Australia’s SME exporters are vital drivers of our economic growth, however, they’re not often an overnight success. Creating a successful export operation takes grit, determination and a good deal of careful preparation.
Australian SMEs who are considering branching into exporting must carefully consider the challenges they may face, and invest time and effort into preparing for them. There are many factors that any business looking to export needs to consider, including understanding the local market, managing their cash flow and securing access to finance.
Navigating these challenges is all part of the export journey and understanding how to prepare for this will help provide a smoother path to expansion.
Understand the local market
No matter the product or export destination, there is one factor that links successful SME exporters together, and this is their in-depth market knowledge. Detailed market knowledge is key to navigating any local challenges that may arise as export markets can be very different to the Australian operating environment.
While each market may have quite different operating challenges, some important things to look out for are industrial relations policies and practices, permitting rules, import requirements and information requirements, such as tax provisions and labour regulations, all of which may be different to what Australian businesses are used to.
It’s also useful to have a sound understanding of the different risks that are involved in exporting, such as exchange rate risk, payment risk, damage or loss of goods before payment and risks to intellectual property in markets without adequate intellectual property legislation.
Managing cash flow
Exporting can place considerable strain on a business’s cash flow, as typically payment for export contracts is after delivery. Due to the time taken for international delivery, the period between starting work and getting paid could be much longer than the arrangement SMEs have with their Australian customers.
This means that SMEs will need to carefully consider the impact that exporting could have on their cash flow, as they may need substantial funds upfront to pay for market entry, production and delivery, while payment may be delayed for some time after the products have been shipped.
It’s also worth business owners considering the impact that exporting will have on their domestic operations, ensuring that they have adequate financing in place to continue to secure domestic business while executing a large export contract.
Securing access to finance
Australian SME exporters often face challenges in securing access to finance. This is something that came through clearly in the recent SME Exporter Sentiment Index, a quarterly piece of research which assesses SMEs’ take on domestic and international conditions in relation to exporting.
This research showed that close to a third of businesses expect access to finance will become more difficult over the next twelve months.
Much of this difficulty in accessing finance is related to the fact that SMEs’ funding requirements often don’t match the standard lending criteria of banks, making it difficult for them to attain the credit they need. Typically, banks will be looking for ‘bricks and mortar’ collateral, or significant assets to lend against; requirements that SMEs often aren’t able to meet.
This finance is often the key to securing export contracts which may require substantial financial commitments up front in the form of performance bonds and warranties, additional capital to purchase raw materials and investment in growing the capabilities of the business.
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About the Author:
Andrew Watson, Efic Executive Director, SME
Efic, a specialist financier which helps Australian companies grow overseas, is often able to assist SMEs access this much needed finance through the range of specialised solutions that they provide.
