Australian businesses looking to sell their goods and services overseas should heed some fundamental rules. Here’s advice from ANZ’s trade finance experts:
Don’t cut corners
As with any endeavour, thorough preparation reduces the risk of failure. Systematic pre-entry research and a well-crafted market-entry strategy are important. Many advisers suggest that a company seeking to export should conduct a review of its own performance over five years as a first step. This allows the business to evaluate its strengths and weaknesses.
You’re in it to make money, yes, but identifying just how you expect trading abroad will boost business can be useful when planning. Benefits can include greater economies of scale from more sales, advantages from selling out of your own season, real growth opportunities and improving the general performance and efficiency of your operations.
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Choose a good bank
This will be your most vital partner. Your bank should be able to give invaluable advice on most aspects of trade finance including risk management. It should provide you with the finance to meet cashflow needs and structure it in a way that is cost effective and allows you to continue your business cycle without difficulty. Choose a bank that has expertise in the foreign environment you’re dealing with. Letters of credit and bonds, for example, should be structured in such a way that they take market idiosyncrasies into account.
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Develop a plan
Once you’ve chosen a country to deal with, create a preliminary export plan with specific objectives. Austrade, the government agency that helps companies around the world to source goods, services and investment from Australia, can help with this.
For more information visit Austrade.
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Understand the relevant exchange controls
This is critical when setting up purchasing arrangements. If you don’t understand the exchange control regulations of the country you’re dealing with you could end up not being paid. India has tight regulations; an Indian buyer has to seek the Central Bank of India’s approval to remit foreign currency out of the country. No approval, no payment, even if the buyer wants to pay you.
China likewise has a body, SAFE (State Authority for Foreign Exchange), that monitors, regulates and approves foreign exchange being remitted out.
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Review your resources
Get staff on board for a long-term commitment and be realistic about the extra workload required and the skills and capacity needed to support the move.
Making sure you can supply on an ongoing basis and maintain product quality are obvious requirements. Will your product really fit into the new market?
Consider your reputation, not only of your brand, but your country. Once you put your brand in the marketplace offshore, can you maintain it – from an image and supply perspective?
Most importantly, can your cashflow cycle support what you want to do? Liaise with a financial provider to understand the international payment methods available and what’s best for your business – and to work out up front if you can really afford to trade internationally. Exporting involves investment, and success will depend on having the financial capacity and resolve to see it through.
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Enter contracts very carefully
What laws will the contract be subject to? China, the UK, Victoria? Typically, Australian traders who enter a contract make the contract subject to courts in Australia as opposed to another country. Trying to take anyone to court in a foreign jurisdiction can be notoriously difficult. Trying to take a foreign company to court in Australia can be equally hard.
Look at contracts carefully with your legal advisers and understand how they will work and how they will provide the security you need.
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Select your market
This is one of the most crucial decisions. Read about potential target countries’ social, political and economic environments. To gain understanding in this way will help you decide whether there are long-term prospects for you in a potential market and whether demand will be consistent.
"Easier" markets speak English and have similar cultures and business practices (like New Zealand and Singapore). “Harder” markets tend to be large or complex, have complicated import requirements or are less developed (like India, Vietnam and China).
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Have a clear pricing strategy
A clear pricing strategy is crucial to the success of export sales, and begins with understanding the total cost of exporting your product or service. Pricing will also depend on who pays the cost of freight and insurance on transactions. This is typically decided between you and your customer at the negotiation stage. It’s generally advisable to have a range of prices to offer potential customers, and to factor in exchange-rate risks at the same time.
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Go and have a look
Visit the selected country to fine-tune your understanding of the culture and environment you’ll be getting involved with. Failure to appreciate cultural differences is a common mistake businesses make when seeking to market products and services overseas.
It’s known as self-referencing – working to your own mindset and assumptions of the world. Is your branding right for that marketplace? Will your product fit into the environment? Will it potentially clash with people’s culture or beliefs (as with some foodstuffs)?
When planning to visit a potential market, one option is a formal visit program that suits the criteria for your business. This is usually done in conjunction with a trade agency.
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Guard against rate fluctuations
When trading abroad, foreign exchange is a risk you have no control over because it’s subject to global market forces. The same applies to interest rates. Some experts strongly recommend a conservative approach at first, locking in rates for the first two to three years of a start-up. Such a commitment from your bank brings valuable peace of mind.
Then when income levels rise and you get better at managing costs, you may want to look at more sophisticated products around interest and exchange rate risks. Indeed there are many products in the marketplace that can help you cover them.
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Find the right partners
Naturally, once you’ve established the issues associated with getting goods into an export market, the next step is to find a buyer. Choosing the best distribution channel will depend on your product or service, local conditions and potential returns from each option.
Will you export directly to a retailer? If local regulations are complex it may be better to use an agent or distributor who will find buyers for you. This is obligatory in the United Arab Emirates, for example, which has approved licensees who are allowed to bring in products and material. China and India have complex local regulations which can make the agent option attractive, too. You send the agent your product, they distribute it and collect the money for you.
Large high-profile buyers and retailers who purchase similar products to yours from other sources around the world are worth considering as partners. They usually have good reputations and payment histories.
Both exporters and importers should engage a reputable freight forwarder who can organise transport for shipments. And they need a good insurer.
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Where to get help
The political, legal, financial, transport, logistical and other requirements of trading internationally may be daunting, but help is at hand.
Banks will assist exporters and importers through a variety of issues, as will many industry bodies. These include the Australian Institute of Export, Aus Industry, the Export Finance and Insurance Corporation, business associations, chambers of commerce, international business consulting service providers, big accounting firms and universities.
But the most important of all is the government’s main trade body Austrade with which they all have touch points and which offers appropriate guidance in relation to your chosen geographic region. Austrade owes no loyalty to any particular organisation or group of professionals.
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You may be eligible for a grant
Look at the export grants available from your state – or the federal – government. Austrade has a number of divisions that divide grants on a regional, state or federal basis and reimburses up to 50 per cent of expenses incurred on eligible export promotion activities. For many exporters, its Export Market Development Grant scheme has meant the difference between success and failure.
Austrade can also advise on the tax inputs you can get to offset your taxable income
For more information visit Austrade.
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ANZ's trade finance solutions
ANZ offers real people to discuss your trade requirements in conjunction with a broad range of trade services products that will assist you to manage offshore trade commitments – from trade risk to financing trade flows. Whatever international business activity you’re undertaking, ANZ has the market coverage, technology and expertise to help you succeed.
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We’d like to hear from you
If you’re thinking of importing, exporting or expanding your trade dealings speak to a trade specialist on 1300 655 345, your relationship manager or visit our trade finance services page here.
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