When you think of Insurance Australia Group Ltd (ASX: IAG) the concept of big growth opportunities via Asian expansion may not be the first thing which comes to mind, however, perhaps it should be…
In a release to the ASX last week, Managing Director Mike Wilkins highlighted IAG's expansion into Asia. The release "called on the Australian business community to quickly recognise and act on the Asian growth opportunity."
Putting its money where its mouth is.
While readers will be familiar with QBE Insurance Group Ltd's (ASX: QBE) global growth by acquisition strategy which has led to it becoming one of the largest insurers in the world, it may be surprising to some investors who haven't been following the IAG story to discover that IAG actually made its first foray into Asia ten years ago. Today it can point to operations in Thailand, Malaysia, Indonesia, China and Vietnam.
Tallied up, IAG has invested around $950 million into the Asia region and by the sounds of it investors can expect more investment to occur with Wilkins stating that the company sees "enormous potential" within its targeted countries.
Accompanying the announcement to the ASX was news that IAG recently acquired a license to operate in Indonesia, a country with a population of around 250 million people. This initial step was achieved via the purchase of a small, local insurer.
Dangers and opportunities.
Successful domestically-focused Australian companies have a mixed record of success when it comes to overseas expansion. National Australia Bank Ltd's (ASX: NAB) failed attempts come to mind. On the flip side, a carefully planned expansion into Asia certainly makes sense given the faster growth rates in the region and Australia's proximity. For example, Australia and New Zealand Banking Group (ASX: ANZ) measured approach to expansion in Asia looks sensible.
With regards to IAG's expansion, the group's approach looks equally well measured and its stated target of achieving a 15% return on equity (before regional support and development costs) by the end of financial year 2017 is pleasing to see and should be used by investors as a yardstick.
