Benefits of exporting
There can be no doubt that exporting has numerous benefits and advantages for businesses of all sizes. It expands your business with increased sales and profits and spreads your risks; it reduces dependence on the local market; it uses excess production capacity; it provides a buffer against seasonal or cyclical demand; and it expands your skill base, management practices, marketing techniques, and ability to compete.
Exporting can be an important strategic option for small business owners who want to achieve continued business growth. This will be a critical factor in the future prosperity of the Australian economy.
The 2014 report The Impact of Free Trade Agreements on Australia: a model-based analysis prepared by the Centre for International Economics shows that Free Trade Agreements (FTAs) that include Australia lead to increases in Australian exports, production and GDP relative to what would have been the case without the FTA. Of the 19 per cent of Australian exporters who utilise FTAs, 75 per cent say these experience growth in their business.
Australian experience
While indices and aggregate statistics of trade investment and exchange of skilled people show that Australia is one of the countries taking advantage of the rise of Asia, there is concern that this engagement has been uneven. Sectoral, regional and business-size data shows that the drivers of engagement with Asia are large businesses and organisations in mining and primary sectors such as agriculture and education services. Many small businesses and SMEs in other industries have been unable to seize the opportunities of Asian growth. This is partly due to two main factors, which are fundamental to successful engagement with Asia – innovation capacity and knowledge of Asian markets. As Asian businesses and customers become more sophisticated, competition will be increasingly driven by innovation.
Impediments to export for small business
Apart from a review of innovation, it is useful to consider other impediments to exporting for small business and from there to build a framework to address these impediments. The general consensus appears to be that the primary barriers to export include: export market attractiveness; foreign practices being incompatible with domestic business; export venture management characteristics; access to suitable distribution channels; adapting to foreign market needs; government policy; and access to finance for exporting.
Export market attractiveness as a barrier includes such issues as difficulty in collecting payments from foreign customers, difficulty providing after sales service, high costs associated with selling abroad, problem quoting prices with fluctuating exchange rates and high transportation costs to ship products to foreign markets.
Overcoming impediments to export
The most successful small exporters worldwide are those that concentrate on niche markets. Australian businesses have other advantages including the Australian brand, English being the world business language and a stable and reliable system of law and governance.
Assistance for potential exporters
In Australia, Austrade has focused its expertise and resources on the world’s growth and emerging markets. According to Austrade, it is in markets where business is more difficult because of linguistic, cultural or regulatory barriers that it can add the most value to Australian businesses. The Export Markets Development Grants scheme is administered by Austrade and provides grants to cover eligible export marketing expenses. It is designed to help SMEs build sustainable overseas markets.
The government’s Australia Unlimited was developed in response to global research which showed Australia’s international reputation was based more on our physical attributes and not our intellectual and creative ones. Australia Unlimited broadens the picture by telling the stories of talented Australians, both at home and abroad, profiling their creativity and business skills and celebrating their achievements in science, technology and the humanities.
Trade agreements
Australia was among a number of countries that have sought to negotiate preferential trading agreements. During the last year, Australia concluded a bilateral agreement with China and bilateral agreements with Korea and Japan entered into force. Bilateral negotiations with India and Indonesia are continuing as well as two significant regional agreements – Trans-Pacific Partnership (negotiations concluded but awaiting approval in each country) and the Regional Comprehensive Economic Partnership.
According to the Export Council of Australia, the field of greatest importance in trade agreements is trade facilitation issues and addressing the cost and difficulties surrounding ease of access to markets. It states that the biggest issue in the FTA discussion process is the communication of benefits to exporters. These include, substantial reductions in trade barriers/tariffs in certain sectors, intellectual property, competition policy and trade facilitation.
Australia’s bilateral and regional trade agreements (BRTAs) typically contain provisions addressing aspects of trade in services, but these do not necessarily lead to significant reductions to services barriers in partner countries. In a number of areas, the main impediments to effective competition by Australian services providers in partners’ services markets are related to regulatory and institutional issues that lie outside the scope of BRTAs.
Despite this, a 2010 research report by the Productivity Commission (PC), Bilateral and Regional Trade Agreements, found little evidence from business to indicate that bilateral agreements have provided substantial commercial benefit. This may be because the main factors influencing decisions to do business in other countries lie outside the scope of BRTAs and are not directly influenced by them. Further, evidence suggests that the complexity in FTAs may act as a barrier; and that domestic reform may be delayed or compromised by the FTA. The PC’s Trade & Assistance Review 2013-14 concludes that multilateral trade reform is the most effective but recognises the political and practical impediments in achieving this; and non-discriminatory policies that seek to lower imported input costs and other business costs have the best chance of fostering firm and economic growth.
Consequently, the benefits from trade agreements are not always realised and in many cases may not flow to small business and SMEs.
Recommendation
There is a continuing role for arrangements between governments to facilitate trade and investment, for example, by establishing consistent standards, institutional frameworks and measures to improve market openness. BRTAs are one means by which such arrangements can be established.
The Australian government should prepare an overarching trade policy strategy that identifies impediments to trade and investment and available opportunities for liberalisation, and includes a priority list of trading partners. This trade policy strategy should be reviewed by Cabinet on an annual basis and a public version should be released for scrutiny and a full cost-benefit analysis before signing of any trade agreements, with better coordination to track the progress of trade policy initiatives and to ensure that efforts are devoted to areas of greatest likely return.
Within the strategy, special attention should be given to small business and SMEs and the particular problems and impediments they face in developing export markets for their goods and services.
