How do you approach the massive US market? Is the FTA really helping? Is our strong dollar really eroding our advantages? Joe Parkes examines the big picture and looks at how successful exporters are working around problems
To Australian exporters, America often beckons like the biggest and most bountiful apple tree in the international trade orchard. While it can be, there are many issues to consider.
Two-way trade between the two countries now stands at $47.4 billion, or 11 percent of Australia’s total import and export account. The United States ranks third, behind Japan and China, among Australia’s top two-way trading partners and destinations for exports.
And Australia has scored some excellent export wins in America, according to Austrade, in areas such as US Government procurement—everything from defence equipment to services (especially architecture), beef, wines, power boats, space navigation instruments, motor vehicle engines, sailboats, books and health care equipment.
Unfortunately, this heroic export effort begins to pale when you discover that our successes are overwhelmed by Australia’s massive shopping list for American imports—part of a national trade deficit that Craig James, chief economist at Commsec, believes is likely to continue for at least the next five years. In the simplest terms, our trade deficit means Australia is spending more money overseas than it is making at home.
It doesn’t help that some of our smaller exporters admit they find the idea of pursuing the US market a bit daunting—attractive and beckoning but, hey, a bit too tough to tackle. They’ll argue that America is okay for big, strong operators like Westfield and News Corporation but what chance does a small, family-run business have against those canny Yanks?
Austrade’s chief economist, Tim Harcourt, understands where they’re coming from. He blames uncertainty about the US market on Australia’s ‘historically poor’ export culture. When it comes to exporting, it seems, Australians have traditionally presented only low levels of ‘intention’. Even the Free Trade Agreement (FTA) signed between Washington and Canberra is sometimes viewed as being a bit dubious.
Since the two countries signed the bilateral trade deal, Australia’s yearly trade deficit with the US has blown out by more than 35 percent, fuelled by our increasingly muscular dollar and sliding consumer demand in America.
There’s no doubt the US dollar—once the backbone of international trade—is showing signs of distress, encouraging talk that America’s massive market is loosening its grasp on the global economy.
But Harcourt believes things aren’t as gloomy as they seem. He says research is showing that the FTA is beginning to have a beneficial impact on our export trade and may be delivering additional benefits by raising awareness of trade opportunities among Australians.
“The US is so big and so diverse that both big and small Australian exporters can establish themselves there,” says Harcourt. “And there are a lot of small businesses doing well in America—a reflection of the fact that an estimated 90 percent of Australia’s 42,000 exporters are SMEs.
“There’s been a noticeable increase in the number of Australian SME exporters selling to the US and most trade experts believe that free trade agreements
are evolutionary and need time to take hold. The FTA with America is a framework for closer economic integration.”
New Rules
If the FTA comes as a bonus, there are some surprises that aren’t quite as welcome. A prime example is the raft of new rules and laws—some specifically affecting American food imports—that have been introduced as part of America’s ‘War on Terror’. America’s Bioterrorism Act has prompted its Food and Drug Administration to adopt interim rules under which foreign food and beverage exporters now must designate a US agent whose main purpose is as a communication link with the FDA. In addition, the FDA now requires advance notice to the Bureau of Customs and Border Protection (CBP) of incoming food shipments at least five days before arrival.
Pam and Martin Brook’s small family-run business, Brookfarm in Byron Bay, sells macadamia products to the increasingly health-conscious US market and has been affected by the changes but insists that, once you have registered with the FDA and worked out how the system works, it doesn’t cause problems.
“The new rules delay courier samples sometimes, but for normal shipments it’s not a problem because, like other food manufacturers, we use an importer to take care of the issues,” Pam Brook says. “Business in the US is tough at the moment because of the Aussie dollar strength and we have had to trim costs because of our strong dollar.”
A company for whom the US market is certainly working is innovative Darwin-based Aerosail, which designs and manufactures shade and tension membrane structures for use in homes, school grounds, swimming pools, playgrounds, car parks, cattle sale yards, car yards, aircraft hangers, and open-sided workshops.
According to managing director, James Taylor, the FTA has helped make a difference in Aerosail’s sales to America which now account for 25 percent of all the company’s exports. In pre-FTA times, they amounted to ‘zip’.
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“Before the FTA was signed, we were paying up to 35 percent duty in the US, which knocked us out of the market,” he explains. “Now we pay no duties, putting us on an equal level with the locals, and because our production costs are lower and we manufacture a niche product, not widely produced in the US, we have a competitive advantage. But the appreciation in value of the Australian dollar is threatening to take some of the sparkle off that advantage.”
Taylor’s view is widely supported by other trade specialists. Tony Pensabene, associate director of economics and research at the Australian Industry Group (Ai Group), says that for every one cent the dollar appreciates, Australian exporters suffer a 0.3 percent loss of earnings. And as the dollar climbs, it makes more of our products uncompetitive.
“Australia’s manufacturers believe that when the Aussie dollar reached 85 cents, about 90 percent of their products became uncompetitive and more exposed to competition from goods from other countries,” Pensabene explains. “Of course, the impact varies across industries. But Australia still has a price advantage over the US because our exporters can produce cheaper exports than the Americans.”
John Brown, founder and director of Sydney-based industrial design house Design Resource, sees Australia’s advantage in other areas. The company, whose design projects range from small electronic consumer goods to major transport systems, like Sydney’s “Millennium” suburban rail cars, won its first jobs in the US 18 years ago and, since then, has expanded its design work on a global scale.
“The FTA has made no discernable difference to our America-based operations,” says Brown. “Australia’s high levels of education and the dedication of Australians to innovation and development sets us up as naturals for the US market—but we have to go that extra yard to succeed. We have to do our research, work hard, refuse to cut corners and avoid pretending we know everything.
“To Americans, we have a more European sense of design and we tend not to be quite as conservative as them. It’s this international approach to design that gives Design Resource its appeal. Pursuing the US market is not a part-time job and not something you can approach in an ad hoc way. American companies are very risk averse and the ‘can do’ approach of Australians works well there because we can usually respond within very tight timeframes. But
if you attempt to take a more off-hand approach to an American opportunity you are bound to lose out.”
Brown says Australia is one of the very few highly skilled centres of innovation in the southern hemisphere and Design Resource uses that skills base to offer 24-hour access to its designs studios.
“We benefit by not being asleep when the overseas client in another time zone is working. If an American company builds a relationship with an agency in Australia it can discuss its needs with the Australians while our two time zones overlap, and then get the Australians to deal with the issues in Asia later on in our day.”
James Taylor’s appreciation of the US market is considerably more down to earth.
“The best thing of all about American buyers is their capacity to pay for the product,” he says. “Most Americans don’t know the FTA exists; it just doesn’t register with them and I doubt it has much to do with the market opening up to Australian exporters.
“The access provided by the FTA has been a big help to us and our markets there have grown 10- to 20-fold—in some instances, even more—but there are some aspects of doing business in America where the FTA has no impact whatsoever. A prime example involves American state-based legislation designed to protect local jobs. For example, before Aerosail could install its product in Hawaii, the company had to be licensed as a contractor and establish a place of business that had to be staffed by a company employee 40 hours a week. Similar demands exist in other American states.”
Taylor overcame his problem with the Hawaiians by establishing a partnership with a local business that had all the necessary licences and agreements and was in the same industry as Aerosail but not dealing with the same product.
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“You can’t regard the US as one huge market,” Taylor says. “It has to be divided up into smaller markets. For us, California is one market, the south-west round Texas is another, then there are the south-eastern states round Washington DC, the north-east, the Rocky Mountains states like Colorado, and southern states such as Florida, Georgia and Mississippi, and there’s Hawaii and Guam, which we link together as another market.”
Harcourt agrees that it pays for Australian exporters to be cautious when approaching the US market. “Just because Americans speak English doesn’t mean you can relax and approach the market lightly,” he warns. “In particular, watch out for your copyright protection. It’s a tough market. Nevertheless, before the FTA was introduced, 19 percent of all our SME exporters were dealing with America. The figure is now above 30 percent.”
Taylor counsels that the key to market success is finding the right distributor.
Help Lines
You’re not alone when you decide to approach the American market. Organisations in both Australia and the US provide a variety of support service for exporters determined to launch their products there. They include:
AmCham: The American Chamber of Commerce in Australia (AmCham) is Australia’s largest international chamber of commerce. The chamber's objectives are to promote two-way trade and investment between the US and Australia.
Contact:
Sydney: (02) 9241 1907, email nswamcham@amcham.com.au
Melbourne: (03) 9614 7744, email adminvic@amcham.com.au
Perth: (08) 9325 9540, email wa@amcham.com.au
Adelaide: (08) 8362 0900 sa@amcham.on.net
Austrade
The Australian Trade Commission (Austrade) is the Commonwealth’s statutory agency to support exporters and develop the nation’s export trade. It maintains offices around Australia and in the US—in Atlanta, Austin, Boston, Charlotte, Chicago, Colorado Springs, Denver, Fresno, Honolulu, Kansas City, Las Vegas, Los Angeles, Miami, New Orleans, New York, Phoenix, San Diego, San Francisco, Seattle and Washington DC.
In Australia, call 132 878 or email info@austrade.gov.au
Advance
An Australian expatriate organisation based in New York, Advance provides services to Australian professionals in Manhattan. It has around 3,250 members across seven geographic regions in the US with links to business figures in the US like the Murdoch, Lowy, and Pratt families, and Wall Street firms like JP Morgan and Merrill Lynch. Advance is also focusing on small and medium-size enterprises and works with Austrade to help grow the number of Australian exporters in the US market.
Contact:
Advance Global Australian Professionals, New York, phone +1 212 682 2885.
American Australian Association
The AAA is the largest non-profit organisation in the US devoted to relations between America, Australia and New Zealand. It operates throughout the tri-state and the New England regions. Membership includes prominent commercial and financial institutions operating between the US and Australia.
Contact: +1 212 338 6860, or email information@aaanyc.org
