With only one in five SMEs doing business overseas, it seems Asian trade agreements and increased globalisation are not enough to convince most to make the leap.
According to the latest The Voice of Australian Business survey by Bentleys, most businesses operating overseas are medium-sized, rather than small or micro, with the US, UK and Asia being the most popular markets.
The bi-annual national survey of SMEs by national accounting advisory firm found that only 19% operated in overseas markets.
Too risky for SMEs
Associate Director at Bentleys (Queensland), Scott Field, suggested the low number could indicate that SME may be “risk-averse” when thinking about going global.
“For them, international markets may present exciting growth and diversification opportunities but it can also present challenges,” he said.
“This fear often comes from a lack of knowledge in how to make the transition from a local to global business.”
What’s in it for me?
The survey stated the largest barrier was a lack of interest (38%) or lack of perceived value, followed by physical distance (35%) and not knowing how to operate outside Australia (15%).
Field said while there were challenges, overseas markets can provide opportunities for huge growth provided SMEs did their homework. [See below.]
“It 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,” Field said.
“This is where having a good advisor, who has an understanding of working with businesses expanding globally, comes into play.”
Five essentials SMEs need to do to expand
Field recommended the following:
- Business plan: It should go without staying, but perform a SWOT [strengths, weaknesses, opportunities and threats] Analysis first.
- Due diligence: Research the market you aiming for to ensure you understand the legal and regulatory framework.
- Financing structure: You need a robust financial forecast quantifying business expansion costs.
- Local knowledge: Understand the economic and political landscape of your intended market.
- Government grants: You are not alone. The Federal Government encourages exporting so there are a range grants available based on industry and market you are trying to break into. Take advantage of the recent trade agreements such as the much-publicised China-Australia Free Trade Agreement (CHAFTA) and Trans Pacific Partnership (TPP).
Other findings included:
- Distance: Those trading overseas cited physical distance as the greatest challenge (59%), then technology (44%) and cultural differences (44%).
- Awareness: Of the China-Australia Free Trade Agreement (64%) was much higher among respondents to the survey than awareness of the Trans Pacific Partnership (40%).
- Uncertainty: Among those who were aware of 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.
- Low take-up: Only 15% of those aware of the TPP or CHAFTA intended to take advantage of either agreement; 54% said they did not. Medium businesses were most likely to have plans.
- High growth in tech: Technology and agriculture were the sectors most commonly nominated for growth over the next three years. Others were health and renewable energy.