Exporting for SMEs: how to get it right
Tuesday, June 2, 2015/
Finding the right markets and obtaining funding are challenges, but with helpful advice SMEs can thrive in new regions.
Many growing businesses have the potential to operate beyond Australia in order to increase revenue and expand. However, as countless SMEs have discovered, there are several challenges facing businesses seeking to export.
According to Efic (Export Finance & Insurance Corporation), around 35,000 of Australia’s 44,000 exporting companies have turnover of less than $5 million.
Andrew Watson, Efic’s Executive Director, Export Finance, says SMEs that export continue to have domestic operations.
“They will have a domestic market, and then their export market may be somewhere between a quarter to a third of their total business as they build up,” says Watson.
Food and agribusiness are among Australia’s strongest SME exporters, while Australian advanced manufacturing, biotech and software companies are also seeking business overseas.
Unsurprisingly, China is a particularly significant market for Australian exporters.
“In our Exporter Sentiment Index research, the surveyed SMEs name China as their most important export market,” says Watson, “with its importance for SMEs increasing by almost 6% in the past year.”
Oceania/New Zealand was considered the next most important export market, followed by India and the United States.
While Efic’s index has SME exporters relatively optimistic at the start of the year, with 39% of companies expecting their export sales to increase over the next 12 months, exporters face several challenges.
According to Watson, accessing new markets and securing funding are two of the major difficulties facing those SMEs with their sights set overseas.
Finding the right market
“SMEs need to research carefully to find the right export market for their product and service,” says Watson, “as exporting requires a robust strategy.
“When you start to think about exporting, you’ve really got to have a good think about what’s the right market, what are the risks, and how are you going to mitigate those risks?
“You’ve also got to consider the position of your product and service in a new market, and you’re going to need to identify strong local business markets there.”
Proper research and cultivating good relationships in export markets will ensure your product ends up in the hands of the right end customer.
“Our latest research shows that 58% of surveyed SMEs expect to find it more difficult to find finance for their export or international operations,” says Watson.
“Their funding requirements can be quite specialised, especially those that are quite innovative or growing rapidly.
“So often they don’t fit into the standard lending approach offered by commercial banks in Australia.”
Commercial banks may consider emerging export markets risky, or may be unable to assess the value of intellectual property.
Watson advises SMEs to speak to their bank “early and often” about financing their exporting operations.
For those that are still struggling to secure finance, he explains that Efic works with both lenders and exporters, and as a government-owned corporation, can provide AAA-rated guarantees for bank loans, or even lend directly to exporters.
How Efic helps
Efic helped Steele Environment Solutions with a $300,000 Export Contract Loan to secure two technological advisory contracts with UK-based companies.
This loan allowed Steele to pay upfront for the raw materials and labour costs needed to fulfil this high-profile research and development project.
Similarly, Precision Mining Camps and Services won a major contract with Samsung C&T Corporation for the supply and construction of Non-Processing Infrastructure Facilities (NPI) at the Roy Hill mine site in Western Australia’s Pilbara region.
Like many companies winning large export-related supply chain projects, managing working capital is a very important part of Precision’s business, with the cost of its services often needing to be covered before the first contract payment is received.
Efic provided Precision’s bank with a $1.5 million export working capital guarantee, which allowed the bank to approve additional working capital, giving Precision the cashflow it needed to successfully deliver this important contract.
The key to exporting successfully, says Watson, is to take a long-term view.
“You’ve got to be persistent,” Watson advises. “It takes time. You don’t go into a new market and achieve overnight success.”
For more information on how Efic can help SMEs with funding and advice for exporting, visit www.efic.gov.au.
Written by: Jessie Richardson