Australian companies are compelled to rely upon their own profits to fund overseas expansion due to limited access to finance, according to a new survey by the Export Finance and Insurance Corporation (EFIC) launched today by the Minister for Foreign Affairs, Stephen Smith.
The first of what will be an annual survey, the EFIC Global Readiness index (GRi) surveyed almost 500 Australian businesses across the country – mainly SME’s – to identify what were the key drivers and obstacles to overseas expansion.
It found that up to 73% of Australian companies used retained earnings to finance their offshore expansion, yet only 35% used a debt facility from an Australian financial institution, and as little as seven percent from a foreign institution.
The survey also found that 92% of companies expanding offshore are doing so in order to increase revenue or market share while only 29% nominated reducing costs as a driver.
“These results are a striking picture of ambitious, enterprising Australian companies pushing themselves into the global marketplace” said Smith.
“Offshore investment by Australian companies is now almost equal to foreign businesses investment in Australia, with Australian companies investing $318bn offshore in 2007, compared with the $357bn of foreign direct investment into Australia.
“However respondents identified that inadequate knowledge of overseas markets (76%), and lack of finance (67%) were the two biggest obstacles they faced when seeking to expand overseas.
“These results show that if we want to continue to have accelerated global expansion for Australian business, it will require innovative solutions for supply chain and infrastructure finance” said EFIC Managing Director, Angus Armour.
Some 56% of respondents indicated that improved access to finance would allow them to expand farther and faster.
“These results tell a positive story — Australian companies are increasingly choosing to expand and invest into global markets because they recognise offshore expansion is a strategic path to market and revenue growth.
“The government is committed to assisting Australian companies ‘go global’ and these results will help us address the barriers and support expansion,” said Smith.
For a full copy of the GRi, visit www.efic.gov.au/gri/report.