In May of this year I was interviewed by Asialink Business for a report they were researching; my focus was specifically around our Encar investment in South Korea investing as a listed business as well as a little on our COVID-19 response.
The report has been published this month so I thought I’d share some key take outs from my very small involvement to the Winning in Asia report. Winning in Asia is the result of a partnership between Asialink Business – the National Centre for Asia Capability – the Commonwealth Bank of Australia (CBA), the Australian Institute of Company Directors (AICD), Chartered Accountants Australia and New Zealand (CA ANZ) and The Sid and Fiona Myer Family Foundation (https://winninginasia.com.au/).
Building an International Strategy
carsales kicked off its International Strategy with a strategic investment in Brazil (Webmotors, July 2013) but in reality, the International Strategy commenced some years earlier as we started to look at emerging markets and put ourselves out there for opportunities. Asia was one of the markets of interest for obvious reasons and the SK Group, one of the bigger and well known Chaebols in South Korea, approached us to invest in their SK Encar business.
SK Encar was an offline and online used car business (meaning it had an offline used car dealership as well as an online used car marketplace); this interested us but we were keen to remain online focused and weren’t keen to invest in offline. So over a period of 3-4 years we discussed online only, how we could separate, the impacts that may have, understanding the South Korean market, etc. and nearly most importantly, it was valuable time in getting to know SK as a partner and understanding the SK Encar management.
In March 2014 we became 49.9% shareholders in SK Encar with SK the controlling partner (we subsequently increased our stake to 100% in January 2018). Right from the outset we were very active from a strategic perspective, having not only 2 seats on the Board but a lot of operational time with management, just like we were in our Brazilian investment
From an online perspective, South Korea has a few notable differences from the other markets we are in and/or spend a lot of time looking at. For a start, in most markets Google is king of search whereas Naver is the Google of South Korea as the dominant search engine while WhatsApp is the dominant messaging platform through Latin America and most of the world, KakaoTalk owns the messaging space in South Korea. This shows that South Koreans are at the forefront from a digital perspective, are patriotic to home grown technology and implores local knowledge – all challenges for foreign online platforms.
Then if I look at the online automotive space in which carsales specialises, the dealer structure through Australia, Latin America, North America, Europe, etc is pretty much the same in the structure that dealers operate; South Korea’s dealers have the same needs and wants but has some big differences that change the landscape from an online perspective (ie franchised new car dealers cannot sell used cars).
We found this is mainly driven by the dominance of Chaebols, and in particular in the auto space Hyundai and Kia, in the South Korean market with government policies and subsequently dealer structures driven to protect consumers.
These and similar factors in other sectors need to be considered in transporting foreign online platforms into South Korea. The roles of the Chaebols and how far their reach is spread need to be understood and factored into any investment decision in South Korea.
The biggest challenge to developing online platforms in Asian markets is properly understanding each market – it’s not so much the online platform the consumer sees as that is usually the easy bit, it’s the back end systems required to integrate to the trade partners that is key in any country. In our space it’s integrating and partnering with the dealers.
The majority of our integrations (and value) are IP based – injecting our IP into our acquisitions and immersing the acquisitions into our culture, In saying that, transporting IP can be far more beneficial with technology accompanying it.
What we’ve done in South Korea so far from a technology integration perspective has been service based. For instance, Encar uses technologies such as the carsales search functionality on the website and image services in the back end through a service based architecture.
In smaller acquisitions in Mexico, Chile and Argentina we have put these businesses on to our carsales Global Platform where these businesses run on the same platform as carsales to gain efficiencies, economies of scale and delivering best in class features into these businesses.
From a process perspective and being a listed business, processes around governance can’t be ignored and are integral from an integration perspective.
Managing Investor Relations
What we’ve done with investors to build support is mainly through our half yearly results road shows and numerous one on one meetings where we always talk through our strategy of looking at emerging markets with strong market dynamics for businesses that are number 1 or a close 2 where we think our technology and/or IP can help accelerate the growth. We then can show in each business where the opportunities are and what stage we are at.
We have always stated that we won’t be impatient in entering new markets; all our boxes need to be ticked before we move into one. Being consistent with our messaging as well as living it is key to building support with investors.
Part of the challenge of being an executive in a public company is balancing the short term expectations with the long term, it’s part of the landscape and part of our remit where our incentive structures are tailored to meet the balance that we need. The creation, maintenance and execution of strategy planning is key to this acknowledging the short term goals we need to meet to meet investor and market expectations while at the same time provides the stepping stones required for the long term strategy.
The carsales International strategy fits within this framework and becomes part of the overall business strategy.
Responding to COVID-19
COVID-19 has affected carsales in a similar way to most businesses where we’ve had to adapt to having everyone working from home, embracing technologies such as Zoom, etc. Supporting our people has been very important and our People & Culture team have done a great job in ensuring we cross all the T’s and dot all the I’s to ensure we give all our employees all the support they need in the safest way possible.
From a business and client perspective, it’s been supporting our clients as partners and in each country the way we do this has differed according to where the country is at in responding to the pandemic. We have also tried to be more proactive in introducing features such as being able to show to Consumers which Dealers offer contact less Car Delivery services so that Consumers don’t have to leave home to test drive and buy a car.