The changes proposed aim to extend the life of the EMDG scheme and better balance the cost of the scheme to its budget as well as ensuring that those exporters most deserving of grants receive the greatest level of support possible within the budget available for the scheme.

The changes are as follows:

1. Extending the EMDG scheme so that it applies to all grant years from 2011-12 to 2015-16 inclusive;
2. Reducing the maximum grant from $200,000 to $150,000;
3. Reducing the maximum number of grants available for an individual recipient from eight to seven;
4. Capping intellectual property registration expenses at $50,000 per application;
5. Increasing the minimum expenses threshold from $10,000 to $20,000;
6. Increasing the income limit for members of approved joint ventures/consortia from $30 million to $50 million;
7. Removing approved trading houses as an eligible special approval applicant category;
8. Reinstating disqualifying conviction provisions in the Act that were unintentionally removed when Criminal Code Amendment (Theft, Fraud, Bribery and Related Offences) Act 2000 rules replaced earlier disqualifying conviction provisions;
9. Enabling Austrade to impose conditions on the accreditation of EMDG consultants; and
10. Amending the ‘form and manner’ requirements and claim lodgement deadlines for applications submitted by accredited EMDG consultants (enabling Austrade, for example, to accept later lodgment of claims from accredited consultants).

“These proposed changes are fine as long as they provide certainty that SME exporters can rely on what they are expecting to receive,” remarked Ivan Kaye, CEO of consultancy Business Strategies International.

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The EMDG scheme has helped businesses generate more than $5 billion worth of exports, employing some 60,000 Australians for the investment of approximately $200 million last year, said Harvey Gartrell, spokesperson for BSI.

Reducing the amount available in the scheme is a blow to exporters, especially smaller businesses, he said. “The Government’s failure to provide additional funding in the budget for this scheme places further unnecessary pressures on export-oriented Australian businesses and hampers their efforts to realise existing and future export opportunities.”

Exporters that have applied under the scheme should not expect to recover the full amount requested, with Gartrell saying it looks like only about 60 percent will be paid back.

“We now call for the government to reconsider the EMDG funding, as it did in 2008/09 and 2009/10, when it provided extra funding to ensure exporters received their expected entitlements,” he said.

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At the top end, Murray said the miners will be hit by the super tax, while at the bottom end, the popular Export Marketing Development Grants (EMDG) scheme has been cut by $50 million, with funding for Tradestart halved.

The successful EMDG scheme will fall short this year by an estimated $30 million and the budget cut will mean that it could be $80 million short next year. “This will destroy the confidence of SME exporters who will simply stop spending on developing their overseas markets,” he said.

“While Australia may have escaped the impact of the GFC, that’s not the case for exporters,” he said adding that the Australian dollar’s rise has already affected our competitiveness.

“What the industry wants is a scheme that is fully funded. Lift the funding to $200 million where it was last year, instill certainty and build confidence back into a program that every piece of research supports,” he urged, warning that otherwise, Australian exports will suffer “well into the future”.

Particularly painful was the 50 percent cut to Tradestart, he said. “It beggars belief that a program that costs so little and delivers so much can be slashed with the stroke of a pen. With one in five jobs being export related, the budget should be going up not down.”

Compared with the Rudd government’s first Budget in 2008, this was a disappointment, remarked Murray. “In 2008 the Rudd government spent a considerable amount of money on a review of Export Policy and Programs. Both the Export Market Development Grants scheme and TradeStart received the tick of approval for their continuation. In the budget this week they were slaughtered.”

He added: “At a time when countries like the USA are putting serious money behind an ‘export driven recovery’ the Rudd government is abandoning the countries lifeblood. One should never forget that export delivers 22 percent to GDP. Investment in export would be a far better way towards a black bottom line than slapping on taxes and chopping programs that assist our SMEs.”

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More than 5,000 Australian businesses submitted grant applications this year, an increase of 15 percent compared with last year. Claims have also risen 20 percent to more than $269 million.

According to Austrade, final payment outcomes won’t be known until final processing of EMDG applications in June, but it estimates that businesses approved for grants up to $50,000 will receive the full value of their claim.

While these claims represent the success of Australia’s export sector, large grant claims are not likely to be fully covered, however. Said Crean: “We are now faced with a shortfall in funds to cover claims above $50,000.”

Last May, the Federal Budget aimed to restore EMDG coffers by providing $50 million in additional funding for the scheme in 2008/09 and a further $50 million in 2009/10.

For more on the EMDG scheme, visit www.austrade.gov.au/exportgrants

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The coming year will be another interesting one: the global economic situation looks on the mend, it will be an election year in Australia and in the UK and, export-wise, forecasters predict sectors like mining, building and construction, and possibly agriculture should be strong. While there is always a flow on effect, these sectors are largely driven by ‘big end of town’ exporters, so what of SMEs?

Here’s where the Government can assist. While nobody is after handouts, there are things that can be done to assist both the experienced and inexperienced exporter in the year ahead.

The issue of research was most recently discussed at the Trade2020 forum on trade finance. There’s a lot we don’t understand about export dynamics, exporters’ business behaviour, and factors that make exporting successful or unsuccessful. There is lot, too, that could be done in understanding the markets better, including mapping markets to assess where investment is likely to present the greatest opportunity and return.

It is encouraging to see EFIC continue their annual Global Readiness index (GRi). The study, undertaken in March, looks deeply at the current drivers, decision-making processes, risks and barriers that Australian exporters and offshore investors face regularly. I encourage exporters to participate, as the results help in the development of programs that assist SME exporters. It would be good to see the Government put more money into GRi, and into doing well thought-out research to be shared with various service providers to benefit the whole industry.

My next wish won’t surprise anyone: having sufficient funds for the Export Market Development Grants scheme, one that will provide the Government with the best ‘bang for buck’. Most support the views expressed in David Mortimer’s report of Export Policies and Programs in relation to the cap and the need to instill confidence in those reliant on the scheme to build their export business. However, there’s no point using the scheme to fund one-off export ‘adventures’. While issues like reducing the threshold and length of time from eight to five years may be justifiable, it may be better to set the scheme at a maximum of $1 million per company and use other mechanisms to keep expenditure within the cap. TradeStart may well be a better vehicle for looking after the smaller guys.

And so to TradeStart. My wish is to see it continue, backed by Government for another four years. Data in the Mortimer report showing an ROI up to 23:1, as well as recent Austrade research supports its financial viability, though there are some things that could be done in line with its evolution, the first relating to ‘hurt money’: anyone in a program has to demonstrate their commitment by spending some money.

Beyond will, money, and product or service, a successful exporter undertakes the dynamics of the market by experiencing it. Stats show 75 percent of first export sales come from those that have been on a trade mission, or been into the market. This should be a condition of participation in the TradeStart program, along with undertaking export education, given export requires a special range of skills and knowledge beyond domestic business.

Finally, also the Mortimer Review, Commonwealth and State Governments need to work together to provide dollar-for-dollar assistance programs for TradeStart participants for things like the completion of export education, participation in missions, and the preparation of an effective export business plan.

Lastly, I wish for the broadening of the export skills of Australian business. Mortimer recommends: “Extend the tertiary focus of export education program to encourage a new generation of international business leaders.” Evidence collected here and internationally supports the link between developing export skills and having a profitable, sustainable export business. The more invested in developing the skills base, the better the result. The programs are there; all that’s required is to engage more companies. Done well, the above will form a pathway to export with a focus on ‘backing winners’, giving Government the opportunity to maximise its return for every dollar invested.

We encourage the Government to be courageous in addressing the needs of the export community, but only where there is fair investment at both ends. Nobody is looking for a free ride; if they are, they won’t make good exporters.

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Australian exporters that spend at least $10,000 for eligible export expenses in 2008/09 have until November 30 to apply for an EMDG.

“The scheme is designed to encourage new and existing exporters to increase their international marketing.  This has a direct effect on their income,” said Ian Chesterfield, Austrade’s general manager for Business Policy & Programs. “For example, EMDG gives exporters the means to attend trade shows in new markets, develop intellectual property, and ultimately engage new staff.”

Past recipients have come from across Australia, representing a variety of industries. Chesterfield said they report that the EMDG “has been instrumental in allowing them to identify and secure customers in markets that helped grow sales”.

For information on the EMDG scheme, and for eligibility requirements, see Austrade’s EMDG site.

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BDO Kendalls executive director Cameron MacMillan, who heads the firm’s International Business Division, said small and medium-sized enterprises had less than 40 days to register applications for the 2008/09 grant year.

“This year, exporters can benefit from a number of changes to the scheme, including an increase in the maximum turnover from $30 million to $50 million, a reduced minimum expenditure threshold of $10,000, and a $50,000 increase in the maximum grant to $200,000,” he said.

“Many previous applicants may not be aware that they can now claim for up to eight grants, while the Government has also made it easier for services exporters to claim under a new ‘non-tourism services’ category. New exporters can combine marketing spending over the 2008 and 2009 financial years to meet the threshold, but they need to lodge claims before November 30.”

For more information on the EMDG scheme, see Austrade’s EMDG site.

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Exporting

In the financial software industry, conducting business at a national level is an enormous achievement. Pure Commerce recently upped the ante with a deal to provide a multi-currency payment solution to the Korean Exchange Bank (KEB) for the next five years, the first time an Australian company has sold payment technology into a Korean financial institution.

Not just any Korean bank either, but the largest foreign exchange bank in South Korea. Established in 1967 and headquartered in Seoul, KEB is the fifth largest bank in South Korea, as measured in assets. With the largest global network, it has an important role in the development of South Korea’s new banking strategy.

Pure Commerce is an Australian exporter of flexible international payment solutions for financial institutions and corporate partners. Launched in 1997, the privately owned company has offices in Singapore, Sydney, London and Zurich. It specialises in partnering with financial institutions seeking new ways to extend their existing systems.

Their product offering includes currency conversion, EFTPOS solutions, multi-currency payment processing, treasury and rate management and online eBanking tools.

Currently based in Singapore, CEO Daniel Lavecky had just returned from a Pure Commerce family fun day when Dynamic Export caught up with him. “We had our corporate fun day last weekend for the Sydney team and their families. We’ve got offices in Sydney, Singapore and London, and Korea now as well, so I’m thinking we’ll have to do the same thing for them for next year,” he says. “Maybe my role as CEO will now become that of party manager?”

It’s obvious Lavecky is successful at building relationships, a skill that has stood Pure Commerce in good stead throughout their historic export journey to South Korea. Traditionally the Korean market is well known for being extremely complex for foreign companies to understand the business culture and sell into, with local companies and services the preferred option in most cases.

However, according to Austrade’s senior trade commissioner in Seoul Martin Walsh, Korea is the third largest export market for Australia, and in fact, Korean financial institutions often look to Australia’s financial system as a successful model.

With its history of regulation problems, Korea is currently implementing a new financial services system largely mirrored on the Australian framework. This then provides an opportunity for savvy operators like Pure Commerce to capitalise on the interest, which then opens the market to other Australian businesses to provide financial solutions for the developing model. So, how did this landmark agreement occur?

Making introductions

Prior to Pure Commerce arriving in South Korea, they conducted research and made appointments with banks that were genuinely interested in their product.

“Rather than just getting on a plane to Korea and saying ‘We’re here!’ we worked very closely with the trade commission prior to going,” explains Lavecky. “We identified all the banks, ranked them in priority, and then the trade commissioner made initial contact to find out who the senior executives were, which really saved us a lot of time.”

The team also made many early presentations, usually in PowerPoint, which were translated into Korean and sent over. In 2006, KEB and Pure Commerce then met during an Austrade mission to South Korea.

To build the relationship following their initial positive feedback from KEB, Pure Commerce opened a local office and courted the bank’s executives for many months.

“In Korea, you need to speak the local language. They’re very happy to work with foreign technologies because they like to say they’re using new brands, but this needs to be supported by local presence,” explains Lavecky. “You can either achieve this through using agents or opening up an office yourself.”

With this in mind, and following the success of the trade mission, Pure Commerce asked their Korean sales person to relocate to South Korea permanently. “We invited Yong to stay in Korea to continue building relationships, which he saw as a great opportunity. In addition to presentations, there were a lot of executive lunches, golf games and corporate entertainment. This is especially needed in Korea,” says Lavecky.

“A lot of money has to be invested to create a situation where they not only say ‘yes you’ve got good technology’ but also, ‘we like working with you’. The relationship took a year to build to a point where the bank was willing to talk to us about using our technology.”

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Australian Customs will then seize the goods. Notices last up to four years. The owner of the mark then has 10 days to commence legal proceedings for infringement of the trade mark, after which the goods are released to the importer. There is no up front fee for this service.

Note this does not grant the same rights to an unregistered common law trade mark owner. The owner must however indemnify customs for costs incurred of up to $10,000.

Trade mark owners should also consider registering their trade mark in China where it is possible to arrange for the seizure of counterfeit goods at the factory or elsewhere, on a similar basis as in Australia. Again this only applies if the trade mark is registered in China and remember, it is the first to register the trade mark in China that is entitled to enforce the trade mark. A registered trade mark in Australia will not solve the problem at source.

It’s also worth noting that from July 1, 2009 Australian exporters may be able to partially recover the cost of their IP protection including the cost of granting, registering or extending rights under foreign laws as well as insurance costs relating to the rights under Austrade’s Export Market Development Grant Program (EMDG), so the costs of obtaining IP protection in China is now partly helped by the Australian government.

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While the direct costs of international marketing such as advertising, trade shows and representation may not be significantly greater than domestic marketing, it is the indirect costs that are greater. This includes staff costs, as the time spent marketing internationally tends to be greater than similar circumstances in the domestic market.

In a situation where a business attends a two-day trade fair in Australia, it would usually require a maximum of four days for three or four staff, whereas an overseas trade fair would require a minimum additional two days travel time, plus the costs of airfares, accommodation and meals. This is likely to double the costs for the trade fair. In this case, the business could reduce costs by employing temporary local staff, or use the staff of its local agent.

However, the most effective means of maximising the benefits would be to organise sales calls and other marketing activities around the trade fair. This could perhaps include using the fair as a hub, with travel to other nearby destinations before or after the fair, sending staff to different locations. In some instances it may be better to buy a round-the-world ticket, as these fares are usually cheaper than return fares. This approach should be well planned with appointments made in advance and appropriate marketing materials available to ensure maximum benefit.

The same approach should be applied to overseas sales calls, with targeted appointments to key customers in the markets made in advance. If the trip involves appointing a local distributor or agent, undertake as much background research as possible to ensure you appoint the best possible distributor or agent and to prevent wasting time during the trip.

Accommodation can be very expensive in a number of overseas cities but it does not always pay to stay at less expensive hotels. Hotels near your clients or near the airport could prove cheaper, as travel costs and travel time can be greater between less expensive hotels and where your clients are located.

Together, we market

An option not often used, but potentially very effective and cost efficient, is joint marketing. Here, competing businesses organise their marketing jointly and share costs on an agreed basis. Usually these businesses have common markets, are geographically close, and have similar products.

An example would be wine producers in a regional area that agree to joint market under a regional ‘brand’ and share marketing materials and costs. While this requires a considerable degree of cooperation between the businesses, it also offers synergies in marketing and logistics that make the activities cost effective.

Advertising is a potentially expensive means of marketing internationally. It is important to research costs of advertising in target markets and to be selective in choosing publications and advertising agencies.

Costs may be reduced by using domestic advertising materials as the basis for international advertising, but take care to ensure that it is suitable and effective in the market selected. Often, advertising in conjunction with your local distributor, or even allowing them to take responsibility for advertising and reimbursing them an agreed portion, may be more cost effective.

Successful exporters often appoint a local representative responsible for all marketing activities. The representative could be the distributor, or a local marketing business, or an employee relocated to the overseas market. It is important that the representative appointed has sound knowledge of your product and is capable of undertaking the marketing required. The location is also important if the representative is responsible for a number of countries, to minimise travel time and cost while maximising marketing activities.

The representative usually covers all marketing activities, including making sales calls, organising local trade events, organising advertising and other marketing material, and handling local enquiries. If the representative is not the distributor, it’s important the representative and the distributor work closely together on joint sales calls and marketing events, and by ensuring marketing materials and advertising is appropriate and effective.

Having a representative based outside Australia is expensive. Costs include not only their salary or retainer but also the costs of maintaining an office, travel and associated costs. A minimum cost of $100,000 per annum is not unusual and, depending on the market chosen and the number of staff involved, it could be substantially more. Most businesses will have significant upfront costs when they appoint an overseas representative and they must budget accordingly.

Businesses should seek to have a performance criteria built into the representative’s contract, an effective means of ensuring that costs can be related to sales achieved.

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