Opinions

IPA

Exporting for growth

Vicki Stylianou

The world economy, including global value chains, is changing rapidly and this presents new challenges for business. The rise of China, India and other emerging markets in Latin America, Central Asia and Africa has widened global economic activity, while major innovations in technology and finance have changed the way business is done.

Benefits of exporting

There can be no doubt exporting has numerous benefits and advantages for businesses of all sizes. It expands your business with increased sales and profits and spreads your risks; it reduces dependence on the local market; it uses excess production capacity; it provides a buffer against seasonal or cyclical demand; and it expands your skill base, management practices, marketing techniques and ability to compete. Exporting can be an important strategic option for small business owners who want to achieve continued business growth. This will be a critical factor in the future prosperity of the Australian economy.

The 2014 report “The Impact of Free Trade Agreements on Australia: a model-based analysis” prepared by the Centre for International Economics shows free trade agreements (FTA) that include Australia lead to increases in Australian exports, production and gross domestic product relative to what would have been the case without the FTA. Of the 19 per cent of Australian exporters who use FTAs, 75 per cent say they experience growth in their business.

Australian experience

While indices and aggregate statistics of trade investment and exchange of skilled people show Australia is one of the countries taking advantage of the rise of Asia, there is concern this engagement has been uneven. Sectoral, regional and business size data shows the drivers of engagement with Asia are large businesses and organisations in mining and primary sectors, such as agriculture and education services. Many small and medium-sized enterprises in other industries have been unable to seize the opportunities of Asian growth. According to the Centre for International Economics, this is partly due to two main factors – innovation capacity and knowledge of Asian markets. As Asian businesses and customers become more sophisticated, competition will be increasingly driven by innovation.

Impediments to export for small business

Apart from a review of innovation, it is useful to consider other impediments to exporting for small business and from there to build a framework to address these impediments. Primary barriers to export include export market attractiveness, foreign practices being incompatible with domestic business, export venture management characteristics, access to suitable distribution channels, adapting to foreign market needs, government policy and access to finance for exporting. Export market attractiveness as a barrier includes such issues as difficulty in collecting payments from foreign customers, difficulty providing after-sales service, high costs associated with selling abroad, problems quoting prices with fluctuating exchange rates and high transportation costs to ship products to foreign markets.

Overcoming impediments to export

The most successful small exporters worldwide are those that concentrate on niche markets. Australian businesses have other advantages, including the Australian brand, English being the world business language and a stable and reliable system of law and governance.

Recommendations

Governments should continue to facilitate trade and investment, for example, by establishing consistent standards, institutional frameworks and measures to improve market openness.

The federal government should prepare an overarching trade policy strategy that identifies impediments to trade and investment and available opportunities for liberalisation. This strategy should be subject to annual review, including being subject to public scrutiny and full cost-benefit analysis before the signing of any agreement. There should be better coordination to track the progress of trade policy initiatives and to ensure efforts are devoted to areas of greatest likely return.

Within the strategy, special attention should be given to small business and SMEs and the particular problems and impediments they face in developing export markets for their goods and services.

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