The Japan, Australia business relationship: 1+1=3

It was barely reported in Australia but in October Australia’s Lendlease teamed up with Japanese telco giant Softbank to establish a joint venture to develop and own telecom infrastructure assets in the United States.

Lendlease Towers’ will partner with major US carriers to expand infrastructure to meet growing demand for data.

" The two countries have been – and remain – a great example of bilateral complementarity."

The deal is interesting in its own right for the two organisations but it’s also the most-tangible step in a long while in an opportunity which has long been touted as the next phase in a relationship cemented over half a century ago between Australia and Japan.

That opportunity is corporate Australia and Japan cooperating in third countries.

Ever since Japanese capital funded the development of Australia’s massive resources projects in the middle of the last century, the two countries have been – and remain – a great example of bilateral complementarity.

Australian resources, whether they were iron ore, LNG, coal, beef, dairy or tourism, were exported to Japan and in return Australia imported Japanese cars, electronics, tourists and soy sauce.

But the further opportunity, given both Australia and Japan are now mature economies and that bilateral trade itself, while still enormously valuable – Japan is Australia’s second-largest trade partner after China – is also mature, is in faster growing markets.

Third-country partnerships are one way the relationship can expand: the two countries, now with long-established personal and institutional networks, ongoing complementarity in financial and intellectual capital, and robust legal systems, can undertake ventures where both sides benefit.


In the latest deal, Lendlease and SoftBank have each committed $US200 million and as growth occurs will look to introduce capital partners.

Lendlease Towers will target $US5 billion in telecom infrastructure assets over the medium term and Lendlease has been appointed the joint-venture manager, asset manager and development manager.

According to Lendlease CEO Americas, Denis Hickey, critical to the deal was Lendlease’s long-standing relationship with SoftBank in Japan.

There are other examples. Austrade’s latest Japanese Investment in Australia report has case studies on Japanese brewer Kirin taking its Australian craft beer brands to Asia and industrial giant Hitachi trialling new technologies in Australia before exporting to foreign markets.

The report notes “in early 2017, Kirin began promoting the Fremantle-based Little Creatures beer brand in China”.

“With a micro-brewery in Hong Kong and a pop-up bar in Shanghai, Kirin has partnered with local distributor DXCEL to sell Little Creatures into the world’s largest beer market. Little Creatures is now sold in 15 countries outside Australia and New Zealand, including five Asian nations.”

But it’s fair to say the idea of third country cooperation has proved stronger in theory than practice.

When she was head of Austrade in Asia, current bluenotes contributor Elizabeth Masamune steered a project in Indonesia bringing together Japanese capital and Australian mining expertise. That was in the 1990s.

In 2008 I co-authored a report for the Australia-Japan Foundation with Manuel Panagiotopoulos “Australia and Japan Beyond the Mainstream” which identified third country cooperation as “one of the most exciting opportunities”.

The opportunity was also a focus of the Department of Foreign Affairs and Trade’s Economic Analytical Unit in its 2008 report Australia and Japan: How Distance and Complementarity Shape a Remarkable Commercial Relationship. It was a stream of a March 2009 Australia-Japan Business Cooperation Council Infrastructure Mission to Japan.

As one Japan-based Australian trade expert noted, “we have been talking about this for decades”.

He is now more optimistic – with circumspection – noting the Free Trade Agreement, a more outward focus from both Japanese companies and investment funds and the search for less risky but significant opportunity is behind the renewed interest.

“The Lendlease-Softbank deal is a great example and we’re seeing interest in real estate, resources, construction – throughout Asia – and also services such as legal and financial services,” he said.


Lendlease’s Japan chief executive Andrew Gauci (who is also president of the Australia New Zealand Chamber of Commerce in Japan) noted Lendlease had been working with Softbank in Japan for more than 15 years and the company was one of Lendlease’s biggest clients.

“I think that is critical to the process,” he told me on a recent Tokyo visit. “There must be a relationship, there must be an on-the-ground presence and, when I think about this with my ANZCCJ hat on, there is simply not enough Australian presence in Japan. It can’t be a fly-in, fly-out transaction.”

Gauci himself has been in Japan more than two decades and has seen the Australian presence wax and wane.

“From the Japanese perspective, they have capital, they have interest, but when they go to Australia they do want to be there with people they are familiar with, who have local scale, I think that’s critical – more so when the discussion turns to doing something together in another country,” he says.

Over the last two decades, not only have many companies pulled out of Japan but the federal and particularly the state government presence has shrunk.

Not unreasonably, focus has been on China with its scale and growth rate and elsewhere in south east Asia with demographic dividends. Japan is an ageing society which has endured two moribund decades.

Yet as ANZ’s chief executive Japan Grant Knuckey points out, there are two very strong arguments in Japan’s favour. One is the economy, under the economic restructuring of prime minister Shinzo Abe, has enjoyed its longest period of uninterrupted growth decades and demand for labour is growing.

But the other is the risk/reward characteristics of Japan. It may not have the headline growth numbers of elsewhere in the region but the risk is vastly lower. Japan is a stable democracy with strong rule of law and an economy becoming more and more open to trade.

In our Beyond the Mainstream we argued fundamental to this lower risk was the human and institutional relationships painstakingly built up over decades. The pathways, even when indirect, are well trodden.

Knuckey believes the lack of direct involvement by Australian and New Zealand companies in the Japanese economy is actually a more glaring misallocation of risk capital – by one estimate there is a greater on-the-ground presence by Australian companies in Mongolia than Japan – but the third country cooperation is interesting.

“But again I think the key is the on-the-ground presence to build that relationship. If you look at Lendlease, they are a very strong presence in Japan, they’ve done deals with Japanese companies in Australia,” he says.

There are signs Australian and New Zealand companies are once again starting to pay attention to Japan. This year’s Japan Australia Business Cooperation Committee conference in Tokyo was the best attended in years. Third country cooperation returned as an item of interest but new fields were also on the agenda like financial services and healthcare.

Gauci, with the benefit of his years in Japan, says the last 12 to 24 months has seen the biggest shift in momentum towards overseas investment by Japanese firms since the bubble period of the 80s.

He expects Lendlease, already a global player, will do more with Japanese partners in not just Australia and south east Asia but Europe and the US. With his chamber of commerce hat on, he thinks there is real scope today for a lot more such cooperation.

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Andrew Cornell is managing editor at bluenotes

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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