Manufacturers demonstrate why more SMEs are looking abroad in the coming year

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The future is promising for manufacturing exports, with economic conditions offering excellent opportunities for manufacturers. A number of recent developments have created these favourable conditions. Andrew Watson writes.

The Australian dollar has depreciated over the previous 12 months which has made Australian goods and services more competitive than they have been for some time. The Australian Government has also signed a number of free trade agreements with China, Japan, and South Korea. These agreements have opened up these markets through lower tariffs and preferential access. This reduction in tariffs makes it easier for Australian manufacturers to sell their goods and products into these markets.

While the manufacturing industry is going through some challenges, the lower Australian dollar and new free trade agreements are seeing a number of manufacturers take advantage of export opportunities. Two such examples are HEGS Australia and GDK Group.

Global growth for HEGS Australia

HEGS Australia is the South Australian-based manufacturer of ‘HEGS’, the innovative pegs with hooks that allow clothing to dry without marks. HEGS help to maximise hanging space, have an ergonomic grip for ease of use and use a grip lock system that holds washing taut, keeping washing secure on the clothesline and reducing the need for ironing.

In Australia, HEGS are sold through major retailers such as Woolworths, Big W, Harvey Norman and The Good Guys. As part of its export growth strategy, HEGS Australia holds international patents for its innovative peg, and now has distributors in the United States, Canada, Mexico, South Africa, England, Scotland, Ireland and China.

HEGS have received several design awards, including the 2014 International Good Design Award and the 2014 Design Institute of Australia’s Gold Design Award.

Overcoming a funding gap

HEGS Australia needed to increase its production capacity after winning three large export contracts into South Africa, China and the US. In the production cycle, there is often a delay between when HEGS Australia pays its suppliers to produce the product, and when revenue is received from buyers.

This financing gap can be up to three weeks which puts significant pressure on cash flow and makes it difficult to increase production to fulfil large new orders. While HEGS Australia’s bank has been supportive of its new export contracts, it was unable to approve the additional working capital needed, due to insufficient tangible security.

Efic provided HEGS Australia’s bank with a A$250,000 Export Working Capital Guarantee, which allowed the bank to provide the additional working capital HEGS Australia needed to cover the upfront manufacturing and pre-shipment costs for the three new export contracts.

Being able to fulfil such large orders helps to enhance HEGS Australia’s reputation with overseas distributors for quality and reliability, and allows the company to continue with its overseas expansion.

International success for GDK Group

Another example of an innovative manufacturer which is taking advantage of the excellent conditions for export is GDK Group. GDK is a NSW-based, family-owned business that is a multi-disciplined manufacturer of acoustic panelling, timber wall and ceiling panels and customised design finishes.

Established over 30 years ago, the business started with eight staff and with a focus on the NSW commercial market. Today, GDK employs close to 100 staff, operates out of a 6000sqm ISO certified manufacturing facility, and has evolved into one of the leading joinery and architectural components manufacturers in Australia, servicing the commercial and industrial markets.

GDK clients include blue chip companies such as CBA, Lend Lease, ANZ, Telstra, Westpac, NAB, Rio Tinto, Macquarie Bank, Google and Sydney Airport, as well as various Federal and State government agencies across the country.

Capitalising on a new opportunity

Exporting for close to five years, GDK has delivered projects in Singapore, Indonesia and the Philippines, and is continuing to experience significant interest in its products from the Asian market, due to their high quality.

In order to build on its initial success in the region, GDK developed an international expansion strategy that includes opening a sales office and showroom in Singapore. This will help the company capitalise on further opportunities in Asia, allow GDK to build its staff numbers and give potential clients the ability to see the product offering.

To make this expansion a success, GDK required funding for set-up and operating costs of the new Singapore office and showroom. While its bank was supportive of GDK’s expansion plans, they were unable to provide further finance.

Efic was able to provide an Overseas Direct Investment Guarantee to GDK’s bank. This allowed GDK to establish an office and showroom in Singapore, and continue on a path of export growth in the Asia region. GDK is now focusing on making exports the largest part of the business.

A lesson for all manufacturers

Both HEGS Australia and GDK Group have grown their businesses by identifying demand for their products in international markets. Through innovative thinking they were able to explore business growth and at the same time look at new avenues to unlock funding for their export opportunities.

These businesses show that there are opportunities for Australia’s manufacturers, through identifying the right markets for your goods and products, and by thinking innovatively about alternative sources of funding for export.

EFIC
02 8273 5333
www.efic.gov.au