Manufacturing News

Exports remain key to future growth

ALTHOUGH Australian exporters are faced with numerous challenges, including the escalating Australian dollar, the latest DHL Export Barometer compiled by Austrade and DHL reveals around 70% of manufacturing exporters anticipate their orders will increase over the next 12 months.

As well as the high exchange rate, other challenges include high oil prices, the rise of China and India’s manufacturing prowess, and continuing issues such as market access, logistics and trade promotion.

According to Tim Harcourt, chief economist with the Australian Trade Commission (Austrade), the exchange rate is just one factor affecting the decision to export.

“Most of the economic evidence shows that since the Aussie dollar was floated over two decades ago, exporters have got used to fluctuations in exchange rates as part and parcel of doing business off-shore,” Harcourt told Manufacturers Monthly.

“Since the Australian economy became more internationalised, the majority of our exporters don’t let fluctuations in exchange rates ruin their business plans.

“They see a moving exchange rate as a fact of life operating in the global economy and make their decisions based on long-term plans and building strong relationships with clients, customers and business partners.

“In fact, according to research by Austrade and DHL, whilst most exporters regularly monitor the exchange rate, only 20% believe that it will affect their decision to further invest or expand their overseas operations. Many exporters also undertake ‘hedging’ in their contracts to mitigate against future changes in the exchange rate.

“Other economic factors are important including strong commodity prices and overall growth in the world economy.

“Long term growth in export volumes is mainly determined by global economic demand, so a continuation of above average trend growth in the world economy – particularly in the Asia Pacific area — will be a more important factor affecting exporters than an 80 US cent or even a 90 cent plus exchange rate.”

STMs vs ETMs

Harcourt believes that in looking at Australia’s recent export performance, it is important to distinguish between Simply Transformed Manufactures (STMs) and Elaborately Transformed Manufactures (ETMs).

“Both STMs (such as aluminium, paper and pig iron) and ETMs (including motor vehicles, medicines, pharmaceuticals, precision instruments and wine) increased by 7% in the last financial year. But it is the rise of ETM exports that is the big story of recent years.

“Also, many high performing categories in manufacturing exports are in the residual or ‘other’ list. This occurs because many new industries are so new (and small) that the statisticians simply don’t have a category for them yet.

“In considering Australia’s manufacturing export future we need to remember that trade is a two way street. We need both imports and exports to grow and prosper — in fact many exporters in manufacturing (some 45%) are also importers because of the nature of intra-industry trade.

“Historically, there has only been a focus on direct exporting between Australian and usually just one other market. But many Australian businesses export components that are re-assembled elsewhere and re-exported. Many components are assembled in China and re-exported to other markets in East Asia, North America and Europe, but this is not confined to China alone.

“In addition, many Australian companies that contribute to our export effort don’t seem to get noticed or be officially counted as exporters. For example, an increasing number of Australian companies are ‘hidden exporters’ as part of global supply chains that provide components to larger global companies which then export from Australia.”

Harcourt says that although exporting is a tough game, it is also commercially rewarding as exporters, on average, earn high profits, are more productive and grow faster than non-exporters.

Austrade assistance

A broad range of assistance is available for new and existing exporters including selecting an export market and developing a market strategy, advice from lawyers, accountants and tax professionals associated with Austrade, and financial assistance through export grants.

Austrade programs also include the New Exporter Development Program that offers free services for small and medium-sized Australian businesses that are new to exporting or have limited international experience.

Further information about Austrade’s services is available at www.austrade.gov.au.

Government review

The Minister for Trade, Simon Crean, has announced a comprehensive government review of Australia’s export policies and programs.

The review will examine Australia’s trade performance over the past two decades and identify factors that impact on export growth.

“The Government wants to assess the challenges and develop a strategic, whole-of-government approach to advancing Australia’s international economic and commercial interest,” Crean said.

“Under legislation, the Government is required to initiate a review of the Export Market Development Grants (EMDG) scheme by 2010. Given the integral role of EMDG in the current mix of export policies and programs the EMDG review will be brought forward and undertaken as part of this review.

“A separate research project on Australia’s approach to free trade agreements will be undertaken in parallel with the export policies and programs review, and its results will be incorporated in the review’s final report,” Crean said.

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