When a leading South African construction and engineering company set its sights on expansion into Asia, it turned to China focused international advisory and procurement firmThe Beijing Axis (TBA) to provide insights into the opportunities and challenges, and to identify prospective business partners in the region.
William Dey-Chao, General Manager of TBA – part of Imperial Logistics group company Resolve – outlines the client’s motivation: “As Asia-Pacific’s construction boom gains momentum and the region’s engineering, procurement and construction players – especially those from China – become increasingly active overseas, a greater number of companies are aiming to incorporate the Asia-Pacific region into their own development strategy.”
Partnerships with strong Asian companies can help African companies not only expand into the Asian region, but also strengthen their position locally. The client wanted to understand the country level, industry level and company level situations in key Asia-Pacific construction markets in order find a suitable partner that would facilitate its expansion into the region, as well as strengthen and bolster its domestic position.
The Problem
Dey-Chao explains that the client’s dilemma was two-fold. “On one hand, the client’s business was highly concentrated in South Africa and was therefore exposed to the impact of a shrinking SA construction market after the 2010 Soccer World Cup. On the other hand, Asian players, particularly Chinese players, were building up their presence in other African countries, thus taking market share from local companies and hindering the client’s plans to further develop into Africa.”
Facing these issues, the client decided to turn the threat of new entrants into an opportunity, by partnering with a company from the Asia-Pacific region in order to leverage a partner’s expertise and networks and to capture mutual synergies for accessing new growth markets in Africa. The problem was to adequately identify countries and sectors for future expansion, and to select the right partner capable of meeting the client’s targets.
The Beijing Axis Approach
In order to identify regions and sectors for expansion and to select the most suitable partners for the client, TBA started with an Asia-Pacific country level, industry level and company level analysis. Dey-Chao elaborates: “We then proceeded to prioritise opportunities as well as identify, filter and select potential partners before developing a framework on how to enter or co-operate with these partners.”
Finally, senior consultants then planned, implemented and accompanied the client on an Asia-Pacific engagement trip. This enabled them to directly negotiate with stakeholders, with TBA offering strategic support and post engagement assessments.
TBA provided its client with strategic options for partnering with Asian firms in Africa (inbound direction) and for entry into Asia (outbound direction). “For the inbound direction, we shortlisted nine potential partners and recommended that our client establish a joint venture with – or sell a strategic stake to – a Chinese player,” Dey-Chao reveals. “For the outbound direction, we recommended that the client enter the Australian market by acquiring a controlling-stake in a construction company. We developed a preliminary shortlist of 26 take over targets that offered the highest revenue synergies, either along the value chain or across the industries.”
The Outcome and Lessons Learnt
As a result of this project, TBA’s construction industry client has an Asia strategy in place that addresses a range of issues. Dey-Chao outlines some of the lessons learnt: “The Beijing Axis’s competitive landscape analysis revealed that the infrastructure sector generates the most revenue for the most promising Asian countries from construction and engineering market perspectives, while housing was considered the least attractive sector due to relatively slow growth rates and strong competition.”
TBA also discovered that Asia presents great opportunities to fuel future growth for international construction and engineering companies through partnerships, which are becoming increasingly prevalent.
In the Asia-Pacific region, Australia and Indonesia are the most favourable countries for engineering projects, especially in the domestic mining and extraction sectors. For infrastructure development, Australia, China, India and Indonesia are the most attractive countries. For building and housing, India and Indonesia stand out as the most promising Asia-Pacific countries.
Since some African companies have already started approaching Asian players, Dey-Chao says that there is a strong imperative not to procrastinate on inbound strategies. “Gaining early mover advantage is critical,” he stresses.