How are Australian businesses with export and offshore operations coping with the global economic crisis? Is it prompting them to batten down the hatches and wait for the storm to blow over? Or to lose faith in globalisation entirely?‘No’ is the clear answer from a survey conducted by the Export Finance & Insurance Corporation (EFIC) in February. EFIC’s 2009 Global Readiness index (GRi) spanned 726 Australian businesses. It found that 84% of companies with offshore operations are planning to expand them, 52% within the next year. Of respondents without offshore operations, 44% are planning to go offshore, 32% within the next two years. So companies aren't tearing up their expansion plans, or even putting them aside temporarily, but rather are setting out for new markets, despite stiff headwinds, to position themselves for when growth resumes.
What is motivating companies to globalise? The GRi shows that they are overwhelmingly in pursuit of increased revenues and market share: 71% rate this as their chief reason. Pursuit of economies of scale or lower costs are rated as a reason for offshore expansion by only 38% of businesses, with a mere 3% seeing this as the main driver.
In terms of the obstacles to going global, access to finance is by far the most significant. Fifty-eight per cent see it as a barrier; 34% nominate it as the biggest one. In 2008, only 29% of companies rated access to finance a major obstacle, with the change reflecting the intensification of the credit crunch.
In addition, the smaller a business’s revenue, the more likely that finance will be a barrier. SMEs seem to be suffering disproportionately from the decline in banks’ lending appetite.
Last year’s GRi survey showed a high percentage of respondents – 73% – used retained earnings to finance exports or offshore expansion. This year that reliance is even greater for those financing offshore expansion – 82% (and 64% say it’s their top method). External funding comes a long way behind: only 30% of respondents use a debt facility from an Australian financial institution, and only 4% rate this as their primary funding source.
The global economic crisis has clearly raised the finance barrier for Australian companies with export and offshore operations. However, it’s encouraging to see that they remain optimistic about globalisation and are preparing their businesses for when economic conditions do improve.
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