Domini Stuart looks at export resources any business might require, and finds out how successful exporters have planned for the best and coped with the unexpected.
You have chosen an export market. You have an overseas representative and a promotional strategy. The benefits of exporting are so close you can almost taste them. But do you have the finance, skills, resources and capacity to support your next move?
"This is the stage that really tests your patience," says Sue Barnett, director of Revelation Racing Supplies. "You can outlay an awful lot of money, then not see a return for two years or more."
Barnett, her husband Matt, and partners Matthew and Angela Pankau, manufacture a range of products for vintage Ford cars, including suspension, brake and steering conversion kits. Their speciality means they started the business with a view to moving into the US once the Australian market was established.
"With distribution, advertising and marketing, you really need to have your systems in place in Australia first," says Barnett. "We were also meticulous in our research. We found out how many of the cars we were targeting were registered both here and in the US. We then worked out the percentage we were selling to in Australia and based our calculations on half of that in America."
To confirm interest they began by advertising in US magazines. "We bought a US 1800 phone number, so people had no idea they were calling Australia with their inquiries," says Barnett. "The upside was that, because we were receiving calls in the middle of the night, we only had to pay off-peak rates. The downside was that you can only miss so much sleep!"
Once they were confident the business would support the investment, they set up a US office and warehouse. "We now send a monthly shipment by boat," says Barnett. "We keep track of every product and model—where it’s sold, the demographic, and so on—and this really helps with forecasting and budgeting. But our strut and brake kit alone has at least 20 variations, so it’s still difficult to anticipate demand. If we don’t have something in stock we have to airfreight it, and that can be expensive."
Export Difficulties
As a landscape gardener, Stuart Dunne loved the effects he could create with natural rocks. But their weight was prohibitive, especially for larger features, and there are also sound ecological reasons for leaving rocks in place in the bush. When he found a way to manufacture lightweight artificial rocks, barely distinguishable from the real thing, he and his wife, Talei, established Universal Rocks.
After eight years in business here, they decided to export, and their timing was impeccable. "It was just before drought and water restrictions brought a slowdown in domestic sales," says export and financial manager, David Callan.
They, too, decided to concentrate their initial efforts on the 280,000,000 people in the US. "There are no issues with language," says Callan. "Apart from the size of the population, the conditions for marketing are similar, with an abundance of garden centres, which are our primary sales outlet. And, as gardening is seasonal, we wanted a market in the northern hemisphere to balance out the quiet periods here."
Despite the surface similarities, there were also fundamental differences. "One unforeseen expense was having to change colours to match the local rocks—we need a separate mould for each colour," says Callan. "We also needed to change some of the styles—Americans generally prefer larger pieces. And we couldn’t sell our Australian bestseller at all. It was designed to go against a fence, but houses in our initial locations didn’t have dividing fences."
After working through these issues, the company was prepared for an increase in demand. "We have traditionally introduced second shifts for short periods in peak season, so this experience placed us in a strong position to grow without significant capital investment. Our factory site is large enough to allow us to triple our production, which saves us the major expense of relocation. And we had installed a data system flexible enough to cope with the new volumes without major capital outlays."
However, staffing levels, a resource to be monitored by any exporter, continue to present the most significant challenge. "The rock water features are handmade, and it takes two years of training to become a master of the craft," explains Callan. "This means we have to start training staff in anticipation of sales, which is both a major expense and a major area of risk."
It also meant that their entry into the US market had to be carefully controlled. "We were selling regularly to about 300 outlets across Australia," says Callan. "When we had interest from distributors selling to 12,000 outlets, or chain stores with 4,000 outlets, we had to say no. We just couldn’t start at that scale."
Financial Planning
Exporting inevitably demands some degree of investment, and success can hinge on having the financial capacity to see it through. "Preparing thorough forecasts including profit and loss and the impact on cash flow, is critical," says Mark Evans, head of trade services for HSBC Australasia. "You need a full understanding of the costs involved in both delivering the product and financing the post-shipment component before you start negotiating price with potential buyers."
He recommends checking the following areas:
• cost of making or supplying the goods
• cost of shipping and delivering the goods (this includes clarifying who has responsibility for arranging and paying for the freight and insurance)
• payment method (the most common options are payment in advance, documentary letters of credit, documentary collections, and open account)
• payment terms (these can vary from sight to 30, 60 or 90 days)
• currency of the sale (if the sale is in a foreign currency it is important to allow for currency exchange rate movements)
• profit margin (forecasts should always take into account costs incurred by the administration and sales teams).
Managing Export Risk
While the risks associated with exporting can vary depending on the commodity, Evans highlights seven major risk zones:
1. Buyer—will they be able to pay?
2. Documentation—can you meet the terms stated in the contract?
3. Shipping—can you get the goods there safely?
4. Country—is the destination country the buyer resides in safe from political unrest?
5. Bank—are the banks involved in this transaction trustworthy and financially secure?
6. Currency—how volatile is the currency?
7. General risks related to business, such as payment terms and their impact on cash flow.
"Once the risks have been identified, you need to analyse each one and decide on a strategy to minimise its impact or remove it altogether," says Evans. "A bank that understands how to work with the trade cycle to protect your business and also optimise your company’s capital and security is an important ally. A bank that specialises in international trade and can handle transactions at both ends can also assist in mitigating potential problems."
"Austrade say that, if you can run a successful business in Australia you can do so overseas," adds Callan. "I would also recommend seeking assistance and advice from those who have done it before, and keeping an open mind. While there are similarities, there are sure to be things that will surprise you."
