Despite globalisation removing barriers to overseas expansion, it appears that SME owners are not yet convinced of the benefits. Recent data from Bentleys, a mid-tier accounting and business advisory firm, found that only 19% of Australian and New Zealand businesses operated in overseas markets.
The latest The Voice of Australian Business survey, a bi-annual national survey of SMEs, revealed that a majority of businesses operating overseas are medium-sized, rather than small or micro, with the most common markets for expansion being the USA, UK and Asia.
Risk-averse owners forgo global expansion
Scott Field, Associate Director, Bentleys Queensland suggested the low number of businesses operating globally could signify that SME owners feel the risk outweighs the advantages.
“SME owners can be risk-averse in thinking about going global. For them, international markets may present exciting growth and diversification opportunities but it can also present challenges. This fear often comes from a lack of knowledge in how to make the transition from a local to global business,” said Field.
Lack of interest, lack of perceived value
The survey revealed the largest barrier to overseas expansion was a lack of interest (38%) or lack of perceived value, followed by physical distance (35%) and not knowing how to operate outside of Australia (15%).
Field said that while it can be a challenging process for many, overseas expansion can provide opportunities for unparalleled growth, provided SME owners have done their due diligence.
“Going global requires an understanding of the local regulatory compliance framework, from tax and custom laws, to securitisation of intellectual property and asset protection, to appropriate business structuring, so as to identify and mitigate any potential risks,” Field said.
“This is where the need for an established relationship with an advisor, who has an understanding of working with businesses expanding globally, comes into play.”
Expansion essentials for SMEs
For those SMEs looking to expand into the overseas market, Field recommends the below:
- Have a business plan – perform a SWOT Analysis to identify your strengths, weaknesses, opportunities and threats.
- Do your due diligence. Research the market you wish to move into, and ensure you are utilising all resources available through your accounting or advisory network to understand the legal and regulatory framework.
- Have a well thought out financing structure and ensure your business has a robust financial forecast quantifying business expansion costs.
- Understand the local economic and political environment.
- Check what government grants are available, the Australian government is trying to encourage exporting and there are a number of grants available depending on the industry and market you are trying to break into. There are also a number of trade agreements in place, for instance in the Asia-Pacific region we have the China-Australia Free Trade Agreement and Trans Pacific Partnership.
Other key findings from the survey around overseas expansion include:
- For those who were trading overseas, they cited physical distance as the greatest challenge to their operations (59 per cent) over technology challenges (44 per cent) and cultural differences (44 per cent).
- Awareness of the China-Australia Free Trade Agreement (64%) was much higher among respondents to the survey than awareness of the Trans Pacific Partnership (40%).
- Among those who were aware of either the TPP or CHAFTA, there was no clear consensus as to whether the agreements would be threats or opportunities – opinion was evenly divided in both cases.
- Only 15% of those aware of either the TPP or CHAFTA intended to take advantage of either agreement; 54% said they did not. Medium businesses were most likely to have plans to take advantage.
- Technology and agriculture were the industry sectors most commonly nominated as being the likely major growth industries for Australia over the next three years. Other sectors nominated by respondents included health and renewable energy.