|
Tim Harcourt
Chief Economist
Australian Trade Commission
Sydney
Email: tim.harcourt@austrade.gov.au
and
Klara Henderson
Consultant - Strategic Development
Australian Trade Commission
5 June 2003
Small is still beautiful. We all know it. Small business is playing a leading role in the economy and their influence is growing all the time.
Furthermore, amongst exporters, small businesses are doubly important. According to Austrade research, most of this growth in the exporter community is coming from the small business sector. In fact, the number of micro and small exporters has been growing at around 11 per cent and 9 per cent a year respectively compared to 4 per cent for medium sized exporters and a fall of 5 per cent for large exporters. And if Austrade is going to meet its target of doubling the number of Australian exporters operating in the economy - from 25,000 businesses to 50,000 - the small business sector will do much of the heavy lifting.
But …there's always a but..and this is a big one. Austrade research also shows that only 3 per cent of small enterprises export. This compares to around a third of large business and even 13 per cent of medium sized businesses.
Why is this so? There are certain barriers that prevent more small businesses entering export markets. What are the main ones?
First of all, there are information or knowledge barriers. Many small players have limited information about global markets - especially in comparison to large, more seasoned competitors. This makes it difficult to find the right market at the right time.
Secondly, there is lack of access to networks and in-market experience in global markets. International business is all about networks and large, existing players can have distribution channels all tied up before a new entrant even gets started.
Thirdly, there are marketing constraints. It is hard for one small player to build its brand especially when it can 'spill over' to others (who don't have to pay). This is particularly difficult when coming up against established brands that have a strong toehold on the global scene.
Finally, there's the question of finance. Exporting costs money. If financial institutions are particularly concerned about the risks of exporting and unwilling to lend to 'untested' potential small exporters, then credit is going to be less available. This is compounded, if smaller exporters are operating in an environment where the share of credit (in total and in terms of new credit) going to small business in general is steadily falling relative to large businesses.
Can these barriers be overcome?
Information constraints can, to some extent. In many ways, the Internet has changed the nature of this barrier. In the past, there was not enough information about global markets, whilst in today's world there is too much - and a lot of spam to wade through. This is why, a government agency like Austrade, help to provide potential exporters with value-added knowledge rather than generic information.
Networks matter too. It's not what you know it's who you know. Austrade's global network of 105 office helps to give small exporters access to potential partners, distributors and customers in local markets through staff who have local knowledge. Austrade's New Exporter Development program also helps with export coaching and in-market visits. The government badge can also help in accessing government officials in emerging markets and place like China where government contacts - especially at the regional level - really make a difference.
Marketing constraints can be assisted by government brand promotion and by various export assistance measures. For instance, the export marketing development grants scheme (EMDG) refunds up to 50 per cent of marketing costs to exporters. And government programs really help determine export success. Research shows that intending exporters who used government programs were, on average four to five times more likely to succeed in international markets than those who didn't use the programs.
And finally there's finance. Small businesses either used retained earnings, or acquire loans through financial institutions, or venture capital funds. There is special lending for international trade available from financial institutions as well as 'business angel' venture capital schemes. Because of the nature of risk in the international context, there is also the Export Finance Insurance Corporation (EFIC) that provides specialist export insurance.
The availability of finance and diversity of financial service products for exports should expand as more small businesses enter international markets. There are varying perceptions about export risk but this should be countenanced by overall success of export businesses. Austrade research shows that, on average, exporters are more profitable than non-exporters and generally have lower debt to equity ratios.
So, in conclusion, yes Virginia, there are indeed some barriers to small businesses in the quest for export markets. However, many can be overcome by using agencies like Austrade, and EFIC and accessing government program support in all the right places. And the strong growth in the number of small exporters in the economy overall shows that many have indeed been able to succeed and prosper.
|