18 Mar 2015
There are three key challenges I often hear when talking to SME managers – low confidence, lack of knowledge and access to finance. Yet we can address persistently below-average business confidence levels; we can increase education on Asia's markets and opportunities; and we can turn around the perception it is difficult for SMEs to access necessary finance.
"Trade finance can help these businesses better manage payment risk and their cash flow cycle when conducting business overseas."
Mark Whelan, CEO Australia and MD Global Commercial Banking, ANZ
This is important as the Australian economy relies on entrepreneurs and businesses able to expand into new geographies and stimulate new growth areas. Australia has negotiated a number of significant free-trade agreements with key trade partners throughout Asia and there is huge potential for the country to broaden the mix of its export base.
The financial sector can help on this journey by providing access to funds through trade finance facilities and investing in education to ensure the scope of this opportunity is clear to everyone.
Business in Australia at all levels has a confidence dilemma. Small business confidence hit an 18 month low in February according to ANZ Research and is only now slowly showing signs of improvement. The slight recovery is a positive sign but it needs to be sustained so that business-changing decisions like expanding offshore go from the back of business minds to front and centre.
Rebuilding business confidence is the first step to turning this around. The measures announced as part of the May Federal Budget aimed at kick starting the small business economy are a good start.
The accommodative policies released should help to further improve small business confidence and willingness to invest in the coming months. We absolutely want Canberra to support non-mining led growth and to be pragmatic in doing so.
The positive reaction to the Budget measures is great news for the economic outlook and if political stability can be sustained, we know this will be welcomed by consumers and businesses.
Austrade's Australia's International Business Survey: 2014 Report found a lack of funds was the number-four reason why businesses did not expect to expand into new overseas markets, ahead of things like risk and regulatory hurdles.
The research showed 25 per cent of Australian businesses operating internationally require additional debt funding every year, while 62 per cent of those businesses said they found it difficult to source this funding from Australian financial institutions.
According to the AIB report, trade finance facilities are currently used by only 22 per cent of internationally active businesses who need debt finance as their principle source of additional debt financing. Somewhat surprisingly, this is less than loans from owners, friends or family.
This perceived absence of liquidity is curtailing opportunities in the formative years of the Asian century. ANZ expects that over the next decade the ASEAN region will replace China as the world's manufacturing hub, becoming the fifth largest economy in the world.
Businesses that experience a gap in their cash flow cycle when exporting or importing are most likely to require funding assistance. These would typically be businesses in the manufacturing, wholesale and retail sectors.
The financial sector can help by providing readily available access to necessary funding and the right kind of funding.
Most SMEs utilise conventional borrowing to fund expansion. But when this reaches a certain level, it is more beneficial to use trade finance related products. There is an opportunity to improve Australian SME's, in particular small businesses', awareness of the trade-finance options available to them. Trade finance can help these businesses better manage payment risk and their cash flow cycle when conducting business overseas.
Here at ANZ we have launched a $3 billion trade lending pledge for small and medium sized Australian businesses looking to either grow or trade with offshore markets, with a focus on companies looking to trade with Asia.
The pledge aims to raise awareness of how we can help Australia based business customers, big and small, who are looking to expand in new markets. ANZ wants to be known for supporting these programs and being committed to providing this access.
Education about how to take advantage of the opportunities in Asia remains an area of concern. The 2015 Australian Chamber of Commerce and Industry report found the majority of businesses do not understand nor use the opportunities provided to them by the raft of Australia's recently signed free-trade agreement with its Asian trading partners.
These figures are consistent with the findings a year earlier, indicating little recent improvement has been made. They are consistent across small, medium and large businesses.
Understanding the enormous potential of Asia is key. A recent ANZ report claims services exports could be worth $163 billion annually by the end of that period, a 135 per cent increase from 2013.
Sales by Australian foreign affiliates in Asia could grow from $14 billion to as much as $78 billion in the same time. The services sector could become Australia's number-one exporter to Asia, the report found, supporting more jobs than all other exports combined.
At ANZ, we're investing in education on things like FTAs and entry strategies into Asia. We've taken over 350 bankers to Asia over the past few years to experience the markets firsthand, and later this year we'll run more client education events.
We're also partnering with the Export Council of Australia to launch a new website focussed on Australia's recently signed FTAs. The website aims to break down the specifics of all the FTAs and how exactly they can benefit businesses.
Building confidence in the SME sector is a responsibility shared across government and industry as providing a launching pad for SMEs to move into Asia will benefit all in the broader economy.
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
18 Mar 2015
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