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Are Aussie start-ups set for an export boom?

Thursday, 17 January 2013 | By Oliver Milman

feature-shipping-thumbGiven the strength of the Australian dollar, you’d be forgiven for thinking that it’s not the ideal time for diving into export markets.

 

But a new study has underlined the opportunities available to start-ups that do get it right. The survey, by workplace services provider Regus, found that 63% of Australian firms that export overseas have increased profits compared to just 36% of companies that trade domestically.

 

Jacqueline Lehmann, country manager for Regus Australia, says: “With the number of exporting SMEs doubling in the last two years, our survey really does show the benefit of overseas expansion for our nation’s economy.”

 

“There are substantial differences in both revenues and profitability which are clear to see – and in today’s digital world it is getting easier and easier to establish business in overseas markets.”

 

Ian Murray, executive director of the Export Council of Australia, doesn’t think it’s quite that easy to link exporting to increased profits, but agrees that Australia has a growing market on its doorstep.

 

“The margins vary hugely and there’s no doubt that industries such as IT are being squeezed by the high Australian dollar,” he tells StartupSmart.

 

“But there are several sectors that will benefit from the enormous growth we are seeing in south-east Asia. The opportunities are there. We’ve just got to be competitive because we aren’t the only ones looking at this market – businesses in the US and Europe are too.”

 

Murray says that budding entrepreneurs shouldn’t just think of China when they think of export opportunities in Asia. Countries such as Singapore, Malaysia and Vietnam are “equally important” he says.

 

Indeed, Accenture recently estimated that the purchasing power of south-east Asia will hit US$1.5 trillion by 2020.

 

It appears that Aussie businesses are cottoning on, according to the Regus study. Business leaders asked which areas will be the most profitable for export expansion in the next two years, south-east Asia has come out on top.

 

Regions seen by Australian companies
as the most profitable for expansion
in the next two years

South-East Asia

50%

China

47%

India

28%

Other Asian countries

23%

Europe

22%

North America

20%

Middle East

10%

South America

10%

Africa

7%

Central America

5%

 

“The standard of living is growing hugely in these countries,” Murray says. “The middle class in these countries is bigger than the entire Australian population. And that opportunity is only going to grow.”

 

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Murray cites IT, education and food – the latter fuelled by Asians’ switch to more western diets – as potential growth areas for Australian exporters. But the standard of product needs to be right.

 

“Australia is an expensive country so you’re not going to compete by selling low-value goods into other markets,” he says. “To be successful, you need to position yourself at the premium end.”

 

There’s a whole raft of areas you can get into, but you need to create quality products because you won’t be able to compete as a low-cost producer.”

 

Several hurdles exist for start-ups looking to export. It isn’t cheap to get an overseas operation up and running and the red tape involved can be overwhelming. Regus’ survey highlighted the main challenges cited by Australian exporters:

 

Biggest hurdles to setting up
an operation abroad

Property & admin

53%

Building an image abroad

49%

Operational staff recruitment

45%

Risk management

42%

Managing local taxation and regulations

40%

Senior manager recruitment

30%

Speed of set up

18%

Costs of senior management transferral

16%

Finding suppliers

8%

 

Murray says that he regularly sees problems arise due to a lack of understanding of another country’s business practices, as well as badly-constructed partnerships.

 

“You need a full understanding of a country’s business culture, not just their overall culture,” he says. “If you’re in a joint venture partnership, it can be very costly to get it wrong. People often get their fingers burned.”

 

“You also have to know the regulatory environment because it’s quite easy for your shipment to get stopped.”

 

“The best advice is to get advice – from AusTrade, other exporters and the government of the country you’ll be trading in. Have a strong relationship with your bank and be sure that you can afford to export, as it does sap resources. But if you get it right, the rewards are there.”

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