Mid-sized firms well placed to drive Australian exports

| December 20, 2017

The 2017 Australian International Business Survey offers an insight into current trends in Australian exports and reveals that mid-sized firms are ideally placed to revive Australian exports.

Foreign trade should be an increasingly important driver of domestic prosperity, yet despite ongoing globalisation, rapid Asian economic development, technological advances and government exhortation, the proportion of Australian firms engaging in overseas activity has actually declined in recent years, from 9.1% in 2006/7 to just 7.1% in 2014/15.

93% of firms in the study were involved in exporting, 48% in importing, 23% in other international activities, and 19% in two-way investment. The longer a firm had engaged in international trade, the higher its export intensity tends to be, with the most likely exporters being smaller organisations in larger markets trading in countries covered by free trade agreements.

26% of the firms which confined themselves to domestic transactions blamed a lack of international leads while 22% were uncertain how to begin.  46% suggested a database of potential buyers and suppliers would help kick-start international involvement, while 41% suggested grants and 34% asked for mentoring.

Snapshot of 2017

1,068 Australian businesses were surveyed by the Centre for Business and Social Innovation at the University of Technology Sydney on behalf of the Export Council of Australia.  China (23%), the United States (22%) and New Zealand (12%) emerged as their most important single markets with Singapore and the United Kingdom on 10%.

However the 29% total share taken by ASEAN nations,  including Brunei, Cambodia, Indonesia, Malaysia, Philippines, Singapore, Thailand, Laos, Myanmar and Vietnam show the importance of Asia – and free trade agreements – as a whole.

As well as trade in goods and services, the firms engaged in foreign direct investment, manufacturing under license overseas, foriegn R&D and the employment of temporary staff.  Three-quarters of the firms to expand to new markets in the next two years, with 37% aiming for between 1-3 new markets, 30% for 4-10 new markets and 6% setting their sights on 11 or more new countries.

Almost one-in-five firms earned all their revenue with China and while  there are risks involved in relying on a single market, a singled minded focus also allows a company to invest more of its resources into attracting a particular type of customer with a niche value proposition.

Growing diversity

Although Australian exports traditionally centred on mining and agriculture and half the firms surveyed exported goods, a third offered pure services while 17% exported both goods and services.  19% of the firms surveyed earn more than half their total revenue from abroad, with over a third generating sales in 6 or more countries. The agriculture, fishing and forestry sector (95% of total revenue) and education and training (87%) earned the highest percentage from abroad.

Manufacturing has expanded its scope beyond production on the factory floor’ to include services such as operational maintenance, contract management and consulting, while the Australian agricultural sector is heavily involved in the development of agricultural technologies. The perception of traditional models of goods producing sectors must realign with more agile and flexible approaches.

More firms trade directly with foreign customers, rather than wholesalers, as buyers become increasingly accustomed to sourcing goods directly from overseas. While this threatens domestic Australian retailers, it offers export opportunities to ‘smart’ and innovative firms to not only sell goods but provide services in support of these purchases.  The most successful firms use these direct transactions to build their brand and deepen customer relationships through improved business intelligence and data analytics.

As well as increasing direct customer sales, more firms are also engaging foreign agents to overcome their size disadvantage and smooth language issues and social problems abroad.  Others are working with multi-nationals to improve networking and collaboration and access to new markets.

Australian firms also export ‘intermediate’ goods to overseas markets as part of global value chains.  The survey highlighted the success of firms offering a wide range of such goods, from aircraft components, earth moving and mineral processing machines and specialised automotive parts to medical and surgical equipment, measuring and scientific tools and instruments for chemical analysis.

While Australian ores still fuel economic development in Asia, Australian firms also make a significant contribution to technological capabilities and high-end research and development in the global value chain.

‘Born Global’

35% of respondent firms were classified as ‘born global’ as they earned international revenue within two years of their foundation.  In the past, most new firms developed a firm domestic base before gradually exploring international opportunities but some small, young firms now look abroad almost immediately, despite very limited resources.

These SMEs are playing an increasingly important role in international business and offer a new model of success by bypassing the problems of Australia’s limited domestic market. Some also look to integrate themselves into global value chains by selling either directly or indirectly through larger domestic firms.

Such ‘born global firms’ include Viator (destination services), Wiggles (creative industries), MYOB (accounting software), TNA Pty Ltd (packaging solutions), BEELINE (Agricultural GPS for hands free steering) and Cochlear (medical devices).

‘Born global’ firms are found across the economy but are more prominent in manufacturing, professional services and wholesale trade. However, despite some major success stories, most ‘born global’ firms are still micro-sized, employing 4 people or fewer, and 58% earn less than $1million in total revenue.

43% of the agriculture, forestry and fishing sector identified China as a top market for international revenue, which also accounted for 39% of education’s foreign revenue.  Singapore was also an important market for agriculture, forestry and fishing, education and training and manufacturing while Indonesia is an important earner for the professional, scientific and technical services sector and other services.

Tourism is also a key service-exporting sector, however, due to the structure of the Australian and New Zealand Standard Industry Classification codes, its revenues are not calculated as part of a distinct industry sector.

Free Trade Agreements

Australia has nine bilateral Free Trade Agreements with Thailand, Singapore, the US, Japan, China, Chile, South Korea, Malaysia and New Zealand as well as the 10 members of ASEAN.  In all these countries account for two thirds of the nation’s international trade.  Australia is also negotiating a range of further agreements with the EU, India, Indonesia and the Pacific.

Free trade agreements are designed to foster freer trade flows and create stronger ties with global trading partners as well as eliminating tariffs and behind-the-border barriers.  FTAs should also encourage investment, enhance cooperation and address intellectual property, e-commerce and government procurement issues.

Although formerly protected domestic manufacturers and retailers may fear their impact, FTAs should increase national productivity and GDP by offering access to cheaper inputs, introducing new technologies and fostering competition and innovation.

Importantly they also add to the attractiveness of Australia as an investment destination and support regional stability by encouraging the sustainable economic growth of less-developed economies.  Overall, FTA arrangements have improved survey respondents’ achievements and ability to generate revenue from international activities.

However many firms still reported that trade with China, Vietnam and other Asian countries was still hampered by visa issues, cultural differences, red tape, customs restrictions and local standards and regulation.

Although FTAs have opened new markets to Australian firms while reducing import taxes and other barriers, the correct paperwork must still be completed by individual firms to ensure that preferential tariffs are received and country of origin certificates are granted to leverage Australia’s high reputation for quality produce and goods.

64% of all goods exporters to FTA markets use a trade services provider or third party to handle FTA export paperwork, with 63% of respondents using Certificates of Origin to verify Australian products in agriculture, fisheries and forestry (79%), manufacturing (68%), and wholesale trade (63%).

Larger firms with a higher percentage of international revenue, are more likely to use CoOs than smaller organisations and 35% of respondents did not use CoOs, with over a quarter failing to understand their benefits.

While uncertainty over Brexit and the USA’s involvement in the TPP underlines the importance of negotiating new trade agreements, efforts must be made to ensure existing treaties are observed in practise and that Australian firms are educated about their general benefits and specific requirements to make the most of them.

Access to finance

Access to additional commercial finance also plays a critical role in the support of international trade. Whilst a total of 58% of respondents did not apply for any finance to support international business activity, 35% of companies did seek additional finance. Approximately 60% of these indicated they were successful in obtaining finance while the remaining 40% indicated they were unsuccessful.

Of the large businesses that applied for additional finance, 84% of them were successful. The proposition was 51% for small businesses. Smaller organisations are seeking overseas finance because they find it difficult to access funding from within Australia as lenders here are generally risk averse to lending to smaller firms with less reliable cash flow.

Better access to funding for global expansion for Australian SMEs would support the growth of both domestic and international market share, generate economies of scale, develop technical skills, improve business management and increase resilience of the economy overall.

Innovation and future growth

Joint research and development ventures between Australian and international firms are being pursued in renewable energy, biotechnologies , pharmaceuticals, precision electronics, computer chips, smart manufacturing and various agri-businesses, opening the door to profitable commercial opportunities for Australian firms. As might be expected, younger companies are more likely to generate international revenue through intellectual property than older companies.

However innovation in a range of activities, including products, marketing, organisation and processes will be vital to the prospects of all firms.  Even firms which concentrate on domestic markets will face innovative competition from abroad.

Despite increasing competition, 87% of the survey respondents expect the financial outlook for their international operations to be the same or better over the next two years compared to the last two years, with agriculture, forestry and fishing, manufacturing, wholesale trade, professional services, and education and training services particularly optimistic.

The fast changing global, digital and technological marketplace will require firms to innovate in new and expanding ways, rather than merely refine existing products and processes.  Established firms will have to redouble their efforts to compete with younger companies with new ideas as well as foreign competition.


Despite the rise of small ‘born global’ firms, the more established a company is in international markets, the more likely it is to invest in further foreign trade.  Organisations that take advantage of FTA arrangements also tend to generate a greater share of their overall revenue from international activities and trade in more countries.

More surprisingly, the larger the company, the less likely it will have a large proportion of total revenue coming from international revenue compared to smaller firms.  This final finding, combined with the tiny size of most ‘born global’ firms underlines the rich potential for Australia’s mid-sized firms to prosper by entering or expanding foreign trade, targeting high value niches and integrating with global value chains.