As the mining boom continues to lose pace, Australia’s trade and investment profile is changing. While the growth of our commodities sector may have diminished, other sectors are performing well as demand for Australian products and services overseas is strong and, in many sectors, growing.
Against this background, there are a number of opportunities for Australian businesses to expand overseas by setting up or growing export operations.
Efic recently sponsored the Australian International Business Survey (AIBS 2015), one of Australia’s largest and most in-depth surveys of internationally-active businesses. This annual survey reported on the views of 1,237 Australian businesses across 19 industry sectors which operate in international markets. Approximately 88 per cent of these businesses are involved in exporting.
The research is a great opportunity to understand what Australian exporters themselves see as the prospects for international growth for their businesses, and what barriers may potentially hold them back from achieving their international ambitions.
Overall, the research showed that exporters are feeling more optimistic about the year ahead than they were this time last year. The weaker Australian dollar is the main reason for this positive outlook.
Reflecting this optimism, 83 per cent of internationally-active businesses are planning to expand to additional countries over the next two years. The top five key target markets in terms of additional revenue were identified as the US (14 per cent), China (13 per cent), Indonesia (6 per cent), the UK (5 per cent) and India (5 per cent).
While the prospect for overseas growth is promising, exporters also identified a number of barriers that they battle against in their overseas growth efforts. One of the most challenging issues many businesses face are information barriers such as local language, culture and business practices.
Another challenge faced by many exporters is access to finance. The survey found that businesses are largely (86 per cent) relying on retained earnings to finance international business, rather than using additional export finance.
Around a third of companies that had approached a financial institution in the last three years to expand their international business said they didn’t receive the funding they needed. This figure rose to almost half for small exporters, suggesting that access to finance is even more of a challenge for small businesses.
The most common reason for failed funding attempts, at 45 per cent, were security issues, followed by the application being declined due to inadequate cash flow.
Inadequate cash flow can be an enduring issue for small businesses that are growing, and can hamper approval for additional finance that is needed to grow – a frustrating catch 22.
It’s promising to see so much optimism for the year ahead, particularly with the expectation from many businesses that they will enter new markets over the next two years.
However, these findings suggest that many Australian exporters could better grow their international operations if sufficient finance were forthcoming.
About the author:
This article was written by Andrew Watson, Executive Director – Export Finance, Efic
AIBS 2015 was commissioned by the Export Council of Australia, with the support of Austrade and Efic, and was conducted by the University of Sydney