A large percentage of Australian exporters have a limited understanding of existing Free Trade Agreements with other countries, a major business survey has found.
Australia’s International Business Survey (AIBS) 2015 asked more than 1200 participants about their understanding of Australia’s Free Trade Agreements (FTAs) with other nations.
Though nearly 71 per cent of respondents said they exported to at least one market where an FTA was in operation, their detailed responses relating to individual agreements suggested that many do not fully understand the agreements or how they apply to their business.
In relation to seven trade agreements where AIBS 2015 asked a specific question, in no case did less than 40 per cent of respondents say they were uncertain about how and whether the relevant FTA would apply to their business.
This ranged from a low of 43 per cent in the case of the Malaysia-Australia FTA (MAFTA) to a high of 52 per cent in the case of the Australia-Chile FTA (AClFTA).
And a significant share of respondents did not know the FTA in question existed – ranging from nine per cent of respondents in the case of the ASEAN-Australia-New Zealand FTA (AANZFTA) to 18 per cent in the case of AClFTA).
“The survey results suggest that knowledge gaps regarding Australia’s existing portfolio of FTAs are significant,” researchers noted.
This is the second major survey conducted by AIBS seeking the views of Australian companies from 19 industry sectors operating in 114 international markets.
The AIBS survey, supported by Austrade, the Export Council of Australia, Export Finance and Insurance Corporation (Efic) and the University of Sydney, is one of Australia’s largest and most in-depth investigations into internationally-active businesses.
Mark Thirlwell, Austrade Chief Economist, who launched the survey, said it demonstrates that Australian businesses earning revenue from overseas markets engage in a portfolio of complementary activities that goes well beyond traditional exporting.
“Around 88 per cent of participants were involved in exporting, 50 per cent in importing and 47 per cent in other international activities such as outward investment, offshore manufacturing, joint research and development and the employment of temporary skilled labour,” Mr Thirwell said.
This year’s survey confirmed that local culture, business practices and language remain the most significant barriers to doing business in some of the most difficult overseas markets for Australian businesses.
Payment issues, local regulations, product standards and tariffs were also cited as important barriers.
The level of the Australian dollar was the other single most important Australia-based factor identified by participants as limiting their ability to take advantage of international opportunities.
Optimistic and ambitious
Australian businesses however remain optimistic and ambitious, with 76 per cent of participants indicating plans to expand to two or more additional countries over the next two years.
While India, Indonesia, China were identified as challenging business environments, these three markets, along with the United States and United Kingdom, were identified as key target markets.
About 83 per cent of respondents are planning to expand to additional countries over the next two years.
The top five target markets they identified are the United States (cited by 14 per cent of respondents), China (13 per cent), Indonesia (six per cent), the United Kingdom (five per cent) and India (also cited by five per cent of respondents).
The most important factor identified by survey respondents as determining their choice of future markets is the presence of strong growth prospects in these economies, which is cited by 95 per cent of respondents as either moderately or very important. This is closely followed by strong expected profitability (identified as important by 93 per cent) and the presence of personal networks and contacts (90 per cent).
Language remains a barrier
Just 10 percent of respondents reported that they found doing business in China easier or much easier than Australia, and 20 per cent said there is little difference between operating in the two markets.
In contrast, 70 per cent said they found operating in China more difficult or much more difficult than operating in Australia.
Once again, survey participants identified local language, culture and business practices as the main barrier to doing business in China, with 37 per cent of respondents selecting this option.
The second most commonly-identified barrier cited by respondents related to understanding local regulations (ten per cent). Sixty per cent of respondents said that the overall outlook for their company’s China operations is better this year than it had been in 2014. Only eight per cent thought that the outlook had worsened.
Thirty-three per cent of Australians in business feel that differences in language, culture and business practices are the main barriers to tapping into the Asian marketplace.
The study also found 60 percent thought that building long-term relationships and negotiation strategies were the primary difficulties faced.
Failure to secure finance
Finance was again a major issue for most SME exporters.
Survey participants overwhelmingly rely on retained earnings to finance international business.
Where they sought additional funding from a financial institution, about a third failed. For small businesses, the share of failed funding attempts rose to 46 per cent.
Security issues are cited as the single most common reason for failing to clinch funding. Almost half of all respondents found borrowing harder for international business opportunities than for domestic opportunities – just 6 percent found it easier.
Survey participants are generally more optimistic about the current year than they were about 2014, with the weaker dollar the main explanation for this optimism.
In particular, firms from the professional, scientific and technical services sector are generally upbeat about the outlook for international operations this year, with 74 per cent saying it is better than the previous year.