Paul Edgar, HSBC's head of business banking.
Hot on the heels of the Japanese economic partnership agreement, and in anticipation of a free trade agreement with China before the end of the year, Australian businesses are increasingly turning their attentions to overseas markets, according to research by global bank HSBC.
Its latest business banking study has found 46 per cent of the enterprises it surveyed want to expand into new markets, with the US, China and the UK/Ireland the top destinations on which Aussie businesses are focused.
There's been a jump in the percentage of businesses that do business in the US compared to last year's survey, with 47 per cent of respondents (compared to 40 per cent in 2013) naming the US as one of their current top-three overseas business destinations.
But there has been a slight drop in the percentage of survey respondents who named China as among the top three countries in which they do business, with this figure falling from 39 per cent to 37 per cent in the current survey.
HSBC head of business banking in Australia Paul Edgar puts this shift down to the continuing improved performance of the US economy. “[US] GDP is slated to be 2.5 per cent in 2105, compared to 1.7 per cent average growth this year. The US is also a very large market; 64 per cent of offshore investors go to the States, so it's a strong trading market.”
He says that although the number of Australian businesses trading in China might have dropped back a bit in this survey, 54 per cent expect their China business to grow next year, double the figure from last year's survey.
“I was recently in China . . . and there's a very large focus on deepening relationships,” says Edgar, adding that signing of a free trade agreement should also increase opportunities for Australian businesses.
“China is our largest bilateral trading partner; half of all our exports will go to China by 2020, so China's a very important story.
Another surprising result from the survey was the jump in the proportion of Australian businesses supplying services to overseas markets compared to 2013. Figures show the percentage of respondents supplying services to the US has jumped to 30 per cent, compared to just 5 per cent in 2013.
At the same time, there has been a fall in the level of importing and exporting activity to the US and China. Forty-four per cent of respondents said they engaged in importing/exporting to the US, compared to 53 per cent in the previous survey. For China, this figure has dropped from 45 per cent of respondents to 41 per cent of respondents, although businesses supplying services had grown from 4 per cent to 29 per cent.
“What we're seeing is changing expectations of consumers in China, who are looking for services. We're seeing opportunities for our customers to tap into that,” says Edgar.
One business that has its finger on the pulse of both the Chinese and American markets is Creative Instore Solutions, which makes shop and other displays. It manufactures many of its displays in China and has just started to target the US market.
Group CEO Deane Hubball explains the business has formed an informal partnership with a US firm Great Northern Corporation, after an extensive review of how best to break into the US. He says the businesses complement each other.
“It's a fit made in heaven . . . their culture is similar to ours. They focus on temporary displays we focus on semi-permanent displays. They manufacture locally, we manufacture in China. So there are a lot of pluses without stepping on each other's toes.”
The partnership has existed for around 18 months and has resulted in a contract with a large confectionary manufacturer. “[GNC has had] a relationship with them for a long time, but because they just did temporary displays, that's all they tendered for. So they bid on our behalf. [On our own] we probably would not have been invited [to tender].”
At the same time, GNC has been able to leverage Creative Instore Solutions' manufacturing contacts in China, for instance by sourcing cheaper LCD screens in that market. Hubball says helping GNC to find low cost suppliers in China is a way to strengthen the relationship, rather than a way to make money.
He says the US will account for 50 per cent of the business's sales over the next 18 months, from just six or seven customers. “It's the scale [of that market] that's so intriguing.” For instance, Hubball says in Australia, a customer might order 500 displays, whereas in the US a customer might order 4000.
"That's when you really start to see the economies of scale of our Chinese back end.”
Creative Instore Solutions has been manufacturing in China for 20 years, and employs a full team of Chinese nationals. “The Chinese want to do business with the Chinese. [Our team] understands the nuances of doing business in China, but they also understand our expectations of quality and delivering stock in full and on-time.”
Although the US is Creative Instore Solutions' focus at the moment, it also has its eye on developing sales to China. “We've only done testing . . . the Chinese want Western quality at Chinese prices, so we're trying to work out where to sit in the market.”