Australian companies remain buoyant about overseas expansion despite finance barriers. Australia’s export credit agency, the Export Finance and Insurance Corporation (EFIC) has released its latest annual Global Readiness Index (GRi), which shows that Australian companies remain optimistic about their offshore operations despite the global downturn.
The GRi survey, conducted in February, surveyed 726 Australian companies about key aspects of their experience of going global, including the drivers, destinations and obstacles, and sources and availability of funds.
“Despite the backdrop of a worldwide credit crunch and a severe downturn in world trade and production, offshore expansion remains a key strategic imperative for Australian businesses,” said Managing Director & CEO of EFIC, Angus Armour, at the launch of the GRi in Melbourne.
“Australian businesses aren’t passively waiting for things to improve — they are setting out for new markets to compensate for contraction in their existing markets and position themselves for when growth resumes.”
Highlights of the 2009 survey are:
Australian businesses are focussed on overseas expansion. Over 80% of companies with offshore operations plan to expand them and over 40% of respondents currently without offshore operations plan to expand offshore.
Offshore expansion seems to be a strategic response to Australia’s relatively small domestic market — globalising is the way to achieve sustainable commercial scale or continued growth. Ninety-five per cent of respondents cited ‘increasing market share’ as a driver for expansion, with 71% rating it the main reason. Proximity to end markets’ and a relatively small domestic market were the next most important reasons. o
However, access to finance is the major obstacle to offshore expansion — and has become a greater barrier due to the global financial crisis. Fifty-eight per cent of respondents stated ‘access to finance’ as a barrier (up from 29% in the February 2008 GRi survey) and 34% said it was the key obstacle. ‘Economic conditions abroad’ jumped from fourth-ranked barrier in 2008 to second-ranked this year, with 48% saying it was a barrier.
Smaller firms face especially high finance barriers. Sixty-three per cent of respondents with annual turnover of between $1 million and $10 million and 56% per cent of those with turnover between $10 million and $50 million said access to finance was a barrier for offshore expansion. This dropped to 33% for respondents with a turnover of over $50 million.
Improved access to finance will allow Australian businesses to grow further and faster. Retained earnings is a source of finance for 82% of respondents (up from 73% in 2008) and the main source for 64%. Debt facilities from Australian banks are used by 30% of respondents (35% in 2008) and this is the main source of funding for only 4%. 50% of respondents said improved access to finance would allow them to grow faster in their current markets and 39% would accelerate plans to enter new markets.
“The credit crunch has raised the barriers for Australian companies on the path to globalisation, but ongoing international trade is critical to stimulating the world economy.
“The GRI results challenge both EFIC and the banks to work together to find innovative solutions to ensure that ‘bankable’ offshore investment plans by Australian companies obtain the financing they seek/require,” Armour said.