HSBC bank have announced Alan Park as the head of the global initiative Project Finance Metals and Mining for Asia Pacific.

The initiative will develop mining-focused project finance business globally and for the Asia Pacific region.

Chris Russell, head of global banking at HSBC Bank Australia, said Australia is a priority market because of its growing trade and investment flows with emerging markets.

“Australia is the second largest project finance market in the Asia Pacific and we see high potential for market growth,” Russell said.

“There are currently 102 mining projects at an advanced stage of development in Australia, with a record capital expenditure of over $230 billion.”

The initiative aims to connect customers with trade and investment flows between the 87 markets globally operated by HSBC.

James Cameron, head of project finance Asia Pacific for HSBC, said the initiative would expand capability offshore and in Australia.

“We’re supporting Australia’s largest names in infrastructure and mining as they expand their operations offshore as well as our regional client base as they seek opportunities to invest in Australia,” Cameron said.

While Australia’s trade in financial services remains strong, the data indicates most sales take place through overseas in-country affiliates, rather than via direct sales from Australia. Analysts said the figures highlighted the need for Australian companies to establish a physical presence in export markets in order to take maximum advantage of the market for services.

Last financial year, the key markets for Australian trade in financial services were New Zealand, the United Kingdom, the United States, Hong Kong and Singapore.

The strong figures were released against a backdrop of a slight decline in Australian services exports, with trade down 0.5 percent to $52.4 billion last financial year.

Despite offering substantial real value for importers and exporters, free trade agreements (FTAs) are regularly under-utilised.

This is often due to the complex nature of FTAs in the Asia Pacific region. With over 100 trade lanes now potentially covered by an FTA within the Asia Pacific (and 300-plus globally), understanding the opportunities and broader benefits these agreements can provide is of critical importance for Australian exporters. FTAs offer all businesses that trade—import or export—key margin improvement but are under-used as a platform for making exports more efficient and competitive.

FTAs are government to government agreements designed to reduce barriers to trade. Specifically, they offer preferences such as the removal or reduction of tariffs and non-tariff barriers on goods, harmonisation of regulations and standards, extension of national treatment, protection and promotion of investments and increased flexibility for business travel.

Over the last decade Australia has actively pursued FTAs with a number of key trading partners and has others under negotiation or at feasibility study stage. Australia’s current FTA map is summarised below:

What value can FTAs provide?

There are several tangible benefits that FTAs can provide Australian businesses ranging from reduced costs to business improvement measures. Some of the key benefits can deliver include:

Lowering landed cost of products in your export market
Tariff reductions or elimination of customs duties are of significant value in gaining market access and the opportunity to reduce the landed cost of goods in market. Given that FTA compliance is driven by the exporter (not the importer), the benefits can legitimately be incorporated into the broader sales negotiation between an importer and exporter. Factoring in the reduced duties available to the importer under an FTA can often allow the exporter to negotiate a higher product price than may have otherwise been achieved. In some cases FTAs can open up new export markets where Australian exports were not previously on a level playing field.

Gaining a competitive advantage over your competition
Taking advantage of lower rates of duty on entry into export markets can provide a significant advantage over your competitors, where they are supplying from a non-FTA country. With tariffs in Asia exceeding 50 percent on some products the ability to access reduced tariffs through FTAs provides a significant competitive advantage. On the flip side Australian exporters should keep a watching brief on FTAs that are being negotiated in key markets as these may provide rival suppliers benefits. This may require alternative market strategies to be adopted in order to remain competitive.

The three day mission will run from 11-13 May, with optional add-on programs to Indonesia and Malaysia, and will include attendance at the 12th Investment Management Association of Singapore Annual Conference, titled Investment Trends in the New Decade: What’s Next?.

The mission will provide opportunities to meet with government officials, industry associations and experts in the financial services sector who can comment on trends and priorities for Singapore and other ASEAN markets.

Australian financial institutions, funds management and wealth management companies will be able to learn about market entry strategies for establishing a presence in Singapore and how to leverage this market to gain access to other countries in the ASEAN area.

The closing date for applications is 31 March.

During the process of facilitating this program, and observing our delegates during their initial engagement with potential investors and business partners, I made a note of some key points that are extremely relevant and important to anyone looking to do business in Asia:

Listen more, talk less!

In Western countries, we do have a tendency to talk too much! We want to get results and often start pitching our capabilities or products before we’ve spent enough time exploring the needs, desires and aspirations of the people we’re talking to.

In Asian countries this can come across as arrogant, discourteous and even rude. It takes longer but you’ll get better results if you take the time to ask open questions, listen carefully to the answers and tailor your products accordingly.

Prepare your pitch properly

When we visited the Deputy Director-General of the Financial Development department of the Government of Shenzhen, we were each handed a beautifully presented brochure with details of Shenzhen’s natural advantages as a financial services centre and the reasons to establish a business there.

In comparison, our own documentation is often shabby and, worst of all, in English only, with no Chinese translation. If you want some clues as to how to present your capabilities to an Asian audience, take great notice into how they present their credentials to you!

Asia is not one country

It’s absurd to think that you can have an ‘Asian strategy’ and treat Asia as one single market. The differences, idiosyncrasies and complexities of, say, Hong Kong, Singapore, Taiwan and Korea when compared with mainland China, India, Vietnam and Indonesia are diverse. Even China isn’t one market.

You need to do your research, settle on one (or maybe two) markets and then work out from there, for example, start in Hong Kong and work towards Taiwan and then Shanghai. It’s no different to how you would approach an entry strategy for Europe.

Focus on building relationships, not contracts

There’s a saying in China that you don’t talk business “until the third cup of tea”! In other words, you build the relationship first and only then should you focus on the business deal. Ignore this at your peril.

Make the time to get to know your potential business partners, extend the hand of friendship and tell them about your interests, hobbies and passions. When you’ve exhausted every possible topic of conversation and when the timing feels right, offer to start talking business. You’ll get a better result this way.

Send your best people

In Hong Kong all our delegates were the most senior executives in their organisations or the actual business owners themselves. But we heard stories of how other companies had failed due to sending the B team instead of the A team!

This is an obvious but common mistake. If you’re serious about success, and you want to give yourself the best chance to succeed, send your brightest and best people.
I will be leading another Australian financial services mission to the Asian Financial Forum in January 2012… come along to our Australasian Financial Forum in Sydney and Melbourne in March (see details below) to learn more.

Please consider

Attending our next Australasian Financial Forum in Sydney and Melbourne in March 2011. Follow the links to register for for the Melbourne Forum (18 March) and the Sydney Forum (23 March). Our activities in Asia are building momentum… please come along and join in the conversation.

“Often an exporter with aspirations to grow will leap in because they’re too eager,” says Craig Michie, CEO of Taurus Trade Finance, a lender that provides working capital to SMEs. “We recommend getting all the advice you can before you sign up with an overseas partner.”

Cashflow is usually the main concern for smaller businesses. Michie advises getting a letter of credit where possible. “A ‘sight’ LC is the best way to ensure your exports don’t impair your cashflow,” he says.

In his experience, LCs are becoming increasingly difficult to obtain as overseas buyers use their powers of negotiation to force better terms from exporters. “That can leave small to medium exporters with 30, 60 or 90-day payment terms,” he says.

Often banks won’t step in to help an relatively unproven exporter or will demand a ‘bricks and mortar’ guarantee in the form of a director’s home or other personal property. “Assets such as this are not linked to a company’s trading cycle and are a poor response to exporters’ funding needs,” says Michie.

Export Finance and Insurance Corporation (EFIC) might be able to help you if your bank can’t provide finance or insurance cover, but other options are available.

Financing options
Taurus is one financier that can step in to help exporters. “We offer a service whereby we take on the debt from the overseas buyer and pay the exporter upfront,” says Michie. Taurus conducts initial credit checks on the overseas party and gains legal ownership of the export debt.

“We have exporters who make use of our service again and again,” says Michie. “For them, it’s well worth the fee we charge to ensure continuous cashflow.” Other exporters take advantage of Taurus’s facility until their export revenues are constant enough to go it alone.

Michael Cradock, director of Newcastle-based Morgan Cradock, agrees that some growth-focused exporters are too slow to acknowledge their financing requirements: “The important thing for us is to talk the potential exporter though the entire process, taking in every eventuality.”

Cradock offers consultancy advice to technology SMEs. “We look at how an enterprise is interacting with its potential market and make sure they understand their sales and growth objectives.”

A hedge is any strategy that allows you to minimalise or remove financial risk. For foreign currency, this mean a strategy employed by businesses to reduce their exposure to foreign currency market movements and to provide more certainty and cash flow, defines Barry Fletcher, director of Business Development for Australia and New Zealand at American Express Foreign Exchange International Payments.

For exporters who deal only in Australian dollars, that is, who buy and sell wholly in Australian currency, you can stop reading here. But for everyone else buying and/or selling in currencies other than AUD, hedging is an essential part of maintaining your margins.

Why hedge? As an exporter you will almost certainly price your goods in a foreign currency to compete globally. The price at which your buyers purchase your goods or services will therefore be subject to currency movements until the time they pay their invoices—this could be 90 days down the track and the rate could have changed 20 percent since the sale. Hedging minimises the impact of those currency movements to allow you to retain your margins.

Hedging strategies

The first step is to understand how exchange rates affect your pricing. “The question has to be what FX rate an exporter has built into their pricing. They need to hedge at that point or better, then they can forget what the market does because they’ll have that price risk covered,” Fletcher says.

“If you don’t have much fat built in, you can’t really afford to stay at the whim of the market because there is going to be a time when the market will work against you and that will erode all your profitability.”

One of the easiest ways to avoid exposure to currency fluctuation is by holding a foreign currency account, which gives you a ‘natural’ hedge. If a lot of your costs and earnings are in US dollars, for example, it makes sense to have an account in that denomination because you don’t have to convert anything until you need the money in Australia. Then, “if your cash flow is strong enough, you can leave those US dollars in the account until the rate is beneficial to you,” says Fletcher.

Australia has a history of taking advantage of local resources, from Helena Rubenstein’s lanolin-based face creams to the natural antioxidants that have been discovered in our native flora, which are popping up in skincare products.

While there have been some big export success stories, Natalie Bloom and Kit Cosmetics to name just a couple, there are other innovative Australian brands started from literally homegrown research and development that are making their mark offshore.

Would-be beauty exporters face a raft of complexities but a very strong selling point can go a long way towards meeting the challenges. Inika mineral makeup cofounder and CEO Miranda Bond launched the brand in Australia just as consumer consciousness was turning towards natural organic products, plus the range can be used with problem skin conditions.

The British expat took samples with her on a trip to the United Kingdom and called on big name organic retailers in the health industry, rapidly gaining distribution through chain outlets and a celebrity following including vegan designer Stella McCartney.

Sasy n Savy’s Samea Maakrun simply bypassed Australia and targeted the Asian market for her botanical skincare products containing Kakadu plum, bearberry leaf, wild rosella flower, grass lily and high quality essential oils, using beauty expos to work her way from Singapore to China and forging relationships with hotels, spas and department stores. Maakrun also picked up Sa Sa, the largest cosmetic retailer in Asia, and the Mirvac hotel chain as private label customers, before turning her sights on the Middle East.

Tania Walsh developed her Liquid Sun topical tanning formulation in her kitchen for use training her South Australian beauty college students in spray tanning. Word of mouth spread rapidly in Australia and beyond. Within three months she had a call from a salon in the United States asking about supply.

With snowballing demand, Walsh sold the beauty college to develop her non-chemical Vani-T tanning, bodycare, mineral makeup and hair product ranges which now sell in 15 countries.

Former film industry makeup artist Linda Lowndes responded to the plight of a girl with a disfiguring condition by dedicating herself to seven years’ research to come up with a flexible, waterproof and long lasting product that would be indiscernable from natural skin.

Working with a scientist and colour matching technology, Lowndes approached the Brisbane Royal Children’s Hospital Burns Research Group and gained the support of Professor Roy Kimble to conduct a clinical trial of Microskin with 20 affected children, with the results published in medical journals.

In the last year she has been contacted by a dermatologist with a clinic in New York, and hospitals in the United Kingdom and Canada, as well as China, seeking access to Microskin.

How to get started

Where should would-be beauty exporters who believe they have a unique product start? “Small companies need to be very strategic about the markets they approach,” says Austrade export advisor Leonie Smith.

“The value of your own overseas research visit cannot be underestimated. As well as obtaining firsthand knowledge of the country, it has long been recognised as the best way to develop long term sustainable business relationships. This can be done independently, as part of a trade show or as an addition to a conference.”

As international projects and contracts increasingly use suppliers from multiple countries, the agreement will help Exim banks and agencies to work together to support exporters from member countries.

Head of product management and risk transfer at EFIC, Chang Foo, believes that risk-sharing arrangements benefit exporters, buyers, project sponsors and the banks involved. “For an Australian company, it creates a one-stop shop for financing when they’re sub-contracting to an Asian firm or using Asian suppliers: only one set of documents needs to be negotiated with the agency providing the loan,” he said.

Risk-sharing will also free up an agency’s capacity to support more exports, Foo believes.

Foo said EFIC is increasingly being called on by Australian corporate clients to finance large domestic projects with an export focus in the resources and infrastructure sectors. The agreement will help EFIC provide stable, long-term finance.

“Risk sharing agreements mean that we can pool resources to meet these financing needs,” Foo said. “As most exports from these projects are destined for Exim member countries, especially China, Japan, Korea and India, agencies from these countries have a vested interest in working with EFIC to get the projects up and running.”

EFIC endorsed the agreement at the 16th Annual Meeting of the Forum in Busan, Korea, along with the Exim Banks of China, India, Indonesia, Japan, Korea, Malaysia, The Philippines and Thailand.

Market research

Proper investigation into an overseas market should be foremost in your mind when considering a sale. Many exporters start selling overseas by accident, that is, someone makes a request to start a trade relationship. It is when a sale is reactive that exporters tend to get complacent because often, if a buyer is keen to purchase your goods or services, they will be more likely to accept payment terms favourable to you. This is fine for one-off opportunities, but it is not exporting.

Exporting is a long-term process, so you still need to do you due diligence to ensure that that country is the right fit as an ongoing part of your business. “It makes quite a difference whether you go into certain developed markets or emerging markets and whether a political risk applies or does not apply,” says Christian Vollbehr, country manager at global credit insurer Coface Australia.

Country credit ratings then come into play. Organisations like government credit agency the Export Finance & Insurance Corporation (EFIC) monitor country risk on various factors ranging from political risk to currency risk and difficulty enforcing contracts. Commercial agencies such as Coface monitor the business environment using macroeconomic information from a country’s economic data, and microeconomic data.“We track non-payments under our insurance-related products. Every time we receive a non-payment notification, our department of economics is kept in the loop and they evaluate the performance of each country, broken down by sector,” explains Vollbehr.

Understand your buyer

Credit ratings can extend so far as to encompass the business environment, the conditions for operating a business. Vollbehr says this allows exporters to understand “how hard it is for your counterparty to operate a business”.
Stephen Holden, general manager of Working Capital Finance at the Commonwealth Bank agrees and recommends finding out what is normal domestic practice: “Otherwise a buyer could say, ‘this is normal in my country’ and you wouldn’t know whether it is or not.” Vollbehr says this is a crucial point as terms of trade from country to country, and from industry to industry.
Both you and the buyer must also agree on the Incoterms in your contract “so you know exactly what both parties are trying to achieve and the buyer less likely to take you for a ride,” he says. Your research should include the buyer’s trading history, he adds: “If they’ve been importing a long time, they have a reputation to risk if they don’t pay you.”
Don’t forget word-of-mouth either, reminds Holden. “Never underestimate the informal exporters club. The sharing of information in a non-competitive way can be very useful. Talk to people.”
He also suggests using credit reference agencies to attain a credit report on the potential buyer. Vollbehr says agencies like Coface provide credit opinions on companies in about 180 countries, supported by credit insurance if required.

Monitoring a buyer is also paramount. “Stay very close to the first transactions before you establish a routine,” says Vollbehr. “Have sample trades or test trades where both parties have an agreement beside the commercial contract. The buyer can confirm that that’s the widget they want for the next shipment in a larger quantity.”

Things can also change over the course of a payment period, which in international business can often be 180 days long. “Something that is good credit today could be very different tomorrow. That might not just be the business environment in one country, that may also be related to changes in the political environment,” he says.