To market, to market to export Australian…

The mining boom has brought with it the opportunity for direct export, increased demand for local resources and stimulated growth in services for the resources export supply chain.

However, with a strong Aussie dollar Australian manufacturers are increasingly looking for the best ways to export their goods overseas.

Ai Group chief executive, Innes Willox said a good place for exporters to begin is to identify markets where the unique selling position of their product has the best chance for success.

“If your product is about safety, targeting a country with weak OHS laws might not be the best course of action,” Willox said.

To combat this, Peter Mace general manager at the Australian Institute of Export said it is important manufacturers thoroughly research and visit the market proposed for export to check there is a willing customer base and that pricing is in line with expectations.

“We often find trade shows are a great way for manufacturers to assess what competitors are doing, what distributors and agents they could potentially partner up with and also what end customers are looking for.

“You get to see the whole lot under one roof at a trade show and they might find that they might need to do some product changes or modifications to meet the local market and they would come through from doing research, visits and going to trade shows,” Mace said.

Preparing your business for trials and tribulations exporting brings is vital, Austrade has developed the International Readiness Indicator, an online tool designed for new exporters to easily determine whether your business is ready to make the leap into international markets.

When beginning to export NAB said it is imperative to research the market, learn from other’s mistakes, validate the product and understand the competition.

“Selling into export markets is more complicated than dealing with domestic customers. It requires an understanding of the various logistical issues involved, a new skill set and a medium to long-term commitment to make the effort worthwhile,” NAB said.

However, developing a sound export strategy is the key to longer term export success. Willox told Manufacturers’ Monthly that the way you export will depend on the market entry strategy you choose and the channels to market available to you. 

“A sound export strategy will help you in dealing with bankers, financial advisers and government agencies. It will ensure you grow within your capability – and not stretch resources,” Austrade added

Willox went on to state that “direct exporting is not for everyone, using a consolidator or working with existing major customers can be lower risk option".

Trading on our reputation

Trading on country of origin strengths is a strategy that tends to be undercapitalised by many Australian manufacturers’ Ian Harrison, CEO at Australian Made, told Manufacturers’ Monthly. 

“Very fortunately for Australian exporters and producers being Aussie is a positive in most market places in the world.

“We are recognised as an economy with very high standards because of the quality products we manufacturer and the produce we grow and process,” he said.

Harrison said in other countries around the world the cost of maintaining the quality standards Australia takes for granted is high and compliance and accountability is low

“In other communities, particularly the case in Asia, because of the costs of maintaining those standards there is often not the level of compliance that we would find comfortable here in Australia.

“Aussie products and produce command a premium in those regions,” Harrison said.

The Export Finance and Insurance Corporation (EFIC) is Australia’s official export credit agency, owned by the Federal Government they can stretch beyond what the commercial market and banks can do, helping Australian based exporters in situations where their banks might not be able to through the mitigation of both country and exporter risk and overcoming financial barriers.

Jonathan Reso, director, SME and mid market origination at EFIC told Manufacturers’ Monthly that although Australian manufacturers are facing testing times, there is support available.

“It’s no secret that these are challenging times for some exporters. However, there are a number of things that can be done to help mitigate challenges. For example, utilising all forms of support, including those from government for trade missions; targeting geographies where you have experience and connections or existing clients that other companies do not; and focusing on unique high-end 'smart' solutions leveraging 'best-of-breed' IP,” Reso said.

In a tough market, Australian manufacturers are utilising opportunities abroad to expand their business, allowing risk to be spread whilst reducing dependence on domestic markets.

Although what’s considered ‘hot’ really depends on what segment you’re involved in.

“There are a lot of opportunities for service providers in the mining sector. A lot of those companies are doing particularly well. They’re following Australian miners into markets like Asia, Africa and into South America; they’re finding them to be very strong markets doing well for them,” Mace said.

“For other manufactures there are opportunities going into Asia, parts of Africa and maybe even India, it really depends what your product line is to determine where your opportunities will lie,” he added.

The Australian Export Council is the industry body for the Australian export community; their primary goal is to promote Australian industry in international markets by breaking down the barriers to trade.

“We tend to look at the trends, looking at where existing companies are looking into, we also encourage people to work with Austrade, they have people on the ground and they have on the ground information about what products are working best in which markets and where the demand is.

“It’s a combination of looking at what others are doing, getting some good market research to see what’s happening on the other end and testing it out yourself,” Mace said.

Of course not all markets suit everyone, Willox told Manufacturers’ Monthly the best ways to determine what the hottest export market is for your product is to look for opportunities that match Australia's capabilities and look for governments working towards pro-business policies to reduce the political risk of some emerging markets.

Markets on our front door

“Asia continues to be very important for Australian exporters and the ASEAN Australia NZ Free Trade Agreement has opened up new opportunities in markets such as Vietnam and Myanmar.  Ai Group is also actively helping members looking at identifying the emerging opportunities in Latin America, particularly Brazil, Mexico, Columbia and Chile,” Willox said.

In areas where consumers rely on the health and safety of a product, Australian products are very well received.

“Our products are received very well in Asia because of the high standards in health and safety.

Harrison added that Australian "manufactured products are very well regarded because of our exacting standards that we live with every day in this country".

Searching for the hottest economies with the least risk is a challenge in itself but figuring out how to minimise tariffs and import taxes is a whole other yet just as important ball game.

Assessing the impact tariffs and internal taxes will have on an exporter is an important step towards identifying the right market for your product. This encompasses developing a clear understanding of how to protect your products and services overseas and how to take full advantage of trade agreements Australia has negotiated.

“We are trying to run some education programs to help companies understand the process a little better, protecting their IP and take advantage of free trade agreements. A lot of the big companies have got the resources to sift through them and know which free trade agreements to look at, the smaller companies just don’t have the resources to do that.

“The government needs to put more effort into explaining to the small to medium manufacturers where the opportunities are so they can take advantage of those,” Mace said.

Downturn of the high dollar 

It has been well documented that the high Aussie dollar is hurting our Australian exporters. Proving to certainly be one of the biggest challenges facing the industry, it is resulting in operations going offshore, inputs being purchased offshore and extensive job loss across the board.

“The high Australian dollar continues to have an impact, along with high labour costs and local regulations,” EFIC's Jonathan Reso said.

“These challenges can be potentially dealt with in a number of ways, ranging from offshore manufacturing of low-value components and free trade agreements through to accessing international supply chains and maintaining spend on IP and R&D” hesaid.

Peter Mace agrees: “It’s really having a big impact on a lot of companies. We are also seeing an adjustment to that, people looking to move manufacturing offshore or buy more of their inputs to the manufacturing process offshore.

“The only way they can compete is to try and bring the price down which is very difficult to do the whole lot in Australia at the moment unfortunately.

“The exception is high end advanced manufactures like ResMed or Cochlear, they are at the peak of the pack there, but they’re also facing price challenges, however because of their market leadership status they can probably handle increases in cost better then others.”

The high Australian dollar in combination with high labour costs continues to squeeze Australian manufacturers’ margins Reso confirmed.

“Given that the type of products manufactured by Australian SME’s and mid-market companies are generally high-end, low-volume items, economies of scale do not apply. By this I mean that there are insufficient volumes to compensate for the fact that gross margins are low,” Reso said.

High cost, high hopes

Australia has become a very high cost country, speaking to Manufacturers’ Monthly Harrison said the impact this has on Australian products being manufactured and exported overseas cannot be underestimated.

“We can’t underestimate this negative impact on our products and produce we’re trying to sell around the world.” Harrison said.

Harrison recommended maintaining interest rates will not only reduce the cost of doing business in Australia but will also manage the high Australian dollar to a lower level making Australia more appealing to multinational organisations.

“We have to be very aware of the impact inexorable increases that cost has on our manufacturers, instead of increasing costs we should rather be doing things that reduce costs of doing business in this country.

“It’s a question of creating an environment that multinationals will find attractive.”

Australia has some of the most resource rich quarries in the world and the majority of the product is shipped overseas, weighing very heavily on Australian export figures.

“Because of the very strong destabilising investment into the resource sectors the value of our currency has risen to levels that are very threatening to our trade exposed industries like manufacturing,” Harrison said.

No support from the top 

The lack of quality industrial relations debate in the federal arena is causing unrest for manufacturers’ in Australia. Industrial relations issues were such a touch point two elections ago when the trade union movement ran a very strong campaign against the incumbent conservative government Harrison told Manufacturers Monthly.

“At a time when our manufacturers are under real pressure and need support we aren’t seeing real debate going on in the federal arena… no one is prepared to take on the issue of industrial relations.

“Manufacturers need flexibility in the way they take their workforces on.” Harrison said.

The government has also dropped the export market development grant and reduced Austrade’s budget, meaning there is less marketing support for exporters Mace said.

“The government unfortunately has dropped some of its support through its export market development grant, there’s a reduction there in the amount of available for marketing support.

“They have also reduced the budget for Austrade, they are now unable to provide support into some of the established markets like the US and the UK like they have in the past.”

Although the Federal government did introduce the R&D grant which promotes innovative product development.

“I think the R&D grant has been a big positive for a lot of companies, being able to put more resources and money into research and development and become more innovative.

“There is a direct link between innovative companies and export, they tend to go hand in hand, a lot of the companies take their innovation offshore,” Mace said.

However speaking to a number of Manufacturers' Monthly readers, they outlined the onerous difficulties and prerequisites for applying and receiving a grant, making the process more difficult and almost impossible to comply with.

Confidence in our lot 

Yet Australian Made’s research shows that Australians have confidence is what we produce and how we produce in our own backyard.  The Australian Made campaign which began over 26 years ago encourages manufacturers to strongly promote domestically and internationally that their products are Australian, by clearly labelling the product with the Australian made logo.

More than 1750 companies use the Australian made logo on 10,000+ products of which more than half are exported.

“For small business most likely the Australian brand is the strongest thing they have going for them in an overseas market,” Harrison said.

When Australian manufacturers are competing on price with offshore substitutes, competing on quality and the country of origin cachet can assist overcoming these hurdles.

For Australian manufacturers there isn’t one story across the board; there are some with great success stories and others that are struggling to survive.

Australia's pharmaceutical manufacturing looks set for a substantial growth to meet the increasing demands of Asian health-care products with exports increasing fivefold by 2020.

“Homart pharmaceuticals are a great example of having a good Australian product, finding a niche market for it in China and focussing on that, so there are some great success stories and there are some sectors that are really struggling,” Mace said.

“The wine industry has suffered a lot because it is a commodity product. They’ve lost a lot of market share in the US and Europe. Some have picked it up in China but there’s a lot of competition now in China now as well,” he said.

The car industry is another that is under enormous pressure due to the lack of ability for large scale manufacturers to react quickly to a changing global economy.

The strong exporters going forward will be those in advanced manufacturing. Having a lot of IP in the end product makes them unique and not so easy to replicate Mace told Manufacturers’ Monthly.

“The technology side is very important; we would like to see more cooperation between research groups and industry, bringing the IP and the industries together to develop new products. We would like to see more support from government to enable that as well,” Mace said.

Making the connection

Developing global supply chains is another strategy manufacturers are adopting to increase competitive advantages. Mace said that it is important to accept that it may not be viable for a company to make the entirety of the product in Australia.

“A lot of the big car manufacturers offshore have realised this, pulling parts from all over the globe and trying to get the best product at the best price and assemble it where it makes the most sense.

“They still have a product they would call there own but they’re adapting that to the way the world is changing,” Mace said.

“Becoming part of global supply chains can provide great opportunities for Australian exporters when short runs of consistent quality are required,” Willox said.

Exporters operate in a global market place, impacted by international pressures like the continuing economic crisis’ in Europe and the United States. However, the fact that Australia is located in one of the fastest growing regions of the world is a big plus.

“No one can accurately predict the economic future in Europe or North America but one of our greatest advantages is the fact that we are located in what remains the fastest growing region of the world,” Willox said.