SMEs go international to beat “negative” Australian economy

Australian small businesses see international trade as key to driving growth in the next 12 months, according to research by HSBC.

While some 35% of SMEs already import or export as part of their business, HSBC’s research shows an additional 21% plan to trade internationally in the next 12 months.

Of those planning to start trading internationally this year, 85% plan to do so to expand their business, while 35% seek to improve their margins and 14% intend to enter markets with lower competition.

Andrew Skinner, head of global trade for HSBC Bank Australia, told SmartCompany there were “huge opportunities” available for Australian small businesses in importing and exporting.

“There are a couple of key drivers, clearly the domestic economy has been fairly negative and we are a relatively small population, but SMEs are taking advantage of our proximity to Asia and China and the world’s economic growth engine,” he says.

“Australian SMEs are well educated and quite adventurous, they are happy to get on a plane and take advantage of free trade agreements like Malaysia’s, which was negotiated recently.”

Skinner says Australia is at “the forefront of many industries” and Australian SMEs are leading the way in terms of quality of food, medical products and the mining sector.

The research found that while 33% of Australian SMEs expressed concern over the current level of the Australian dollar, SMEs appear to be less concerned about the global economy than they are about the local economy.

Skinner says a high Australian dollar is “the new norm” for SMEs who are now looking to take advantage of their proximity to Asia and finding ways of improving fine margins.

In December 2011, SMEs ranked the global economic climate as the number one concern and the Australian economy second.

However, the situation is now reversed with the Australian economy ranking as the biggest concern for SMEs followed by the global economy.

“There is relatively small growth opportunity domestically, so it is logical to go offshore to expand,” says Skinner.

For SMEs trading internationally now and in the future, China, the US and UK are the preferred destinations, according to the study.

Of the SMEs looking to head offshore in the next 12 months, 41% nominated the US and China respectively and 34% will target the UK, this is compared to 34%, 33% and 20% of SMEs who trade in these countries currently.

“What is coming out strongly in the research is China,” says Skinner.

He says 25% of two-way trade is with China, making it “a real magnet” for SMEs, and new regulations in relation to the renminbi (RMB – the Chinese currency, also known as the yuan) are tempting exchange rate-sensitive SMEs.

“A watchlist has been announced for RMB goods exporters, their names will be subject to additional checking and, basically, if you are not on that list, it is freely available to trade in RMB and we are seeing up to 3% and 7% savings in trading in RMB for Australian customers compared to US dollars,” Skinner says.

“It is quite compelling to start dealing in RMB and we expect in the next 5 years RMB to be the third most traded currency in the world.”

HSBC’s SME research was conducted by Retail Finance Intelligence in conjunction with the Australian SME Banking Council in the first quarter of 2012, surveying approximately 300 SMEs with revenue up to $30 million.