Address to the Committee for Economic Development of Australia
The Growth of Cross Border Trade and e-commerce
Speech by Bruce Gosper, CEO Austrade
Wednesday, 31 July 2013
Four Seasons Hotel, Sydney
Introduction
I’d like to thank CEDA for the opportunity to talk today about e‑commerce, its impact on exports, and Austrade’s role.
I’d also like to congratulate eBay on the report they’re releasing today: Commerce 3.0: Enabling Australian Export Opportunities (PDF). This research into eBay’s customer data tells us some remarkable things about the way exporting is changing.
Food, clothing, books, furniture – basically anything – can be bought and sold online nowadays. My credit card bills suggest that my kids are particularly good at purchasing clothing online.
The total value of global e‑commerce sales has been estimated at more than US$1 trillion in 2013, and the market is only getting bigger.
The National Australia Bank’s Online Retail Sales Index shows Australians spent A$13.7 billion in the year to May on online retail items and A$3.8 billion of this was spent on imports.
But it’s not just Australian consumers taking advantage of the exchange rate to buy from overseas.
New research from Nielsen and PayPal estimates that Australia’s online exports are worth about A$5 billion a year, and the forecast is that it will grow to A$16 billion by 2018.
The Promise of Online Exporting
The promise of online exporting is to use technology to overcome the traditional challenges of exporting.
In theory, online exporting can create a ‘frictionless world’ where search and transaction costs for consumers are low.
This promise is often realised in three main ways by exporters. All involve moving away from a purely ‘bricks and mortar’ approach.
Setting up an e‑commerce presence and selling directly into a new market is one way to start exporting online. A buyer in (say) China can purchase an Australian product simply by going to the website and choosing (and paying for) the product, which is then shipped directly from Australia to its final destination.
Australian Export Award winner aussieBum (which sells iconic Australian swimwear) only sells online, only from Australia, and they’ve built a multi-million dollar business around this model.
Exporters with less online expertise can still access e-commerce opportunities in foreign markets without setting up their own online systems. They often export their products through traditional channels, and then access local e-commerce platforms.
The other approach we see Australian firms adopting is what some call ‘clicks and bricks’. An exporter might have bricks and mortar stores, while at the same time retailing products online.
A good example is the Melbourne-based skincare business Aesop, which sells through stores in Australia, in Paris, New York, Hong Kong and beyond, but also to the rest of the world through the company’s online store.
In all three scenarios, distances shrink and advanced payment systems mean that online transactions can be made safely and quickly.
The digital world also tips the scales in favour of start-up exporters, who can more easily afford to build a website than set up a shop or a network abroad.
Lower barriers to entry can also mean exporters are able to offer lower prices to consumers, giving them an edge over competitors.
On the production side, exporters who use imported inputs can also benefit from the efficiencies of online trading, especially if it means those inputs are cheaper. This has the potential to also make their exports more competitive.
Traditional marketing and brand problems still exist, but there are digital options which can help solve them.
Online commercial platforms like eBay or Alibaba, for instance, can help put a business on the map and help them establish a solid relationship directly with the consumer.
Logistics issues are critical. The customer doesn’t walk away with an online purchase. The parcel has to be delivered.
Delivery networks underpin online commerce and Australia is well connected by the world’s leading parcel and freight carriers, with frequent services from Australian ports to major global freight hubs.
The Challenge for Exporters
Through our offices around the world, Austrade is looking for online opportunities for Australian exporters. We know the markets and can help Australian exporters understand the way the local landscape is changing as consumers move online.
Take the case of Japan, where online sales are expected to grow by 10 per cent a year over the next five years, and where local consumers are expressing a preference for the online home delivery of groceries.
But how do Australian exporters go about finding the right online distribution channel to get into this market?
One way to supply Japan’s online food markets is for Australian exporters to sell to Japanese supermarket chains, which then use their own online stores for distribution.
Japan’s largest retail chain, Aeon, for example, already sells a wide range of Australian products at its bricks and mortar stores.
Australian-grown onions, carrots, oranges, beef, cheese – even southern Bluefin tuna – are sold through Aeon’s outlets and the company is now developing its online platforms to reach a broader market. That will benefit Australian exporters.
Delivery itself is not a big issue in Japan, which has a highly efficient local distribution network. There is also an interesting new trend where consumers are picking up their online orders of perishables on the way home from work.
And how do Australian exporters know if Japanese consumers will like their products?
Austrade’s office in Japan is trialling a product testing laboratory for Australian exporters to help them receive online feedback about their products from Japanese consumers.
Exporters can post information and photographs about their product on the site and expert consultants review it and produce a report on its affinity with the local market, in terms of appearance and price. The service is free to Australian exporters.
In China we see opportunities for Australian exporters to use local e-commerce infrastructure – companies like YHD, the online supermarket site with more than 30 million users, as well as Alibaba’s various platforms, like Taobao, Tmall, or Alibaba itself.
The majority of e-commerce transactions in China are conducted on commercial platforms like Taobao and Tmall, rather than a brand’s own website, making access to these critical for Australian exporters.
When the Australian vitamin and supplements firm Blackmores started e-commerce sales in China in 2012, it sold from Taobao and then expanded into other popular e-commerce platforms. Online sales now account for nearly a quarter of Blackmore’s monthly turnover.
Beyond China and Japan, Thailand, Russia and Israel are the fastest growing online export markets for Australia.
Big supermarket chains in Thailand, like Tesco and TOPS, are already sourcing many of their products from Australia and selling them online.
For instance, Tesco sells Australian-grown carrots, Coon’s cheese, Simplot French Fries, beef, San Remo pasta, Arnotts biscuits–even Cancer Council sunscreen products.
The online outlook for Thailand is promising. Online retailing was worth about A$700 million in 2012 and online exports from Australia are expected to grow by more than 100 per cent this year.
Online Commerce and Austrade
Our analysis of recent ABS data for 2011-12 shows that 60 per cent of Australian exporters sell into just one market.
Anecdotally, Australian exporters drop in and out of exporting, depending on prevailing prices, their ability to supply or variations in demand in the export market.
But in comparison, according to eBay’s new research, 78 per cent of commercial sellers on eBay (those with annual sales above A$10,000) export to an average of 28 markets.
What this tells me is that our traditional, let’s say ‘offline’, exporters probably need to diversify their markets.
The promise, and reach, of e‑commerce is a way for Australian exporters to achieve that diversification.
Commercial platforms which bring together buyers and sellers are an easy entrée into exporting for many SMEs.
Of course, as their export businesses grow, the same rigours that all exporters must apply to their business will be needed – they will have to tailor their products, marketing and strategies to individual markets.
Austrade, with its network of offices offshore and experienced trade advisers here in Australia, is ready to help them with this challenge.
We are developing our expertise in e-commerce, and we also have the right networks to refer our clients to private sector experts in the digital sphere.
But what we’re also doing, and our services in Japan are a great example of this, is creating a bank of knowledge and practice that will allow us to provide the best advice about what it takes to benefit from fast-growing online markets.
Conclusion
E-commerce and online exporting are part of a broader trend whereby advances in technology, such as smartphones, affect the wider economy.
We’re already using online channels like social media, online video and Twitter to provide market insights to Australian exporters and to promote Australia’s capability overseas.
Like many we’re on a steep learning curve, but one we think will be worth it for Australian exporters and the broader Australian economy.
Thank you.
ENDS
For further news and information from the Australian Trade Commission (Austrade) visit www.austrade.gov.au/mediacentre.
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