Australian SME are primed and keen to invest overseas but are often restrained by difficulty in accessing finance and professional advice and support, new research from Australia’s export credit agency EFIC has found.
Of over 2,000 Australian SME surveyed, one in four have either already established overseas operations successfully, have tried to without success, or have plans to in the future. Typically these investments are sales and marketing operations and warehouse facilities to support their exports. Only 7 per cent of SME established manufacturing facilities overseas.
However, despite a strong appetite and the best of intentions, obtaining finance was identified as a major obstacle for SME establishing a footprint overseas. 58 per cent of Australian SME that have already established overseas facilities reported difficulties in accessing finance for these investments.
Struggling to obtain funds from Australian banks, many SME turn to overseas banks to fund their investments: 45.8 per cent reported using overseas banks compared with only 39 per cent Australian bank involvement. The difficulty in borrowing in Australia for overseas assets limits the level of debt SME can take on, with SME borrowing on average less than one-third of the investment value.
Similarly, 57.6 per cent of SME who said they are planning to export said they will approach overseas banks, while only 19 per cent will approach Australian banks.
Robert Dravers, EFIC director SME, said it was concerning that financial barriers seem to be prohibiting many Australian SME from achieving growth overseas.
“Difficulty in accessing finance is clearly a common theme that is holding SME back from building a footprint overseas. When faced with a knock back from a preferred source of funding, many SME are unaware where to turn for assistance.”
“SME are asking for more assistance and support in accessing funding sources. This indicates a key role for external bodies, from both Government and industry bodies, to help SME access much-needed funding, as well as to provide advice and education prior to overseas expansion.”
The research also found that SME are going it alone, with more than three quarters of those surveyed saying they relied on personal networks, word of mouth and trading partners as sources of advice on establishing overseas operations.
“Rather than seeking any professional advice, SME are tending to rely on their own judgements, do their own research and discuss their plans with trade partners and colleagues. While much can be learned from personal research and peer experience, there is clearly a gap for formal advice and assistance, which could significantly boost SME’ success rate overseas.
“The research shows that those with successful overseas investment were twice as likely to seek professional local advice in order to understand the market they’re investing in and the associated tax, regulatory and compliance issues, compared with those who assessed their investment as unsuccessful.
“Access to formal information and advice, coupled with assistance securing finance, can mean the difference between success and failure for SME looking to invest overseas. SME may not be aware that seeking guidance and input from an early stage in the planning process from industry groups and Government agencies such as Austrade and EFIC can help stand them in much greater stead for overseas success.”
35.6 per cent of SME exporters interviewed have experienced failed offshore attempts. Market knowledge, planning and finance, along with local management and execution issues, were cited as the key reasons for failure.
Mr Dravers said whilst expanding overseas can be difficult for a small business, help is at hand.
“EFIC is introducing a finance guarantee for Australian banks, specifically to help SME access finance for overseas investment.
“Success in international business these days usually requires a strong presence on the ground. This helps position companies to grow business in existing and neighbouring markets or to compete for global supply chain opportunities.
“Successful companies compete internationally and overseas direct investment is a core part of that strategy” said Mr Dravers. “There is a pressing need for greater financial support for Australian companies undertaking overseas investment, which EFIC aims to provide.”
