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Trading up

Whether you're importing or exporting, the world can now be your oyster. Gayle Bryant reports on trading beyond our borders.

 

These days, companies are less constrained by the geographical borders that used to deter them from trading with international businesses. Thanks to globalisation and the growth of the internet, many pre-existing barriers have come down. So what are the main issues these days for small-to- medium enterprises wishing to import or export?

According to the Australian Bureau of Statistics, more than 86% of Australian exporters are SMEs and the main industries that they are involved in are wholesale trade (36%); manufacturing (26%); business services (19%); while less prominent are retail, hospitality and building and construction.

Tim Harcourt, is Chief Economist with Austrade, the government organisation set up to assist Australian businesses with trading internationally.

Improved market access

He says SMEs wishing to trade overseas have been helped by improved market access through tariff reductions and the new free trade agreements.

"In addition, improvements in technology – through recent developments in e-commerce – have made getting into export markets a lot easier for them," he says.

Harcourt says proximity, language and business cultures are important factors when deciding with whom to trade.

"Our nearest neighbour, New Zealand, is a destination for 41% of all SMEs who export," he says. "This is followed by the United States, the United Kingdom, Singapore and Japan."

Barriers to trade

According to the latest DHL Export Barometer (a joint initiative between DHL and Austrade which measures export confidence), almost one third of exporters (32%) said they faced "no barriers" at all when venturing offshore. The rest said barriers included business/cultural ones (18%), the regulatory environment (17%), strength of competition (17%), and setup costs (16%). Language barriers constituted 13%, while formal tariff barriers accounted for only 11%.

"A major reason cited by small business for not entering international markets is the lack of skilled staff with overseas sales experience," Harcourt says. "They are willing to pay good wages, but want to have well trained and/or experienced export managers."

One concern about trading internationally has been currency fluctuations. Because the rising Australian dollar makes Australia's exported goods more expensive, businesses with substantial export markets tend to get hit the most.

"The flipside is that the rising dollar helps those companies that are importing as they are spending less when buying foreign goods," Harcourt says. "Retailers selling imported goods are the most obvious example – any fall in the cost of goods goes straight to the bottom line for these businesses."

Leigh Purnell, Executive Director, international with the Australian Industry Group, says currency rates are a key consideration of any organisation wishing to do business with an international company.

"While the rising Australian dollar has benefited importers they still need to look closely at the situation and determine when the currency rate does become a significant factor for them," he says.

"While strategies such as hedging to lock in a rate are available, we find many smaller companies don't do this."

Purnell says before a company seeks to do business internationally they should ensure they have a financial risk strategy in place.

"Companies should not rush into exporting or importing without thinking thoroughly about what is involved and especially how they would react if the currency rate changes dramatically," he says.

"They should keep close to their banks and ensure they know about the various programs available to assist them."

Harcourt adds that although exporters do indeed worry about the dollar very few drop out of exporting because of it. Despite high exchange rates, oil prices and an unsettled global political environment, Harcourt says the majority of exporters consistently believe that their orders will increase and they will continue to grow the global part of their businesses.

"One reason for this is the rise of Asia, particularly China, but another has been the breakdown of formal trade barriers," Harcourt says. "Multilateral, bilateral and regional trade negotiations are helping more Australian exporters take advantage of the opportunities in world markets. Many exporters are finding fewer formal trade barriers in place than
there were 10 and 20 years ago."

He says one reason for this has been the recent negotiation of free-trade agreements (FTAs). "Since the FTA was signed with the US, almost 25% of Australian SMEs are now trying their luck in the US compared with 19% a year ago," he says. "With possible agreements with the United Arab Emirates, China, Malaysia, and the Association of South East Asian Nations on the cards – to join the existing agreements with New Zealand, Singapore, Thailand and the US – there could be even more Aussie companies trying their luck in export markets."

Assisting SMEs

There are a number of organisations and programs available to help SMEs wanting to develop trading relationships with overseas companies.

The Export Market Development Grants (EMDG) scheme is the Federal Government's principal financial assistance program for aspiring and current exporters. The scheme is administered by Austrade and is aimed at encouraging SMEs to develop export markets by reimbursing up to 50% of eligible export promotion expenses above a threshold of $15,000.

Austrade and TradeStart also offer a package of free export services under the New Exporter Development Program which are designed to assist SMEs develop their businesses overseas and to make their first export sale. Services include advice and information about getting into exporting, coaching and assistance on the ground in foreign markets.

Another program launched this year was Headway, offered by the Export Finance and Insurance Corporation (EFIC). It is a guarantee from EFIC to a bank which provides it with security to enable it to lend additional funds to an SME exporter.

"Headway provides SMEs with working capital although they do need a bit of a track record as an exporter to be eligible," Purnell says.

NAB has its own Global Trade Finance division and Justin Williams, Head of Trade and Working Capital Products, says while many SMEs find the idea of exporting or importing complex, it can be a simple process.

"Many SMEs do not take full advantage of the various trade finance solutions they have at their disposal or perhaps consider them overly complex for their needs. This can leave businesses exposed to a number of trading risks as well as potentially paying more than they need to if they are choosing to fund their trade activities via their domestic financing
arrangements," he says.

"Setting up a trade facility is as simple as speaking to your Business Banking Manager, who can allocate or adjust your credit limit to include trade finance. Your banker will work with our trade finance specialists to develop a solution that will help with your offshore payments, advise on the best way to mitigate business trading risks with offshore buyers or sellers and arrange a suitable finance package for your pre- and postshipment needs."

NAB is also able to provide you with a range of foreign exchange solutions, like forward exchange contracts to help you manage the risk of currency fluctuations, foreign currency overdrafts to transact from, giving you fast access to currency funds and foreign currency deposit accounts to park and invest your money.

Gayle Bryant is a finance and investment writerwho contributes to The Australian.