Insurance Australia Group (ASX: IAG) and Australia and New Zealand Banking Group (ASX: ANZ) have reversed course on their Asian expansion plans – in yet another example of Australian companies failing to expand successfully overseas.
IAG has done it before of course, with its ill-advised expansion into the UK general insurance market that saw the insurer wrack up massive losses and exit its UK business. National Australia Bank (ASX: NAB) is still trying to extricate itself from its UK Clydesdale banking business, following a disastrous investment in US mortgage business Homeside. That resulted in writedowns of around $4 billion.
Now IAG's CEO Mike Wilkins says it is no longer focused on acquiring a national licence in China, and will instead focus on 'pursuing growth opportunities in our other Asian markets and our core businesses in Australia and New Zealand'.
ANZ's low-risk foray into Asia has been claimed as a failure, with analysts pointing to ANZ's institutional banking division's impaired assets, which have tripled. Bad debts shot up by $650 million last financial year.
One analyst says this is due to just two exposures, and the Australian Financial Review has noted that ANZ has 'managed to lend an incredible $100 billion throughout Asia – more than 1.6 times NAB's UK exposure and 3.7 the combined lending of NAB and Westpac Banking Corp (ASX: WBC) in the region'.
ANZ had planned to generate 25% of its profits from Asia by 2017 but is nowhere near that target.
The problem for Australian companies is that the future is global, not local – evidenced by US giants like Apple, Amazon, Google, Netflix and the rest. With a population of 24 million, less than one-tenth that of the US and Indonesia and less than Afghanistan, Angola and Malaysia, growth is limited for Australian businesses unless they look offshore.
Some companies have managed to do it successfully, though – despite the failures mentioned above. Flight Centre Travel Group Ltd (ASX: FLT) topped earnings before interest and tax (EBIT) of $100 million for the first time in the 2015 financial year, from its offshore operations in 9 countries. Close to a third of group EBIT now comes from overseas.
Home-grown healthcare stocks CSL Limited (ASX: CSL) and Cochlear Limited (ASX: COH) are global market leaders in their sectors, showing that Australian businesses can succeed on a global stage. And you also have the likes of Ramsay Health Care Limited (ASX: RHC), Brambles Limited (ASX: BXB), Amcor Limited (ASX: AMC), Seek Limited (ASX: SEK) and Crown Resorts Ltd (ASX: CWN) who all have successful offshore operations.
Foolish takeaway
The theme suggests that Australian financial services and products providers should stay at home and leave conquering overseas markets to other industries.
