Designing and building a facility in Asia: What you need to know

This article was first published online by Food & Beverage Industry News.

Australian food and beverage manufacturers open processing factories in Asia for many different reasons – cheap labour, being closer to markets, lower running costs.

Wiley is a company that has spent many years building up its portfolio of building projects in Asia – Thailand and Indonesia are just a few countries where they have built facilities for a variety of FMCG food specialists. Wiley’s first Asia project was 1995 for Nestle Indonesia, who where going through an expansion phase on several sites in East Java – a condensed milk factory was built quickly followed by a Milo factory and then by others including factory upgrades and central distribution centre.

Wiley brought some innovations to their projects, which provided better hygiene controls, sped up construction and reduced ongoing maintenance. An example of innovation was concrete tilt-up walls to a warehouse which made construction faster and eliminated the maintenance of repairing plastered blockwork.

After its start in Indonesia, Wiley designed some ‘signature’ facilities in the Philippines, particularly a large commissary for leading Filipino fast food company Jollibee.

There are many preconceived ideas – some true, some not so much – when starting up a factory in the most populous continent on the planet. For a start, there are still standards that have to be met. Maybe they’re not as stringent as those in Australia? Not necessarily so says the company’s advisory services director, Andrew Newby.

“We build to international standards or specific client requirements when building overseas,” said Newby. “A country like Thailand considers itself the kitchen of the world. They export to Japan, Europe and all over the planet so they have to meet high standards. You look at the workmanship level when building in Asia – the finishes – as to being similar to Australia. We look at how they might improve the way they do things, and, in some cases, we do have a lot of supervision when building as to how they carry out tasks. I find that supervision is a really strong factor in achieving great finishes.”

Wiley business development manager, Michael Fung, backs up that assertion. “When starting a project, I would advise to have somebody up there who can manage the delivery. Having an Australian supervisor is a good idea,” he said. “If you leave all the dealings with a local contractor you don’t know what you are going to end up with.”

Dealing with local government can vary from country to country. While there might be an impression that a lot of these places have third-world infrastructure, they still have construction standards that have to be adhered to, licenses that have to be put in place, approvals and other bureaucratic necessities that must be met. A key factor for food and beverage processors have to take into consideration is risk. What are the local issues? Is the government reasonably stable? Is the workforce reliable? What are the local labour laws and how will they affect my business? Fung also says that sometimes companies get caught up with the setting up and forget about the commercial aspects.

“You have to look at how they operate,” he said. “Things like bank accounts, what you need to have in place before you even go over there. Take Indonesia and Thailand for example. The differences doing business in those two countries is significant. There are differences in paid-up capital requirements to setup business. Then there are business set-up costs. It is that up front advice that they need to get from lawyers and accountants before they get their foot in the door of the country that needs sorting out and we often assist with.”

Is it easier doing business in one country compared to another? Yes and no, says Newby. It’s more to do with how the country sees itself with regard to food manufacturing than any clear set of rules designed to make things easier or harder for the companies involved.

“It is about making sure you are ready,” said Newby. “For example, Thailand has a very active board of investment. They will give you a lot of help to set up a new business. Whereas you might not get that in Indonesia because they are not such an export-driven country. So, it’s important to look for incentives.”

Then there are the reasons a company is going there to Asia in the first place. Is it to export back to Australia? Export that country’s produce around the world? Depending on what you are going to do relates to which is the best country to erect a factory.

“It’s all about supply chain,” said Newby. “It’s about what you are making. Is your raw material available in that country? Because every country is different. What are you producing? Does it make sense to build in that location? If you’re not really sure then we can help a client decide the geographical location within Asia where it makes sense to be. You have to also look at where ports are located, airports – things like that.”

Wiley is a company that has many years’ experience building facilities on the continent. This experience can go a long way to helping companies just starting their journey in Asia, especially when it comes to scoping a new project.

“It is important to get a company, or someone, with experience building facilities there,” said Wiley communications manager, Rachael Hedges. “We can start right from the beginning through our business advisory unit – from identifying what country you should go into. What is the business risk? What is the business position for going there? We make sure there is due diligence and that the company’s future planning is in the right spaces and places. Then our delivery team can partner with local suppliers and subcontractors and make sure they are getting the right advice to get the right outcome.”
And how are things looking there at the moment? Wiley is at pains to point out that the whole region – depending on wants and needs – is open for business. However, the big player in the arena – China – is never far from anyone’s thoughts. Still, opportunities abound everywhere said Newby.

“The areas that I’ve seen pretty good growth in are the Philippines, Vietnam and Indonesia,” he said. “With Indonesia for example, it has got a population of 230 million. There is a really strong domestic need for food there. Whereas Thailand has 60 -70 million people but is a big exporter because the government has been very proactive in supporting the food industry. Some Asian countries are building strong connections to China.

“As the infrastructure gets better in Asia, it is going to open up. You are then going to see more trade, which those governments are trying to do with the ASEAN (Association of South-east Asian Nations) agreement – trying to break down trade barriers in the region so labour and goods can cross borders easily.”

How does Newby feel about the near future with regard to growth, especially for Australian companies thinking of dipping their toes in the food and beverage processing market?
“Some economists say that at the moment the Asian economies are sluggish, but this view only makes sense when compared to the double-digit growth that the region experienced in previous economic cycles,” he said.

Growth rates in the ASEAN area for example are still forecast to be somewhere between 5-9 per cent in 2019 and when combined with the big populations in Asia, it is unlikely that demand for high quality food and beverages will be declining anytime soon.