Growing your export push
Wednesday, 19 September 2007
Last Updated: Wednesday, 19 September 2007
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By Tim Harcourt
A fluctuating dollar has become part of life for exporters in the past two decades. Although the dollar has been trading for some time in a band of 70–80¢ for some time, it can move markedly. It has risen from about US50¢ since the Sydney Olympics.
Smart exporters don’t let fluctuations in exchange rates ruin their business plans.
1. They see a moving exchange rate as a fact of life of operating in the global economy.
2. They make decisions based on long-term plans and building strong relationships with clients, customers and business partners. One lesson of the Asian financial crisis is that Australian firms that stayed in the region were well regarded in Asia when the economies bounced back.
3. Some undertake hedging in their contracts to mitigate against changes in the exchange rate.
Research by Austrade and DHL has found that about one in four large and medium-sized exporters engage in some form of hedging (compared to only one in 20 small or micro companies). So hedging is clearly an option for medium-sized exporters.
Paul Edwards, senior manager risk management advisory for HSBC, says exporters should always look to hedge. “Hedging is an insurance against the swings and roundabouts that are common place in foreign exchange markets. Hedging allows you to lock in profits. It’s important for exporters to remember they are not in the business of running foreign exchange positions but rather selling “widgets”. By covering foreign exchange exposures, exporters will be able to focus on their underlying business rather than being exposed to the fluctuations and vagaries of global financial markets”.
Ian Rogers, trade services manager for Australasia for HSBC, recommends that exporters set up a foreign exchange account in US dollars because it “provides a natural hedge.” “I would also look into insurance, products such as Headway from EFIC (the Australian Government’s Export Finance and Insurance Corporation) and other risk mitigants beyond the traditional letter of credit.”
So in short, hedging is an option and there are many financial services available to prospective exporters who will have to deal with a dancing dollar in world markets.
*Tim Harcourt is chief economist of the Australian Trade Commission and author of Beyond Our Shores: Essays on Australia and the Global Economy. www.austrade.gov.au/economistscorner
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By Mike Preston
A revolution is sweeping the Australian economy, led by SMEs. For years, massive foreign investment meant Australia was the archetypal branch-office economy – but no more. The trend is being reversed by a new wave of entrepreneurs who, driven by new technology and the limitations of the small Australian economy, are taking their SMEs global.
In the past 10 years, Australia has increased its ownership of overseas assets by $200 billion to $286 billion, just short of the $312 billion foreign entities hold in Australia, according to a recent report by HSBC chief economist John Edwards for the Committee for Economic Development in Australia.
The great bulk of this money has flowed from Australian SMEs opening offices or acquiring overseas businesses to establish a global presence. Their profile? Mid-sized businesses in the technology or services sector that are dominant in their market sector with strong IP, marketing and management skills predominate, the report reveals.
“They’re very good at what they do but they need to go offshore to grow. This is a very typical pattern; they are often SMEs at the very beginning and then they expand by going global,” Edwards says.
But taking an Australian business global isn’t easy. Tight budgets, vast geographical and cultural distances and local prejudices – not to mention succeeding in the world’s most competitive markets – make achieving global success a huge challenge for any entrepreneur.
Adacel’s founder Silvio Salom, RedBubble.com’s founder Martin Hosking, Alien Camel’s founder Sydney Low and Hitwise’s founder Adrian Giles (who recently sold to multinational Experion for $288 million) are leaders of the new wave of Australian entrepreneurs. They spoke about the many lessons they have learned in building successful global business at The Churchill Club, a technology and innovation forum for entrepreneurs.
Look bigger than you are
It is vital for Australian businesses to project a global image to get the attention of potential investors and clients in large markets, especially the US. RedBubble’s Hosking says: “As an Australian company going global on a shoestring you have to be like a frill-neck lizard, a creature that can look an awful lot bigger and more agile than it actually is.”
Hosking, who is also chairman of fast-growing construction industry software firm Aconex, says Aconex has successfully done this by rapidly opening small, one-person offices in countries where it is looking to expand. “You put one person in to build the office and you manufacture around that person the facade that it is a lot bigger than it really is. You have a great website, all the stationery and branding in place to do that, and then when the orders start coming in you backfill around that.”
It is also a good idea to cast aside the Australian tendency to understatement. Hosking says talk big and impress quickly, especially when operating on a shoestring. “The tendency for Australians going to the US or the UK is they get a great office, do all the branding and make it all look perfect, then go a bit humble and quietly say we’re doing this and assume the Americans will be really impressed. They’re not.”
Start at the small end to get big
Just because a business has dominated its market sector in Australia doesn’t mean it will be able to do the same in larger economies. Even getting in the door to pitch for work can be difficult for a company that has developed in Australia and doesn’t have a local track record.
One good way to build a profile in a new market is to initially focus on smaller clients says Silvio Salom, founder of defence technology firm Adacel. He says smaller, low-profile clients will often be more willing to take a risk on a new entrant.
Once the first contract has been won, Salom says the next step is to build on those relationships. Early small-business relationships will open further doors into a market if bigger companies can see the advantage in letting you in.
Pick advisers, shareholders and board members with global exposure
“When you start a company, have a global vision from day one,” internet start-up investor Sydney Low says, by picking advisers (such lawyers and marketers), investors and board members with global connections.
Low says one of his ventures, a company that developed software for ISPs and large telcos, went ahead in leaps and bounds following investment by global telecommunication companies AT&T and British Telecom. “You need to know how to leverage that kind of investor. They can help you go global because you can show up in the US and the doors those names can open for you are amazing – a dollar from them is worth two or three from an investor without that exposure.”
The same principle applies when selecting board members and a chairman. Not only can board members with international connections help open doors, Low says, they can also be “advance” advocates in markets a business is hoping to enter.
Build your business as if you are planning to franchise it
Hitwise founder Adrian Giles says his company’s global expansion was made easier by adopting a “business in a box” philosophy.
“We did everything in terms of processes and documented everything. In effect we treated the business as though we were going to franchise it, even though that was never the plan,” Giles says. “It meant when we expanded to a new market we could send them a box of manuals and process documents that made it much easier for that person to establish the business and grow sales quickly.”
Hire local … but be careful
Depending on the country, hiring a local manager can be central to building market acceptance of a business product or service.
Redbubble's Martin Hosking says this is absolutely the case in the US. “They really don’t understand or respect anything outside of the US – if you have an MBA from Melbourne Business School it’s like you’re coming out of Podunk University, it just means nothing to them,” he says. “So if you are in the US and you’re not big you have to look very, very US, and that generally means getting US employees on board.”
Australian companies have to be prepared to pay big dollars to hire good US staff. “You can’t just go and hire someone in the US and think they’ll do a great job,” Adacel's Silvio Salom says. “If you look at someone if the US and pay them $200,000, that’s equivalent to someone with the capabilities that you would pay $100,000 for in Australia, so just because you’re paying a lot of money that doesn’t mean you’re getting the skill base you would in Australia.”
Adrian Giles says although Hitwise works hard to transplant its home-grown culture to all of its international offices it has found it necessary to hire local market leaders in Asian markets. “The cultures there are so different and we just found we needed people from the local market to be there, they just couldn’t operate in the same way.”
Going global? Act local
Establishing a global presence really means establishing a local presence in all the places that count, according to Alien Camel founder Sydney Low. He says an easy first step is to set up local contact numbers in your key markets – now a relatively cheap measure thanks to VoIP services such as Skype.
“When we go overseas, the first thing we do is get numbers for the key parts of the US and UK and put them on our website. It means you are up in the middle of the night but it’s worth it,” Low says.
But if you have numbers all over the world, someone needs to be available to answer the calls. Rather than setting up a 24-hour call centre in Australia, Low advises forming relationships with local partners such as advisers or suppliers. “They can be an ambassador for your outfit and help create the impression you’re open in all these time zones while you’re based in Australia,” he says.
Think carefully about your first move
As tempting as it may be to move straight from Australia into the lucrative US market, Hitwise's Adrian Giles says it is not always the best strategy because the US is a more demanding market. “We made that mistake and had to withdraw, but going back the second time after we had set up in Asia and the UK we were much more successful,” he says. “Not only were we able to gain much more respect as a successful global company, when we were hiring it was much easier because people were joining a global company, not just an Australian one.”
Giles says the UK can be a good first market for Australian companies to expand into. “The similarities in culture really make life easier, the only difference was their business culture was slightly more lethargic so our sales cycles were longer. Having said that, the British pound is the most beautiful currency in the world because when you bring it back it’s worth three times as much.”
The transition from local market player to global powerhouse is difficult. But the experience of these entrepreneurs shows with a good product, the right people and strategic thinking – not to mention plenty of hard work – it is possible to go global on a shoestring.
Listen to the entreprenuers speak
Adrian Giles co-founded online metric firm Hitwise in 1997 and is currently its executive director. Hear him talk about the lessons he learned from Hitwise’s global growth and recent multi-million dollar sale.
Martin Hosking co-founded trailbreaking internet company LookSmart. His current project is an online arts and creativity community called RedBubble.com. Hear him talk about his experience in raising money and launching companies in the US.
Silvio Salom is the co-founder and director of Adacel Technologies, an aviation and defence systems company that listed on the ASX in 1998 and is now based in North America. Hear him talk about how he grew an Australian based company into a global success.
Sydney Low has founded many companies in the last 16 years including Instant Information, Technology Strategists, New Media Research and Alien Camel and also participates in start-ups as an angel investor. Hear him talk about how he took several companies global on a shoe string.
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Lynda Slavinskis blog from Sept 19, 2007
As a lawyer who spends a lot of time advising business owners on exporting, there is one phrase that sends a shiver down my spine: “What contract?! I’m a handshake kinda guy!”
I have heard that doozey from more than one prospective exporter grappling with the idea that having proper legal documentation to support his or her export relationship is as important as attending trade shows and marketing.
International trade law can be defined as a set of loosely connected rules governing trade between two countries.
With the breaking down of trade barriers between countries and the advent of international trade organisations in the 1960s such as the UN and the World Trade Organisation, we now have a system of more uniform rules of international trade in the form of international conventions/treaties.
The “Vienna Convention” which governs the international sale of goods is one such convention, and important to know about when you are exporting. The problem is that many exporters believe that international trade law will cover them in any situation and therefore they don’t need a contract.
So why do you need contracts even if you have conventions?
Conventions don’t cover everything – the Vienna Convention doesn’t cover the following:
- Sale of services, skill or labour.
- Contracts for processing of goods (one of your most important relationships will be with your manufacturer).
- Legal issues such as the validity of the contract (if you haven’t signed it, is it still valid?).
- Legal issues regarding the effect of passing of property (so when does the importer take title?).
You can exclude the operation of conventions
Not every country ratifies the same conventions. For a convention to apply, the country ratifying the convention must also draw it down into their domestic law. Sometimes this doesn’t happen, but also sometimes countries change definitions when incorporating conventions into domestic law.
It is important to tailor contracts to reflect the particular terms of your relationship with the importer.
If you’re still partial to the handshake deal, think about this…
Contracts will clarify those deals you are making over the email or phone at 2am with an importer that speaks little English and the only words you know in French, are “Bonjour, je m’appelle John”.
What have you promised the importer in that sleep-deprived window of opportunity? Did they understand what you meant? Remember that for there to be a valid contract you must have “offer” and “acceptance”, and it is safest to get this in writing.
Contracts clarify your rights and obligations – what type of agreement are you entering into? Are you appointing a distributor or an agent or are you licensing your intellectual property to the importer and letting them run the show? Different types of export relationships give rise to different legal rights and obligations, so you must be clear on what that relationship is.
Contracts clarify other rules such as “Incoterms”. You may have heard of FOB, EXW, CIF – these are recognised international trade terms that govern the liability of each party in relation to delivery of goods, insurance and liability for the goods. They tell you what your price covers and it is crucial that you stipulate which Incoterm you are trading under. Go to www.icc.org for more information on Incoterms.
Contracts clarify when and how you will be paid and what happens if you don’t get paid.
And if that still isn’t enough to convince you, let me share a couple of real life stories from my X-Files (X for exporter!) with you…
A handbag designer had her handbags manufactured in Hong Kong. She didn’t seek legal advice because she thought it was too expensive. She had very original designs.
A couple of months into the relationship, she saw her bags rebadged with the manufacturer’s own label being advertised in a global trade journal!
As it turned out, the manufacturer had no concept of the laws of copyright (they thought that for them not to be allowed to copy the bags, the designs had to be trade marked).
They also did not understand that the designs provided to them were confidential. The manufacturer subsequently agreed to enter into a formal agreement with the required restraints in relation to intellectual property, but much trauma and potential lost sales could have been avoided by this being done at the outset.
A fashion designer got one big order from a large department store in Britain. There was no contract in place.
The department store kept ordering for a while, but in time the designer was replaced by “the next big thing”. The department store stopped ordering. The designer, who had relied on the assumption that the department store would keep ordering, manufactured 10,000 garments in advance and was left with stock piled high in their warehouse.
Did they have any recourse? No. The absence of a contract saying otherwise meant that each order placed by the department store had been a separate deal and they had no obligation to continue ordering.
So next time you’re tempted to accept a “gentleman’s agreement” remember Export = Contracts! And, no they don’t have to be 80 pages long and so full of legal jargon they scare your importer back to the plane before you can say FOB.
But they must be properly drafted (preferably by an experienced lawyer with an understanding of export and of your business), clear, formal and cover all the crucial clauses such as payment, minimum order quantities and intellectual property, to name a few.
Lynda Slavinskis is an outgoing, intuitive and commercially savvy lawyer. She has worked in-house at Sussan Corporation and Tattersall’s and now assists small and medium businesses with import, export, leases, franchising, employment and general business advice as principal solicitor of Lynda Slavinskis Lawyers & Consultants. Lynda is on the Victorian State Government’s Small Business Advisory Council. Back to top
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