Maximising joint Australia-Indonesia opportunities to create competitive advantages & selling into third markets

A NEW REPORT LAUNCHED by Australia’s Minister for Trade and Investment, Andrew Robb, encourages Australia and Indonesia to work together to gain greater access to value chains for their goods and services, particularly within the new ASEAN single market (AEC), at a time when a three trillion-dollar global opportunity is opening up.

Prepared by the ANZ Bank and PricewaterhouseCoppers, the Succeeding Together report examines ways to do this by utilising shared comparative advantages and highlights sectors in which industry and government can work together. It can be accessed here.

Published November 2015
“The approach complements the Australian Government’s commitment to building closer trade and investment ties through trade agreements with China, Japan and Korea, and other broader trade initiatives including the ASEAN-Australia-New Zealand Free Trade Agreement, the continuing Regional Comprehensive Economic Partnership and the Trans Pacific Partnership. In time, the Indonesia-Australia Comprehensive Economic Partnership Agreement will play an important role in encouraging investment and aiding our competitive entry to global supply chains,” Mr Robb says in his foreword.

He has since announced that Indonesia has agreed to return to negotiations on the IA-CEPA and the Australian government seeks to prioritise its completion within 12-months.

According to Glenn Maguire, ANZ Chief Economist, South Asia, ASEAN and Pacific, Australia and Indonesia “clearly have the potential to face the Asian Century together, with an economically stronger, mutual relationship arising from their joint competitive advantage. With potential trade flows of $3-4 trillion just for ASEAN trade with China, it is vital that Australia and Indonesia work together to realise their joint competitive advantages, to capture as large a slice of this prize as possible. This will benefit both countries.”

One of the report’s authors, PwC Partner Jeremy Thorpe, says Australia and Indonesia need to act for three reasons.

“First, global supply chains are a fundamental dynamic of international trade and neither country can afford to operate exclusively outside these.

“Second, Asia is the dominant global economic hub, the axis of which is moving south east. Opportunities surround Indonesia and Australia now, but these will be captured by other countries if there is no action.

“Third, while both countries seek to consolidate and strengthen domestic economic security to varying degrees, both are also acutely aware of the opportunities presented by an emerging generation of entrepreneurs keen to capture global returns.”

The shared platform - the Asian convergence

The Succeeding Together report focuses on four sectors - food processing, logistics, animal products and textiles/apparel - in which Australian or Indonesian comparative advantages create high potential to develop competitive advantages.

The identification of opportunities in each sector is underpinned by analysis of the Australian and Indonesian economies, current and future comparative advantages, pan-Asia shifts in capital flows, and the dynamically changing trade opportunities in Asia.

The report argues that businesses in both economies should re-orient their thinking to "facilitate mutually advantageous trade and investment opportunities" that need to emanate from a successfully concluded IA-CEPA: "This is especially important given that shifts in relative comparative advantages between the two economies indicate that Australian and Indonesian firms are increasingly partners, not competitors, in any regional trade. In this environment businesses should be seeking to cooperate along the value chain to identify cross-border value chains that allow participants in their country to focus on their comparative strengths within the value chain."

It also acknowledges that "in addition to the large established companies of both countries, Australia’s small–medium-sized businesses play a pivotal role in the Australian economy and that the expansion of small-medium-sized businesses in Indonesia will be critical to the overall growth of its economy. In fact, small and medium enterprises (SMEs) are an integral part of both Indonesian and Australian economies."

Former Indonesian Minister of Trade, and of Tourism and Creative Economy Mari Pangestu, in addressing the question “Why competitive advantage now?”, writes in the report: “Indonesia and Australia will have to diversify their sources of competitive advantage away from resources and find new sources of competitive advantage. Each country could do this on their own or together.

Former Indonesian Minister
Mari Pangestu
“Given complementarities and proximity between Indonesia and Australia, and strategic bilateral relations as well as through ASEAN, serious consideration should be given to the possibilities for joint development of competitive advantage to face the challenges ahead as well as to take advantage of the opportunities opening up. The recommendations of the Report could not come at a more timely moment.”

The Succeeding Together report includes analysis by ANZ and PwC, contributions from market specialists of both countries, and case-study interviews. Views were sought from more than 60 leaders in government, business and academia in both nations.

The report is published by the Melbourne-based Australia-Indonesia Centre which was established by the Australian Government in late 2013 to facilitate research-driven innovation and build stronger relationships between Australia and Indonesia.