Does the idea of taking your best-selling Aussie product or service global appeal? Introducing your offering to international markets can be rewarding, provided you venture forth fully prepared.
Exporting might formerly have been viewed as the domain of large companies with access to large budgets and staff complements and which need to reach beyond our shores or risk stagnation as they’ve saturated the local market.
However, SMEs are now also realising some measure of success by tapping into overseas opportunities. But, as previously mentioned, this success relies on loads of planning, preparation, and perseverance.
So, we’ve taken the time to highlight some of the principal risks and rewards associated with taking your brand global as well as ways you, as a prospective exporter, can capitalise on your overseas income stream.
Research and risk management
As with all business decisions, it’s essential you begin by doing your research. While exporting can lead to increased business opportunities, it can also attract significant obstacles. The first thing to remember is that trade agreements vary, so it pays to proceed with caution and evaluate the risks and rewards of inherent in each agreement individually.
Some challenges may be blatantly obvious, while others might not immediately grab your attention. The obstacles typically faced by exporting businesses include:
Restrictions on what you’re allowed to export from Australia,
Import regulations set by your target countries,
Patent/intellectual property protections,
Managing currency exchange rates,
Shipping costs,
A lack of local knowledge of your target markets and prospective customers habits,
Sourcing and maintaining distributors in your chosen markets,
Growing brand awareness.
Capital input
Another challenge with venturing into new markets is the resulting demand on your capital, in particular, the associated upfront costs for covering shipping, insurance, marketing, business travel, extra staff, and additional resources.
It all adds up, and if your business is like most other SMEs, you don’t have massive sums of capital just lying about for such endeavours which means you’ll need to apply for working capital to finance your expansion.
This is where alternative funding providers – like 365 Capital – can prove invaluable as such lenders are more likely to assist SMEs with working capital than traditional banking institutions as long as the SME in question is receiving regular payments.
Such assistance can make all the difference to 80% of small businesses that wouldn’t ordinarily qualify for a bank loan. As a result, alternative finance is becoming an increasingly common source of funding for SMEs looking to conquer foreign markets.
There is also Efic, a specialist government-owned financial services company that specialises in providing finance for small and medium-sized exporters, companies or businesses operating in an export supply chain or Australian companies and businesses looking to expand offshore.
Efic’s primary role is helping Australian SMEs grow internationally through the provision of loans as well as guarantees or bonding in the instance they cannot export that money from their local bank. And as Efic is government owned, it carries a triple-A credit rating.
Foreign exchange
Arguably, the most fundamental difference when operating in overseas markets is handling foreign currencies. What many new exporters don’t foresee, is the sheer impact exchange rate fluctuations can have on their bottom line.
Consider that over a 12-month period, the Australian dollar typically experiences a 15 US cent volatility range. Without currency protection in place, this degree of deviation can affect your profit margins by up to 20%.
While it’s impossible to control every aspect of trading globally, by combining clearly defined expansion goals with a currency risk management strategy, you’ll be in a better position to weather severe exchange volatility.
The first step is to determine which currency or currencies you’ll be trading in, and when you plan to make your trades, bearing in mind the US dollar is the default international currency.
Some businesses and companies prefer to conduct all their financial dealings, including currency trades, through their bank. However, as experienced exporters will confirm, banks are usually the least cost-effective means of exchanging currencies.
Currency traders typically offer more competitive exchange rates than banks. Plus, tools like limit orders – a floor below which you’re unwilling to trade – and forward contracts – so, cementing a favourable rate for future use trades – to help counteract exchange rate fluctuations, reduce potential losses, and safeguard your budget.
It’s also possible to find currency traders who don’t levy fees for arranging a transfer, putting more money back in your pocket.
Export support
Further to providing direct funding support to small businesses, Efic works alongside other government bodies like Austrade to render assistance, education, and other forms of support for SMEs wishing to export their products or services.
Research shows that SMEs that seek expert export advice when going international are twice as likely to succeed.
Austrade administers several export market development grants for SMEs. Some are assigned to designated industries such as agriculture or technology companies, while others are region-specific. As the government’s chief export and trade body, Austrade is an invaluable source of information and advice available for existing and prospective exporters.
This includes Austrade’s “Guide to Exporting” series which provides a detailed breakdown of the points you need to be aware of as a potential exporter and successfully navigate the challenges and demands associated with doing business in foreign markets, from how to prepare your business for expansion and conduct market research, through to common legal issues.
It can be well worth your time exploring the various grants and assistance packages that the federal government and its state and territory counterparts make available to assist exporting (and importing) businesses and companies, based on size, industry, location, and other requirements.
After all, as a law-abiding, tax-paying business, you’re entitled to take advantage of such government assistance to take your business global.
Get expert support
At SMART Business Solutions we are specialist is international tax and have a network of peers in key countries around the world. We even recently undertook a Global staff swap with a firm in the UK that we work with. Hayden is currently in the UK and we have David here in our offices. https://www.xero.com/blog/2017/07/xero-inspired-global-staff-swap/
What now?
Are you contemplating taking your business global? Do you need help navigating the challenges and risks associated with exporting or importing or divining a currency risk management strategy? With the Global market getting smaller and smaller there has never been a better time to spread your wings and grab these opportunities. SMART Business Solutions is at your service. Contact us today for more information.
Want to grow your business & improve cash flow?
You need SMART solutions for YOUR business, not just annual tax compliance! Get the SMART team working with you. Call SMART Business Solutions today on 03 5911 7000 or reception@smartbusinesssolutions.com.au.
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