Australian companies remain focussed on overseas expansion, despite financial barriers
Export Finance and Insurance Corporation (EFIC), the Australian Government’s export credit agency, today released their third annual Global Readiness index (GRi), which shows that Australian companies are continuing to seek expansion opportunities across the globe.
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 today.
‘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.
Highlights of the 2010 EFIC GRi:
- Australian companies are focussed on overseas expansion. Seventy-eight per cent of companies with offshore operations plan to expand them and 26% 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% of respondents as a reason for expanding offshore and 81% said their offshore operations aimed to ‘serve the local market’.
- ‘Old’ markets are as attractive as emerging markets. Of the five top offshore locations for Australian companies, the traditional markets of North America (30%) and Europe (26%) rank equally with the rapidly developing markets of South East Asia (30%), New Zealand and Pacific (28%) and China (27%). This suggests Australian companies consider a range of factors when choosing where to invest. Despite the risk of persistent macroeconomic weakness in traditional markets, these large, prosperous, transparently regulated and easily accessible markets remain attractive investment destinations.
- Access to finance remains the major obstacle to offshore expansion, although this has improved as the credit crunch has eased, with 43% of respondents naming it a barrier compared with 58% in 2009. Retained earnings continues to be by far the most important source of finance for offshore operations, with 82% listing it as a source of finance and 57% naming it the main source. Debt facilities from Australian and foreign financial institutions rank well behind. 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% 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 Mr Armour.
For more information on the 2010 GRi, please visit www.efic.gov.au/gri.