Start-up exporting woe

Australian start-ups may be regularly told that they are playing in an increasingly global marketplace, but the view beyond our shores currently isn’t very enticing.

New ventures looking to export their products or services overseas have been hit by a series of blows in recent months.

The Australian dollar has hit record levels, hitting a high of 110 US cents before falling slightly to around the 103 US cent mark, still comfortably above historical norms.

Throw in the not insignificant financial turmoil in key overseas economies in the US and Europe and it’s clear that start-up exporters face a tough time to find a market outside Australia.

On top of this, exporters were hit this week by changes to the government’s Export Market Development Grants, which helps businesses secure intellectual property and customers abroad.

While 50% of expenses will now be reimbursed, the minimum expenses threshold has risen from $10,000 to $20,000, while the maximum grant has been slashed from $200,000 to $150,000.

For those in the export industry, the timing of the Government’s latest change to the EMDG couldn’t be worse.

Warren Cross, CEO of Export Incentives, a group that aids businesses compete overseas, says that start-ups are hindered by government help that “chops and changes every year”.

“The EMDG used to be very efficient – you had certainty that you’d get back 50% of what you spent,” he says. “At the moment, it’s a bit more of a lottery. We understand that there’s been a 20% drop in applications this year.”

“The resources of Austrade have been wound back and everything is minerals-focused. There are a lot of intelligent exporters who are being overlooked.”

“It’s a very tough environment at the moment. It takes three to five years to penetrate an overseas market, but the government wants you to be making money from day one.”

“These are the toughest trading conditions since the early 1980s. There seems to be token support for exporters – the government takes exporters for granted.”

Cross says that the exchange rate is also a “huge headache” for exporters, but points to some bright spots, such as businesses providing services and entertainment to more buoyant Asian markets and beyond.

“The Creature Technology Company in Melbourne has created an arena tour around the world based on the BBC show Walking with Dinosaurs,” he says.

“That’s the kind of innovative, cutting edge business we need to support. They employ 50 people in Melbourne. We just need to do more for other businesses to help develop the export market.”

The underlying trend of retail’s move into the digital age is also beneficial for start-ups – you no longer have to carry the overheads of a bricks and mortar business while attempting to break into a new market.

Instead, it’s possible, as many web start-ups have shown recently, to operate an online-only business that is a little more cost resilient to the downturn overseas.

However, if you intend your major market to be in Asia, Europe or the US, Cross advises you to think carefully before committing to launching a business, unless you have “very deep pockets”.

Questioned as to why the EMDG has been scaled back, an Austrade spokesman tells StartupSmart: “The Government demonstrated a commitment to Australia’s exporters by providing $50 million in additional EMDG funding in 2008-09 and 2009-10 to help them deal with the tough conditions associated with the global financial crisis.”

“In 2010 the Government committed to extend the EMDG scheme for a further five years to assist aspiring and current exporters secure overseas markets.”

“There have been a number of changes to EMDG eligibility requirements, but these changes have been designed to better meet the needs of exporters within the fixed funding cap. These changes were implemented following the Mortimer Review of Export Policies and Programs.”

The spokesman admits that applications for the EMDG are down on last year, with the November 30 deadline looming.

So what can start-up exporters do to give themselves a fighting chance? Todd Miller, founder of Aussie Inc, an Adelaide company that helps SMEs get their products into the US retail market, admits the conditions are “challenging”.

“When I helped launch products in Europe in the 1990s, the buyer still needed you to show a point of difference for your product, as well as competitive pricing,” he says.

“The difference now is that the big US buyers, such as Kmart and Wal-mart, are consolidating their ranges. If you’re a start-up with a new product and no history, they will tell you to use a distributor or forget it.”

“A key thing to do is ask for feedback. I had a two-line email from someone at Wal-Mart saying they didn’t want a product I was looking to stock with them. I immediately wrote back asking for a time to speak to get feedback. That’s the only way to learn for next time.”

“The other thing is to not give up. Getting that first person on board is the hardest. After that, you build up momentum.”

“Be persistent and be resilient. Run as lean a business as you can so that every cost – whether it’s a hotel or travel or whatever – is a saving.”