In years gone by, exporting seemed to be the domain of large companies – complete with big budgets and high staffing levels – that had saturated the local market with their products or services and needed to expand beyond our shores to continue to grow.
Yet in 2016, it is SMEs that are finding great success in tapping into overseas opportunities. Doing so, however, requires plenty of planning, preparation and perseverance.
This guide should go a long way in helping prospective exporters understand some of the dominant risks and opportunities associated with exporting, as well as the ways in which they can capitalise on the dollars to be made abroad.
Identifying and managing risks
“Like all business decisions, it’s important that you do your research and proceed with caution,” advises Kate Carnell AO, the Australian Small Business and Family Enterprise Ombudsman (ASBFEO).
“Exporting can mean more opportunities, but it can also attract greater risks. The first thing to remember is that all trade agreements are different, so you need to investigate each one individually and evaluate the risks and rewards of doing business using each one.”
Some of these risks can be blatantly obvious, while others are unlikely to even register a thought. Risks and challenges experienced by exporting businesses include:
- Restrictions on what you can export out of Australia
- Regulations in different countries
- Patent/intellectual property protections
- Managing changes in currency rates
- Shipping costs
- Sourcing and maintaining distributors in your chosen market(s)
- A lack of local knowledge in your target market(s)
- Different customer habits to those in your local market
- Brand awareness
This list is not intended to put off prospective exporters, but rather to shine a light on some of the issues that deserve attention and forethought, to neutralise their potential impacts from the outset.
Of course, venturing into new markets creates new costs – particularly up front. Shipping, insurance, marketing, travelling to attend meetings and manage relations, and potentially taking on staff and resources in the local market.
It all adds up. The majority of businesses don’t have huge sums of capital in reserve to use for such endeavours. And that means taking on working capital to finance the expansion.
“There was a survey done where 80 per cent of small businesses didn't think that they would qualify for a loan. So these are businesses that are just becoming aware that this kind of alternative funding is available to them,” explains Kevin Heydt, managing director of alternative lender 365 Capital.
“We will lend to businesses that are receiving regular payments. So it’s not a business that’s doing a transaction a month, where they get paid monthly by someone. It’s about a business that is receiving cash flow on a regular basis.”
Often it is these businesses, with solid revenue growth but no physical assets, that are keen to export their goods or services. As such, alternative finance is becoming increasingly common for funding such expansion plans.
The federal government also owns an export finance provider, Efic, which operates specifically for SMEs.
“Efic is a specialist financial services company that seeks to provide finance to small and medium-sized exporters [as well as] companies operating in an export supply chain or Australian companies seeking to grow offshore,” explains Andrew Watson, Efic’s executive director of export finance.
“We can provide loans or guarantees or bonding to assist Australian exporters in growing internationally, where they cannot export that money from their bank here in Australia. We are owned by the federal government, and therefore carry a AAA credit rating, and our role is primarily to help Australian small business grow internationally.”
In the 2015-16 financial year alone, Efic provided loans totalling $154 million to around 110 Australian SMEs, helping those firms venture into, or expand their sales in, overseas markets.
Chief among those overseas markets, unsurprisingly, was China.
“We have a regular survey called the SME Exporter Sentiment Index. What that shows us consistently is that Australian small and medium-sized businesses see China as their number one growth opportunity, followed by the US and then India,” Andrew says.
“Australian businesses continue to see strong opportunities to grow into the Chinese market.”
Arguably, the key difference of operating in foreign markets, compared with here in Australia, is dealing with foreign currencies. What most newcomers to the world of exporting don’t realise is the sheer impact exchange rate movements can have on a business’ bottom line.
“Over a 12-month period, the Australian dollar usually moves in a 15 US cent range. Without currency protection in place, this volatility can impact profit margins by 20 per cent,” says David Greene, head of dealing at AFEX Australia.
“While you can’t control everything, if you combine clear business goals with a currency risk management strategy, you are likely to be one step ahead.”
Part of that strategy is determining what currency or currencies you will use to trade (the US dollar is the default international currency), and when you will actually make your trades.
Currency traders offer tools such as forward contracts (booking in a favourable rate for use in the future) and limit orders (a floor below which you are unwilling to trade) to help you minimise movements in exchange rates – reducing potential losses as well as providing a degree of certainty with which to budget.
Some businesses prefer to keep all of their financial dealings, including currency trades, with their bank. Yet as experienced exporters – or even frequent international travellers – will attest, banks often prove to be the least cost effective means of exchanging currencies.
It is possible to find currency traders that do not charge any fees for making a transfer, and often provide better exchange rates than a bank – putting more money back into your own pocket.
Exporting support for SMEs
In addition to providing direct funding support to small businesses, Efic works closely with other government bodies to provide assistance, education and other forms of support.
“We work closely with Austrade, so around the country we are collocated with Austrade, which is really important. We often have a conversation [and provide] guidance on the export market development grant program that’s run by Austrade,” says Andrew.
“Our research shows that small and medium-sized exporters that seek advice when growing internationally … are twice as likely to succeed overseas.”
Austrade, as the federal government’s chief export and trade body, has a wealth of information and advice available for prospective and current exporters, designed to help these businesses navigate the wide range of challenges, risks and demands associated with selling into foreign markets.
Of particular interest to anyone new to the world of exporting is Austrade’s ‘Guide to exporting’ series, which provides a detailed, step-by-step breakdown of the points exporting businesses need to be aware of – from getting ready and conducting market research, through to common legal issues.
As part of their assistance packages to support SMEs, the federal government and its state and territory counterparts offer a range of grants specifically for exporting (and importing) businesses.
Austrade administers a number of grants for small businesses. Some are specific to certain industries (such as those for agriculture or technology companies), while others are region-specific.
It can be worthwhile to explore the grants available to your particular business, based on your size, industry, location and requirements. After all, as a good, tax-paying business, you deserve to take advantage of the assistance made available to you when you need it most.