way, with increasing nationalism in many markets governments and regulators also pay regard to the reaction of the broader community to foreign companies.
3. Transition from risk aversion to a growth mindset and from a focus on failures to success
The perception that the media presents a negative sentiment can be addressed practically through at least three strategies. First, a recognition that this is not unique to Asian markets. As the media sentiment analysis highlights, in recent years reporting on Asia has included at times more positive sentiment than reporting on the US. Second, Asia-capable boards and senior executives should engage with the media to share their successes in Asian markets. Risk aversion is pervasive in the Australian environment. Measured presentations on the long-term risk-adjusted returns in Asian markets help position the company as a growth company. Third, industry bodies, chambers and professional services firms have an important role to play in sharing case studies of companies that have succeeded in Asian markets.
4. Define the external affairs function as a revenue enabler and not a cost centre
Given the research which indicates that the external affairs function does not just navigate risks but creates significant organisational value, it is essential that it is positioned as a revenue enabler rather than as a cost centre. We recommend alignment with strategy, product and business development teams in respect of the short-term and long-term incentives on offer on the achievement of business objectives and targets. While most C-suite executives are rewarded on measures ranging from earnings per share to total shareholder return, we recommend that similar measures are applied for the external affairs team. There should be greater weighting towards long-term measures, recognising the long-term intangible impact of reputation on a company’s market value.
We also recommend that the focus of the external affairs team should be on broader stakeholder engagement, going beyond media and communications and marketing. Framing the role of the function in this broader way enables a stronger connection to the organisation’s strategy and performance.
Making external engagement a CEO priority and creating a culture of the external affairs team partnering with the C-suite and board on external engagement creates a better coordinated, aligned and more robust organisation.
5. Support an organisational design that facilitates seamless integration and agility
Our consultations highlighted the seamless, integrated nature of the best-performing external affairs teams. The formula for combining local expertise with parent company context is critical to ensure long-term success.
“Companies that do it well have regional CEOs in Australia, Singapore and other countries, who see government or external affairs as a business opportunity. They have a global public policy and government/external affairs function that sits in London; they are integrated in such a way it is like they are all sitting in the same room, even though they are across multiple countries, they share the same strategy. They have local implementation, they hire locally and still bring in expats but in-country they value the local expertise and cultural understanding as they know how important it is going to be. They also want to reward their people that way. They want to see how they can reward their external affairs for directly enabling business opportunity and growth, it is extraordinary. Certain mining companies that do this well are very focused, move resources around, and deliver via an integrated global strategy. They understand what they will need in key markets and they invest to enable outcomes.” Anna Whitlam, Founder and Managing Director, Anna Whitlam People (stakeholder consultations)
For the complete report please visit https://www.winninginasia.com.au/