For Australian B2B exporters, learning how to do overseas direct investment (ODI) is a huge step – and one that often falls flat.
In 2017, there has been an ODI failure rate of 35 per cent (via the Export Finance & Insurance Corporation), with inadequate planning, management and funding the chief reasons for an investment falling apart. ODI presents a huge opportunity for SMEs, but without an understanding of the following barriers, they may find themselves adding to that investment failure.
1. Obtaining the necessary finance
Australia made $554.9 billion of ODI in 2016, according to the Australian Bureau of Statistics. However, funding sources for this level of investment often means SMEs have to enter debt. In fact, the Export Finance & Insurance Corporation (EFIC) reports that 40 per cent of ODI is backed by debt – which poses a big challenge for SMEs.
Securing finance for ODI can be a tricky proposition, as there are many variables (from trade tariffs to global economic changes) that can upend ODI. Trade credit insurance can protect SMEs from many of these, and may come in handy when you put forward an application for ODI financing. It is worth noting that only 19 per cent of SMEs anticipate banks approving their finance, suggesting that alternative credit management options may come in handy.
2. IP protection for exporters
Intellectual property (IP) protection is the second most prevalent barrier to ODI for Australian SMEs. EFIC reports that 22 per cent of surveyed businesses came up against this in its 2017 report, indicating a big roadblock to ODI.
While AusTrade's legislation can protect exporters' IP within Australia, finding appropriate measures to safeguard this when engaging in ODI can be difficult – and costly. It will be important for SMEs to get as much financial and legal advice as possible before embarking on an investment in a new country.
3. Working with the right people as an SME
Ensuring the business' bottom line is safe will be essential.
"Finding the right partner" was cited by 21 per cent of respondents to EFIC as the biggest roadblock to ODI. This illustrates the importance of screening potential business partners and protecting yourself with trade credit insurance.
ODI can happen with an SME working on its own, or in partnership with civic and corporate entities on the ground in the destination country. No matter the party, ensuring the business' bottom line is safe will be essential – and in many cases, you can't do that without trade credit insurance.
The roadblocks to ODI for Australian SMEs can be as numerous as the benefits it brings in the long run. By working the team at Coface, your business can minimise those risks in a stress-free manner.