Engagement with the world by Australian small and medium sized enterprises (SMEs) is increasing beyond exporting according to a new survey by International Business Wales (IBW).
In a survey of 102 Australian SMEs in the first quarter of 2007, IBW’s Global Aspirations Study found that the top one third of Australian SMEs was engaged in active off-shore investment with a further 13 per cent considering global expansion.
The survey also showed that SMEs were moving beyond exporting when it came to global engagement. Of the global SMEs, 29 per cent engaged international through exporting goods or services, 29 per cent did so through a fully-owned foreign subsidiary and 27 per cent through a foreign agent. An additional 12 per cent pursued their global links through a join venture.
The study’s measure of a third of global SMEs exporting differs from a study undertaken by Austrade and Sensis in 2001that showed that over two thirds of globally engaged SMEs were involved in traditional exporting and 61 per cent were involved in importing. However, the Global Aspirations Study’s results are consistent with the findings of The Diplomat Global 100 which showed that Australia’s top 100 global companies earned over $180 billion in off-shore revenue which is well over four-fifths of Australia’s export revenue earnings of over $210 billion.
Australian companies – including our top SMEs – are finding new ways to expand into global markets. So why do SMEs expand globally? Because there’s everything to gain and, on average, nothing to lose. The survey shows that most companies found global expansion have been a positive experience, with two-thirds identifying no negative impact on their business whatsoever.
What are the benefits of global expansion especially through foreign direct investment (FDI)? 47 per cent of the businesses surveyed said they did so to access foreign markets, 39 per cent were lured by financial and tax incentives and 28 per cent did so to get a foothold in neighbouring markets.
But it’s not for everyone as for the 50 per cent of those SMEs not investing overseas, three quarters said FDI was not strategically desirable, and a further 13 per cent said it was not feasible. Given the strength of the Australian economy, which is now in its 17th consecutive year of expansion, this is perhaps not surprising. But what are the main barriers?
For the most part, financial risk was the main reason for staying at home – with 52 per cent nominating risk as a factor. The local work ethic/service culture was nominated by a third of SMEs staying onshore, whilst 18 per cent mentioned political and economic instability and 14 per cent technological operational failure.
The obstacles were all in-market with no disincentives emanating from settings back in Australia.
Which countries did they invest in? The traditional favourites were all there with the USA first followed by the UK, then Singapore, China and Hong Kong, Malaysia France and New Zealand. The investment destination results are in some ways similar to the Austrade/Sensis exporting SME results with New Zealand, USA, UK making up the top three with Singapore and China chiming in after Europe.
Five of the top eight investment destinations also happen to be markets where free trade agreements (FTAs) are in place or are being currently negotiated. What about the future? The study expects those businesses with global commitments to expand and deepen their investments.
In addition, of all SMEs contemplating global expansion, 85 per cent will do so within a two year time horizon. In addition, the study shows that when it comes to global engagement Australian SMEs are learning that there are many roads to market.