Aust companies focused on overseas expansion, despite financial barriers

In March 2010, 936 Australian companies participated in the GRi survey, which examined key aspects of their experience of going global, including the drivers, destinations and obstacles and sources and availability of funds.
“In the face of difficult conditions in the last year and lingering economic uncertainty, Australian companies’ global growth plans have held up remarkably well,” said Angus Armour, EFIC’s managing director and CEO, at the launch of the GRi in Sydney.
“Over the past twelve months, EFIC has seen a significant increase in demand for export finance and insurance solutions from Australian SMEs. The GRi results are further evidence of their optimism about their overseas prospects.”
“In addition, Australian businesses are seeking expansion in a wide range of international markets. As they see it, China and the other emerging markets are by no means the only offshore destinations that offer opportunities,” he said.
According to the survey’s results, 78 per cent of companies with offshore operations plan to expand them and 26 per cent of respondents without offshore operations plan to expand offshore.
Offshore expansion is a strategy to increase market share and serve local markets, rather than to cut the cost of goods to be shipped back home. ‘Increasing revenue/market share’ was cited by 86 per cent of respondents as a reason for expanding offshore and 81 per cent said their offshore operations aimed to ‘serve the local market’.
Of the five top offshore locations for Australian companies, the traditional markets of North America (30 per cent) and Europe (26 per cent) rank equally with the rapidly developing markets of South East Asia (30 per cent), New Zealand and Pacific (28 per cent) and China (27 per cent).
Access to finance remains the major obstacle to offshore expansion, although this has improved as the credit crunch has eased, with 43 per cent of respondents naming it a barrier compared with 58 per cent in 2009. Retained earnings continues to be by far the most important source of finance for offshore operations, with 82 per cent listing it as a source of finance and 57 per cent naming it the main source.
The financial constraint on companies’ offshore expansion therefore seems to be a structural barrier, independent of the economic cycle. Consistent with previous years’ results, access to bank finance is most difficult for small and medium-sized firms. Improved access to finance will enable Australian businesses to grow further and faster. Forty-nine per cent of respondents said that improved access to finance would allow them to grow faster in their current markets and 43 per cent that it would accelerate plans to enter new markets.
“While there are signs that credit conditions have eased in some markets, Australian companies looking at expanding overseas still face considerable financial barriers. The challenge is to find ways to help businesses pursing bankable opportunities overseas to gain the finance they need,” said Armour.

For more information on the 2010 GRi, visit: www.efic.gov.au/gri