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Funding SME export growth

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Growing an export business may seem like the obvious next step for SMEs with an overseas deal or two under their belts. But make sure you know the potential risks and rewards of shifting focus to foreign markets. While there’s no doubt that growth is limited in Australia’s small economy, going overseas is not always as straightforward as it seems. "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."

Finding the right partner in Australia is crucial for early-stage exporters who need growth capital. "Venture capital financing is almost non existent in Australia and much of what is available is government funded," says Cradock. That means potential VC partners have a wide selection of investments to chose from and tend to cherry-pick lower risk, late-stage options. Cradock recommends that exporters who can’t get bank backing should look for angel financing to fund export growth. High net-worth angel investors are fulfilling an important role in the Australian market, particularly those who have succeeded in an industry and have the knowledge and the hunger to leverage their own profits and experience. The Australian Association of Angel Investors (www.aaai.net.au) supports the formation of angel investor groups and provides growing enterprises with a directory of potential backers. Cradock finds that angels often want to invest in locally based businesses. "Exporters should build contacts with chambers of commerce and business people who have access to individuals with capital," says Cradock. He recommends being very targeted about what you ask for: "Australia is a small market which makes it easier to reach people. Just be sure that you’re focused about what you want and how your potential investor will benefit."

Packaging your enterprise

One of the first steps to overseas success is to fix a marketing budget that will win you business and impress potential investors. "It often comes down to deciding what will be the best return on the marketing spend," says Cradock. "My basic model is to do a cost-benefit analysis of spending, say, $1 million." Deciding what business model will get the best returns overseas is also an early part of the process. This could be anything from a distributorship to licensing or full-scale manufacturing overseas. "Whatever you decide," says Cradock, "it’s rarely a case of redirecting one employee." Issac Court, Export Director at Austrade’s Newcastle office, believes that market intelligence is everything. For him, succeeding as an exporter requires much more than an ad hoc approach. "You need a strategy and a real commitment to your export goals," says Court. "To do this properly, it’s essential that you get the right information." You can start your search for market intelligence from the comfort of your own desk, by contacting any relevant industry organisations or lobby groups. Datamine available research and comb through speaker notes on the web, taking note of what opinion leaders are saying about your industry and your target market. When you decide to contact overseas distributors, having the confidence to go straight to the top may be crucial in some industries. "I believe exporters should get on the radar of the largest or most prestigious distributor," says Cradock. "It’s important to get on the phone so they know you’re serious."

It’s also vital to field someone who can handle the conversation. If you’re a small company and can’t afford fulltime experienced management hires to do this, then it might be wise to seek out consultants. Your local chamber of commerce should be able to introduce you to mentors who can help you through the establishment process.

Survey all available resources

Growing your business overseas can be costly but there is help available. Austrade has a network of offices and sector experts in Australia and overseas that offer advice tailored to your needs. They also provide programs of grant funding to help exporters. For example, the Export Market Development Grants scheme enables Australian exporters to claim back expenditure on export promotion activities. An eligible exporter that has spent over $10,000 on export expenses can claim up to 50 percent back on a wide variety of expenditure including trade shows, advertising and travel. It’s an unavoidable fact that successful exporting requires investment in the development stages. "If you’re looking for growth through export, then you have to allocate the financial and human resources to the project," says Court. Finding the means to fund expansion is the key to making it work.

Case study MIRteq

MIRteq is a Queensland-based microfiber composites manufacturer that recently appointed a leading distributor to sell its products in North America. Despite being a cash restrained start-up, MIRteq launched a successful marketing campaign that took it to the top of the US market. "Like many small start-ups they didn’t have many marketing dollars," says Cradock. "So we had to spend wisely and strategically." The first step was to refresh the company’s website. For many overseas contacts, this is the first impression they’ll get of the Australian hopeful so it’s important to get it right. "It doesn’t have to an expensive business," says Cradock, "but the information needs to be clear and enticing." MIRteq also renamed their product to make it more engaging to first-click potential partners. Getting the right management in place was a crucial part of MIRteq’s export success. "We made it clear to our contacts that we were combining a smart scientist with a smart chairman," says Cradock. Successful management talent is a major selling point when dealing with unknown markets: "The CEO came in December-he was an expensive hire but his proven track record made him invaluable in terms of expertise and marketing." Finally MIRteq gained local credibility in its target market by winning a prize for its product. In February, the company scooped the American Composites Manufacturers 2010, ACE Innovation Award for their closed moulding one-way flap valve system using MIRteq’s micro-infused resins. "Entering a competition like this is a great way to gain recognition in a new market," says Cradock. It gave MIRteq’s executives a more impressive calling card when they went looking for a US distributor. In August, MIRteq announced that it had appointed Composites One as its exclusive distributor in the United States and British Columbia in Canada. The company had gone to the largest operator and said they wanted an exclusive agreement with them. "It’s a balance between your product on the one hand, and their sales and marketing infrastructure on the other," says Cradock. "This was the model that worked for MIRteq." Now MIRteq is ready to raise finance in Australia to fund future growth.

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