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Small is still beautiful

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aa26-feb-mar-2008-small-is-still-beautifulSmall is still beautiful…. when it comes to exporting, that is. That’s the word from the Australian Bureau of Statistics (ABS), which estimates that almost 90 percent of Australian exporters are either small or medium sized enterprises (SMEs). This confirms previous research by the Bureau, which showed SMEs to be the ‘engine room’ of the Australian exporter community in terms of growth potential.
 
In fact, according to new research by Austrade and Sensis, Australian SMEs are now becoming a regular part of the exporter community. Around 15 percent of SMEs now export – up two percent on the same period last year, despite the strength of the Australian dollar. This percentage has remained pretty stable – within the 12 to 16 percent range – over the past couple of years. The bottom line is that you will find Australian export potential in the grass roots of Australian business in the suburbs and in regional Australia, as well as among the blue-chip corporates at the top end of town.
 
So who are our small players? Where do they live and where do they export?
 
Let’s first look at location, location, location. Despite the impact of the resources boom (where WA and Queensland are charging ahead), SMEs from the manufacturing and services heartland of Victoria are leading the way, with 19 percent exporting. In the other states and territories, 15 percent of SMEs in New South Wales and the Australian Capital Territory export, with 14 percent in the Northern Territory (the Top End always performs well in these polls), 13 percent in Western Australia, 11 percent in South Australia, 10 percent in Queensland and nine percent in Tasmania.
 
So where do the small exporters go? Not surprisingly, proximity and language/business culture are important factors. Our nearest neighbour, New Zealand, is a destination for 36 percent of all SMEs who export, followed by the USA on 29 and the UK on 22 percent. Better macroeconomic news from Europe has given the continent a bit of a boost. Accordingly, many small Australian exporters now have ‘Eurovision’ (as opposed to ‘Europhobia’ a year ago) with 14 percent nominating Europe as an export destination. In Asia, markets where Australia either has or is negotiating a free trade agreement (FTA) are prominent. Singapore is a market for 11 percent of exporting SMEs, China for nine percent, with Japan and Thailand on seven percent. China’s prominence in the top six most favoured destinations for exporting SMEs shows that you don’t have to be a big fish like Rio Tinto or BHP Billiton to succeed in the Chinese market.
 
Broadly speaking, what do our SME exporters look like? For the most part, they are likely to be more medium than small, more metropolitan than regional and more likely to be run by a male born overseas. And while the blokes still outnumber the women, there are a growing number of female-run businesses in outer-metropolitan areas, suggesting more of a ‘Kath and Kim’ effect in the Australian suburbs. After all, as Kim famously once said, “Exporting makes you effluent.”
 
Do they make a buck? Previous research shows that exporting, on average, helps the bottom line. The survey results show that SME exporters, on average, are more likely to have an aggressive expansion strategy than other SMEs. They are also more confident than non-exporters and are more bullish on profits, wages and employment.
 
However, there is still much more to do to get more SMEs in the export game. Despite the rewards on offer, there is still a low ‘intention to export’ in Australia among SMEs. What are the major barriers? It is not a matter of labour costs but labour shortages. A major reason cited by small business for not entering export markets is the lack of skilled staff with overseas sales experience. They are willing to pay good wages, but are keen to have well-trained and/or experienced export managers. This suggests that training programmes – like the new exporter development scheme are on the money in terms of small business needs.
 
However, it is not all bad news. According to the research, there are some positives that have helped SMEs get into exporting. SME exporters say they have been helped by improved market access through tariff reductions and the new free trade agreements. In addition, improvements in technology (through recent developments in e-commerce) have made getting into export markets a lot easier for them.
 
So expect more action to come on the SME front. This is good news as more SME export action means not only more growth and more profits for the businesses concerned but also more jobs for Australian workers at higher rates of pay. The ‘small is beautiful’ phenomenon also forges stronger links with other nations right across the Australian community.
 
Tim Harcourt is chief economist of the Australian Trade Commission and author of Beyond Our Shores. You can read his blog at
www.austrade.gov.au/economistscorner
 
 
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