Opportunities for Australian SMEs along Belt and Road
China’s ambitious Belt and Road Initiative could act as a vehicle for the entry of small and medium-sized Australian enterprises into various global markets that are part of the land and sea route.
But this won’t be as easy as it sounds.
Smaller businesses tend to be more inward-looking, they lack scale and have limited resources, vision and connections to capitalise on the opportunities on offer.
It is likely the push into BRI’s global markets will require SMEs to consider some form of joint venture or collaboration with either Chinese counterparts or local businesses in a particular participating nation.
There are also risks and challenges for SMEs in these types of cross-border projects, where having a good risk diversification strategy is essential.
Accordingly, having the right network within the right industry in China that is part of BRI helps SMEs in their penetration into a new foreign market that, fascinatingly, could be in South Asia, Africa, or in any other BRI region.
Australia is considered a late entry into BRI, having only recently expressed an interest.
President Xi Jinping introduced the Belt and Road concept in 2013, an economic and foreign policy project that focuses on reviving the ancient Silk Road, which was the main trade route from China to Europe centuries ago.
The plan is to have the Silk Road complemented by a new maritime Silk Road that starts from Guangzhou and Hong Kong and continues through the South China Sea, covering most of the Association of South-East Asian Nations, Sri Lanka, the Middle East and Africa.
BRI will connect three continents – Asia, Europe and Africa, covering a total of 3.2 billion people – almost 45 per cent of the world’s population.
The strategy could support a revival of Chinese GDP and trade growth, and at the same time provide a chance for a growth spurt in the economies of participating nations.
This may be achievable through the development of major economic corridors that link China with Mongolia, Russia, Central Asia, South Asia (Pakistan, Sri Lanka and Bangladesh), West Asia (including the Middle East) and Europe.
The connectivity of China with the BRI participating nations is expected to lead to an increase in infrastructure projects within these nations, especially in ‘logistical facilities’ that are a precursor to trade.
According to data from management consulting firm McKinsey, more than 200 enterprises have signed cooperation agreements for projects along Belt and Road routes.
BRI is a blueprint for China to explore cooperation with new economic partners.
The nations covered in BRI are mostly emerging economies. Hence they could form more natural relations with China, as new destinations for both Chinese investment and exports.
Some scholars have also suggested the vast underdeveloped region between the prosperous West European and East Asian economies, has the potential to become a new growth pillar of the world economy, creating markets for Australian exports and outward foreign direct investment.
It is true many BRI projects are currently concentrated on the large-scale infrastructure sector.
However, as much as the expected benefits from BRI will not be as direct and current as they are for large organisations, many SME executives in Hong Kong, Singapore, and South-eastern Europe are convinced they too can seize the opportunities and play a part.
Data from the Australian Small Business and Family Enterprise Ombudsman in 2015 showed there were 2,065,523 small businesses in Australia, and this accounted for 97 per cent of all businesses in the country.
The remaining 3 per cent of companies were 51,000 medium-sized businesses, and 3,700 large businesses.
The BRI concept has been floated for a few years now, but many businesses, especially SMEs, are still unclear of what it involves and whether there is a place for them in the BRI.
That is not unexpected. Some analysts have also been less confident. There are also concerns about foreign ownership of key infrastructure.
Nevertheless, irrespective of the various interpretations of BRI, it is likely here to stay. Australia is part of the global economy, and economically it has a tied relationship with China.
It is therefore important to keep an eye on the progress of BRI and act accordingly with the right approach and attitude.
Opportunities from BRI will eventually be diminished if companies and governments do not take advantage.
Considering the scale of the participating nations, there is likely to be plenty of interest from competitors who are keen to grab the opportunities in BRI.