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Build up your infrastructure exports to Southeast Asia

Michael Mancini: It's no surprise that Southeast Asia, the rapidly growing ten-country region, is experiencing significant economic growth and widespread urbanization. And by significant, we are talking about 120 billion per year to 2020 in infrastructure investments from roads to airports, railways, clean energy, and everything in between. In fact, the opportunities cut across many sectors. But how can Canadian companies capture their share of these key opportunities? My guest is here to build the case for infrastructure exports to Southeast Asia.

I'm Michael Mancini, Editor-in-Chief of CanadExport, the official magazine of the Canadian Trade Commissioner's Service, Canada's most extensive network of international business professionals. With me to unpack the massive opportunities in Southeast Asia is Paul Shorthouse, Regional Director at The Delphi Group, a strategic consultancy providing solutions in the areas of market research, technology assessments, and corporate sustainability. Mr. Shorthouse is also Director of Conference Programming for Globe, the international leadership summit for sustainable business to be held in Vancouver in March 2016. Thanks for being here, Paul.

Paul Shorthouse: Thanks, Michael.

Michael Mancini: So from your perspective, why should Canadian companies in the infrastructure sector look to Southeast Asia?

Paul Shorthouse: Well, I think first off that Southeast Asia is a major market. It's got a combined annual GDP of about 2.4 trillion — that's Canadian dollars — and a population of 610 million people or so. That's about 20 times the size of Canada. So it's a massive market. From an infrastructure side, as you referenced earlier, there's major urbanization and economic growth that's coming along with the region. And from an environmental and social perspective, issues around getting access to clean water or sanitization, healthy food, reliable power, these are key issues for the region and they present opportunities for Canadian firms and solution providers.

The region is also quickly becoming a free trade hub of Asia due to the ASEAN economic community, or the AEC initiative, and that's really requiring stronger connectivity and modernization of infrastructure such as intermodal transportation networks, information and communication technology or ICT, and energy networks as well.

Michael Mancini: What are some of the opportunities that are particularly well suited to Canadian companies?

Paul Shorthouse: It's particularly in the areas of roads, railways, marine and airports, power, clean water supply. So the largest country in the region, Indonesia, alone has a need for about $540 billion between 2010 and 2020. In terms of the opportunities for Canadian companies, it depends somewhat on the country, obviously, in terms of the opportunities for local companies. But you know, in some cases more developed countries such as Singapore or Brunei will be looking for more advanced technology and service-based solutions in areas such as waste management or green building solutions. But more frontier or emerging markets such as Burma, Laos, Cambodia may require more basic infrastructure related to energy, water, wastewater, and transportation. So it's somewhat dependent on, you know, within those ten countries in the region, which ones are the priorities.

Michael Mancini: Now, you make the distinction between frontier and advanced economies of Southeast Asia. What are some of the differences Canadian firms should be aware of?

Paul Shorthouse: Yeah, that's a good question. I think it depends on the readiness of the companies that are interested to look at those regions. And certainly for, you know, more advanced countries like Singapore, in terms of their readiness, you know, the financing of projects and that isn't always as big of an issue. Private sector plays a bigger role there.

And in sort of more emerging economies, you know, some — project finance can be a big issue. Governments may not have the income or the ability to finance some of these major infrastructure projects. So in those cases, you may be looking at partnerships with some of the international financial institutions like World Bank or Asian Development Bank to get those projects off the ground. So in those cases, you know, developing consortiums with companies that have a presence on the ground is somewhat important. So it really depends on the readiness and the risk level, or risk tolerance I should say, of Canadian companies to some degree.

Michael Mancini: Right. And speaking of risk, you know, when I think of infrastructure opportunities, I really think of pretty much only very large companies. What are the opportunities for SMEs in particular?

Paul Shorthouse: Sure. So I would say that there are opportunities for Canadian companies at essentially two scales. So large scale projects like we've talked about — marine and airports, railways, sort of major power projects like hydroelectric dams — these large scale projects are sometimes tied to, as we mentioned, financial modules such as public-private partnerships or P3s or funding through those into financial institutions or development agencies such as USAID or Japanese International Cooperations Agency as a couple of examples. Canada has also been investing in P3 centres of excellence in Singapore, Indonesia, and the Philippines, which present potential upstream entry points for Canadian companies that want to learn more about these potential P3 projects as they developed. So you know, realistically, there's probably only a small percentage of Canadian firms that have either the presence or the capacity at the present time to directly lead this on these major P3 related infrastructure projects in Southeast Asia, and there are a handful that are doing so. But there's a strong potential for companies of different sizes to develop sort of these strategic consortiums with other domestic and international players and to act as suppliers and/or subcontractors to these projects.

And I'd say the second scale of project opportunity for sustainable infrastructure are more on the smaller scale or sort of customized in nature and involve innovative technology or service-based solution providers. So what we're seeing is increasingly opportunities for SMEs who provide engineering services or develop new or advanced technology-based systems that are able to essentially leapfrog conventional infrastructure options. So for example, you know, we're seeing that right now in distributed renewable power generation from solar and battery storage, which is a shift that is moving away from the larger, more centralized power plants and related infrastructure for transmission, for example. So this decentralized model is really key for countries like Indonesia and the Philippines, which are essentially island nations.

So — I know another example in that space might be in the water supply area, where I'm aware of innovative Canadian companies that are able to extract drinking water directly from air with high humidity levels and turn that into basically drinking water that bypasses the need for water pipelines, for example.

Michael Mancini: Right. So there really are enormous opportunities for SMEs as well. What are some of the things that Canadian companies should keep in mind when looking to do business in Southeast Asia?

Paul Shorthouse: Sure. I'd probably highlight four things that are important for Canadian companies to keep in mind when they're looking at Southeast Asia from sort of a business or export perspective. So you know, the first one would be around the need to know the local context and the market differences. Obviously there's regional political priorities, but there's also country-specific ones that companies need to be aware of. The inherent risks and how to mitigate those, obviously, as well as sort of the relative pricing or positioning of a company's technology or services is key to being successful in that region. So you know, essentially a solid business plan or marketing plan that's based on research.

The second point I would say would be more around the — strong and lasting relationships in Southeast Asia are extremely important for doing business. So ideally establishing a local presence is best, but working with trusted partners in the region can also be a — can also be a key strategy there. So Canadian companies can also look to integrate parts of their supply chains locally, for example, working in sort of consortiums or joint ventures with other companies doing business in the region, so working with Canadian or US or Australian companies might be a way to get a foothold in there.

The third point would be around, you know, looking at those financing opportunities, so engaging with the various international financial institutions and development agencies to look at funding openings, as well as providing technology or technical services to larger project developers.

The fourth one would be around what you referenced early there, and that's sort of relying on some of the — and utilizing the variety of support networks that exist for Canadian companies in the region. So that includes the Canadian embassies or High Commissions, the Trade Commissioner's Service, looking at those P3 centres as opportunity areas, as well as through some of the other federal and provincial support programs or organizations like Export Development Canada or the Canada-Asian Business Council.

And then the second opportunity is an upcoming — is the Globe 2016 International Conference and Innovation Expo that's taking place March 2nd to 4th in Vancouver. And as part of that conference, we're doing a special spotlight on ASEAN, where Canadian companies can meet face-to-face with representatives from ASEAN project developers and also potential buyers from the region. So we're expecting participation from countries that include Indonesia, Malaysia, the Philippines, Thailand, and Brunei. So it should be a good opportunity there too.

Michael Mancini: That's great. And if Canadian companies wanted to know more about Globe and all the activities surrounding the event, where can they go?

Paul Shorthouse: Go directly to the website I suggested, the first point of contact, at www.globe2016.com. Or they can contact me directly and I'd be happy to provide more information at pshorthouse@delphi.ca.

Michael Mancini: That's great. Thanks a lot for your time, Paul.

Paul Shorthouse: Super, Michael. I appreciate the time, and great chatting with you.

Michael Mancini: That was Paul Shorthouse, the Regional Director at The Delphi Group, as well as the Director of Conference Programming for Globe, the international leadership summit for sustainable business taking place in Vancouver this March. For more information, engage virtually with trade commissioners on the TCS Linked In group for doing business in Southeast Asia and Oceania at bit.ly – B-I-T-dot-L-Y – forward slash TCS-SDC-SEAO. Again, that's bit.ly/TCS-SDC-SEAO.

I'm Michael Mancini, signing off for now.

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