Despite globalisation making it easier for businesses to operate internationally, it seems small-to-medium business (SME) owners in Australia are yet to be convinced of the benefits overseas expansion can bring.
Recent data from mid-tier accounting and business advisory firm Bentleys, found only 19 percent of businesses surveyed were operating in markets other than Australia and New Zealand.
The findings, from the latest The Voice of Australian Business survey, a bi-annual national survey of SMEs across all industries and regions, revealed of those businesses operating overseas the majority are medium in size, rather than small or micro, with the most common markets for expansion being the USA, UK and Asia.
Scott Field, the Associate Director of Bentleys Queensland, said 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.
The survey revealed the largest barrier to overseas expansion was a lack of interest (38 percent) or lack of perceived value, followed by physical distance (35 percent) and not knowing how to operate outside of Australia (15 percent).
However, Field added while it can be a challenging process for many, overseas expansion can provide opportunities for unparalleled growth. That is 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.”
“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.”
For those who were trading overseas, they cited physical distance as the greatest challenge to their operations (59 percent) over technology challenges (44 percent) and cultural differences (44 percent). Awareness of the China-Australia Free Trade Agreement (64 percent) was much higher among respondents to the survey than awareness of the Trans Pacific Partnership (40 percent). 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.
For those SMEs looking to expand into the overseas market, Field offered some tips to ease some of the challenges associated with the process:
#1. Have a business plan – perform a SWOT Analysis to identify your strengths, weaknesses, opportunities and threats.
#2. 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.
#3. Have a well thought out financing structure and ensure your business has a robust financial forecast quantifying business expansion costs.
#4. Understand the local economic and political environment.
#5. 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.