Exporting has some basic knowledge essentials. You could call them the ‘ABCs’ of exporting. Here they are…
Exporting has some basic knowledge essentials. You could call them the ‘ABCs’ of exporting. Here are the first few… (with more to come).
Formed by Australia and the Republic of Korea in 1989, the Asia Pacific Economic Co-operation, or APEC, is the premier forum for facilitating economic growth, co-operation, trade and investment in the Asia-Pacific region. APEC’s 21 members co-operate on topics as diverse as international trade and investment, global security, environmental standards
APEC is the only inter-governmental grouping in the world operating on the basis of non-binding commitments, open dialogue and equal respect for the views of all participants. Unlike the WTO or other multilateral trade bodies, APEC has no treaty obligations required of its participants. Decisions made within APEC are reached by consensus and commitments are undertaken on a voluntary basis.
APEC has 21 members – referred to as “member economies” – which account for approximately 41% of the world’s population, approximately 56% of world GDP and about 49% of world trade.
APEC’s 21 member economies are Australia; Brunei Darussalam; Canada; Chile; People’s Republic of China; Hong Kong, China; Indonesia; Japan; Republic of Korea; Malaysia; Mexico; New Zealand; Papua New Guinea; Peru; The Republic of the Philippines; The Russian Federation; Singapore; Chinese Taipei; Thailand; United States of America; Viet Nam.
Business Club Australia is a free membership-based business matching program that helps to create international business opportunities against the backdrop of major sporting events. To date, successful programs have been designed and implemented for the Sydney 2000 Olympics, Rugby World Cup 2003, Melbourne 2006 Commonwealth Games, the 2006 Melbourne Cup Carnival and the 12th FINA World Swimming Championships. A highlight in 2008 will be the Beijing Olympic Games.
BCA has held over 260 networking events in Australia and overseas. There are around 8500 members – with some 37% located off shore – and the BCA program has facilitated over $1.7 billion in trade and investment deals since 2000. That certainly shows the economics of networking – or ‘the power of schmooze’ – works in practice.
What more can be said of China? The Middle Kingdom is one of modern history’s major economic success stories and a booming export market for Australia. Australia sells coal, iron ore, aluminium and LNG by the boat load to Beijing, but we are also seeing great success in professional services, education, tourism and agribusiness as well. And many Australian businesses are “hugging the panda” now.
According to Austrade research, there are over 4200 Australian companies exporting to China in goods alone, illustrating that you don’t just have to be BHP Billiton, Woodside or Rio Tinto to be successful there. To help exporters navigate this amazing country, Austrade has 13 points of contact in China (with major offices in Beijing, Shanghai, and Guangzhou). In addition, Austrade has offices in Hong Kong and Taipei and representation in Macau and Kaohsiung.
Many Australian companies keen on expanding their business operations in China will be at the Beijing Olympics in 2008 as part of the Business Club Australia programme (see BCA above).
Dubai in the United Arab Emirates (UAE) is a boom town for Australian exporters looking to do business in the Middle East. The self-styled “Singapore of the Middle East”, Dubai is an entrepot (or trading hub) and a major centre for finance, transport and logistics for the Gulf region. There are thought to be over 12,000 Australian expatriates in the UAE in the banking, finance, architectural services, construction, retail, education and health sectors. In fact, Dubai is so Australian now that the AFL is hosted a pre-season NAB Cup game there between the Adelaide Crows and the Collingwood Magpies.
Every budding exporter should check out to see if they are eligible for an Export Market Development Grant (EMDG). The EMDG scheme is a key Australian Government financial assistance program for aspiring and current exporters. Administered by Austrade, the scheme supports a wide range of industry sectors and products, including inbound tourism and the export of intellectual property and know-how outside Australia.
The EMDG scheme:
To access the scheme for the first time, businesses need to have spent $15,000 over two years on eligible export marketing expenses.
Many Australian exporters adopt a franchise model where they set up businesses in a new country under their brand. In Australia’s case there’s Boost Juice, Gloria Jean’s, Cookie Man and Baker’s Delight, all doing well in markets from Mumbai to Mexico.
Of course, Australia’s most famous franchise exporter is the children’s entertainment group The Wiggles, who were also Australia’s Exporter of the Year in 2005. There are now Mandarin and Spanish language versions of The Wiggles making children laugh, dance and sing in Asia and Latin America. According to Cheryl Scott, Austrade’s franchising guru: “It’s really important to get good business partners/master franchisees, as you have to protect your brand carefully. You can be pro-active about this through careful selection in the first instance, but also thorough ongoing training and development so everyone feels part of the team.”
The General Agreement on Tariffs and Trade was set up at the Bretton Woods talks in the aftermath of the Second World War. The main aim was to avoid the mistakes of the period after the First World War, when protectionist pressures helped exacerbate The Great Depression. The GATT “rounds” encouraged countries to negotiate the reduction of protectionist tariffs and subsidies multilaterally to help enhance economic development. The final GATT round, which became known as the Uruguay Round, was completed in 1994 (see “Uruguay Round” in next week’s blog).
In a world of fluctuating exchange rates, some exporters choose to undertake “hedging” in their contracts to mitigate against changes in the exchange rate. That is they may agree at a fixed exchange rate, or a fixed price into the future, or they may take out insurance against exchange rate risk. Some exporters also carry accounts in US dollars or Japanese yen as a “natural hedge”.
According to research by Austrade and DHL around 24% of large and 25% of medium-sized exporters engage in some form of hedging (compared to only 5% of small exporters and 4% of micros). So if you’re a medium sized exporter, hedging is clearly an option.
According to Paul Edwards, senior manager risk management advisory for HSBC, exporters should always look to hedge. “Hedging is an insurance against the swings and roundabouts that are common place in foreign exchange markets. Hedging allows you to lock in profits. It’s important for exporters to remember they are not in the business of running foreign exchange positions but rather selling ‘widgets’. By covering foreign exchange exposures, exporters will be able to focus on their underlying business rather than being exposed to the fluctuations and vagaries of global financial markets”.
Ian Rogers of HSBC’s Cardiff headquarters recommends that exporters set up a foreign exchange account in US dollars as it “provides a natural hedge”. “I would also look into insurance, products from EFIC like Headway and other risk mitigants beyond the traditional letter of credit,” he explains.
So in short, hedging is an option and there are many financial services available to prospective exporters who will have to deal with a dancing dollar in world markets.
There’s no doubt that after a slow start, India has become a real pin-up for economic reform. Since India’s Prime Minister Dr Manmahon Singh started the reform process when he was finance minister in the early 1990s, the sub-continent has gone from strength to strength, breaking the shackles of its “Licence Raj” days to be a major hub for IT and professional services.
The Australian-Indian trade relationship is now becoming more than “the 3 Cs” of cricket, curry and Commonwealth with nearly 2000 Australian businesses now exporting goods to India. As a result, Austrade has expanded its Indian network with locations in Chandigarh, Chennai, Hyderabad, Kolkata, Mumbai and New Delhi as well as representation in Pakistan, Bangladesh and Sri Lanka.
In some markets it makes sense to get together with a local partner to form a joint venture or a strategic alliance rather than setting up yourself. According to research by Austrade and Sensis, joint ventures are a sign of the times when businesses want to go global.
According to Austrade/Sensis, exporting and importing is still the most important activity in internationalisation (accounting for 67% of all small and medium sized enterprises who go global) but around 9% were engaged in setting set up a joint venture with a foreign partner. The rest were involved in franchising, licensing, foreign direct investment and foreign aid procurement. Talk to Austrade before you set up a joint venture as there can be important legal procedures to be aware of in market and it is important to choose the right partner so your business life doesn’t end up like a Hollywood marriage.
Kununurra is a thriving town in the north west of Australia and like many rural and regional centres; Austrade is there to help local businesses go global. Through its 18 national offices, 51 Tradestart office (including eight export hubs) Austrade has you covered back home as well as in 62 countries and 119 offices around the globe.
In some market, exporters can consider licensing. That is you allow a local company to produce your product while receiving a royalty or licensing fee for your intellectual property. Manufacturing exporters often do this if set up costs in a country are too prohibitive. In some countries you also need export licences so check this out with Austrade as well before you set up.
In general, Austrade research shows that exporters make good managers. Exporters, on average, pay 60% higher wages than non-exporters and they also invest more in education and training, occupational health and safety, and provide better job security. So part of being a good exporter is being a good employer. Exporters also are more likely to promote women as CEOs or as their head of exporting, so watch out for some great Aussie female entrepreneurial talent hitting a trade shows and airport lounges in years to some!
Come back next week for the rest of the exporting alphabet.
Tim Harcourt is chief economist at Austrade and author of Beyond Our Shores. www.austrade.gov.au/economistscorner
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